The World's Resources Aren't Running Out

Matt Ridley in the WSJ: How many times have you heard that we humans are "using up" the world's resources, "running out" of oil, "reaching the limits" of the atmosphere's capacity to cope with pollution or "approaching the carrying capacity" of the land's ability to support a greater population? The assumption behind all such statements is that there is a fixed amount of stuff—metals, oil, clean air, land—and that we risk exhausting it through our consumption...

What East Africa Can Learn From Past Booms

Foreign Affairs: East Africa is the global oil and gas industry’s hottest frontier. Barely a month goes by, it seems, without a major discovery in Mozambique, Tanzania, Uganda, or the eastern Democratic Republic of the Congo... Whatever system for distributing oil profits is established by then will define these states -- and the prospects of their people -- for generations to come.

Climate policy targets revisited

Tol on VoxEU: The IPCC’s Fifth Assessment Report estimates lower costs of climate change and higher costs of abatement than the Stern Review. However, current UN negotiations focus on stabilising atmospheric concentrations of greenhouse gases at even lower levels than recommended by Stern. This column argues that, given realistic estimates of the rate at which people discount the future, the UN’s target is probably too stringent. Moreover, since real-world climate policy is far from the ideal of a uniform carbon price, the costs of emission reduction are likely to be much higher than the IPCC’s estimates.

What have we learned about the resource curse?

Michael Ross: Since 2001, hundreds of academic studies have examined the “resource curse,” meaning the claim that natural resource wealth tends to perversely affect a country’s governance. There is now robust evidence that one type of mineral wealth, petroleum, has at least three harmful effects: it tends to make authoritarian regimes more durable, to increase certain types of corruption, and to help trigger violent conflict in low and middle income countries. Scholars have also made progress toward understanding the mechanisms that lead to these outcomes, and the conditions that make them more likely. This essay reviews the evidence behind these claims, the debates over their validity, and some of the unresolved puzzles for future research.

Limit-Pricing and the (Un) Effectiveness of the Carbon Tax

WP: All existing studies on the design of the optimal carbon tax assume that such instrument can generally curb current carbon emissions. Yet this paper shows that the effectiveness of a carbon tax is limited when limit pricing arises on the market for carbon resources. Demand for energy, for fossil fuels in particular, is notoriously very price inelastic, even in the long run. Facing such demand, an extractive cartel may increase its profits with higher prices, as long as those prices do not warrant the profitability of competing substitutes.
Thus the demand for fossil fuels features kinks, each corresponding to the entry price of one substitute. When the entry of a competing substitute may sufficiently deteriorate its market share, the cartel maximizes its profits by inducing the “limit price” that deters the substitute’s production. Limit-pricing equilibria of non-renewable resource markets sharply differ from the conventional Hotelling outcome; for instance, most resource taxes become neutral irrespective of their dynamics. For policies to effectively curb extraction quantities, they must rely on instruments applied on substitutes to fossil fuels.

Colonial Institutions, Commodity Booms, and the Diffusion of Elementary Education in Brazil

NBER WP: We explain how the decentralization of fiscal responsibility among Brazilian states between 1889 and 1930 promoted a unequal expansion in public schooling. We document how the variation in state export tax revenues, product of commodity booms, explains increases in expenditures on education, literacy, and schools per children. Yet we also find that such improvements did not take place in states that either had more slaves before abolition or cultivated cotton during colonial times. Beyond path-dependence, ours story emphasizes the interaction between colonial institutions and subsequent fiscal changes to explain radical changes in the ranking of states which persists until today.

Inferring Fossil-Fuel Subsidies from Patterns in Emission Intensities

OxCarre WP: I develop a unique database of international fossil-fuel subsidies by examining country specific
patterns in carbon emission-to-GDP ratios, known as emission-intensities. For most but not all countries, intensities tend to be hump-shaped with income. I construct a model of structural-transformation that generates this hump-shaped intensity and then show that deviations from this pattern must be driven by distortions to sectoral-productivity and/or fossil-fuel prices. Finally, I use the calibrated model to measure these distortions for 170 countries for 1980-2010. This methodology reveals that fossil-fuel price-distortions are large, increasing and often hidden. Furthermore, they are major contributors to higher carbon emissions and lower GDP.

How To Make Natural Resource Funds Work For Citizens

Columbia and Revenue Watch Institute conference:  (slides here) Given their collective size (approximately $3.5 trillion in assets as of the end of 2013), their growing number (approximately 30 new funds since 2000 with over a dozen more being considered) and concerns about the motivations of their government operators, much has been written on natural resource funds—by definition a subset of sovereign wealth funds—their investments, and their global influence as institutional investors. However, their impacts on governance and public financial accountability at home have received far less attention.

