Wednesday, March 31, 2010

Proposition 14 - A Really Bad Idea

Proposition 14 on the June ballot would, if passed, enact a "top two" election system, with the top two vote getters from the primary election, regardless of party, being the only candidates on the ballot in the general election. Chances are pretty good that this means only major party candidates would actually make it to the general election. In some cases, it might be two Democrats or two Republicans, but you won't likely be seeing any third parties on the ballot anymore. And that seems pretty undemocratic.

There are interesting commentaries here:

http://www.calwatchdog.com/2010/02/19/new-will-prop-14-kill-third-parties/

and here:

http://www.independentpoliticalreport.com/2010/03/editorial-ipr-opposes-proposition-14-in-california/

and here:

http://www.stoptoptwo.org/

Tuesday, March 30, 2010

Drilling for Oil: A Dry Hole

Sarah Palin and John McCain got attention for their call for drilling for more oil, and Barrack Obama is following suit. But drill-for-more-oil is an energy policy like searching under the couch cushions for spare change is a fiscal policy. It is exciting when you find something, but it doesn't buy you much.

First, if what we are trying to do is protect against future supply disruptions in a world where oil is in shorter supply than it is now, doesn't it make sense for us to keep our oil, rather than pump it out and sell it or use it? If we pump it out, it is gone. Chevron and Shell are not likely to spend the money to drill wells, only to leave the oil in the ground - they will sell it or use it in their own refineries. So if we drill now and use the oil, if things get really tight in the future, we will be even more vulnerable to supply disruptions because we will have already used up our reserves.

Second, drilling here does not necessarily mean that we get the oil here. We do not have a state-run oil company that will keep the oil and its refined products here. The big oil companies sell oil on a global market, meaning that if China or Germany is willing to pay more for oil, that is where the oil will go. Just drilling here does not guarantee us any more oil.

Third, there is little economic benefit to California of drilling here. There are a few, but they are small. Some Californians, but not many, may be employed in drilling for oil. To the extent the oil is refined here and the refined products sold here, California will collect some taxes, but again, not much. If the drilling is done on state-owned land, California may get some lease revenues. California has no oil severance tax, meaning that we do not collect any money for the hundreds of thousands of barrels of oil that are pulled out of California every day. Zero.

Fourth, the costs of oil production to California are high. California gets significant income from tourism and from fisheries. Offshore drilling is a significant threat to both of these. Drilling platforms and the occasional oil spill will harm tourism, and oil spills and other pollution from drilling activities will harm valuable and already-threatened fisheries.

Drilling for oil in California, particularly offshore, simply makes no sense.

Cap and Trade: The Good, The Bad, and The Ugly

Cap and Trade as a method for addressing greenhouse gas emissions has been hailed as the savior of the earth and demonized as the destroyer of our society. While it could end up being one of those, most likely it is neither. There are aspects of it that are good, some that are bad, and some that are just plain ugly.

The Good: It has a cap. If you are trying to control greenhouse gas emissions, having a firm and specific cap does it. (A carbon tax does not do this.) The cap on emissions would get lower over time, bringing down greenhouse gas emissions levels.

The Ugly: Setting the level of the cap and the rate at which it gets reduced. If the cap is set too high, it effectively does nothing to reduce greenhouse gas emissions. If the cap is set too low, you get significant economic and social disruption, as higher carbon industries or processes are forced to either shut down or rapidly change, potentially at great expense.

The Good: Theoretically, the trading of emissions allowances will result in a fair price being put on greenhouse gas emissions. No one has to try to calculate a carbon price - the market will just do it.

The Ugly: This pricing theory only works if the level of the cap is about right, and it only works if the allowances are not initially given away (or priced too high, but this seems less likely), and it only works if the market is set up properly with rules and enforcement to prevent fraud and gaming.

The Bad: If the initial allocation of allowances is made by giving them away, particularly if they are allocated based on past emissions, then the public is (again) subsidizing the emitters, and the price for carbon will be artificially low.

The Ugly: Allocation of allowances by auction would appear to be the approach that would result in the most accurate price for carbon, but then there will be arguments about who should get the proceeds from the auction. New clean technologies? Consumers? Dirty industries that need help cleaning up? The outcome will most likely be based more on politics than on sound policy.

This is just a quick examination of cap and trade - it does have some good aspects, and some bad aspects, but mostly it is just ugly.