Category — International
The Fraser Institute recently published a study examining the impacts of green energy policies inOntario,Canada. The summary of the study, which was written by Fraser Institute Senior Fellow Ross McKitrick, is below.
The Ontario Green Energy and Green Economy Act (herein the GEA) was passed in May 2009 with the purpose of addressing environmental concerns and promoting economic growth inOntario. Its centerpiece is a schedule of subsidized electricity purchase contracts called Feed-in-Tariffs (FITs) that provide long-term guarantees of above-market rates for power generated by wind turbine farms, solar panel installations, bio-energy plants and small hydroelectric generators. Development of these power sources was motivated in part by a stated goal of closing the Lambton and Nanticoke coal-fired power plants.
This report investigates the effect of the GEA on economic competitiveness in Ontario. It focuses on three questions:
(1) Will the GEA materially improve environmental quality inOntario?
(2) Is it a cost-effective plan for accomplishing its goals?
(3) Are the economic effects on households and leading economic sectors likely to be positive? The answer to each question is unambiguously negative. The specific findings of the report are as follows. [Read more →]
May 9, 2013 5 Comments
[Update: Germany Stops Fighting Arithmetic and Ramps Up Construction of Economically Sensible Power Generation]
Two years ago we looked at the claim that wind generation can save money for power pool customers. We found that the supposed savings could be realized only if the elephant in the room – the above-market feed-in tariffs – were ignored.
In other words, the total amount spent on electricity purchases from a power pool was augmented by the additional amounts consumers pay to fund the feed-in-tariff (FIT). As long as wind generators can bid a low price but receive the higher FIT, then they have an incentive to underbid, thereby reducing pool prices, but not overall costs.
In addition, we looked at what an economically least cost system might look like in Germany over the next ten years. We found that it features more coal and lignite, keeps most nuclear plants operating, and builds new gas-fired plants.
The annualized differential in total costs for Germany between the no-nukes, no coal and lots of wind forecast pushed by Germany’s Greens and an economically least cost expansion plan amounts to more than $120 billion over ten years and perhaps as much as $200 billion. A lot of money, in other words.
Update: Since these two posts were published in 2010 Master Resource contributors have made a strong case that Germany’s overinvestment in wind and solar has harmed the nation financially without any compensating improvement in electricity supply. Compounding the overreliance on wind is the planned phase-out of the country’s nuclear power plants – baseload power that will need to be replaced with something other than wind.
It now appears that Germany has made peace with mathematics and economics, and not just in the energy sphere. The country has embarked on a major effort to build reliable power plants for the future. [Read more →]
February 21, 2013 18 Comments
“BC Hydro is forecast to lose one billion dollars over the next four years, as a result of the pursuit of green electricity…. The public policies that politicians of all stripes have imposed on us to address climate change will haunt us for years.”
British Columbia, Canada’s westernmost province, is blessed with an abundant and almost unlimited capacity to generate hydroelectric power. This capacity is the result of the farsighted policies of past BC provincial governments that invested in, or encouraged investment in, a series of hydroelectric mega-projects in the 1950’s, 60’s and 70’s. British Columbia has enjoyed the benefits of inexpensive, clean electricity ever since.
Apart from stints of economic contraction that, coincidentally, accompany BC’s infrequent brushes with the government’s socialist New Democratic Party (NDP), BC’s economy has generally boomed in large part as a direct result of our hydro electric capacity.
Canada has a history of creating public utilities to generate and transmit energy, which for British Columbia is BC Hydro. BC Hydro is highly regulated with respect to rates and operations and traditionally operated as an independent, apolitical entity.
That changed when politicians from all parties, driven by the media and statist intellectuals, recognized the increased revenue potential from surcharges and “green” taxes based on the notion of CO2-induced climate change. BC Hydro became an instrument for public policy, and a new way for government indirectly to fund green energy initiatives.
February 19, 2013 10 Comments
“Intermittent generation may be consistent with a liberalized market, as long as generators are required to bear all the direct and indirect costs of their production. Otherwise, competition is doomed to become an irrelevant feature of a system that becomes more and more politically driven.”
Can an intermittent source be integrated into a liberalized electricity market?
Yes, it is technically feasible, but no otherwise. If subsidies enter into play, intermittent generation might undermine the very design of the market. This is what happened in Italy with the boom of solar power, which last year alone skyrocketed from 3.47 GW to 12.75 GW, with the annual cost of subsidies increasing from 800 million euro in 2010 to 3.9 billion euro in 2011 (about $975 million to $4.75 billion at today’s exchange rate).
