Thursday, January 31, 2013

When it comes to energy, the Sahel could be to France what Iraq was to the US

Quartz: In the first days of the invasion of Mali, French president Fran├žois Hollande promised (French) that his country had “neither economic nor political interests” in Mali.
While that’s true, France has important strategic interests in promoting stability in the Sahel, the strip of land between the Sahara and the tropical savanna below it, covering parts of Senegal, Mauritania, Algeria, Niger, Chad, Sudan and Eritrea–in addition to Mali. Beyond France’s historical connection to the region (many of its former African colonies were located there), France has a profound economic interest in the area, if not in Mali itself.
France receives almost 80% of its energy from nuclear power, more than any other country in the world. The state-owned energy giant, Areva, which mines for uranium and builds and operates nuclear plants, gets a third of its uranium (French) from two mines in Niger, where it is the second largest employer after the state. Later this year, Areva is expected to begin extracting uranium from a site called Imouraren, which is thought to contain the second largest uranium deposit in the world.
Al-Qaeda’s fate in Mali, where the group’s North African wing has taken a serious role in the ongoing conflict, is intertwined with its position in Niger, as the two countries have become the group’s main strongholds in the Sahel. As a precaution, France has even dispatched troops to Niger to guard its mines there...

Wednesday, January 30, 2013

Inclusive Institutions and the onset of internal conflict in oil-rich countries

International Political Science Review: The literature on institutional determinants of intra-state violence commonly asserts that the presence of multiple political parties reduces the conflict potential within countries. By co-opting oppositional groups into an institutionalized political arena, dissidents would prefer parliamentary means over violent rebellion in order to pursue their goals. The present article shows that this proposition does not necessarily hold true for resource-abundant states. In the presence of vast natural resources such as oil, countries exhibiting numerous non-competitive parties are actually more susceptible to internal conflict. Logit models that employ different estimation techniques and alternative operationalizations are shown to corroborate the proposed claim.

Tuesday, January 29, 2013

The Social Cost of Stochastic and Irreversible Climate Change

NBER WP: There is great uncertainty about the impact of anthropogenic carbon on future economic wellbeing. We use DSICE, a DSGE extension of the DICE2007 model of William Nordhaus, which incorporates beliefs about the uncertain economic impact of possible climate tipping events and uses empirically plausible parameterizations of Epstein-Zin preferences to represent attitudes towards risk. We find that the uncertainty associated with anthropogenic climate change imply carbon taxes much higher than implied by deterministic models. This analysis indicates that the absence of uncertainty in DICE2007 and similar models may result in substantial understatement of the potential benefits of policies to reduce GHG emissions.

Monday, January 28, 2013

Petroleum Pitfalls: The United States, Argentine Nationalism, and the 1963 Oil Crisis

Diplomatic History: “Petroleum Pitfalls” examines the U.S. response to the 1963 Argentine oil crisis. Newly elected Argentine President Arturo Illia cancelled oil exploration and drilling contracts held by private, predominately U.S. corporations, by executive decree on 16 November 1963. Kennedy administration officials had worked with oil executives in an unsuccessful attempt to convince Illia not to issue the decree. In Argentina, the oil crisis both emerged from and enflamed economic nationalism. In the United States it helped dampen political support for foreign aid generally, and prompted strict modifications to the Hickenlooper amendment specifically. In the end, the crisis poisoned the U.S.-Argentine relationship. Foreshadowing the Mann Doctrine, Ambassador Robert McClintock advocated enhancing support for Argentine military officers whose aims were thought to align with U.S. political and economic objectives. In a larger sense, official U.S. promotion of oil interests in Argentina demonstrates significant continuities in U.S. policy between the first decades of the twentieth century and the Cold War era.

Saturday, January 26, 2013

The Transmission of Democracy: From the Village to the Nation-State

NBER WP: We provide evidence that a history of democracy at the local level is associated with contemporary democracy at the national level. Auxiliary estimates show that a tradition of local democracy is also associated with attitudes that favor democracy, with better quality institutions, and higher level of economic development.

