The Knowledge Problem
Commentary on Economics, Information and Human Action

Thursday, March 27, 2003  

HYDROGEN-POWERED BUILDINGS? Today's fourth part of RPPI's five-part series on hydrogen looks at using hydrogen fuel cells and hybrid engines to power buildings. There's a lot of potential benefits there, and not as many problems as with vehicles. Tomorrow: can the government (or anyone else, for that matter) pick technology winners?

posted by lkkinetic | 3/27/2003 01:29:00 PM

Check out Virginia Postrel's Economic Scene column today, in which she analyzes whether or not war is good or bad for the economy. Of course, it cuts both ways. One of the interesting facts of economic history is that the physical and human devastation is the largest cost, while one benefit that has lots and lots of unanticipated and expanding future benefits is technological change.

posted by lkkinetic | 3/27/2003 01:27:00 PM

Wednesday, March 26, 2003  

FERC RULING ON CALIFORNIA REFUNDS: Here's Chairman Pat Wood's statement today on the matter, and a findings-at-a-glance summary. I'm sure I'll have more to say on this once I've read the staff report.

posted by lkkinetic | 3/26/2003 04:08:00 PM

GIVING ELECTRICITY REGULATION A JOLT: Ken Silverstein has written a wonderful article today on ways to change the regulatory approach to retail electricity markets, quoting both me and Ken Malloy from the Center for the Advancement of Energy Markets extensively. Both Ken and I make the market-based case for utilities to be free to offer a variety of services to their customers. In addition, harnessing tht customer-focused approach to value creation would also create the opportunity for consumer demand to constrain the exercise of supplier market power, and would thus be a good recommendation for a forward-looking California to follow, as I suggested below.

posted by lkkinetic | 3/26/2003 03:40:00 PM

SHOULD THE FEDERAL GOVERNMENT SUBSIDIZE HYDROGEN FUELING INFRASTRUCTURE? Today's third part of RPPI's five-part series on hydrogen addresses proposed subsidies to hydrogen fueling infrastructure, to solve the "chicken-and-egg problem" of vehicle demand and fueling supply. As the article points out, this is not a new problem, and we can learn from how solutions evolved in past instances.

posted by lkkinetic | 3/26/2003 03:16:00 PM

Today the Federal Energy Regulatory Commission is deciding on the extent of refunds that energy companies owe to California resulting from the 2000-2001 electricity policy fiasco. I've got an op ed on the issue in today's Orange County Register, basically saying what I've said here before: enough already. Stop focusing resentfully on the past and start thinking about what is truly in the best interest of the future of California businesses and residents -- constructing simple, transparent market institutions that will encourage the electricity industry to innovate and thrive by providing the variety and reliability of services to the wide variety of consumers that will make them better off.

In the interest of balance, here's an op ed from today's San Francisco Chronicle that has a different take on the situation from mine.

posted by lkkinetic | 3/26/2003 11:37:00 AM

Tuesday, March 25, 2003  

THE ECONOMICS OF HYDROGEN: Today's second piece in RPPI's five-part series on hydrogen focuses on the economics of innovation. Hydrogen research will not proceed in a vacuum, but will occur in the context of continuing innovation of internal combustion engines. This simultaneous innovation of mature and new technologies has lots of historical precedents, and I highlight one of them in the commentary.

Tomorrow: does the federal government have to subsidize hydrogen fueling infrastructure?

posted by lkkinetic | 3/25/2003 02:04:00 PM

Monday, March 24, 2003  

LET THE HYDROGEN ECONOMY EVOLVE: This week at Let the Hydrogen Economy Evolve, a 5-part series on the science and economics of proposed federal hydrogen policies.

