Monthly Archives: March 2010

Where the U.S. stands on the Laffer Curve

From Greg Mankiw:

Taxes/GDP x GDP/Person = Taxes/Person

Here are the results for some of the largest developed nations:

.461 x 33,744 = 15,556

.406 x 34,219 = 13,893

.390 x 35,165 = 13,714

.282 x 46,443 = 13,097

.334 x 38,290 = 12,789

.426 x 29,290 = 12,478

.373 x 29,527 = 11,014

.274 x 32,817 = 8,992


Inflation? What Inflation?

From Free Exchange

Indecision on climate bill dampening economic recovery?

So says Obama. From Real Time Economics:

Senior Obama administration officials say the nation’s economic recovery could stall if Congress doesn’t pass a climate bill this year.

The officials warn that investors are so uncertain about the future cost of emitting greenhouse gases that they are sitting on capital rather than pouring it into “clean” technology, new power plants or energy-intensive manufacturing.

The administration has for months been moving away from advocating climate legislation primarily as an environmental issue and toward a jobs-creation argument. But the comments are a marked shift to a stronger rhetoric: fears of prolonging the recession. The White House says spurring “clean,” or low-greenhouse-gas-emitting energy, can help lay the foundation for the 21st-century U.S. economy.

“Right now there’s a lot of money on the sidelines,” said Energy Secretary Steven Chu. “Capital on hold means investments not being made, investments not being made means jobs not being created,” he said at an Export-Import Bank conference last week.

Companies that could capitalize on a carbon-constrained economy, such as General Electric Co., Alstom SA, Areva, Babcock & Wilcox, a unit of McDermott International, Siemens AG, Chesapeake Energy Corp. and First Solar Inc., say policy clarity will focus investment. So do emitting businesses that will need to adapt, such as American Electric Power Co. and BP PLC.

Ambiguity, however, breeds risk, which begets financiers’ reluctance.

It is an interesting argument. Financial decisions makers will always delay their decisions until some certainty can be had.  But, I don’t think indecision is hampering recovery. I think it is only limiting the potential for growth in clean energy. Nothing should change the outlook for conventional energy because climate change legislation’s aim is to not reduce the amount of conventional energy but reduce carbon. Financial decision makers regarding conventional energy should be much savvier when facing this uncertainty because the room for change is available post investment.  Unless congress is going to enact climate legislation that will completely cripple the conventional energy industry, (it won’t) carbon will be priced should be priced where alternative energy will become competitive.  There is no metric for pricing carbon at it’s value. (Pigovian tax)  Politics determines it.  Cap and trade is the best mechanism for private investment to determine the actual cost of carbon.

What the issue here is, investors wishing to take advantage of more growth in clean energy are waiting on congress to make clean energy more competitive.  So, while indecision is not hampering recovery, it certainly is hampering growth.  And given this comment:

“People need to realize this is a global market for our capital,” GE’s Walsh said. “Our money is going to go where we see long-term certainty … and if Europe has a better framework, that’s where our money’s going to go,” he said.

I would have to say that a climate bill is not an issue of environmentalism anymore. Its about helping new industries compete with a global mindset that may have more forward thinking politicians than America does. So maybe I should retract my comment: Indecision with climate change legislation isn’t hampering our recovery; its hampering our competitiveness with the rest of the world in clean energy.

Senate passes jobs bill

So the Senate just voted on the jobs bill and it is now going to Obama.  I predict with a 99.87% certainty that Obama will pass it, only so that he can push it aside to get political points while getting to bigger business for the next session of congress.  Here is what the bill will offer: (bullet points added, from NYT)

  • …businesses that hire workers who have been jobless for at least 60 days will be exempt from paying the 6.2 percent payroll tax on those employees’ earnings until the end of the year. If those workers stay on for a full year, businesses will also get a $1,000 tax credit. (The employee’s pay would still be subject to the usual personal income taxes.) The business tax breaks would add up to about $15 billion in all.
  • It also provides an extra $20 billion for road and bridge construction and extends the federal highway program through year-end.

And that’s it. $30 billion in corporate tax breaks is soon to follow, which is probably being pushed by Dems in order to compliment the oddly restrictive, albeit mildly effective hiring incentive.