These very generous incentives (which have been cut back in the last year for complex legal reasons) led to an over-investment in solar power in the country.
“Perfect Storm” for Malinvestment
Italy’s perfect storm of so little electricity at so much cost had three causes: [Read more →]
July 20, 2012 5 Comments
Minerals Boom in Saskatchewan (Expansion, not depletion, from new capital and the ‘ultimate resource’)
“Human beings create more than they destroy.”
- Julian Simon, The Ultimate Resource 2 (Princeton, N.Y.: Princeton University Press, 1996), p. 580.
When the tide comes in, all boats rise.
Saskatchewan’s mining industry has begun a period of unprecedented growth that promises to last for decades. And while Prince Albert is not at the mouth of the bay, we are in the bay, and our boats are rising as well. Prince Albert is seeing record building permits issued, but few local items to exactly explain why.
With a current tax incentive and confidence in the future, PotashCorp began a series of expansions seeing $5.8 billion being poured into Saskatchewan. It is the “mother of all economic stimulus packages,” seeing spending, on a per capita basis, double the American and triple the Canadian governments’ stimulus packages. Better yet, this investment is new money into our province, money generated from other countries, so we did not see the debt burden that others’ have. [Read more →]
March 15, 2012 No Comments
“[T]here is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.”
- Henry Hazlitt, Economics in One Lesson. quoted here.
At Cafe Hayek, economist Donald Boudreaux, Professor of Economics at George Mason University, wrote an open letter to Fox News host Bill O’Reilly’s opposition to exporting U.S. oil to other countries. O”Reilly has a populist streak, and he is prone to seeing the seen and not the unseen when it comes to economics, a sin indeed to economics as a science.
Professor Boudreaux is a master educator and prolific letter writer on behalf of common-sense economics. Read his explanation about why the namesake of the O’Reilly Factor 1) gets his economics wrong and 2) fails to see the implication of his own argument to himself as exporting his services
Dear Mr. O’Reilly:
You’re all lathered up because U.S. oil companies are exporting much of their refined gasoline and heating oil to other countries and thereby putting upward pressure on fuel prices here in America. You conclude that these companies have a moral obligation not to export so much….
First some economics. Selling in the global market encourages firms to build larger factories and refineries that, in turn, enable outputs to be produced at lower costs per unit. So while in the short-run rising exports of oil products can cause fuel prices here to spike, the long-run effect might well be lower prices because of larger, more-efficient scales of operation. [Read more →]
February 28, 2012 3 Comments
Petroleum Development in the Ecuadorian Amazon: Setting the Record Straight (Part III: Did International Oil Firms Despoil Eastern Ecuador’s Environment?)
[Ed. Note: This concludes Douglas Southgate's review of Ecuador’s claims of “reckless environmental damage” against Chevron, and through them international oil companies (IOCs). Part I challenged the facade that Ecuador's passive view of its own resources led to exploitation by Big Oil; Part II examined the economic benefits of fossil-fuel development in the country.
This post refutes the charge that environmental damage is the responsibility of foreign firms alone. Indeed, it is the state company, Petroecuador, that was chiefly responsible for environmental despoliation in the Amazon region. These postings are timely in light of a recent article in The New Yorker,  a new book about the construction of a trans-Andean pipeline,  and other literature in which IOCs’ actions in Ecuador are criticized.
Billions for Government, Nada Environment
Opponents of petroleum development in the Amazonian lowlands (Oriente) of eastern Ecuador maintain that damage to the region’s natural resources has been the result of IOCs’ dominance of the country. But in the first of three postings about the anti-oil campaign, I show that the Ecuadorian government actually exercised considerable power in its dealings with foreign companies. Soon after petroleum was discovered in the Oriente, Ecuadorian authorities obliged IOCs to spend tens of millions of dollars on transportation infrastructure in order to facilitate colonization, in which the firms had no real interest. [Read more →]
February 17, 2012 2 Comments
Petroleum Development in the Ecuadorian Amazon: Setting the Record Straight (Part II: Oil wealth & socioeconomic progress in Ecuador)
[Ed. Note: This series addresses key issues at the heart of Ecuador’s claims of “reckless environmental damage” against Chevron, and, through them, international oil companies (IOCs). Part I challenged the facade that Ecuador's passive view of its own resources led to exploitation by Big Oil. Part III tomorrow addresses the misperception that environmental damage in this small, South American nations is the responsibility of foreign firms alone.]
Oil and gas has been a 40-year economic driver in Ecuador. With the national treasury benefiting from oil and gas revenue, any lack of socioeconomic progress during the last decades cannot be blamed on international oil company (IOC) profit-making there.