Today's commentary, the first in the series, lays out the current state of the science of hydrogen fuel cells. Topics for the rest of the week include the economics of simultaneously innovating mature and new technologies, whether or not to subsidize hydrogen fueling infrastructure, why vehicles and not buildings, and whether the government can pick technology winners.

posted by lkkinetic | 3/24/2003 01:15:00 PM

Friday, March 21, 2003  

Crude Oil Falls for Seventh Session as U.S., U.K. Forces Secure Iraq Wells. And the fall is substantial again, at around a dollar now, to around $27.10/barrel. Furthermore, US DOE reports show that world oil supply is virtually unaffected.

posted by lkkinetic | 3/21/2003 11:18:00 AM

Thursday, March 20, 2003  

Oil trading is volatile, and currently the price is below $29, down $1.17 from yesterday's close. Interesting in light of the alleged fires around Basra.

posted by lkkinetic | 3/20/2003 12:46:00 PM

Fox News is reporting that the Dept of Homeland Security has received a specific threat against the Palo Verde nuclear power plant in Arizona, and that fed, state and local authorities are providing coordinated defense of nuclear power plants.

UPDATE: See this CNN story on the threat.

posted by lkkinetic | 3/20/2003 12:45:00 PM

NO SURPRISE THERE: Oil fires in Southern Iraq, near Basra. Massing of ground troops, one hopes with one of their objectives being to extinguish those fires before they cause serious environmental and economic harm. Delayed quotes on oil markets don't show any effect yet from that information. Iraqi officials deny the reports, according to Reuters.

OK, now I'm going to start grading! We'll see how long that lasts, though.

posted by lkkinetic | 3/20/2003 09:59:00 AM

It's a dark, foggy, rainy day here in Chicago, and I'm off to cuddle up on the couch with a cup of tea and a pile of bluebooks. More later.

posted by lkkinetic | 3/20/2003 09:40:00 AM

WHERE'S THE OIL PRICE SPIKE? The commencement of incursions into Iraq has not led to price spikes in oil markets, but instead to a three-year low. Part of the explanation for this is the expectation of a quick war that does not disrupt supplies. This Bloomberg Energy News article also answers my question from earlier this week about the reasons for the price differences between London and New York markets:

"Saudi Arabia and OPEC are covering any shortfall from Iraq,'' said Sam Tilley, an analyst at Sucden U.K. Ltd., a London futures brokerage. ``The oil market expects the war will be quite short and that Iraqi oil fields will be pumping again afterward.''

Brent crude for May settlement was down 15 cents, or 0.6 percent, at $26.60 a barrel on London's International Petroleum Exchange at 1:24 p.m. Oil pared losses after the International Energy Agency said it sees no need to tap emergency reserves.

Earlier, Brent fell as much as 4.7 percent to $25.50, the lowest intra-day price for the benchmark contract since Dec. 10. It has dropped 21 percent in six trading sessions on waning concern about loss of oil supplies. That's the biggest such slide since a 25 percent plunge in the period ended Sept. 24, 2001, just after terrorist attacks shook the U.S.

In New York, the April delivery oil contract, which expires at today's close, was down 58 cents at $29.30 a barrel in electronic trading on the New York Mercantile Exchange. May crude oil was down 49 cents at $28.87, a bigger decline than the May Brent contract in London.

"In a bull market, or a bear market, Nymex crude always tends to outpace the Brent price movements because funds are more active on the New York market,'' said Nauman Barakat, head of the European oil trading desk at Fimat International Banque SA.

"The Nymex-to-Brent spread has narrowed significantly,'' he said. "Earlier there was always more of a premium on the Nymex market and that war premium is evaporating into thin air now.''

Both of the above-cited articles and this Reuters report from Wednesday night indicate that OPEC has stated explicitly that it will increase production to counter any supply disruptions. Their ability to do that is constrained by their limited excess capacity, most of which is in Saudi Arabia.

posted by lkkinetic | 3/20/2003 08:17:00 AM

Wednesday, March 19, 2003  

ELECTRICITY DEREGULATION IN TEXAS AND CALIFORNIA, WORLDS APART: This LA Times article from Monday contrasts electricity policy in Texas and California, and makes it crystal clear how colossal a policy failure the California "deregulation" was. Furthermore, the article illustrates the major point, that California's woes were not the fault of deregulation, which when done well, creates value for consumers and for innovative suppliers who are willing to rethink the value propositions they offer to their customers. There's also a little quote from yours truly in the article.

posted by lkkinetic | 3/19/2003 07:55:00 AM

STRICTER CAFE STANDARDS FOR LIGHT TRUCKS ARE INEFFICIENT: Check out this new AEI-Brookings Joint Center study on light truck fuel efficiency. Punch line: more stringent fuel efficiency standards for light trucks are an inefficient way to reduce gasoline use. From the abstract:

The National Highway Transportation Safety Administration (NHTSA) recently proposed increasing the fuel economy of new light trucks by 1.5 miles per gallon for vehicles produced in model year 2007. NHTSA’s analysis of its proposal implausibly concludes that the benefits to consumers are more than twice the costs to manufacturers, ignoring effects on the environment or dependence on foreign oil.

