Tuesday, September 30, 2014

WWF: 'Half of global wildlife lost due to human demand on Natural Resources'

This morning a representative of WWF on BBC Radio 4 Today, told about a new report, 'the living planel', WWF issued on the decline of animals populations, amounting to 52% from 1970 to 2010. The numbers are based on a peer reviewed process on 10.000 populations around the world. The main cause for decline is suggested to be human demand on natural resources such as water, forest. Interestingly, high-income countries saw a net increase in animal populations, while there is a drastic decrease among middle- and low-income countries, even though the `ecological footprint' per person among high-income people is by far the highest. One of the three recommendations, perhaps for economists to take into account more often than is happening now with there research: "Value natural capital as a cornerstone of policy and development decisions."

See reports on this here [reuters.com] and here [vice.com], or tomorrow's Radio 4 Today On Demand service (around 7h20).

Monday, September 29, 2014

New research: The local wealth and health effects of mining in developing countries

New research of two students of Columbia University: Jan von der Goltz and Prabhat Barnwal on:

The Local Wealth and Health Effects of Mining in Developing Countries

Do residents of mining communities face health-wealth trade-offs? We conduct the first extensive assessment of this question using micro-data from communities near about 800 mineral mines in 44 developing countries. Mining communities enjoy a substantial medium-term rise in asset wealth (0.3σ), but experience a ten percentage point increase in anemia among adult women, and a five percentage point increase in the prevalence of stunting in young children. Prior evidence links both of these health impacts to metal toxicity – and in particular, exposure to high levels of lead. We find no systematic evidence of general ill health in mining communities, and we observe health impacts only near mines of a type where metal pollution is to be expected. Benefits and costs are strongly concentrated in the immediate vicinity (≤ 5km) of a mine. We employ seven distinct identification strategies. Baseline results come from a cross-sectional group effects model, and mine-level and mother-level panels. An in- strumental variables approach serves as a robustness check. To demonstrate that the observed health impacts are due to pollution, we develop three difference-in-difference tests tailored to the known association of certain mine types with heavy metal pollution, and to the pathophysiology of lead toxicity. Our results add to the nascent literature on health impacts near industrial operations in developing countries.

Friday, September 26, 2014

New research: Oil and ethnic inequality in Nigeria

New (primilimary) research of James Fenske and Igor Zurimendi:

Oil and ethnic inequality in Nigeria

Early-life oil prices predict differential adult outcomes across Nigerian ethnic groups. Our difference-in-difference approach compares members of southern ethnicities to other Nigerians from the same birth cohort. Greater prices in a southern individual’s birth year predict positive outcomes, including reduced fertility, delayed marriage, higher probabilities of working and having a skilled occupation, and greater schooling. By contrast, health outcomes suffer, including reduced height and increased BMI. No single ethnicity drives our results. Fertility, higher Southern incomes, greater Southern conflict, declining food production, and reinforcing parental investments help explain these results. Religion and selective mortality do not.

Although available online, perhaps better contact authors directly for a draft.

Tuesday, September 23, 2014

Rockefeller fund divests from oil and coal as climate talks preparations start in New York

The FT is reporting [ft.com] on "the heirs to the Rockefeller oil fortune", who will divest immediately from its coal (they read Tony and Paul's well-argued plea apparently [pdf from oxcarre.ox.ac.uk]) and Canada's tar sands holdings, and review further fossil fuel holdings over the next couple of years. The fund will target renewable energy investments instead.
In addition, in an analysis piece, this action is explained as part of a bigger movement ahead of the New York climate meeting this Tuesday and Paris meeting in December next year. Apparently there exist a broad bases among businesses around the world that action is needed.

Both pieces make some interesting notes.
"The World Bank announced at Monday’s meeting that more than 1,000 companies and investors had expressed support for putting a price on the carbon dioxide emissions from burning fossil fuels that drive climate change. They include Shell, which has had an internal carbon price for some years, as well as Nokia, LG Electronics and Lego. A total of 73 national and 11 regional governments responsible for 54 per cent of global greenhouse gas emissions are now pricing carbon or plan to do so, the World Bank said, including China, the EU, and several US states."
This is currently on the front page of the World Bank website, further here [worldbank.org]
"the rise of a fossil fuel divestment movement that argues investors need to be mindful that most of the coal, oil and gas reserves in publicly listed companies need to stay in the ground if the world is to avoid a potentially dangerous 2 degrees Celsius of global warming from pre-industrial times."
something blogged on earlier, and appears to originate from the NGO Carbon Tracker [carbontracker.org].