Friday, January 25, 2013

What It Will Take to Counter Extremism and Engage Americans in the Fight against Global Warming

Skocpol: The only way to counter such right-wing elite and popular forces is to build a broad popular movement to tackle climate change. Ways must be found to use policy ideas as tools to knit-together inside-outside links among many organizations, including some that can draw masses of ordinary citizens into the transition to a green economy...

Thursday, January 24, 2013

Confl‡ict, Climate and Cells

Harari and La Ferrara: We conduct a geographically and temporally disaggregated empirical analysis of civil confl‡ict at the sub-national level in Africa over the period 1997-2006. Our units of observation are cells of 1 degree of latitude by 1 degree of longitude. We exploit within-year variation in the timing of weather shocks and in the growing season of different crops, as well as spatial variation in crop cover, to construct an original measure of shocks that are relevant for agricultural production. Employing a new draught index we show that negative climate shocks which occur during the growing season of the main crops cultivated in the cell have a sizeable effect on confl‡ict incidence. This effect is persistent over time and to a lesser extent in space. We also use state-of-the-art spatial econometric techniques to test for the presence of temporal and spatial spillovers in confl‡ict, and we fi…nd both to be sizeable and highly statistically signi…ficant. Exploiting variation in the type of confl‡ict episode, we …nd that the impact of climate shocks on confl‡ict is particularly signi…ficant when focusing on outcomes such a rebel recruitment.

Wednesday, January 23, 2013

Monetary policy and the oil futures market

Bundesbank WP: We assess the transmission of monetary policy shocks on oil prices using a VAR model. We identify monetary policy and fi nancial activity shocks disentangled from demand and oil supply shocks using sign restrictions. We obtain the following main fi ndings. (i) Monetary policy and financial activity shocks both have a signi ficant e ffect on the oil price. (ii) Monetary policy has made large positive contributions to oil price growth in 2008. (iii) Monetary policy aff ects the oil price primarily through fundamental (supply and demand) channels rather than through financial activity.

Tuesday, January 22, 2013

ANALYSIS OF THE IRAN OIL EMBARGO

EU Report: On 23 January 2012 EU foreign ministers decided to ban new contracts to import oil and petroleum products from Iran and to end existing contracts by 1 July 2012 as part of a diplomatic strategy aimed at raising the cost of Iran‟s defiance of the international community over its nuclear program. Other countries such as the US are also preparing to sanction Iran‟s crude oil exports. Iran has responded by threatening to disrupt the flow of oil through the Strait of Hormuz, the world‟s most important oil choke point; about 35 percent of seaborne traded oil moves through the Strait...

Monday, January 21, 2013

The Economist on climate change

Two articles this week. One that says domestic laws, not a global treaty, are the way to fight global warming. Another that soot is even worse for the climate than was previously thought.

The Energy-Policy Efficiency Gap: Was There Ever Support for Gasoline Taxes?

NBER WP: From 1864 to 1972, the real price of oil fell by, on average, over one percent per year. This trend dramatically broke when prices for crude increased by over 650 percent from 1972 to 1980. Policy makers adopted several policies designed to keep oil prices in check and reduce consumption. Missing from these policies were taxes on either oil or gasoline, prompting a long economics literature documenting the inefficiencies of these alternative policies. In this paper, I review the policy discussion related to the transportation sector that occurred during the time through the lens of the printed press. In doing so, I pay particular attention to whether gasoline taxes were "on the table," as well as how consumers viewed the inefficient set of policies that were ultimately adopted. The discussions at the time suggest that meaningful changes in gasoline taxes were on the table; the public discussion seemed to be much greater than it is today. Some in Congress and many presidential advisors in the Nixon, Ford, and, Carter administrations supported and proposed gasoline taxes. The main roadblocks for taxes were Congress and the American people. Polling evidence at the time suggests that consumers preferred price controls and rationing and vehicle taxes over higher gasoline taxes or letting gasoline prices clear the market. Given the saliency of rationing and vehicle taxes, it seems difficult to argue that these alternative polices were adopted because they hide their true costs.