NHTSA’s proposal has several serious flaws. It wrongly presumes that manufacturers cannot produce items that consumers are willing to buy, even though they could make money by doing so. Its analysis uses overly optimistic measures of net benefits. In addition, NHTSA neglects the adverse effects from the increased driving induced by the proposal. By lowering the cost of driving, NHTSA’s proposal increases vehicle miles traveled, thereby boosting traffic accidents and congestion. The increase in the costs of accidents and congestion fully offsets and probably outweighs the social benefits resulting from greater fuel economy.

If NHTSA is interested in a cost-effective way of reducing gasoline use, it should consider giving consumers better information about fuel economy of new vehicles, or suggest a modest gasoline tax. A penny per gallon levy would conserve more fuel in 2007 than NHTSA’s proposal, while lowering, rather than increasing, traffic congestion and accidents.

This recommendation parallels one that I made in this February post, building on Virginia Postrel's Economic Scene column on CAFE standards from December 2001.

posted by lkkinetic | 3/19/2003 07:49:00 AM

In an email I received from Ed Reid, a very smart energy industry and policy expert I know, he makes the following observations about my post on fuel-cell powered mobile electronics:

You are absolutely right about trying to pick winners. Parallel research programs are expensive, but experience has proven that they are not wasteful. The research is also far less expensive than development, demonstration and deployment (the rest of the RDD&D process). I have seen many programs judged by some to be "sure winners" fail; and, I've seen a few "losers" succeed. I've also seen elements of multiple unsuccessful programs combined to produce a success. However, for cross-licensing to succeed, there must first be technology to license.

posted by lkkinetic | 3/19/2003 07:43:00 AM

Yesterday's plummeting oil prices were stunning -- according to Bloomberg Energy News, light sweet crude on NYMEX fell $3.26!!! That's approximately a 10% drop, in a commodity market where a 3% change is viewed as pretty extreme. Is this the result of uncertainty resolution? Or do traders think that Iraqis will listen to President Bush and not torch the oilfields?

This Houston Chronicle article argues that the price decrease is the result of stripping the war premium out of the market. I recommend reading the entire article, which puts the price increase in a nice historical context, and also points out how much more competitive and better integrated oil markets are than they were 10 years ago. A story on the Marketplace radio show last night made the same point, and I'll link to the file when it comes online.

But this Forbes article from this morning suggests that there's still some volatility, with prices in world markets edging up in advance of the New York open.

posted by lkkinetic | 3/19/2003 07:31:00 AM

Monday, March 17, 2003  

RESOLUTION OF SOME UNCERTAINTY PRODUCES A RALLY: Financial markets see the change in geopolitical motion as a resolution of uncertainty that has plagued markets, as this Washington Post article and this CNN/Money article indicate. As both note, this behavior is consistent with the perception that a war would be short.

Note also that London oil prices remained volatile, and New York opened slightly higher, Both markets have closed substantiall lower than recent peaks (and, in real terms, well short of all-time highs), which is consistent with some expectation of future increased supplies.

posted by lkkinetic | 3/17/2003 11:45:00 AM

Fuel-cell Powered PDAs? They’re Coming

This week is National Energy Education Week, and I would like to celebrate by highlighting some fascinating, and potentially incredibly useful, research being done on ways to use hydrogen fuel cells for mobile electronic devices. Electronics companies including Toshiba, Intel, Motorola, and 3M have been investing in research to replace batteries with fuel cells, and some of them are actually nearing commercialization.

Why power electronic devices like cellphones, laptops, PDAs, and video cameras with hydrogen fuel cells? Traditional lithium ion batteries are becoming increasingly exasperating; they are heavy, you have to power down to change batteries in most cases, and as the energy intensity of our electronic demands increases, batteries just don’t last long enough to provide practical power. Batteries have not innovated at the same rate as microprocessors, memory, and other electronic technologies, which means that they have not become more productive and have not gotten smaller and smaller.

