The Oil Drum

This isn’t an argument about whether or not taxes—particularly energy taxes—are “good” or “bad.” Rather, this essay has a narrow focus: IF we’re going to attempt to reduce gasoline demand through taxation, what is the best way to do it?

Here’s my somewhat counter-intuitive theory: to most effectively reduce long-term gasoline demand, gasoline taxes should increase, not decrease, long-term price volatility.

First, let’s look at European gasoline taxes. In the UK, gasoline tax is .50 GBP per liter plus 17% VAT ($3.75/gallon before VAT, $4.42/gallon with VAT). In Germany it’s .65 Euro per liter plus 19% VAT ($3.80 per gallon before VAT, $4.53/gallon with VAT). Compare that with US taxes, which range from a low of $0.26/gallon (Alaska) to a high of $0.63/gallon (California). The much higher European taxes operate to reduce price volatility because they remain static in the face of changes in the underlying price of gasoline. For example, if taxes effectively double the price of gasoline, then a 10% increase in the pre-tax gasoline price results in only a 5% increase in the after-tax price of gasoline paid by the consumer.

[UPDATE] JP Morgan agrees to buy Bear Stearns for $2 a share (Stock closed Friday at $30).
Also, Fed cuts rates (on Sunday) from 3.5% to 3.25%.

The WSJ has a decent article describing the current financial crisis and pulling no punches:

Debt Reckoning: U.S. Receives a Margin Call

The U.S. is at the receiving end of a massive margin call: Across the economy, wary lenders are demanding that borrowers put up more collateral or sell assets to reduce debts.

The unfolding financial crisis -- one that began with bad bets on securities backed by subprime mortgages, then sparked a tightening of credit between big banks -- appears to be broadening further. For years, the U.S. economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.

Someone e-mailed a few days ago and asked about the present economics of corn ethanol. I did a few calculations, and thought the results were interesting enough to share. This exercise should make it clear which factors have the biggest impact on corn ethanol profitability – and why corn ethanol producers are presently struggling.

Consider this a supplement to Stuart Staniford’s comprehensive essay Fermenting the Food Supply. Stuart’s essay goes into great detail on the factors underlying the economics. In my essay, I take a snapshot of a corn ethanol plant based on current prices for corn, natural gas, and by-products. (Note that because this is a snapshot, the numbers will change over time. But you should be able to use the methodology here to roughly calculate the economics at any point in time.)

Much of what we discuss at theoildrum is about supply - pinpointing problems and/or advantages of existing and future energy technologies. These are the 'means' by which society meets its day to day demands. But little time, (and certainly not equal time) is devoted to discussing the 'ends' - what is all this energy for. As many of you know, I am completing my Phd in Natural Resources at The University of Vermont, with a specialization in Ecological Economics. This hybrid field asserts that the economy is just a part of a larger planetary system (as opposed to the planet and its resources being just part of the economy). EE attempts to evaluate (monetarily and otherwise) the things the market system takes for granted (fresh air and water, biodiversity, healthy dolphin populations, stable climate, etc.) But a growing subset of ecological economists are addressing the 'ends'. By digging into the empirical datapoints that comprise human happiness, we are finding we can be happier with far less energy use. I initially wrote about this here. Below is a short essay, also posted on Grist, co-authored by my advisor Robert Costanza. In my opinion, the questions these authors raise should be preceding or at least accompanying policy discussions on how we decide to obtain and allocate more energy. Ends before means.

Topics include:

ASPO-6 DVDs / Presentations; Oil Supplies / Prices; Food Prices; Natural Gas / LNG - Qatar; Economics - UK; Coal Prices; Film Review - A Crude Awakening; Peak Oil - South Africa

On February 16th, the Eurostat released its first assessment of external trade balances for 2006 (pdf), making clear that energy is imposing an important burden on the Union’s economy. They key figures:

During 2006, euro area trade recorded a deficit of 8.2 bn¹ euro, compared to a surplus of 16.2 bn in 2005. The EU25 recorded a deficit of 172.6 bn in 2006, compared with -111.8 bn in 2005.

Dr Marc Faber is a Swiss financier who predicted the Wall Street Crash in 1987. He is well know as the editor and publisher of the Gloom, Boom & Doom Report. Although not exactly an optimist Dr Faber is a widely respected financial analyst.

This video contains very interesting clues on how to prepare financially for Peak Oil.

On this third installment of the Contrarian Arguments series we’ll address the "Markets Will Solve It" claims.

A regular economist will tell you a fable like this:

If a shortage of potatoes occurs either by lack of supply or by growth on demand the market price will rise. This new higher price will signal to the farmers a need to produce more. Supply will rise, meeting demand, lowering the price and bringing the market back into balance.

Let’s see what’s wrong with this apparently correct logic.

This is a guest post from Cutler Cleveland. Theoildrum.com previously highlighted Dr. Clevelands work on the Energy Return from Wind. Todays post is Professor Clevelands latest installment on net energy analysis at the Encyclopedia of Earth, which I have reformatted to theoildrum. The Encyclopedia of Earth, where Prof. Cleveland is an editor/director, has made amazing progress in its short history attempting to become an academic/content based web clearinghouse for information on earth and our environment. I encourage everyone to follow some of the hyperlinks in the below story and peruse that site.

Outside of taxes and profits, we are a society used to thinking in gross terms. But the net is what we get to use. Net energy is how much energy is left for productive purposes after the energy needed to find, concentrate and deliver its energy services are subtracted. Net energy analysis, (and its subset EROI) get alot of airtime in peak oil discussions. If the world is running on a certain total energy surplus, what are the implications for a decline in this surplus? Will the market, via dollars, anticipate or obviate a future constrained by biophysical limits? There seems to be much disagreement as to how best to use EROI and net energy principles, if at all, in tackling what we perceive on the horizon as a looming energy crisis. In this piece, Dr. Cleveland gives and overview of the central tenets of net energy analysis, in a broader perspective that we are used to on this site.

!Kung Hunter Gatherers- Figuring out net energy?

One of the central underpinnings of neo-classical economics is trade. And one of the central tenets of trade is the the Ricardian theory of comparative advantage. Trade (in theory) benefits both parties because they are better off after the exchange. But our international trade system has, by baby steps, become completely dependent on crude oil. By air, water, land or rail, oil accounts for 99% of all transportation energy. As we move up the complexity chain in the products that make up our daily lives, are we moving further into a Chinese finger trap where there is no backing out?

This post will examine the theory of international trade and the hierarchy of goods transport, production and consumption. It is quite possible that in the next decade, the increase in price (or the decreasing availability) of oil, will offset the benefits of many types of trade.

The pursuit of economic efficiency, through increasingly diverse and extensive global trade has glossed over two important facts which this post will examine: 1)higher oil prices in long distance transport must at some point exceed (economically or otherwise) the benefits achieved from some trade and 2)a complex global trade system is gradually but pervasively decreasing the ability for localities, regions and nations to be self sufficient – so many of our supply chain inputs are imported that a large increase in oil prices may resurrect import substitution policies, not only for less developed countries, but for the US and rich nations as well.

International Trade - A Chinese Finger Trap?