Saturday, January 19, 2013

Nigeria's Illegal Oil Refineries

Amazing pics from The Atlantic: Reuters photographer Akintunde Akinleye recently gained rare access to an illegal oil refinery near the river Nun in Nigeria's oil state of Bayelsa. There, he was able to document the secret and dangerous practice of oil bunkering, where locals hack into oil pipelines, steal the crude oil, and refine or sell it abroad. For over 50 years now, crude oil and natural gas have been extracted from the Niger Delta by large corporations, which have had their share of environmental disasters. The ongoing damage from the tapped pipes and these makeshift refineries continue to take a terrible toll on the environment and the local population.

Friday, January 18, 2013

Adapting to Climate Change: The Remarkable Decline in the U.S. Temperature-Mortality Relationship over the 20th Century

NBER WP: Adaptation is the only strategy that is guaranteed to be part of the world's climate strategy. Using the most comprehensive set of data files ever compiled on mortality and its determinants over the course of the 20th century, this paper makes two primary discoveries. First, we find that the mortality effect of an extremely hot day declined by about 80% between 1900-1959 and 1960-2004. As a consequence, days with temperatures exceeding 90°F were responsible for about 600 premature fatalities annually in the 1960-2004 period, compared to the approximately 3,600 premature fatalities that would have occurred if the temperature-mortality relationship from before 1960 still prevailed. Second, the adoption of residential air conditioning (AC) explains essentially the entire decline in the temperature-mortality relationship. In contrast, increased access to electricity and health care seem not to affect mortality on extremely hot days. Residential AC appears to be both the most promising technology to help poor countries mitigate the temperature related mortality impacts of climate change and, because fossil fuels are the least expensive source of energy, a technology whose proliferation will speed up the rate of climate change.

Thursday, January 17, 2013

Trade Restrictions and Conflict Commodities

New OxCarre Paper by Seitz: In this paper, I use an event study approach to investigate the claim that conflict minerals legislation in the United States led to a ban on some mining exports from the Democratic Republic of the Congo (DRC), and that the passage of US regulation caused a ban on both production and trade by regulators in the DRC several months later. I also consider the assertion that conflict minerals legislation imposed severe costs for companies that report to the Securities and Exchange Commission in the US.
I find that returns for some companies traded on US stock exchanges were sensitive to changes in production in the DRC after the proposed legislation became law in the US. This either suggests that some financial market participants did not expect an immediate full embargo on newly-regulated Congolese mining and trading activities, or that market participants did not expect trade to be halted indefinitely. Reactions to a DRC-imposed ban on production were statistically significant; indicating that additional reductions in trade were not fully anticipated by financial market participants after regulations became law in the US.
I also find that among metal and gold mining companies traded on US exchanges, returns were abnormally high when conflict mineral legislation became more probable. Electronic communication manufacturing firms, which as a group were a target for many supporters of conflict mineral regulations, experienced no systematically abnormal returns corresponding to important dates in the US legislative process that I consider, but experienced abnormally positive returns coinciding with the ban on mining in the eastern DRC.

Wednesday, January 16, 2013

Macroeconomic effects of oil price shocks in Brazil and in the United States

Applied Energy: This paper studies the effects of oil price shocks in the last 30 years on the Brazilian and American inflation rate and rhythm of economic activity. The Brazilian and the United States economies are interesting polar cases, since they had a completely different path on the oil import dependence rate. While the oil import dependence rate has increase sharply in the United States (US), it has decreased substantially in Brazil. We found that output growth volatility in the United States has been decreasing over time as well as the contribution of oil price shocks to such volatility, despite the increase in oil import dependence. Inflation volatility has also been decreasing but oil price shocks are accounting for a larger fraction of this volatility in the US. In Brazil, such shocks do not seem to have a clear impact on output growth and they account for a very small fraction of the Brazilian inflation and output growth rate volatility. We finally run some counterfactual experiments to analyze how real output growth in the United States would had been if net oil import share in the United States behaved similarly to what was observed in Brazil. We conclude that output level would be roughly the same, however, it would be about 10% less volatile if the US had the actual Brazilian oil import share.