Research into small fuel cells, called microcells, indicates that they could do what batteries have not. Toshiba is a pioneer in this research, and they released a microcell prototype at a trade show in Germany last week. The prototype currently uses methanol as the source of the hydrogen, and can power a laptop for five hours with one cartridge of fuel. The cell is practical for refreshing on the fly – as the cartridge drains, the user can insert another cartridge without turning off the computer. It is still larger than comparable lithium ion batteries, but Toshiba foresees the cells getting smaller through ongoing research over the next year. Toshiba plans to release the microcells for commercial sale by next year.

An article in Sunday’s New York Times delves into these research efforts, noting in particular the role of consumer preferences in shaping this research initiative:

But the biggest reason the smaller cells are expected to become popular sooner is their appeal as a convenience — something that consumers have shown a willingness to pay for — and not as an answer to energy and environmental problems.

Fuel cells that last far longer than do rechargeable batteries would free laptop computer users and television camera crews, for example, from the need to lug heavy and expensive backup battery packs.

The article also contains some good background information on issues with hydrogen fuel cells, as does an article from early March in Wireless News Factor.

The use of methanol instead of some other hydrocarbon to generate the hydrogen also contributes to the practicality of the cells, because methanol can be stored and transported at very high concentration, which means a lot of power in a little space relative to ethanol or pure hydrogen. This feature contributes to what researchers hope will be another manifestation of Moore’s Law – that microcells will double in power and halve in size over the next 18 months.

Lots of companies are working hard to make that happen. Large electronic firms like Toshiba, Intel, Motorola, Samsung, and Sony are all working on fuel cells for mobile electronics. But the real innovators are smaller outfits that have traditionally done more scientific instrument research, such as Manhattan Scientific. This pattern of research has created substantial value, and many new and unforeseen products, in mobile electronics. Historically, this pattern has shown up in everything from mass-market ceramics to steel. In this pattern many people work independently toward a shared goal, but want two very important things: to get there first and be the one that becomes the established standard. Thus their profit motive (where profit can include not just financial remuneration, but also status and the satisfaction of being the one who solved it first, or best) creates new and unforeseen products and opportunities to do things that we never imagined before.

Some people characterize this pattern as wasteful, with all of that replication of research effort. I strongly disagree. If you try to channel these efforts and guide research with an objective of minimizing duplication, you are very likely to fail, because the duplication is never perfect – even if several people are working toward the same goal, such as smaller methanol fuel cells, the variations in their procedures, their materials, their ways of approaching the problem, and just sheer luck will all lead them down different paths. It’s that human variation that maximizes the potential benefit from research. All of that seeming duplication also does something incredibly valuable: it maximizes the probability that the researchers will find dead ends and eliminate them from further exploration at that time, in that application.

The combination of a perceived benefit from providing consumers with an alternative to batteries and the striving drive of human creativity to solve these technological problems are combining to create this new opportunity. Plus it doesn’t hurt that fuel cells can be a cleaner fuel source than batteries, depending on the fuel you use and how you produce the chemical reaction in the fuel cell. And don’t forget that microcell research could inform the research on hydrogen fuel cell vehicles, and make them cheaper, more energy efficient, and therefore more potentially commercial.

posted by lkkinetic | 3/17/2003 11:17:00 AM

THE "DAY OF TRUTH" EFFECT IN OIL MARKETS: Not surprisingly, London crude oil prices rose today. There are two interesting things to observe here. First, the FT article states that

In London IPE Brent crude prices for May delivery were trading up 42 cents at $30.55 per barrel at 1115 GMT having been as high as $31.65 per barrel earlier in the day.

Notice these data on Friday's closing prices from Bloomberg Energy News:

Nymex Crude 35.38 -0.63
Dated Brent $ 31.61 -0.30

The price difference between the main US market and the main European market is quite interesting. I am not an expert in the differences between the light sweet (i.e., with sulfur removed) crude and Brent crude (which is largely from the North Sea deposits), but as with most financial markets when these two prices diverge substantially there's always an interesting story. Any ideas? My thoughts are that the US is still more substantially feeling the effects of the Venezuela supply shortfall (a supply side reason), and that with the reformulated gasoline turnover season in the US about to start, there's an increase in demand.