These funds, which belong to the public and are financed by extraction of non-renewable resources, should serve the public interest. Citizens in Chile, Norway, many Gulf countries and the several U.S. states have experienced their benefits. Unfortunately, natural resource funds have often undermined public financial management systems and been used as sources of patronage and nepotism in many countries, with dramatic results.

We have conducted a world-wide survey of 22 natural resource funds, examining their management, investments, transparency, and accountability to the public, as well as the fiscal rules that govern them. Based on our findings, we are recommending a six-step process for promoting good natural resource fund governance and have set up a website for government officials, legislators, civil society and the media as the go-to resource on natural resource fund governance. The fact sheet on the project can be found here.

The oil curse explained

A neat summary on Vox: The oil curse helps explain why Putin is so popular in Russia despite the country's economic dysfunction...

Growth Theory and “Green Growth”

OxCarre WP:  The relatively new and still amorphous concept of “Green Growth” can be understood as a call for balancing longer-term investments in sustaining environmental wealth with nearer-term income growth to reduce poverty. We draw on a large body of economic theory available for providing insights on such
balancing of income growth and environmental sustainability. We show that there is no a priori assurance of substantial positive spillovers from environmental policies to income growth, or for a monotonic transition to a “green steady state” along an optimal path. The greenness of an optimal growth path can depend heavily on initial conditions, with a variety of different adjustments occurring concurrently along an optimal path. Factor-augmenting technical change targeting at offsetting resource depletion is critical to sustaining long-term growth within natural limits on the availability of natural resources and environmental services.

The development implications of the fracking revolution

ODI WP:  The primary objective of this report is to examine the economic impacts (actual and potential) on developing countries of current transformations in global energy markets associated with the growth in exploitation of shale gas and tight oil. We have already seen large changes in energy markets; e.g. US oil imports from Africa have dropped significantly and US gas imports have collapsed over the last 5–10 years, as tight oil and shale gas production in the US have increased. We estimate that US imports of oil and gas may have been 50% lower as a result of fracking in 2012. As a result of fracking in the future, Chinese imports of gas could be 30–40% lower in 2020. In the case of a reduction in US gas imports, our analysis suggests that Trinidad and Tobago would suffer export revenue loss equivalent to more than 3% of GDP, and other countries affected include Yemen, Egypt, Qatar, Equatorial Guinea, Nigeria, Algeria, Peru. In total, developing countries are estimated to have lost US$1.5 billion in annual gas export revenues because of the rise in fracking...

Facts On Canada's Energy Trade

Trevor Tombe: Over the last decade, growth in Canada’s energy trade has been nothing short of historic. Energy exports have become so significant that the revenue is now equivalent to nearly $9,000 for every Canadian household. And it is only projected to grow much, much larger. While Western Canada leads the industry, every region — including Ontario, Quebec and Atlantic Canada — plays a key role. Today, nearly every province is a net energy exporter. The energy sector also adds much to Canada’s economy, with value-added and productivity higher than nearly every other sector. When it comes to labour compensation, oil and gas extraction is the highest-paying sector in the country, at more than three times the average hourly
earnings in the Canadian economy generally, and nearly 50 per cent higher than manufacturing. It is vital that policy debates rely on accurate information; unfortunately, this is not always the case...

Petro-aggression: How Russia’s oil makes war more likely

The Monkey Cage: Russia’s energy revenues (from both oil and gas) have ensconced Vladimir Putin as an autocrat and given him a free hand in foreign policy. Russia is so heavily dependent on its energy revenues that it is a classic petrostate, making it more susceptible to corruption, autocracy and violent conflict...

FT opinion: Climate change demands action but not just on emissions

A lead convening author for the economic section of the new IPCC report disagrees with the outcome summary and wants his name scrapped from the document. Richard Tol, Professor at the University of Sussex and Vrije Universiteit Amsterdam specialising in the economics of climate change, writing today in the FT, argues that "climate change demands action but not just on emissions". He argues that humans will manage a changing climate with the appropriate preparation, whereas fighting emissions is probably ineffective and inefficient. The IPCC, according to Toll, missed an opportunity to convey this message. Toll's views are however not widely shared. A member of the Dutch delegation to the climate conference, Prof Arthur Peterson, als at the Vrije Universiteit Amsterdam, disagrees with Tol's criticism, saying that the IPCC indeed focusses more on negative risks than potential upsides (also here, in Dutch).