Oil and gas

As we continue to think about the Keystone Pipeline, there's a small article about a "major spill" from an existing pipeline in Arkansas. No one knows what caused it: these things happen, I guess.

A longer article in today's Washington Post talks about the billions and even trillions of dollars that it will cost to fix 495, the Washington Beltway. Worth reading.

Finally, another article from Bloomberg about injecting CO2 to extract more oil from old oilfields. Injecting CO2 is probably good for the climate, but burning oil obviously isn't. Sounds like environmentalists on balance are nonplussed. 

Lionfish in the Shark Tank

Nonquizzable contribution from Alex R:

I don't know if you have ever watched the show "Shark Tank" on ABC, but its where private entrepreneurs pitch their ideas and business models to "sharks" in hopes of getting an investment. Last night, two guys want to start a company that tries to eliminate/suppress the presence of invasive lionfish in the Atlantic and Carribean. They outline the economic and ecological harm this species causes in these environments and the entrepreneurs end up getting "eaten by the sharks" (no one wants to invest), but it shows the why topics in natural resource economics are so complex and there really isn't a quick fix solution that many laymen and outsiders believe there to be. The link below is the entire episode but the lionfish pitch is roughly 14:38 into the video. Be prepared to have to undergo 180 seconds of advertisement prior to the movie starting. [Actually I just skipped about 1/3 of the way in, right after one of the commercials, and didn't see any ads at all....]

I like the interactive approach you involve in this class via the blog and personally, a slight deviation away from reading articles would be a solid relief for students reading non quizzable posts on the blog. Hope you find it as relevant and interesting as I did.

http://abc.go.com/watch/shark-tank/SH559076/VD55291697/week-20

China's Environment

On the heels of the news about thousands of dead pigs found in Shanghai's rivers and Beijing's out-of-control air pollution, the New York Times in reporting that China suffered environmental damage valued at $230 billion in 2010. China's growth has been and continues to be astounding, but the costs are starting to pile up as well. Just in Beijing, the cost of addressing some of the environmental issues will be over $5 billion per year.

Rich Farmers

The USDA's Economic Research Service has a chart up that shows what share of the price of food goes to farmers. Make a guess, and then take a look.

Desalinization in California

    Water is one of the most precious resources. Humans are in fact about 70% water. In Maryland, most of the water comes from underground limestone caverns and plentiful rivers. California does not have this.  In California, where clean water is not abundant, new ways must constantly be created in which to provide clean water to residents. At the Agua Hedionda Lagoon currently water is being diverted from the ocean through intake valves to cool a local natural gas-fired power plant. In the future regional planners have a goal to create the largest and most modern desalination plant in the United States to help provide water. This technology is already in use in places such as Israel and Singapore but not on a large scale in the U.S..
According to the article,“The San Diego County Water Authority has agreed to buy at least 48,000 acre-feet of water from the plant each year for about $2,000 an acre-foot. An acre-foot equals about 326,000 gallons, roughly enough for two families of four for a year. The authority has made a long-term bet that those costs — now double those of the most readily available alternative — will eventually be competitive. But it still means the authority will pay more than $3 billion over 30 years for only about 7 percent of the county’s water needs.” The facility will also cost $1 billion to build.
    One acre foot equals enough water for 8 people. Therefore the Facility will provide roughly 384,000 people with water.  Charging $2000 dollars per acre foot equals 96 million dollars per year.  The article clearly states it is more expensive currently but their belief is that its cost ill balance as technology increases. Currently with Government subsidies water is 1000 dollars per acre foot, half the cost of the Desalinization plants offer.
    As time goes on the County will have to pay over 113 million dollars per year for the water, meaning the 96 million dollars a year provided by the water purchase agreement will not cover costs. In response to this, they claim that with the rising costs of water, the desalinization plant will provide cheaper water by 2024. The plant will consume 5000 kilowatt hours of power to produce 1 acre foot.  That is 240 million kilowatt hours per year. This will conflict with raising water costs as electricity costs are slated to raise 5 to 7 dollars per year. According to San Diego General Electric power costs will be approximately 30 cents per Kilowatt hour. That is about 72 million dollars in power costs a year.
    96 million dollars income coupled with high energy costs make this system appear inefficient. Rising costs in electricity and water are inevitable. With this increase in technology the water authority is banking on the fact that it may become cheaper over time.
    The second article goes into how currently the state of water in California is dire and needs a reform. Currently many metropolises fight for rights over rivers that are polluted and over tapped. Water is transported very far distances and its true costs are covered by subsides. While the desalinization plant is more costly in the short term, in the long term it seems as if it truly will be cheaper.
    The cost of water will only continue to increase as quantity demanded continues to rise, which in turn will continue as long as people continue to have children. The only way to ease the price rise is to increase the quantity supplied which will happen as more creative ways of supplying water continue to be implemented in the future.