But where is the investment tax credit Obama said he would like to see when he gave his State of the Union address? This bill won’t do much for employment as much as we hope.  Construction spending is only expected to ease some of the pain for construction workers on federal contracts.  Of course I can’t quantify what this will do. (I will look out for it) I know that at this turning point in the economy, with productivity up and a lot of pent up need for hiring, an investment tax credit would definitely stimulate demand.  Weak demand is the reason that’s keeping employment from taking off.

Upcycling: Another name for the waste product aftermarket?

I stumbled upon this well put together blog, Intercon, and came upon this post entitled Recycling vs. Upcycling: What is the difference? In the post, the author defines upcycling as:

process that can be repeated in perpetuity of returning materials back to a pliable, usable form without degradation to their latent value—moving resources back up the supply chain.

Sounds a little bit like a term I coined called the “waste product aftermarket.”  The waste product aftermarket is an idea that I have a few kinks to work out, – I haven’t been able to muster up any formal definition for it – (watch out grad school) but I find many similarities with this author’s proposition for the concept.  My aim here is to flesh out the differences between the two.

Both are similar in that they define a concept often used in sustainability – about closing the link between the industrial supply chain’s input beginning to its waste end.  In ecological economics terms, this is a function of industrial ecology where resource inputs that will have value added to them also have waste outputs all along the product lifecycle.  Traditional industrial production models are linear based and describe the waste outputs (which add no value to the supply chain) as externalities.  However, in an industrial ecological production model, instead of waste being an externality, it is a valuable resource that, with value added such as recycling, could then become a resource input to begin another product life cycle again.  This idea assumes sustainability because the production cycle becomes a closed loop system where new resources entering the system are not used and then wasted, they are simply reused over and over.  The benefit of this? Less environmental damage from the front end and the back end.

But lets get back the difference between the definitions.  The waste product aftermarket is the actual market where suppliers (those who generate the waste whether its industry or consumers) meet with buyers. (those who add value to the waste, like recyclers)  The buyers then sell their newly reused product and either contract out their products (or put on a commodities market) as inputs for beginning the new product cycle.  Like any market, profit maximization is the key guide here.  While this isn’t a concrete definition, (this is just a blog after all) I hope this makes my ideas a little clearer.

What upcycling to me is the process of waste reaching an intermediary in the waste product aftermarket which can then be created into a usable form.   For now on, I will continue to use this definition to explain this particular process.  To understand more about the waste product aftermarket, you will just have to read my blog more!

Clean coal finally a reality without the expense?

Instead of pumping C02 into the ground we can just mix it with seawater to create something that resembles coral, a substance that is harmless to the earth and and can be useful for creating building materials. From Thomas Friedman:

If you combine CO2 with seawater, or any kind of briny water, you produce CaCO3, calcium carbonate. That is not only the stuff of corals. It is also the same white, pasty goop that appears on your shower head from hard (calcium-rich) water. At its demonstration plant near Santa Cruz, Calif., Calera has developed a process that takes CO2 emissions from a coal- or gas-fired power plant and sprays seawater into it and naturally converts most of the CO2 into calcium carbonate, which is then spray-dried into cement or shaped into little pellets that can be used as concrete aggregates for building walls or highways — instead of letting the CO2 emissions go into the atmosphere and produce climate change.

If this can scale, it would eliminate the need for expensive carbon-sequestration facilities planned to be built alongside coal-fired power plants — and it might actually make the heretofore specious notion of “clean coal” a possibility.

Assuming it is scientifically possible and economically viable:

– Reduced demand for conglomerates used in concrete lessens environmental damage from rock quarries (assuming coal plants produce this coral cheaply) and reduces holes in mountains

– Increased demand for coal provides incentive for finding cheap coal by using cheaper extraction processes, leading to blowing up mountains for it and increases holes in mountains

Oh well, less carbon is still a pareto efficient outcome in my book.  Maybe in a quest for economies of scale, coal plants can start to diversify their carbon sequestration technologies from creating building materials to providing C02 in my soda.*  Mmmmm…coal’d soda…

HT: Environmental Economics

*I think the industry already does this but I could be wrong…

Finding Value in Waste

S4 Energy Solutions will be testing a valuable technology for commercial viability by:  (here)

…superheating landfill waste using an electricity-conducting gas called plasma, which rearranges the waste’s molecular structure into a synthetic gas. The end product can be converted into transportation fuels such as diesel or ethanol, industrial products like hydrogen and methanol, or used as a natural gas substitute to fuel electric plants.

The question is: How much quantity at what cost? I also wonder if this becomes economically viable, how it would change the value of waste in the long run?