Indeed, no serious observer claims that Ecuador has failed to experience development. Criticism has focused instead on waste and misallocation of the large cash bounty that multinational investment created for Ecuador.
Who Got the Money?
Much of the blame for misallocation rests with the uniformed services, which have received a sizable portion of the country’s petrodollars. Military expenditures averaged 45 percent of the national budget from 1972 through 2000, which has enabled the armed forces to acquire a fleet of oil tankers, an airline, and other commercial enterprises. However, oil wealth also has been spent on social services and subsidies for the public at large.
Despite waste, corruption, and misallocation, gross national income (GNI) per capita improved during this period. So did non-economic indicators of human well-being, including the infant mortality rate (IMR) and life expectancy at birth, thanks to better water supplies and public sanitation, wider access to pharmaceuticals, and, most importantly, improved nutrition.
Conditions in 1967
At the time when oil was discovered in the Oriente, mean GNI in Ecuador ($260) was barely half the Latin American and Caribbean average ($478); only in Haiti’s GNI per capita was appreciably lower.  The country’s standing in terms of non-economic measures was a little better. [Read more →]
February 16, 2012 No Comments
Petroleum Development in the Ecuadorian Amazon: Setting the Record Straight (Part I: Was Ecuador ever subservient to foreign oil firms?)
[Ed. Note: In this three-part series, Douglas Southgate, an economist and professor at Ohio State University, addresses key issues at the heart of Ecuador’s claims of “reckless environmental damage” against Chevron, and, through them, international oil companies (IOCs). Part II and Part III will address two other charges: that the small, South American nation has benefited little from energy-resource development, and that environmental damage is the responsibility of foreign firms alone. These postings are timely in light of a recent article in The New Yorker, a new book about the construction of a trans-Andean pipeline, and other literature in which IOCs’ actions in Ecuador are criticized.]
Part I in this series challenges the charge from the Ecuadorian régime’s (and its U.S. backers) that:
(1) Ecuador was an innocent seduced by the siren song of Big Oil, and became a vassal to their interests;
(2) Ecuador’s relationship to its oil potential was merely passive; and
(3) Oil development monies did not benefit Ecuador.
In fact, the country moved aggressively to capture the lion’s share of the benefits created by private investment. Nationalization and taxation left the government with 97.3 percent, or $22.7 billion, of the monetary returns created by the concession originally developed by Texaco and Gulf between 1972 (when production and exports began) and 1992 (when the state oil company gained complete ownership of the concession).
The Legal Setting
Continuing appeals of a February 2011 ruling by a district court in the Amazonian lowlands of eastern Ecuador and charges of fraud leveled against plaintiffs’ counsel  are recent and noteworthy developments in a legal campaign launched nearly two decades ago against Texaco, which along with Gulf Corporation began drilling for petroleum in the region during the 1960s and which has been affiliated since 2001 with Chevron. [Read more →]
February 15, 2012 3 Comments
European Energy Policy: Tramping in the Dark (Andrew MacKillop on the reality of failing public policy)
The European Energy Review has published a comprehensive article on the EU energy policy, entitled “Europe’s green energy chaos” by Andrew MacKillop (sometimes appearing as McKillop), an independent energy analyst and project advisor who has written on energy topics for over 35 years, and who worked for the European Commission’s Directorate-General of Energy as a policy expert in the 1980s.
EU policy can be summarized as 20-20-20 by 2020. Catchy isn’t it? It means 20% improvement in energy efficiency, 20% reduction in emissions, and 20% use of new renewable energy sources – all by 2020.
When publicized, the EU plan was (properly) criticized by the Economist and Dieter Helm, the chairman of the ad-hoc committee established by the EU to provide expert advice. MacKillop’s critical analysis of the current problems of government-heavy energy policy is spot on.
Government Planning in the Name of Markets
The EU energy plan inverts free markets and industrial government planning as discussed by MacKillop:
The climate and energy package makes heavy use of the notion that by preventing pipelines, power transmission lines and electric power stations being controlled by one company or entity, even if this entity is publicly owned and accountable to all democratic procedures for its control, will enable a “free market” that will create an upsurge in activity by small businesses who will gain entrance to the market. The usual way this notion is sold to voters and to the public is the claim this will automatically produce cheaper energy and more jobs, with additional climate and environment protection frills thrown in as needed.
In reality, the climate and energy package favours large industrial conglomerates in the energy sector and, as we know, Europe’s energy market liberalisation since 1996 has coincided with some of the largest energy price rises for final consumers in recent history. [Read more →]
December 23, 2011 6 Comments