--Tom Gleason

http://www.nytimes.com/2013/03/01/business/energy-environment/a-costly-california-desalination-plant-bets-on-future-affordability.html?_r=0

http://www.nytimes.com/2012/07/26/us/a-new-plan-to-fix-california-water-system.html?pagewanted=all

http://www.sdge.com/sites/default/files/documents/savingenergy_0.pdf

Susitna Hydroelectric Project

***First article for the third reading quiz.***

    Over 500,000 citizens of the nation’s most resource rich state are urging their government to move forward with what Felicity Barringer of the New York Times writes in her article, Proposed Dam Presents Economic and Environmental Challenges in Alaska, “one of the tallest and most expensive hydroelectric dams ever built in North America.”  This 735-foot structure is designed to produce 600 megawatts of electricity, enough electricity to create a new power supply for more than two-thirds of Alaska’s population.  This Dam would be built on the Susitna River, which splits Anchorage and Fairbanks, the most populous areas within the state (the “rail belt region”). 

    The Associated Press revealed an estimated capital cost of $5.2 billion with $16 million worth of annual operation and maintenance costs. This is expected to be refined as the project progresses due to the 14 of 58 study plans that still need to be approved by the Federal Energy Regulatory Commission (FERC).  Those 14 will be determined on April 1, 2013.  If all goes well, the Alaskan Energy Authority (AEA) will continue in the licensing phase and plans to complete the FERC license application by the end of 2015, which is necessary for the plans to start building in 2017.

    The Susitna Hydroelectric Project has given the state of Alaska two dilemmas.  First, Alaska’s economists are debating which is better, weaning the state off of natural gas and creating a reliable source of energy, or building a spur off the proposed pipeline that would bring gas from the North Slope to the rail belt region. Second, Alaska’s environmentalists are at odds about what would be best for the environment, replacing fossil fuel energy with a renewable source free of greenhouse gas emissions or keeping the Susitna river’s watershed, salmon population, and ecosystem free of risk involved with construction of the dam.

    This project alone is a major step in the reduction of fossil fuel reliance for Alaska and the U.S.  It is projects like these that need to be conducted to gain a better understanding and knowledge of how renewables can either positively or negatively affect the environment and economy.  Dealing with possible negative effects on the environment at a local scale (salmon population) may be more beneficial for the environment on a federal scale or global scale (reduction of fossil fuel burning). Construction of this dam will provide more jobs for the state as well - even if jobs are lost as the state becomes less reliant on fossil fuels.

Whether both the dam and the pipeline are built or just the dam, Alaska is taking the right steps and precautions in their decision making. The state will become a role model, challenging other states to reach goals in using renewable energy sources.  It’s a boost like this that the U.S. needs to reduce greenhouse gas emissions for the environment, spending on foreign fuel, and help alleviate the economy of debt.

--Maggie Kozloski

If the internal links do not work:

1) http://www.nytimes.com/2013/03/07/science/earth/proposed-dam-presents-twin-conundrums-in-alaska.html?pagewanted=all

2) http://www.newsminer.com/news/alaska_news/article_063d3096-7ace-11e2-b9cb-0019bb30f31a.html

News from Spring Break

I can't believe that the news continues during break, but here you have it:

There's a report that frackers will soon have their practices evaluated by an independent oversight group. Cool! 