The FT further writes that these divestments from the 'oil majors', such as now announced by the Rockefeller fund, remains relatively modest in respect to the size of the big oil companies and is therefore not likely to move their stock prices. And if they do, it will probably just increase the yield, since the companies themselves are pretty confident that demand for their product, and with that their profits, will remain robust for the near and medium term future.

However, if yield for investors mirrors the funding cost of the companies' projects, we can expect perhaps two responses: 1) more action in renewable energy from the oil companies to compensate for their image and thereby provide some reasons for investors to stay, or 2) more debt financing by banks or through bonds. A quick check shows that the oil majors are about 50/50 financed by equity and debt, of which long-term debt is really just a minor stake (less then 10% for shell and Exxon, a bit more for BP).

Anyways, first the share price will need to be affected by the divestment operations before any of this is going to happen.  Rockefeller representatives themselves called it for now "symbolic".

Thursday, September 18, 2014

Morocco-Western Sahara and (exploratory) oil drilling

The FT reports on exploratory drilling off the coast of Western Sahara:
Battle for oil fuels Africa’s lengthy conflict

The political issue is that the territory is under Moroccan control, but not settled. Although Morocco promises that any eventual benefits will be shared with the people of Western Sahara, some doubt how "equitable" this will really be.

"But the drilling at the block known as Cap Boujdour is highly controversial: detractors insist it is outright illegal; supporters disagree, even though many also acknowledge that the campaign will test international law. The reason is the complex status of Western Sahara, the world’s only non-self governing territory without a legal administering authority.
The debate centres around a UN legal ruling from 2002 that drilling in the territory would be legal if it were done for the “benefit of the peoples” living there."
The question will be what happens to the frozen conflict if oil is found? Would it provide a basis for establishing peace and provide opportunities for development of all peoples in a way they wish? 

Tuesday, September 16, 2014

On the links between CO2, FDI and GDP growth

A new working paper [ideas.repec.org] from IPAG business school:

Causal interactions between CO2 emissions, FDI, and economic growth: Evidence from dynamic simultaneous-equation models

In this article, we investigate the causality links between CO2 emissions, foreign direct investment, and economic growth using dynamic simultaneous-equation panel data models for a global panel of 54 countries over the period 1990–2011. We also implement these empirical models for 3 regional sub-panels: Europe and Central Asia, Latin America and the Caribbean, and the Middle East, North Africa, and sub-Saharan Africa. Our results provide evidence of bidirectional causality between FDI inflows and economic growth for all the panels and be- tween FDI and CO2 for all the panels, except Europe and North Asia. They also indicate the existence of unidirectional causality running from CO2 emissions to economic growth, with the exception of the Middle East, North Africa, and sub-Sahara panel, for which bidirectional causality between these variables cannot be rejected. These empirical insights are of particular interest to policymakers as they help build sound economic policies to sustain economic development.

Monday, September 15, 2014

The Economist on innovation in Canada's oil sands

Last week's Economist article on innovation in Canada's oil sands.

The Steam from below
New technologies are being used to extract bitumen from oil sands

This week's oil as kingmaker in politics

Two stories, completely unconnected and different, where oil will play a big role in the outcome of plebiscites.

In Brazil, the presidential elections, scheduled for October 5, are affected by a major (alleged) corruption scandal involving the state oil company Petrobas. The Economist reports: "Mr Costa, who ran Petrobras’s refining division from 2004 to 2012, has accused more than 40 politicians of involvement in a vast kickback scheme. The list reportedly includes a minister, three state governors, six senators and dozens of congressmen from President Dilma Rousseff’s Workers’ Party (PT) and several coalition allies." Although it does not appear that Ms. Rousseff is directly involved, it may have happened on her watch, and so benefits her challenger, Ms. Silva [ft.com].

In the UK, the referendum on Scottish independence [economist.com], scheduled September 18, revolves around many things, but there may never have been one if there was no North Sea oil in the first place. However, how much is actually left is still debated [econbrowser.com]. See also our previous posts, here and here, and a recent FT Lex column [ft.com].

Friday, September 12, 2014

Mining in outer space and property rights

Although it seems a pretty conventional simplification in economic to put natural resources as some exogenous wealth transfer in the budget constraint (i.e. instead of a properly modeled production sector, an early example is Sachs & Warner, 1995, NBER 5398, p. 37), during the early days of my PhD I was challenged to back that assumption up a bit better. Shouldn't you model the process of discovery and trade properly? I used this article [BBC.co.uk] (original study here [nature.com]), suggesting that gold came with meteorites to earth from outer space in the first place, to show that the simplification is valid, because the alternative becomes unwieldy requiring not only to model the planet but indeed the universe (a true economist's reply, if I may say so).

