Thursday, December 3, 2015

OxCARRE's Chiara Ravetti at VoxEU:China, information and air pollution

OxCARRE's Chiara Ravetti [ravetti.weebly.com] together with co-authors Yana Jin, Mu Quan, Zhang Shiqiu and Timothy Swanson write on

China, information and air pollution
Many cities in China have notoriously high levels of air pollution. Given its tight control over the media, the Chinese government has a high degree of control over public information about air quality. This column explores the government’s incentive to downplay the seriousness of pollution spikes. Households that rely exclusively on public media are found to engage in less self-protective behaviours. This could lead to substantial public health costs in the long run that might otherwise have been avoided.
Read on at VoxEU [voxeu.org], based on a full paper:

A dragon eating its own tail: public information about pollution in China


Abstract
This paper examines how a government that controls both public information and pollution emissions can exercise discretion in its choice of pollution signals, and thus influence pollution responses in the population. We develop a model of the government’s optimal decision about pollution emissions and information about them, and we apply its results in the context of the information distortions and the adaptation choices of households in Beijing, China. We proceed in three stages. First, we use a simple signal extraction model to motivate why a government may choose to distort information about pollution. Then, we perform a time series analysis on air pollution announcements, to test empirically if the information signal in Beijing is biased when compared to an alternative measure from the US Embassy. This analysis indicates that public information is systematically modified, as predicted by our model. Finally, using data from an original household survey, we examine the effect of the distorted public signal on agents’ behavior, and find that those who rely on public media controlled by the government are significantly less responsive to pollution peaks, demonstrating the impact of governmental control over information.
Available here [ravetti.weebly.com]

Monday, November 30, 2015

Paris Climate talks start

Plenty of reports on the Paris climate talks, which started today. This dynamic graph nicely indicates the multitude of angles one can look at the problem on who's to blame and who should act based on responsibility and impact.

http://www.carbonmap.org

Monday, November 23, 2015

64 Dutch professors request immediate closure of all coal powered electricity plants

64 Dutch professors in the topics of sustainability and environment write a public letter to the government and parliament [trouw.nl, in Dutch] requesting immediate closure of all coal powered electricity plants. Noting that according to a recent report of the European Environment Agency, presumably this one [eea.europa.eu], The Netherlands is among the worst performing on the targets that were set under Kyoto and EU 2020 objectives.

They argue that The Netherlands has enough spare capacity in gas powered electricity plants to shut down all coal powered plants immediately. The additional gas should be imported from Norway.

The purpose would be to 1) meet the emission targets a Dutch court has already ruled the government should abide to, 2) send a strong signal in preparation to the Paris climate talks, 3) do away with impression that a country that is among those most at risk of rising sea-levels is doing very little to prevent it.

The closing of coal powered electricity plants is a world wide pattern, with commitments from the US, UK and Germany, while China has been reducing the number of coal powered plants it is planning to build. Global investors have been pulling money out of the industry, seen as a liability.

Wednesday, November 18, 2015

New Canadian Premier makes quick policy changes in Canada's oil development

Back in September we wrote on Canada's pipeline projects [oxcarre.blogspot.com]. The Economist writes [economist.com] now how the new Canadia PM Justin Trudeau might have to come true to his greener credentials without entirely decapitating the oil industry. What he did already is to virtually scrap the Northern Gateway Enbridge proposed pipeline from Alberta to British Columbia coast by imposing a moratorium [cbc.ca] on oil tankers off the coast. The alternative is a pipeline to the east coast or transport by rail. With regards to the latter, reports [jsonline.com] of accidents and derailed carriages, with punctured tanks spilling oil and ethanol in surroundings, continuing.

Tuesday, November 17, 2015

NYT: ExxonMobil investigated for frauding investors over climate research


Back in september we looked at a report on Exxon's shifts from climate export to being a fierce critic. The New York Times reports that the New York Attorney General has now started an investigation into the issue and whether ExxonMobil may have mislead investors.
The investigation focuses on whether statements the company made to investors about climate risks as recently as this year were consistent with the company’s own long-running scientific research.

Monday, November 16, 2015

World Energy Outlook cautiously optimistic on shift to low carbon future

The International Energy Agency issued its World Energy Outlook [worldenergyoutlook.org]. It's heavy on the connection between energy demand and climate change and aims to give some projections on short and long term developments.
Some interesting quotes from the Executive Summary [iea.org]:



There was also a tantalising hint in the 2014 data of a de-coupling in the relationship between CO2 emissions and economic activity, until now a very predictable link.

By 2040, Asia is projected to account for four out of every five tonnes of coal consumed globally, (...). However, its continued use around the world is compatible with stringent environmental policies only if it is used in the most efficient way, with advanced control technologies to reduce air pollution, and if progress is made in demonstrating that CO2 can be safely and cost-effectively captured and stored.

Despite the shift in policy intentions catalysed by COP21, more is needed to avoid the
worst effects of climate change. There are unmistakeable signs that the much-needed
global energy transition is underway, but not yet at a pace that leads to a lasting reversal 10 of the trend of rising CO2 emissions.