Also I posted on BB a New York Times article about how prices are the best way to fight climate change. It's common sense to economists, but it's nice to hear the idea getting traction from journalists.

Energy in the News

The NYT has been talking about disadvantages a lot lately. Today's news features an article on ethanol, talking about how reduced consumption of gasoline has led to reduced consumption of ethanol, and how that in turn has led to ethanol factories being idled.

A few days ago was a piece on fracking. The authors, who are professors at Penn State and Michigan, note many of the problems that have arisen from fracking and argue that they can be addressed relatively easily. The key issue, they say, is whether natural gas displaces coal or whether it displaces investments in renewable energy. I'm not sure what they mean by that: if it drops the price of energy, it displaces both, no?

Finally, Joe Nocera has a piece on coal gasification. He likes it but he notes that it's really expensive. If it's too expensive, it doesn't sound like a great solution to me, since there are many, many alternatives for producing energy. Of course, hopefully more research can bring the costs down. Nocera also notes that Bill McKibben, a famous environmentalist, is opposed to the plant because it produces a material that saves money for oil producers. McKibben wants oil producers to face high costs. While understandable, if Nocera's really describing it accurately then it doesn't make too much sense. Does this one potential negative externality outweigh all the positive externalities associated with carbon capture? Doesn't seem likely.

And... that's the news on this Sunday morning. Have a good week!

Spring 2013 movies

The Natural Resource Economics class produces movies as part of their classwork, and I will post them here when they are available. I think they do great work: take a look!

Removal of the Bloede Dam
New Reactor at Calvert Cliffs, MD
Wind Energy in Maryland
Natural Gas- Economic Drivers & Environmental Impacts
Ethanol- An Alternative Gas?
Biomass
Solar is Out There
Centralia

House Buybacks on Risky NYC land

The governor of New York is looking to spend $400 million purchasing homes that were significantly damaged by Hurricane Sandy.  This program still requires approval by federal officials, but state officials seem confident that possibly 10-15% of eligible people would take the buyout.  This would include about 10,000 homes that were damaged during Sandy.  Local law makers seem unsure of these numbers and seem to think that it may be a lot less than that.  This buyout would be giving the homeowners the pre-storm value of their home and offers bonuses to those in especially vulnerable areas and double this bonus if the entire block sells.  These homes would be taken down and replaced with natural buffers such as dunes, oyster reefs, and wetlands.  Part of the issue is who would be paying for this; some of the money would come from the disaster relief fund but some of it would also come from the Federal Department of Urban Development.  The main issue, though, is that people simply do not want to move.  Most of these people grew up along the coast and do not want to go anywhere else.  I personally believe that this may be a bad idea simply because it does not seem like there are a lot of people genuinely interested in selling their homes.  These people do not want to leave the coast even if their area is disaster stricken frequently and feel that giving up their home is too high a cost, even if they must rebuild frequently.
--Kathy LeHew

Energy Use at Google

      Google is a multibillion-dollar internet service that requires infrastructure of servers and fiber optic cables to support the Google users with over 3 billion searches each day, offer free email to 425 million Gmail users, and provide millions of Youtube videos. Urs Hölzle was brought on to Google in 1999 when Google still was renting space like other internet companies like eBay. He was brought on to upgrade the system to bring the search time down and to keep the system from the frequent crashes that it encountered on Mondays. Hölzle designed a data facility that seemed to be radically ahead of its time. At the time, data facilities used tremendous amounts of air conditioning units to cool the servers, commonly called CRACs. However, Hölzle was able to design a system that used water coils that drew the heat away from the servers and cooled the water and then cycled back to continually keep the servers cool, without needing CRACs. According to Levy, data centers use up to 1.5% of the world’s total electricity, and this movement took Google completely out of the equation. As for water consumption, in Belgium Google uses recycled industrial canal water and in Finland Google uses seawater. Google is constantly looking into what they can do to make their systems, networks, and cloud systems, everything they can do better for the users in the future.
Reducing electricity needs in the infrastructure seems like a major step for Google, and indeed it is. Duncan Clark of the Guardian reports that Google’s carbon footprint is similar to the UN’s, at about 1.5m tonnes. But as the previous article notes, the data centers consume much less energy, 50% less energy than industry averages. The cloud services are very helpful to Google and are used for services such as Gmail. Google’s share of a Google search is .2g of CO2 per search, however other factors add to that, such as the other end of the search, the person searching and their computer habits. The company is attempting to offset its carbon footprint with renewable energy and as of September 2011, about 1/3 of its electricity was coming from renewables.