Now it appears that we may not be waiting for stuff to come to us, but explore space itself. Notwithstanding the physical barriers, there is a niftier one: the law. VOX [vox.com] reports that the US congress is considering a bill (acronym: ASTEROID) to provide the appropriate regulatory framework and property rights, in order to incentivise future investments. The issue is that a 1967 UN treaty prohibits any nation to expropriate celestial bodies, but allows free use of them. But does this allow private corporations to expropriate bodies (since they are not nations), or is mining (and the stuff you bring back) considered under 'use' (NASA took moon dust/stones back to earth and claimed ownership)? More details on testimonies here [io9.com].

Wednesday, September 10, 2014

Dutch disease in local Canadian communities?

Recently (to be) published, a research on the impact of different types of natural resource industry (pure extraction vs. 'transformation' or processing) on 135 urban areas in Canada over 1971-2006. 

"Looking at 135 Canadian urban areas over a 35-year period (1971–2006), the paper examines the relationship between initial specialisation (using employment) in resource industries and various growth indicators via a mix of descriptive statistics and econometric modelling. The paper differentiates between two resources sectors: resource extraction (mining, logging, etc.); primary resource transformation (paper mills, foundries, smelters, etc.). The evidence for a “resource curse” is mixed. Resource transformation industries are found to be associated with slower population growth, also depressing growth in college-educated cohorts. However, no such relationship is found for resource extraction. We find no evidence for a durable Dutch Disease wage effect. Wages fluctuate in response to resource demand as do working-age populations. Many relationships hold only for the short run. In the end, we argue, the impact of resource specialisation depends on the particular resource and type of industry it spawns, as well as location. There is no generalisable resource curse, valid for all resources and all places."

Relates to a wider research on the local impact of natural resource industry, e.g. OxCarre's James and Aadland (2011, Maine and Wyoming counties), and Allcott and Kenistorn (WP 2014, US Counties) among others. The last sentence suggests that there is more scope in research on the conditions and determinants at play with respect to natural resource industry at the local level.

Tuesday, September 9, 2014

The aftermath of the 2012 Marikana tragedy

It has been a bit more than 2 years since 34 mine workers were killed by police in what became known as the Marikana massacre [ft.com], a South Africa based, Lonmin [lonmin.com] owned platinum mine. Protests had erupted over working and living conditions and pay [tandfonline.com]. The fatal riot was featured at the time at the OxCARRE blog, which pointed to the Economist's analysis laying the root cause of the tragedy to government management of mining sector in South Africa.

Controversy existed since the start over whether the police had acted in self-defence in the face of violent mine workers, or had been overly violent themselves. A government inquiry was established and independent researchers have done their own studies. The picture that seems to emerge is that the tragedy was preventable and police may have been instigated by Lonmin executives and/or government to act violently against the protesters (book by Johannesburg based academics [books.google.com], p3; NRC Handelsblad [nrc.nl], in Dutch subscribers only). The inquiry is still ongoing and a few days ago South Africa's deputy president Ceryl Rhamaphosa was accused by the mineworkers' lawyer of having ordered the police to use violence against the mineworkers. Mr. Rhamaphosa denies he acted in such way and stated [ft.com] that "the tragedy 'has to be approached as a collective failure by many role players.'" Mr. Rhamaphosa is currently one South Africa's wealthiest businessmen, at the time of the tragedy a non-executive of Lonmin, and formerly a union leader (and founder) of NUM. NUM was deemed by the mineworkers to be closer to business executives and the government then to their interests, which was one of the reasons they started their 'wildcat' strike or switched alliances to non-government backed unions. In all the strikes, and ultimately the tragedy, are a culmination of the failures to deal with apartheid racial differences, exploitation of migrant workers, including foreigners, and to conduct wage negotiations that result in a fair and supported outcome (Report of government backed labour market research body [lmip.org.za]).  

Meanwhile, the Guardian [theguardian.com] reports that Lonmin is planning to restructure (meaning closing or selling some of their mines) after 2 years of bad performance and a 5-month strike this year (its share price has decreased by 60% since the tragedy, but it was already in decline long before that). Lonmin [lonmin.com] denies decisions on the restructuring have been made. Costs have increased as the strikes have led to higher pay for both Lonmin and competitors' operated mines, while platinum prices have decreased [nasdaq.com] over the same period. For instance, AngloAmerican Platinum is also closing its least profitable mines [reuters.com] after miners had negotiated pay increases.  Strikes, reducing output up to 5.7% quarter-on-quarter, in turn has had a major impact on South Africa's economy, so much that the economy reported [ft.com] negative economic growth. There are also rumours that the trading giant Glancore was considering decreasing its 2013 acquired 25% stake in Lonmin. These rumours were more or less denied [miningglobal.com]. The closing of mines risks further unemployment for those that are already doing the lowest skill and most dangerous part of the mining operations.