Friday, October 30, 2015

New OxCARRE Research: Left in the Dark? Oil and Rural Poverty

OxCARRE's Sam Wills [wordpress.com] and Brock Smith [brockdsmith.com] brought a new research paper,

Left in the Dark? Oil and Rural Poverty

Abstract
Oil booms do not benefit the rural poor. To show this we combine data on night-time lights and population at a very fine (1 km2) resolution to construct global measures of rural poverty from 2000-2013. We find that oil booms, due either to high prices or new discoveries, increase GDP per capita. However, the increase in output is limited to cities and towns, and does not benefit the rural poor. We also find that while urbanization is occurring throughout the developing world, it is not being hastened by oil wealth.
Available here [oxcarre.ox.ac.uk, pdf].

Thursday, October 29, 2015

New Research: Economic effects of shocks to oil supply and demand

James Hamilton [ucsd.edu] gives a nice overview on his own blog [econbrowser.com] of a new research paper [ucsd.edu, pdf] with Christiane Baumeister [sites.google.com] wherein they use a previously developed bayesian estimation method for VAR models on oil supply and demand shocks. The method allows for a generalisation and flexible adaptation of Killian (2009, AER [aeaweb.org]) and following articles.

Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks

Abstract
Traditional approaches to structural interpretation of vector autoregressions can be viewed as special cases of Bayesian inference arising from very strong prior beliefs about certain aspects of the model. These traditional methods can be generalized with a less restrictive Bayesian formulation that allows the researcher to summarize uncertainty coming not just from the data but also uncertainty about the model itself. We use this approach to revisit the role of shocks to oil supply and demand and conclude that oil price increases that result from supply shocks lead to a reduction in economic activity after a significant lag, whereas price increases that result from increases in oil consumption demand do not have a significant effect on economic activity.

Tuesday, October 27, 2015

New Research: Oil and Gas Revenue Allocation to Local Governments in Eight [US] States

A new working paper/report is available from NBER, Richard G. Newell [duke.edu] and Daniel Raimi [duke.edu] both Duke University.

Oil and Gas Revenue Allocation to Local Governments in Eight States.

Abstract:

This report examines how oil and gas production generates revenue for local governments in eight states through four key mechanisms: (i) state taxes or fees on oil and gas production; (ii) local property taxes on oil and gas property; (iii) leasing of state-owned land; and (iv) leasing of federally-owned land. To compare across states, we show the percentage of total revenue generated by oil and gas production that flows to local governments from these revenue sources. We also connect these calculations to related research to assess whether state and local policies are providing sufficient revenue for local governments to manage increased costs associated with shale development. We find that in most cases, existing policies appear to provide adequate revenue for local governments to manage increased costs associated with growing oil and gas activity. As of 2014, revenues fall short of the costs imposed on local governments in some highly rural regions experiencing rapid, large-scale development, notably the Bakken region of North Dakota and Montana, select counties in Texas, and select local governments in Colorado and Wyoming. Collaboration between industry and local governments, especially on road repairs, could reduce public costs.

Available here [nber.org]. 

Monday, October 26, 2015

Sovereign Wealth Funds in the New Era of Oil

OxCARRE associate Rabah Arezki and colleagues Adnan Mazarei, and Ananthakrishnan Prasad from the IMF, and also available on the IMFDirect blog here, write on

Sovereign Wealth Funds in the New Era of Oil

By Rabah Arezki, Adnan Mazarei, and Ananthakrishnan Prasad 

As a result of the oil price plunge, the major oil-exporting countries are facing budget deficits for the first time in years. The growth in the assets of their sovereign wealth funds, which were rising at a rapid rate until recently, is now slowing; some have started drawing on their buffers.

In the short run, this phenomenon is not cause for alarm. Most oil exporters have enough buffers to withstand a temporary drop in oil prices. But what will happen if low oil prices persist, and how will policymakers react?

We explore here the fallout from low oil prices on sovereign wealth funds in oil-exporting countries and find that that they have important domestic implications. The impact on global asset prices will depend on the extent to which the unwinding of oil exporters’ sovereign wealth funds is not compensated by portfolio adjustment in other parts of the world.

The rise of sovereign wealth funds

In the early 2000s, high oil prices brought about a massive redistribution of income to oil exporters, resulting in current account surpluses and a rapid buildup of foreign assets. Governments established new sovereign wealth funds or increased the size of existing ones to help manage the larger pool of financial assets.

The total assets of sovereign wealth funds are concentrated in a few countries. As of March 2015, it is estimated at $7.3 trillion, of which $4.2 trillion are oil and gas related. While there are large differences across sovereign wealth funds, available information on their asset allocation points to a significant share in equities and bonds. 


Oil prices and the redistribution of global income

With high oil prices throughout the 2000s, the aggregate current account balance of exporters reached about $630 billion in 2011, exceeding that of emerging Asia combined. The current account surpluses of oil exporters are vanishing in 2015, however, and it is unlikely that this decline will reverse soon. On current projections, their combined current account balances could recover to about $200 billion in 2020.