Tuesday, January 15, 2013

Coal in the US and Europe's energy policy

The Economist: Why is the world’s most harmful fossil fuel being burned less in America and more in Europe? The first of two stories looks at America’s cheap gas and new rules. [The second says] Europe’s energy policy delivers the worst of all possible worlds

Sunday, January 13, 2013

Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries

Journal of Comparative Economics: While the relationship between oil prices and stock markets is of great interest to economists, previous studies do not differentiate oil-exporting countries from oil-importing countries when they investigate the effects of oil price shocks on stock market returns. In this paper, we address this limitation using a structural VAR analysis. Our main findings can be summarized as follows: First, the magnitude, duration, and even direction of response by stock market in a country to oil price shocks highly depend on whether the country is a net importer or exporter in the world oil market, and whether changes in oil price are driven by supply or aggregate demand. Second, the relative contribution of each type of oil price shocks depends on the level of importance of oil to national economy, as well as the net position in oil market and the driving forces of oil price changes. Third, the effects of aggregate demand uncertainty on stock markets in oil-exporting countries are much stronger and more persistent than in oil-importing countries. Finally, positive aggregate and precautionary demand shocks are shown to result in a higher degree of co-movement among the stock markets in oil-exporting countries, but not among those in oil-importing countries.

Saturday, January 12, 2013

Iraq's Oil Surge Could Threaten the Saudis

Bloomberg BusinessWeek: Though there was no major dissension at OPEC’s Dec. 12 meeting in Vienna, there were signs that Saudi Arabia and Iraq are headed for a face-off over how much oil to pump. Before the start of the meeting, Abdul Kareem Al-Luaibi, Iraq’s oil minister, told reporters that his country plans to produce as much oil next year as it did when Saddam Hussein came to power more than three decades ago—a substantial increase over its 2012 output. Saudi Arabia, in contrast, has started to cut production to limit the risk of a price decline in 2013...

Friday, January 11, 2013

Oil and Conflict: What Does the Cross Country Evidence Really Show?

AEJ Macro: This paper re-examines the effect of oil wealth on political violence. Using a unique historical panel dataset of oil discoveries, we show that simply controlling for country fixed effects removes the statistical association between the value of oil reserves and civil war onset. Other macro-political violence measures, such as coup attempts, are also uncorrelated with oil wealth. To further address endogeneity concerns, we exploit changes in oil reserves due to randomness in the success of oil explorations. We find little robust evidence that oil discoveries increase the likelihood of political violence. Rather, oil discoveries increase military spending in nondemocratic countries.

Thursday, January 10, 2013

Do Oil Windfalls Improve Living Standards? Evidence from Brazil

AEJ Applied: We use variation in oil output among Brazilian municipalities to investigate the effects of resource windfalls on government behavior. Oil-rich municipalities experience increases in revenues and report corresponding increases in spending on public goods and services. However, survey data and administrative records indicate that social transfers, public good provision, infrastructure, and household income increase less (if at all) than one might expect given the higher reported spending.

Wednesday, January 9, 2013

Global Imbalances and Petrodollars

The World Economy: Oil exporters have run large current account surpluses. We explore oil exporters’ role in the global imbalances debate. Current account dynamics are estimated for oil-exporting countries and the rest of the world. We find that fiscal policy has a much stronger effect on the current account of oil exporters than on current accounts of other countries. The current account adjustment of oil-exporting countries is also faster. Fiscal policy of oil exporters can have a significant and speedy impact on global imbalances. The impact via the adjustment of exchange rates might not be effective.

Tuesday, January 8, 2013

Imperfect climate policy unlikely to increase domestic emissions

VoxEU: By promising to reduce fossil fuel demand in the future, some claim that climate policies will induce supply side responses today; firms will pump out emissions now before demand restrictions tighten. However, this column argues that the ‘green paradox’ is a red herring. Evidence from US coal prices suggests that, in industrialised countries, there is little danger of an increase in domestic emissions in response to imperfect climate policies.