Google appears to make going green or becoming more sustainable from a computing end look fairly easy and cheap, at least from what I have seen from other industries, and I think it’s wonderful. With cloud computing, I do not understand why more companies like Facebook, Twitter, Tumblr, Microsoft, Apple, etc. are not using these available services to decrease not only their costs, but their carbon footprint, their impact on the environment, and improve their public environmental image. I have always seen Google as a bit more of a benevolent all-knowing company when compared to the other all-knowing companies like Microsoft and Apple, and these articles cements this concept for me. I have learned through readings in other classes that Bill Gates has supported GMOs, which from my research are not sustainable or environmentally friendly, which makes me dislike Microsoft in general. From a computer scientist’s (my fiancé) point of view, Apple is overpriced unless you are heavily into media, and even then, you have to buy the media programs separately.

Question: Why are consumers not pressuring public media companies and other computer companies to use Google as a model and become more green and sustainable while saving money and using cloud services?

--Alex Lupton

Keystone: Another Perspective

On March 1, 2013, the U.S. Department of State issued a revised environmental impact statement for a second application for the Keystone XL Pipeline, submitted last May by TransCanada, the pipeline operator. The NY Times article reviews the State Department’s document concerning the environment in the areas surrounding the second proposed route. In short, there are no statements made about ways in which the pipeline could negatively affect the surrounding areas’ environment. Though it makes no policy recommendations or statements of influencing factors on the pipeline’s creation (economy, energy dependence), the lack of evidence on potential hazards to the environment suggests that the pipeline will cause minimal harm, if any at all. The big take away from the second environmental impact report are the changes that exist in the pipeline route. The newly proposed route crosses through three states instead of five and is 875 miles long instead of 1,384. It crosses 261 less surface water bodies and avoids the sensitive area of the Sand Hills completely. [Note that according to the second source, the decrease in mileage from 875 to 1384 is mostly because the company has already built (or is building) the other 500 miles from Nebraska through Oklahoma and Texas.-JM]
I believe the new environmental impact statement will allow the pipeline to gain more advocates and will push President Obama to create the Keystone Pipeline. In the article, those opposed claimed that the pipeline is vital to the extraction of tar sands in Canada and that without it, the tar sands will be preserved. However, I believe that the tar sands will be extracted with or without the Keystone Pipeline. Once the resources are made known, some market will take the opportunity to extract that resource, especially when it is scarce. I don’t support the implementation of the pipeline because it won’t affect U.S. demand, significantly lower the cost of gasoline, or create a significant amount of jobs. The risks associated with the pipeline are much greater than the limited benefits that it could provide our economy with. Especially when TransCanada does not have a good record when it comes to oil spills.

--Lauren Bennett

NRDC blasts Keystone

I just got an email from a guy at the Natural Resources Defense Council, an NGO I support. They totally firebombed my theory about the Keystone, and their arguments make sense.

First and foremost, they argue that the "Keystone XL pipeline is an absolutely necessary step for tar sands expansion." I had heard a lot about how if they don't build the pipeline through the US, they'll build a (presumably more expensive) pipeline west toward Vancouver. However, the NRDC believes that pressure from groups in Western Canada will keep that from happening. This blog entry from late 2011 says that First Nations groups are opposed to it, and apparently they control a lot of the land needed to build it. Another blog entry from March 2012 lists the other options for export and finds them all unappealing, and a third from March 1, 2013 says, "With alternative pipeline proposals to the west and east coasts stalled due to public opposition and rail such a high cost option, Keystone XL remains the gateway to the higher prices of overseas markets for expensive tar sands." However, blogger Andy Stevenson posts a map showing a number of potential exit routes for the tar sands. It looks to me like there are a number of possible outlets for the muck. See more after the break.