In contrast to the 2000s, the recent oil price drop has been driven mainly by supply factors  that may lead to a decoupling of the paths of asset accumulation between these two groups of sovereign wealth funds. The rate of asset accumulation by sovereign wealth funds in emerging Asia—mostly oil importers—is likely to rise but it will likely decline for the funds in oil-exporting countries. Of course, much will depend upon the strategic asset allocation choices made by the largest sovereign wealth funds in the low oil price environment.

Impact on global asset markets

The overall impact of the fall in oil prices on asset prices will depend on whether oil importers have a lower marginal propensity to save than oil exporters. The fall in oil prices tends to transfer wealth from oil exporters to high-saving emerging Asian countries—but also to many other countries, including large advanced economies, some of which have a low propensity to save. From a global perspective, this implies lower global saving and higher interest rates. 

Precisely how much the savings of the sovereign funds of oil producers decline depends, of course, on changes in their fiscal and external current account balances. Sovereign wealth funds’ market operations will also depend on how much their governments opt to borrow or draw on their fiscal buffers, including those kept with sovereign wealth funds. Saudi Arabia issued its first sovereign bonds since 2007 to local banks to finance its fiscal deficit.

In addition, oil-exporters’ sovereign wealth funds are significant holders of U.S. treasury debt and private equity. Our back-of-the-envelope calculations show that, prior to the oil price decline, countries of the Gulf Cooperation Council (GCC) alone were projected to have a combined fiscal surplus of about $100 billion in 2015 and of about $200 billion between 2015 and 2020, but are now likely to reach a combined deficit of $145 billion in 2015 and over $750 billion in 2015-20. This implies change in net assets available to sovereign wealth funds in the GCC alone of $250 billion in 2015 and $950 billion in 2015-20.

Considering the expected tightening in U.S. monetary policy—especially against the background of concerns about market liquidity, increasing risk aversion, and falling reserve holdings by some emerging markets—a substantial change in the path of asset accumulation by sovereign wealth funds will likely have a direct effect on financial markets.

A study by economists at the Federal Reserve has shown that if foreign official inflows into U.S. Treasuries were to decrease in a given month by $100 billion, five-year Treasury rates would rise by about 40 to 60 basis points in the short-run, with a long-run effect of about 20 basis points.

Domestic implications

What does all this mean for the accumulation of sovereign wealth in oil-exporting countries, at least in the medium term?

The low price environment is likely to test the relationship between governments in oil-exporting countries and their sovereign wealth funds. Absent cuts in public expenditures, governments will likely be transferring less revenue than before to these funds. At the same time, pressures to draw down on sovereign wealth funds’ assets will probably rise.
Among Middle East oil exporters, only the United Arab Emirates, Qatar, and Kuwait’s fiscal buffers will last for over 25 years on current fiscal plans and oil price projections, according to our estimates. Bahrain and Yemen will exhaust them in the next two years, while most other countries will run out of buffers in four to seven years.

Even though they’ll still be able to borrow to finance their spending, governments of these oil-exporting countries would probably do well to tighten their belts if they hope to achieve the dual objective of sharing oil wealth equitably with future generations and economic stabilization.




EITI progress and countries' back-pedalling.

The Economist highlights this week the progress of the Extractive Industries Transparency Initiative (EITI), to bring transparency and reduce corruption in the oil and other minerals industries across the world.

The article highlights some cases of "back-pedalling" in Africa, where countries find ways around the requirement of transparent accounting to siphon off money to corrupt individuals. Still, one could argue that the EITI exactly helps to highlight such behaviour.

Similarly, Azerbaijan which lost [eiti.org] its EITI compliant country status earlier this year, and was downgraded to candidate. The major concern here is the involvement of civil society. NRGI put out a press-release [resourcegovernance.org] condemning the beating of one of its advisory council board members, Ilgar Mammadov, by "high-ranking staff" of a prison where he's held since 2013.
Mr. Mammadov was arrested in in 2013 on charges of inciting mass violence in relation with an anti-government protest, and subsequently sentenced to 7 years in jail. The Council of Europe and European Court of Human Rights have ruled that the judgement was illegal and ordered his release [amnesty.org]. The government chose to ignore that ruling. The Council of Europe withdrew [azerireport.com, see also CoE website] from a working group it had initiated with Azerbaijan due to its suppression on human rights defenders in past years. Following the beating Mammadov's life is reportedly [azerireport.com] in danger now.

We posted earlier on Azerbaijan, see here.

The Sight of inevitability II

A week late, but last weeks Economist [economist.com, some registration necessary, "Pegs under pressure" 7 oct 2015], seems to have an article inspired by a graph we posted earlier. It could be completely coincidental of course.

Saturday, October 10, 2015

What to do if you don't find oil? Build a spa!

A nice little story from Slovenia, where they searched for oil in the 1950's, and instead found hot springs. The oil driller left disillusioned, but the villagers mades pool around the thermal water source, which over time grew out to a complex that attracts more than 100.000 tourist each year.

Read the short story at RTV Slovenia [rtvslo.si].


Thursday, October 8, 2015

FT opinion: ‘Fossilist’ finance blocks ‘clean trillion’

The FT has an interesting piece from David Pitt-Watson (executive fellow of finance at London Business School and chair of the UN Environment Program Finance Initiative)  claiming that "Capital markets have unintended bias to unsustainable investment."





