Africa, stop digging holes for the West

Mail&Guardian: For at least two generations, African leaders and policymakers have recoiled from the 300-year model of African natural-resource development. Simply put, the model was based on Africans, originally as slaves and later as paid porters, carrying ivory to the coast for ­Europeans and Asians to cut and process. The products may have changed, but not the model. Despite the fervent desire of African policymakers to add value to raw materials, whether it is copper, gold or coffee, it has simply never materialised. Yet despite this experience, the notion of adding value to raw materials remains an article of faith in Africa and almost all national and regional industrial policy statements make some mention of it...

Optimal resource extraction under mitigation and adaptation

Mimeo: Recent literature emphasises that society shall tackle the problem of climate change by pursuing a mix of both mitigation and adaptation activities. The paper derives society’s intertemporal welfare maximizing extraction rule for an exhaustible resource when using up the resource in production intensifies the greenhouse effect. We give society the possibility to build up adaptation capital which reduces the occurring output losses from global warming. We find that the market extracts the resource too fast and that the private build-up of adaptation capital is inefficient if the costs and benefits from adaptation are not purely private. If society fails to ensure efficient adaptation, the global environmental externality becomes more severe. We investigate the linkage between both market failures and provide policy measures to correct for them simultaneously.

The generalized resource curse

interfluidity: A useful way to understand the pickle we’re in, I think, is that we are suffering from the so-called “resource curse”. If you are unfamiliar with the phrase, “resource curse” refers to the regularity with which countries “blessed” with abundant natural resources end up as dystopian polities with dysfunctional economies. Nigeria has a lot of oil but no one wants to live there...

'Peak Oil' Is Back, but This Time It's a Peak in Demand

Bloomberg Businessweek: Remember peak oil? It’s the theory—current about a decade ago—that global oil production would soon top out, leading to an inexorable rise in prices. Reports and books painted a grim picture of the effects this would have on the global economy; as fracking and seabed discoveries have unlocked new sources of the fossil fuel, most have dismissed peak oil as a flawed concept.

Now a pair of reports from energy-sector analysts say we’re approaching peak oil from the opposite direction: demand.

Citigroup’s commodities division’s Seth M. Kleinman and colleagues write that “oil demand is approaching a tipping point” (PDF) and should level off by 2020. The Boston Company’s Global Natural Resources Team was less certain and direct in its forecast (PDF), indicating that Asia’s consumption growth rate would have to double to make up for shrinking North American demand, and flattening demand is among likely scenarios for the future.

Such stances are at odds with the U.S. Energy Information Agency’s prognosis, which sees global demand growing from 98 million barrels a day in 2020 to 112 million in 2035.

Citi acknowledges this “broad consensus,” but points to “several developments” that “give reason to question the consensus and raise the possibility that the tipping point for oil demand may come sooner” rather than later...

The Global Energy Outlook

NBER WP: We explore the principal trends that are shaping the future landscape of energy supply, demand, and trade. We take a long-term view, assessing trends on the time scale of a generation by looking 25 years into the past, taking stock of the current situation, and projecting 25 years into the future. We view these market, technology, and policy trends at a global scale, as well as assess the key regional dynamics that are substantially altering the energy scene. The shift from West to East in the locus of energy growth and the turnaround of North American gas and oil production are the most pronounced of these currents. Key uncertainties include the strength of economic and population growth in emerging economies, the stringency of future actions to reduce carbon emissions, the magnitude of unconventional natural gas and oil development in non-OPEC countries, and the stability of OPEC oil supplies.

Energy Production and Health Externalities: Evidence from Oil Refinery Strikes in France

NBER WP: This paper examines the effect of energy production on newborn health using a recent strike that affected oil refineries in France as a natural experiment. First, we show that the temporary reduction in refining lead to a significant reduction in sulfur dioxide (SO2) concentrations. Second, this shock significantly increased birth weight and gestational age of newborns, particularly for those exposed to the strike during the third trimester of pregnancy. Back-of-the-envelope calculations suggest that a 1 unit decline in SO2 leads to a 196 million euro increase in lifetime earnings per birth cohort. This externality from oil refineries should be an important part of policy discussions surrounding the production of energy.

Aid and the Rise and Fall of Conflict in the Muslim World

New draft by Ahmed and Werker: The conflict following the Arab Spring is not the first wave of civil war in the Muslim world in recent time. From the mid-1980s to the end of the century, an average of one in ten predominantly-Muslim countries experienced violent civil war in any given year. We provide a partial explanation for this statistic: a foreign aid windfall to poor, non-oil producing Muslim countries during the twin oil crises of the 1970s allowed the recipient states to stave off rebellion. When oil prices fell in the mid-1980s, the windfall ended, and the recipient countries experienced a significant uptick in civil war. We test this hypothesis using a natural experiment of oil price changes which favored Muslim countries over non-Muslim countries. We then construct a formal model consistent with the stylized facts of this historical episode: oil-rich donors are generous according to the price of oil; and recipients are peaceful with no aid or high levels of aid, and otherwise experience civil war. The model generates further predictions which are consistent with the data.