Monday, January 7, 2013

Future production from US shale or tight oil

James Hamilton on Econbrowser: I attended the American Geophysical Union meeting in San Francisco two weeks ago at which I heard a very interesting presentation by David Hughes of the Post Carbon Institute. He is more pessimistic about future production potential from U.S. shale gas and tight oil formations than some other analysts. Here I report some of the data on tight oil production that led to his conclusion.
A number of analysts have issued optimistic assessments of the future production potential of U.S. shale or tight oil. For example, the International Energy Agency recently predicted that the U.S. would be producing over 10 million barrels per day of oil and natural gas liquids by 2020 before resuming a gradual decline. Citigroup is even more optimistic...

Hughes argues that there are limits to the number of new wells that will plausibly be drilled each year and the number of available well locations. These factors make achieving the IEA or Citigroup objectives difficult and mean a much more rapid decline in the production rate after the peak is reached. For example, here are Hughes' calculations if the current drilling rate were maintained-- 1500 new wells per year leading to a tripling in the number of operating wells-- and if the EIA's estimate of remaining productive locations is accepted. By contrast, the Citigroup projection of a continuous plateau after reaching peak production would require tens of thousands more well locations than estimated to be available by the EIA...

Friday, January 4, 2013

Natural Resources and Persistent Political Institutions

Mimeo by Dana Andersen: Significant attention has been given to the negative relationship between natural resources and growth– the so-called “resource curse.” The recent literature points to institutions as the key variable in determining if natural resources will ultimately be a curse, treating institutions as exogenous. In this paper, I develop a model that examines the effect of natural resources and entrepreneurs on persistence of both de facto and de jure political institutions. Towards this end, I develop a two-sector model (natural resources and manufacturing), where entrepreneurs choose to specialize in one of the two sectors. If entrepreneur choose to specialize in natural resources, they invest in de facto political power in order to ascertain greater natural resource rents. De facto and de jure political institutions co-evolve as an equilibrium outcome of entrepreneurial specialization and investment in political power. This results in state dependence, or persistence, of political institutions. One necessary condition for overcoming persistence is strong democratic de jure political institutions. However, political institutions may persist despite strong democratic de jure political institutions due to the distribution of rents in the natural resource and manufacturing sectors.

Thursday, January 3, 2013

Can Transparency Transform Mineral Wealth into Wellbeing?

Revenue Watch: This paper provides a critical assessment of the linkages between minerals governance and economic development in the Maghreb and Middle East. We attempt to disentangle four critical dimensions of resource governance in the region:
• The nexus between resource governance and economic development in the Maghreb
• The linkages between weak minerals governance and the Arab Spring
• The role of State Owned Enterprises in the minerals sector in engineering more systemic reforms.
• The challenges of strengthening natural resource funds governance to facilitate regionalization in the Maghreb
The paper relies on the Revenue Watch Index 20122 – a systematic initiative to compare the strengths and shortcomings of natural resource management in 58 countries- to assess minerals governance in the Maghreb and formulate policy options for reform.

Wednesday, January 2, 2013

Corruption and reduced oil production: An additional resource curse factor?

Energy Policy: Prominent contributions to the resource curse literature suggest weak governance and corruption are important factors behind the wide welfare variations observed among oil producing countries. How weak governance and corruption influence revenue management and expenditure decisions, as well as the possible welfare benefits derived from oil, are broadly discussed. How they impact upon volumes of oil produced has, however, attracted little attention. This paper combines a review of the resource curse and oil production literatures with findings from qualitative interviews with oil sector experts to appreciate the feasibility of connections between corruption and oil production below its potential. We make particular reference to environments where regulatory institutions or political accountability are weak and focus primarily on producer government and oil firm relations. Drawing on insights from geology, political science and economics, we suggest suboptimal production solutions can impact volumes of oil actually produced and create constraints on long term revenues for oil producing countries. We argue greater disclosure of information on oil production efficiency on a field-by-field and country-by-country basis will assist further investigation of the relationships between corruption and volumes of oil produced.