Thursday, October 1, 2015

OxCARRE Seminars

The seminars of OxCARRE during the coming term will be can be found here.

OxCarre Seminar Series

Tuesdays at ***14.30hrs***
(unless otherwise stated*)
Seminar Room C,
Manor Road Building (Second Floor), Manor Road, Oxford OX1 3UQ

20 October– 2 seminars:

2.30pm, Seminar Room C
Speaker:  Erwin Bulte (Wageningen University)
Title:  TBA
 
5.30pmSeminar Room A
Speaker:  Ian Lange (Colorado School of Mines)
Title: TBA
 

3 November– 2 seminars:   

2.30pmSeminar Room C
Speaker:  Ragnar Torvik (NTNU)
Title:  TBA
 
5.30pmSeminar Room A
Speaker:  Meredith Fowlie (University of California, Berkeley)
Title:  TBA
 

24 November

Speaker: Dominic Rohner (University of Lausanne)
Title: TBA
 

1 December

Speaker: Radek Stefanski (University of St Andrews)
Title:  TBA
 

 

 

OxCarre  Lunchtime Seminar Series

Wednesdays at 12noon
(unless otherwise stated*)
Seminar Room D,
Manor Road Building (Second Floor), Manor Road, Oxford OX1 3UQ
 

14 October

Speaker:  Pierre-Louis Vézina (UCL)
Title:  TBC

28 October

Speaker: Fanny Henriet (Paris School of Economics)
Title:  Grey Paradox: How fossil fuel owners can benefit from carbon taxation

18 November

Speaker:  Emma Hooper (Aix Marseille School of Economics)
Title:  TBC


New OxCARRE Research papers: fiscal federations, mining close spillovers, firm selection, and structural transformation

There are new working papers from OxCARRE out, to be found here [oxcarre.ox.ac.uk]

Heterogeneous Vertical Tax Externalities, Capital Mobility, and the Fiscal Advantage of Natural Resources
Fidel Perez-Sebastian (University of Alicante / Hull), Ohad Raveh (OxCARRE) and Yaniv Reingewertz (University of Haifa)
How do state tax rates respond to federal tax shocks? This paper presents a novel mechanism of heterogeneous vertical tax externalities across levels of fiscal advantage, showing that tax increases can be expansionary - even without their reinvestment. States rich with natural resources have a fiscal advantage in the inter-state competition over production factors which allows them to respond better to changes in federal taxes and, consequently, attract capital from other parts of the nation. We add heterogeneity in fiscal advantage levels to an otherwise standard model of vertical tax externalities and horizontal tax competition; the model shows that, irrespective of federal redistribution, the contractionary effect of a federal tax increase can be overturned in states with high fiscal advantage, through an increase in their tax base. Using the case of the U.S., and narrative-based measured federal tax shocks a-la Romer and Romer (2010), we provide empirical evidence for the various aspects of this mechanism. Specifically, our lower-bound estimates indicate that, controlling for federal transfers, a 1% increase in the GDP share of capital-related federal taxes at the beginning of a year increases the growth in the per capita tax base by approximately 1.6% in high fiscal advantage states at the end of it, on average.
available here [pdf, oxcarre.ox.ac.uk

Mining closure, gender and employment reallocations: the case of UK coal mines
Fernando M. Aragon (Simon Fraser University), Juan Pablo Rud (Royal Holloway) and Gerhard Toews (OxCARRE)

This paper examines the heterogenous effect of mining shocks on local employment, by gender. Using the closure of coal mines in UK starting in mid 1980s, we find evidence of substitution of male for female workers in the manufacturing sector. Mine closures increase number of male manufacturing workers but decrease, in absolute and relative terms, number of female manufacturing workers. We document a similar, though smaller, effect in the service sector. This substitution effect has been overlooked in the debate of local impacts of extractive industries, but it is likely to occur in the context of other male-dominated industries. We also find that mine closures led to persistent reductions in population size and participation rates
available here [pdf, oxcarre.ox.ac.uk]

The impact of windfalls: Firm selection, trade and welfare
Gry Østenstad (Buskerud and Vestfold University College and University of Oslo) and Wessel N. Vermeulen (OxCARRE)
We ask how a small open economy with heterogeneous firms responds to a resource windfall. A resource windfall boosts demand but also affects wages such that production costs increase. The result is a higher number of firms and renewed selection among firms: New firms at the lower end of the productivity continuum can produce for the domestic market, while only the most productive firms continue to export. While the share of firms that sell traded varieties decreases, the average productivity of exporting firms increases. The increase in the number of varieties following the increase in the number of firms and the inflow of additional imports implies that there is an increase in aggregate welfare over and above the direct windfall gain. We provide analysis in a model with two types of labor. The windfall causes a reallocation of labor types and a change in relative wages, thereby implying different welfare outcomes for each type of labor and the possibility of rising inequality.
available here [pdf, oxcarre.ox.ac.uk]