Second, the FT article points out that the 40-cent increase in London today is a small spike relative to the $1.62/barrel decrease last week, which has been variously attributed to either the anticipation of a short, successful war or the delay of a war.

posted by lkkinetic | 3/17/2003 08:31:00 AM

HERE'S THE FRUIT OF MY WEEKEND LABOR: A new and improved Northwestern webpage for me! Computer programming is not my comparative advantage, so this tried my patience. But it worked! Unlike my other page, I will update this page frequently with new course syllabi, links to my research and other publications, and random fun stuff. I also have posted there something that I devised while teaching at William and Mary, writing guidelines. These are very general writing guidelines, and tend to emphasize the things that are my pet peeves (like mixing up "that" and "which", and using "impact" as a verb substitute for "affect"), but they're out there for general consumption.

As always, comments welcome.

posted by lkkinetic | 3/17/2003 08:18:00 AM

Friday, March 14, 2003  

OIL PRICES PLUMMET: According to MSNBC world oil prices today are falling because of a combination of factors: US firmness in the face of oppostion implies swifter resolution and has contributed to expectations of increased oil supplies in the nearer future; US reiteration that releases from the strategic petroleum reserve could very well happen (and that's about two month's worth of oil); and the fact that Saudi Arabia has contracted for a massive number of tankers to ship crude. That contracting is a credible financial commitment to increased oil supply to world markets, and Saudi Arabia is the OPEC country with the most excess capacity right now, so it's very likely to mean increased supply. This CBS Marketwatch story tells the same story.

posted by lkkinetic | 3/14/2003 11:42:00 AM

Tuesday, March 11, 2003  

And that doesn't even address the reforumlated gasoline switch from winter fuel to summer fuel, which is starting right now at refiners and is causing fuel prices to increase more quickly in the usual tight spots, California and the Midwest. In addition to that, California is beginning to phase out MTBE as its oxygenate and move to ethanol, which is more expensive to produce and transport, so that fact contributes heavily to the sudden price increase in California.

[Insert standard rant about politicians who want to "save" the environment but rail against oil companies as greedy price gougers. Want to have their cake and eat it too etc.]

posted by lkkinetic | 3/11/2003 08:06:00 AM

MORE OIL SOURCES: MSNBC has a special report on oil in Iraq with some good information. Furthermore, this front-page article from today's Wall Street Journal (subscription required) discusses in some detail the reasons for the tight oil supply chain. There's less spare capacity and lower inventories.

posted by lkkinetic | 3/11/2003 08:02:00 AM

Monday, March 10, 2003  

HOT LANES HAVE "AMAZING PROMISE": According to Washington Post writer Neal Peirce, Reason's HOT lanes proposals are very good ideas that will use technology and market incentives (read: prices) to reduce congestion, time spent driving, and fuel use in the 21st century.

posted by lkkinetic | 3/10/2003 10:59:00 AM

In a conversation with Will Wilkinson about naming his car Bucephalus, we got into a discussion in a group of folks about what motivates people to name their cars. New Scientist has provided an answer:

Men who are fanatical about cars identify vehicles using the same brain circuitry used to recognise faces, new research shows

posted by lkkinetic | 3/10/2003 10:41:00 AM

OIL, OIL, OIL: Here's a summary article from Sunday's New York Times on the uncertainty in the oil industry and its effects. See also this Kevin Hassett article on Tech Central Station from Friday on the economic consequences of high oil prices.

And for some insight into the conflicting incentives of Persian Gulf OPEC members regarding Iraq (i.e., hate Saddam, but Iraq producing at well below capacity is good for OPEC), see this Bloomberg Energy News article.

posted by lkkinetic | 3/10/2003 10:33:00 AM

Saturday, March 08, 2003  

AND THEN THERE'S THOSE PESKY OIL PRICES: Crude oil prices are the highest they've been in 12 years, and the Iraq situation is only one reason, as I've been saying for months and as this Business Week Online article points out.