WaPo pro-Keystone

Very interesting editorial in today's Washington Post: they support the Keystone XL pipeline project and call for environmentalists to stop fighting it. They argue that even in the best case scenario for the protesters, emissions drop by at most 2-4%; instead, they call upon the environmental movement to spearhead the call for a higher gas tax.

At the risk of sacrificing my environmentalist cred, I have to say that this makes sense to me. Even if the pipeline is canceled, the nasty stuff from Alberta will just be sent to Vancouver and exported to China, so why fight so hard against it coming through the US? On the other hand, a gas tax, while unpopular, is the surefire way to get people to use less gas: it internalizes the externality, just like we've talked about in class. If people have to pay the full price of gas use, including the damages to the environment, they will use less. (Yes, it does bother me that it's a regressive tax, placing a heavier burden on the poor, but that's better dealt with via government transfer programs such as income tax credits.)

Think for a moment too about the economics of environmental non-profits. They need to raise money to stay alive, and it is so much easier to call for supporters to send money to fight a pipeline that won't directly affect most of them than it is to call for supporters to send money to increase the gas tax! Somehow advocating for an increased gas tax isn't a popular position to take, though O'Malley is trying to get one going here in Maryland.

Update: Tom Friedman offers the idea that environmentalists can at least use Keystone as a bargaining chip to extract more meaningful legislation. That idea makes a lot of sense to me. Also, the article talks about a new name for an old (and very useful) concept: "natural infrastructure" refers to ways in which the environment provides needed resources such as clean water or protection from storms. Interesting.

Warm Winters Kill Moose

    This article details the mystery of the declining moose population in Minnesota.  From 2012 to 2013 it is estimated that the moose population in the Minneapolis region has decreased by approximately 35%.  Additionally, over the last 7 years the total population has fallen from just under 9,000 to just under 3,000 (CBS 2013).  The main question is: what is killing off all of the moose? 
    Wildlife researchers postulate that this could be attributable to many different things such as changes in habitat, climate or disease.  A more recent study has found that ticks are the main cause of the decline in the population.  The study tagged 100 moose and studied their bodies immediately after they passed away.  They found an extraordinary amount of ticks in the bodies.  The researchers connect the increased number of ticks to climate change globally and locally.  Moose in other areas like Maine and Alaska are not facing the same problems because of the colder temperatures in those regions. 
    The area cancelled the fall hunting season in a last resort to assist the moose population.  I find this problem extremely perplexing.  The problem in this case is not over hunting or something that can be easily controlled.  It appears to be a small piece of a larger problem.  I would like to know if there is an economic short run solution that could help these moose.  Is there a feasible way to privatize this situation?  Although it seems cruel, it might be more cost effective to let the moose population die out in the area.  The people value the moose for hunting and as a local luxury.  It is really a race against the clock before the population dissipates, but there are currently no major solutions proposed. I believe that this scenario raises extremely difficult questions because it requires a short run solution to a long run problem.
--Ken Jee

Wheat Price Revolution?

No, wheat prices aren't going to revolt, but they may be doing more than just worrying the urban poor. Some say that that rising prices, fueled by drought (fueled by climate change?) may have contributed to the Arab Spring series of revolutions in the Middle East. Interesting article in the NYT.

Desalination in California

Out in Maryland, it seems kind of silly to worry about water. In California, though, it's another matter entirely: one community is spending $1 billion to build a plant to convert seawater into potable water. Is it worth it? How will the benefits and the costs stack up?

It's tough to weigh with water projects because the costs aren't paid at the same time that benefits are. Once you build a dam, you get water diverted from the river at basically no cost for a very long time. It's just those startup costs that are a kicker! In this case, they can't just balance marginal cost and marginal revenue, because the curves aren't straight lines: marginal cost is zero for a long time and then, BOOM! It's through the roof. So government officials who choose to invest in these projects just have to guess what the cost of water is going to be in the future. Is it worth it? Time will tell....