Commodity Price Shocks, Growth and Structural Transformation in Low-Income Countries
Thomas McGregor (OxCARRE)
This paper uses a panel-VAR approach to estimate both the dynamic and structural macroeconomic response of resource-rich, low-income countries to global commodity price shocks. I use a Block recursive ordering, as well as a simple Choleski decomposition, to identify structural commodity price shocks for a set of developing countries. The Block recursive identification strategy assumes only that global macroeconomic conditions do not respond to individual low-income country conditions contemporaneously. The results suggest that a one standard deviation increase in commodity prices (around 19% on average) raises per capita income levels, government spending and investment in developing countries by 0.03%-0.05%. Commodity price shocks also result in significant transformation of these economies, with the share of value-added in manufacturing contracting by 0.25 percentage points; although within this, the share of value-added in agricultural manufactures, for example, expands by around 1.5 percentage points. Whilst these effects may appear small, they represent the effect of exogenous commodity price shocks that are not due to changes in aggregate demand or global financial conditions. Taken together, these results present a more nuanced picture of the ’resource curse’ in poor countries. Whilst per capital income levels are positively affected by resource booms, the potential for deindustrialisation, particularly in export oriented manufacturing sectors, does exist. The channel through which this link operates appears to be the real exchange rate, with resource booms leading to appreciation pressures. To illustrate these results, I simulate the impact of the recent oil price collapse on the Nigerian economy.

Wednesday, September 30, 2015

FT: BoE Chief warns of risk of stranded assets from unburnable fossil fuels.

Related to earlier discussions featured on this blog [here, here and here], the FT writes that Mark Carney, the chief of the Bank of England, warns of the potentially massive downside risk in the UK if binding climate change policy would left the majority of proven reserves unburnable (in the near future). He noted that 19% of the companies on the FTSE100 are related to extractive industries, and that if the world would decide on the 2 degrees limit, and without massive involvement of carbon capture, 'carbon budgetting' would imply that around two thirds of currently proven reserves should not be extracted.

Thursday, September 24, 2015

For anyone who missed it, our twitter feed is back online at @OxCarre!

Geotermal energy as natural resource: a starter

Geothermal energy is not something that is much written about in economic journals. I think this is remarkable to say the least, because there is some nice potential on identification using spatial techniques, while the countries involved, those that have developed geothermal power are often not the ones we associate with having energy resources of the fossil kind (below I list 5, France, Italy, Iceland, Japan, and New Zealand). The main reason may be that the amount of energy created with it as a share of the total for many countries is minor, even thought the local impact might by quite large. 

However, one should note that geothermal has both the potential as a source of electricity production through steam power, and by using the heat directly, for instance to heat buildings. The use of the latter than would result in saving of, for instance, gas to heat houses. So measuring total exploitation of geothermal energy can be a bit tricky. 

Geophysically it's also an interesting topic with regards to other renewable energy sources. A geothermal source needs to be managed, in the sense that, when exploited too much at a time it will exhaust. So there is a limit to be observed in order to make it a sustainable long-term producer. Not much different from something like fisheries I suppose.

So here a small country overview to get you started on a topic. They were selected based on what I came across. In terms of use, the US and China are the largest [wikipedia.org]. In terms of capacity, Indonesia and the US are, but Indonesia has not much production installed. All interesting variations that may be used for new research.

France
A geothermal source exists tight under Paris, which is being exploited to heat 170,000 homes (NYTimes.com). France banned fracking [FT.com], and while the proponents of fracking found that inconsistent with the approval for geothermal development, the judge disagreed. Find some more information of french geothermal development here [ea-gia.org]

Iceland
As a share of total energy production, Iceland ranks top. 65% of its energy use is derived from geothermal resources [wikipedia.org], most of it used for heating homes. It is the major facilitator for its aim to become the first country that lives entirely of renewable resources. If you write a paper, perhaps you can present it here [geothermalconference.is] next year.

Italy
The economist writes about Italian geothermal development in tuscany this week. Italy is the major [geosee.eu] exploiter of geothermal in Europe. In terms of numbers it is still a small percentage of total energy production [wikipedia.org].

Japan
Japanese onsen are the ultimate enjoyment of geothermal activity. The fact that one can find onsen scattered all over the country means that geothermal energy can be exploited throughout the county [wikipedia.org]. About 10% of national energy production was provided by geotermal plants. This is still low [japanfs.org] given the capacity. Development is still ongoing [cleantechnica.com]. According to Japanfs, Japan has the largest capacity for geothermal use after Indonesia and the US. I don't feature these countries here, but they may still be very interesting to look at.

New Zealand
New Zealand is boiling over with geothermal activity, especially on the North Island. A significant part of the energy supply comes from geothermal resources. Here we also find Professor Basil Sharp, at the University of Auckland who was visiting Oxford last year and has written about the topic. The interesting thing I also found was that geothermal resources have a special value and (religious) meaning for Maoris. So in order to exploit these resources, their rights and preferences are taken into account. At the same time, since they have ownership rights over some of the locations where geotermal energy can be exploited for commercial production, they can receive a royalty income stream (Sharpe and Malafeh, 2005 Energy Policy). So similar to what is observed in mining, there is a potential for local spillovers and development from natural resources.

Time to get these papers written!