In closing, Bram Vermeulen of NRC Handelsblad [nrc.nl] (in Dutch, for subscribers only) talked to widows of those miners that were killed about the taboo subject of 'second widows'. Migrant mine workers used to have families both at the mine location and their old homes where they had left there families, giving disputes to rights of compensation to the families of those killed workers. Migrant mineworkers are/were actually stimulated not to live in 'workers' hostels but in shanty towns where they could live with girlfriends or second wives. Consequently, they had to split their salaries over two families, which in part explains their demand for pay increases [limp.org.za, p.14].

Friday, September 5, 2014

'Islamic State was making $2M a day selling oil to smugglers.'

BloombergBusiness reports on the finance part of Islamic State. Instead of (or next to) backing from wealthy regional supporters, extracting ransoms, or smuggling drugs—the usual way in which other terrorist or rebel groups in the world tend to finance their operations—IS had until recently a very rewarding oil exports business going on. "U.S. officials and terrorism experts believe that by late June, Islamic State was raising as much as $2 million a day in petroleum revenue—though that amount is declining as it loses control of some oil fields and authorities crack down on cross-border smuggling."

Interesting details in the report: since the oil needs to be smuggled through middlemen, IS can only sell the oil at a ~50% discount from the world price. The middlemen tend to be locals, and much oil goes via the Kurdish region in Iraq to Turkey and Iran. Trade is done in cash, they hold no international network of bank accounts.

Regarding the last point, this cash is, I presume, American dollars (the report does not say anything about this). There must be piles of cash being stored somewhere, which the report says some intelligent agencies are looking into. The cash is used for recruitment abroad, and "its growing operations and territorial expansion." I'm missing some details here. On the famous Vice News report on Islamic State, you can see locals in the Syrian town of Raqqa, bulwark of IS, still using Syrian cash (see at 21:19, I checked the note, it looks like 100 Syrian Pound [£0.40]). How come this has still any value for use in a society that does not control the supply of it? Anyways, this oil trade generates dollar reserves that are perhaps kept separate of the local economy and is used solely for other smuggling/trade of food, weapons and whatever a typical terrorist organisation needs and cannot produce by itself. IS is also known to raise local taxes, which must be Syrian and Iraqi dollars. So this tax-cash may be used only for their local 'civilian' operations such as running the courts and paying those who patrol the streets to check on 'unislamic' behavior. In general, the details of governance of Islamic State remain largely unknown, which includes its fiscal and monetary policy and how they manage 'their' natural resources.

A while ago there were these startling reports that ISIS had robbed banks in Mosul, Iraq, allegedly taking 500bn Iraqi dinars ($430m) in cash. This, according to the FT, actually never happened. ISIS never even attempted to rob the banks.

update 11/09/2014: See NPR article and podcast.

ps. Many Muslims are not flattered by these people calling themselves Islamic State. An alternative is proposed as QS, but I find not many media using it thus far.

Thursday, September 4, 2014

OxCARRE Seminars coming months

OxCarre Seminars – Michaelmas Term 2014
Tuesday 5.00pm
Seminar Room C
Manor Road Building

21 October
Speaker: Ralf Martin (Imperial College)
Title: The Causal Effects of the European Union Emissions Trading Scheme:  Evidence from French Manufacturing Plants

4 November
Speaker:  Ragnar Torvik (Norwegian University of Science and Technology)
Title: Local Natural Resource Curse?

18 November
Speaker:  Nimah Mazaheri (Tufts University)
Title: The Specialization Curse: The Effect of Economic Specialization on Public Goods Provision.

2 December
Speaker: Thorvaldur Gylfason (University of Iceland)
Title: TBC

Tuesday, September 2, 2014

Australia does away with the mining tax

Australia's conservative government reached a deal with a fringe party lead by a mining magnate Clive Palmer to scrap the Minerals Resource Rent Tax [The Guardian]. The tax resulted from a failed attempt to tax 'super-profits', and resulted in little revenue [Sydney Morning Herald], however its proceeds where to pay for some social welfare programs. Some of the programs will not be scrapped but paid through tweaking Australia's pension scheme. Reports are generally positive to scrapping the tax because it was badly designed, mainly to the benefit of mining companies. The mining companies have gone recently through several tax and regulatory regimes, from taxes on profits to carbon emissions. That these taxes are now scrapped doesn't mean that they will not return in some form or another in the future [FT], maybe under a new government. The main opposition, Labour, is fiercely against this overhaul. I suppose the demand for stable laws raised in Argentina, also holds to some extend in Australia. Isn't there a middle way?

For some academic research on Tax reforms and natural resources at a global scale, see a previous post on a new IMF study.