Monday, September 21, 2015

Good read of Inside Climate News: Exxon: The Road not taken

Inside Climate News has an interesting 3 part (1 still to come) story on how Exxon was once on the forefront of climate science. Its researchers underwrote during the late 1970s the consensus on climate change: That the burning of fossil fuels were a major cause of increased CO2 in the atmosphere and that this would result in rising global temperatures.

Based on this analysis, Exxon set up a major research effort to further understand how this really came to be, for instance, investigating the role of oceans in absorbing CO2 from the atmosphere, and the role of deforestation in contributing CO2 levels.

The business case of the research was clearly presented as understanding the implications for the firm at a very long time horizon. The conclusion that Exxon might have to change from being an oil and gas company to diversify away towards renewable and sustainable energy sources was already suggested.

This is then contrasted to Exxon's later activities in sponsoring climate sceptic and denial organisations.

The story is an interesting read, but after part 2 I'm still left wondering where, when and why the decision was taken to depart from having the best knowledge on the climate towards presenting exactly the opposite. Perhaps in the third part, to be published soon.

See also the piece on PBS Frontline.

Thursday, September 17, 2015

Pipelines through native land. Developments in Northern British Columbia.

Oil and gas retrieved in Canada's most northern parts and Alberta's tar sands is generally speaking geographically far from 'world markets'. Proposals to fix this with new pipelines have faced delays because of such things as environmental risks highlighted by the those that rely on the land for other sources of income. For instance, this is among the reasons for the delay of the KeystoneXL pipeline, proposed to bring Alberta's oil to refineries in Southern USA.

The other route is to bring the oil and gas westwards through British Columbia, where it can reach the coast, and carriers can ship it to Asia, where major demand growth is expected to come from for the future. Although these proposals too ran in objections of First Nations, and alternative route, proposed by another company, has recently won their support.

Many pipeline proposals for the route west have run in strong opposition from First Nations in Alberta. Their opposition is to large extent based on the risk that a pipeline poses to their traditional hunting and fishing ground. Although poverty is major problem in some of those communities, proposals by international construction companies have not everyones favour. "The answer is still no" [fernwoodpublishing.ca], a book consisting of series of interviews conducted by two academics with representatives of the region, details their arguments and objections to such plans, in this case particular the one proposed by Enbridge.

An another gas pipeline was recently rejected by Lax Kwa'laams who where offered CA$1B for their consent of a gas terminal on their lands, an island in front of the B.C. main coast in the region of Price Rupert, at the mount of the Skeena river. The dangers that the first nation sees has both to do with the construction phase, that could harm marine life in an area used by salmon to mature before moving up-river, the impact of pipeline on the seabed marine life, as well as the impact on marine environment of daily arrival and departure of LNG carriers. For these reason they recently rejected the plan (CBC.caGlobe and MailHuffingtonPost.ca).

As these articles highlight, and is also part of the discussions in the "The answer is still no", it is not that First Nations reject every such development, although this is occasionally how it is portrayed (sometimes quite viciously, labelling environment protestors and first nations terrorists, Globe and Mail, see also the recent interview with the newly elected Ms Universe, Ashley Callingbull-Burnham). A direct competitor proposal to the Enbridge pipeline, Eagle Spirit Energy Holding, recently gained (newswire.ca, prnewswire.ca) the support of First Nations, including those of Lax Kwa'laams. The trick? Eagle Spirit offers [financialpost.com] a different stake in the project to first nations, proposes a route that circumvents more of the vulnerable waters, going more through grounds of first nations supportive of the plan, and ends in a different area at the coast where it is expected to cause less environmental harm to the wider region. It helped too that the company is headed by members of local first nations, and the plan was made in direct consultation with first nations in B.C. and in cooperation with first nations in Alaska and Alberta. This contrasts with the lack of sincere consultation of Enbridge as perceived by First Nations.

The underlying dynamics are about balancing the (deemed inevitable) development of arctic and other previously hard to extract natural resources, the impact of such developments on local communities to their traditional income sources (forestry, fishing, hunting etc), their (hedonistic) value of the local environment and the benefits that may accrue to local communities from resource extraction. A non-negligible factor also appears to be the process through which these plans are pushed through and property rights. Much of the power of first nations comes from their rights as traditional dwellers of the land, whereas the federal and provincial government still tends to see these lands as theirs, or crown land, to do with as they please.

Although I tried my best, I'm not entirely confident that I presented all facts and views entirely correct. Comments are welcome below or by email.  



Tuesday, September 15, 2015

The sight of inevitability

Kazakhstan has been devaluing it's currency since last month. See the story in the FT for some comments by the Central Bank Chief Kairat Kelimbetov.

Azerbaijan has been doing the same at the beginning of the year, while Saudi Arabia has been running down its reserves. I put some of these series together in a graph (sorry for the overflow to the right).


New Research: How does Local Mining Impact on Rural Immigration: Case of Mongolia

A short paper by Amartuvshin Amarjargal (University of the Humanities, Ulaanbaatar) , Yaoqi Zhang School of Forestry & Wildlife Sciences, Auburn University, Jiquan Chen (Michigan State University) write on

How does Local Mining Impact on Rural Immigration: Case of Mongolia

Abstract
After 70 years of communist regime, Mongolia chose a radical transition for democracy and a market economy in 1990. Since the 2000s, the Mongolian government has been promoting the mining industry to increase its foreign exchanges. The mining sector may offer local job opportunities and revenues, but might also cause loss and degradation of pasture land the local people depend on. An empirical study is conducted to investigate whether the immigration of rural people from a mining area is different from that of a non mining area using a probit model based on a 2013 workforce survey of Mongolia. The result shows that mining soums receive fewer outsiders than the non-mining soums, suggesting local mining activities exert limited economic linkage in local community for a case of Mongolia.
See paper here [colostate.edu].

What is also suggested in the paper, but doesn't come out strongly in the statistics is that mining may cause an outward push from local communities away from mining because of harmful effects of mining development on their traditional sources of income of cattle. Mining is accompanied with the buildup of dust, and pollution of water resources that force nomadic communities to move away. Consequently, since these negative effects are born by a some communities more than others, they add to the unequal distribution of the rents. At least, this is what anecdotal evidence suggest [futurechallenges.org] according to the first author. Better data, particularly with a time-dimension, would be required to show these things in a statistical way.

Some analysis on recent metals price trends

The Wall Street Journal on its "Real Time Economics"-Blog highlights some forecasts on metal price trends, based on a recent IMFdirect post from Rabah Arezki and Akito Matsumoto.
Bottomline, expect prices to remain low/trending downward for the foreseeable future as the period of high prices encouraged increase supply capacity which is now combined with lower demand, which in the case of metals is for an important part driven by the expected slowing of growth in China.

The IMFdirect post highlights that for oil the downward price trend is to a larger extent driven by the supply factor and for metals the price trend is more a factor of global (Chinese) demand. 

Monday, September 7, 2015

Azerbaijan jails journalist who exposed president's family links to gold mine ownership

A court in Azerbaijan sentenced, Khadija Ismayilova, a journalist to 7.5 years in prison for tax evasion and embezzlement (see reports by the Guardian, incl. response of motherFT, and Radio Free Europe).

Working for Radio Free Europe, she has exposed the links of the family of the President Aliyev to profitable Azerbaijan businesses, including a Gold mine [rferl.org] in the west and mobile phone operator.

However, the gold mine is not the 'big thing' in Azerbaijan (the mine reportedly contains US$2.5B worth of minerals), oil and gas is. Although there is strong interest in this story from western governments, including the US [rferl.org], and international organisations, Azerbaijan position in the supply of natural gas from the Caspian sea to the same countries, makes a criticism muted. BP has largest stake in the gas project Shah Deniz in Azeri Caspian Sea, next to Socar, the national oil and gas company, followed with smaller stakes of others. Norway's Statoil and France' Total recently sold [bloomberg.com, see also FT] their stakes in the project.

Some human rights organisations now press governments to consider sanctions [eurasianet.org] on Azerbaijan for its crackdown on and jailing of human rights activists and journalists. As the article in Eurasianet indicates, the potential for sanctions has recently increased as the geopolitical position of and western corporate interests in Azerbaijan have diminished.

The situation that would make potential action against the Azeri government possible, may simultaneously also be the reason why the government is behaving as it does. Weakened links with western countries may make it feel more independent. At the same time, de decline of energy prices makes there less of the spoils to around, which may explain the resulting tendency of the more autocratic leaning governments to start using the stick to stay on top. This was also something that came up during our visit to Baku in February.

Ms. Ismayilova thought it funny she was jailed for things that she accuses the government and presidential family of. She wrote in her closing statement [rferl.org] to the court that she would continue exposing government abuse from prison.

Monday, August 31, 2015

New research: poor institutions, rich mines: resource curse in the origins of the Sicilian mafia

Paolo Buonanno (Univerisity of Bologna), Ruben Durante [rubendurante.net] (Science Po), Giovanni Prarolo [google.com] (University of Bologna) and Paolo Vanin [unibo.it] (University of Bologna) write on

Poor institutions, rich mines: resource curse in the origins of the Sicilian mafia

Abstract:
With weak law-enforcement institutions, a positive shock to the value of natural resources may increase demand for private protection and opportunities for rent appropriation through extortion, favouring the emergence of mafia-type organisations. We test this hypothesis by investigating the emergence of the mafia in twentieth century Sicily, where a severe lack of state property-rights enforcement coincided with a steep rise in international demand for sulphur, Sicily's most valuable export commodity. Using historical data on the early incidence of mafia activity and on the distribution of sulphur reserves, we document that the mafia was more present in municipalities with greater sulphur availability.
Published in the Economic Journal, available here

Friday, August 21, 2015

New Research: Resource Shocks and Human Capital Stocks - Brain Drain or Brain Gain?

A new research paper from Daniel Steinberg (uni-tuebingen.de), University of Tübingen,

Resource Shocks and Human Capital Stocks - Brain Drain or Brain Gain?

Abstract:
Based on the paradox of plenty, resource abundant countries tend to be vulnerable for lower economic prosperity along with instable political institutions as well as corruption. This paper sheds light on the relationship between resource abundance and the selectivity of migration. First, we combine a Dutch-Disease-Model with a Roy-Borjas-Model in order to elaborate on the relationship between resource shocks and migrant selectivity theoretically. Thereby, we predict that resource booms give rise to brain drain effects which are mediated through income inequality effects. Second, we provide empirical evidence for the effect of resource shocks on migrant selectivity based on a structural equation model in order to disentangle effects on income inequality and migrant selectivity. Our results show that resource shocks, especially oil booms, strengthen brain drain effects in a sample with 113 countries between 1910-2009.
Available here [ehes.org]

Wednesday, August 19, 2015

New Research: Sovereignty, the ‘resource curse’ and the limits of good governance: a political economy of oil in Ghana

Jon Phillips [kcl.ac.uk], Elena Hailwood and Andrew Brooks [kcl.ac.uk], all King's College London

write on
Sovereignty, the ‘resource curse’ and the limits of good governance: a political economy of oil in Ghana

Abstract:
The idea of a resource curse has influenced policy makers and led to calls for good governance to avoid the pitfalls of oil sector development. Through discussion of Ghana’s recent insertion into the global political economy of oil, this paper describes the limits of the resource curse framing and associated liberal institutional management approaches to the inherently political nature of oil exploration and production. The paper describes ways in which sovereignty has been exercised both in opposition to and in support of foreign capital, and the role of discourses of ‘good governance’ in structuring the material politics of resource access.
Published in Review of African Political Economy, available here [tandfonline.com].

Monday, August 10, 2015

New Research: Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers

Amany El-Anshasy [uaeu.ac.ae] (UAE University) , Kamiar Mohaddesby [cam.ac.uk] (Cambridge University), and Jeffrey B. Nugent [usc.edu] (University of Southern California), write on

Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers

Abstract:
This paper examines the long-run effects of oil revenue and its volatility on economic growth as well as the role of institutions in this relationship. We collect annual and monthly data on a sample of 17 major oil producers over the period 1961ó 2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our results suggest that (i) there is a significant negative effect of oil revenue volatility on output growth, (ii) higher growth rate of oil revenue significantly raises economic growth, and (iii) better fiscal policy (institutions) can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox, not the abundance of oil revenues as such.
Available as working paper here [pdf, cam.ac.uk] 

Friday, August 7, 2015

New Research: Economics of modern energy boomtowns: do oil and gas shocks differ from shocks in the rest of the economy?

Alexandra Tsvetkova [ideas.repec.org] and Mark Partridge [osu.edu], both from Ohio State University, write on

Economics of modern energy boomtowns: do oil and gas shocks differ from shocks in the rest of the economy?

abstract:
The U.S. shale boom has intensified interest in how the expanding oil and gas sector affects local economic performance. Research has produced mixed results and has not compared how energy shocks differ from equal-sized shocks elsewhere in the economy. What emerges is that the estimated impacts of energy development vary by region, empirical methodology, as well as the time horizon that is considered. This paper captures these dimensions to present a more complete picture of energy boomtowns. Utilizing U.S. county data, we estimate the effects of changes in oil and gas extraction employment on total employment growth as well as growth by sector. We compare this to the effects of equal-sized shocks in the rest of the economy to assess whether energy booms are inherently different. The analysis is performed separately for nonmetropolitan and metropolitan counties using instrumental variables. We difference over 1-, 3-, 6-, and 10- year time periods to account for county fixed effects and to assess responses across different time horizons. The results show that in nonmetro counties, energy sector multiplier effects on total county employment first increase up to 6-year horizons and then decline for 10-year horizons. In metro counties, 1-year differences analysis suggests crowding out though the multipliers are insignificant in longer horizons. We also observe positive spillovers to the nontraded goods sector, while spillovers are small or negative for traded goods. Yet, equal-sized shocks in the rest of the economy produce more jobs on average than oil and gas shocks, suggesting that policymakers should seek more diversified development.
Paper available here [pdf, uni-muenchen.de] 

Wednesday, August 5, 2015

New Research: The Resource Curse Revisited

The Chatham House group on natural resources and conflict has released a new paper titled,

"The Resource Curse Revisited", available here, see also the comment on the FT, authored by Paul Stevens, Glada Lahn, and Jaakko Kooroshy.

The paper takes stock of the achievements of the 'extractives-led development agenda', where it has failed and how it should adapt to a new environment that is increasingly concerned with carbon intensity of fossil fuels and the emerging world of low commodity prices.

What I find interesting is the explicit question of the use of extra fast extraction of natural resources, and whether the option of leaving things 'under ground' may make actually more sense. A view not very often expressed indeed.

Monday, August 3, 2015

FT's Nick Butler: The reports are false – coal burns on

Nick Butler writes on the FT website and interesting note on the future of coal.

Writing on the headlines and recent divestment campaigns,
If you have Oxford University, Michael Bloomberg and the Norwegian Sovereign Wealth Fund against you what hope can there be?
May I note an OxCARRE paper [ox.ac.uk] by Tony Venables and Paul Collier? In fact, he notes, how dominant coal still is, and likely to remain given the dependence of it in China and India.

He concludes that only a cheap renewable energy would be able to displace coal. That would imply serious energy put into science and research. Closing,
In the meantime, it would be prudent to start some serious consideration of the question of adaptation to the changes in climate that begin to look inevitable.