High oil prices and their translation into high gasoline prices have produced their usual response from Midwest politicians -- a request for a Federal Trade Commission probe. In normal times it's almost like clockwork in April and May to have Midwest politicians squawking about how high gasoline prices must be the result of collusion, but because of Iraq, Venezuela, and the cold winter we're seeing the price gouging claims come out of the closet well in advance of the spring season.

To counter this claim I refer the gentle reader to Russell Roberts' commentary from NPR last week, as I did in this post. His conclusion:

There's one other twist to the gouging theory. If market forces and competition rule the gasoline market, then how can suppliers charge more for the oil they bought months ago when prices were lower? Again, think of your house. When you sell your house, you can't charge whatever you like. But you can charge what the market will bear. And that has nothing to do with what you paid for it If war comes, and if there's no real disruption to oil supply, the price of gasoline will fall dramatically, just as it has in the past. And sellers who paid a premium for their supplies will take a loss. The fact that they paid a lot for their supplies will be irrelevant. Somehow, their alleged ability to exploit us will disappear overnight like the morning mist.

Claims of price gouging rely on assuming that the demand for gasoline is inelastic. Since we've experienced quite a few price increases over the past couple of months, we are at a point where the demand for gasoline is more elastic than it was before, although in absolute terms and for some people and some markets it may still be inelastic.

One of the challenges facing those who want to prove collusion is the problem we call observational equivalence -- if gasoline prices at competing stations move in unison, is it because they are colluding, or because they are operating in such a competitive market that any cost change in the entire market gets passed on to consumers by all of them? Both explanations lead to prices moving in unison, and you have to look at external factors to infer the cause of the behavior.

I am skeptical about collusion, largely because almost every analysis ever done of retail gasoline markets indicates that they are among the most competitive markets in the country. Politicians in the Midwest also have to take into account the effect that reformulated gasoline and boutique fuel requirements have on the costs of refining, and on fragmenting retail markets and enabling companies to pass their refining costs on to consumers. March is the time that refiners switch over from winter gasoline and heating oil to summer gasoline, so expensive crude oil is likely to be reflected in gasoline prices throughout the summer.

posted by lkkinetic | 3/08/2003 03:22:00 PM

The U.S. and the E.U. will cooperate in joint hydrogen research, according to this New York Times article (registration required) and this Associated Press article.

And on the emissions front, if you take into account emissions of carbon dioxide, an MIT study finds that hybrid engines pollute less than hydrogen engines. The study indicates that hydrogen vehicles are unlikely to improve on hybrid vehicles in terms of total energy use and greenhouse gas emissions until after 2020. Their analysis reflects the fact that battery production and gasoline use in combination, compared with the process of reforming hydrogen from natural gas using platinum as a catalyst, requires the expenditure of less energy to create the fuel. Furthermore, hydrogen vehicles emit carbon dioxide and water vapor, and are therefore not going to satisfy a policy that is supposed to address greenhouse gases.

posted by lkkinetic | 3/08/2003 02:18:00 PM

MORE HYDROGEN VEHICLE ANALYSIS: This outstanding and thorough Wall Street Journal article (subscription required) provides a great overview of the issues involved in hydrogen vehicle research and commercialization. The article focuses particularly on the chicken-and-egg problem of the simultaneous evolution of a technology (the engine) and a complementary technology (the fueling infrastructure):

Larry Burns, GM's top technology guru, says the auto maker already has spent nearly a billion dollars trying to get its fuel-cell prototypes ready for the road. Though experts say no more than 100 fuel-cell-powered passenger vehicles are on the road around the world today, Mr. Burns says GM hopes to sell a million of them a year by the middle of the next decade, which would be about 10% of the company's total production. He says he's impatient that oil producers aren't moving faster to get hydrogen flowing to consumers. "I'm not convinced they're investing enough," he says.

The oil companies, for their part, aren't about to abandon petroleum for hydrogen until they're convinced they can make money from such a shift. Having seen the auto industry fail to deliver on past promises to roll out large numbers of alternative-fuel cars -- from battery-powered electric vehicles to diesels to fuel-cell models -- some oil producers are leery. "The verdict is still out on whether hydrogen will ever become a mainstream fuel," says Buford Lewis, manager of fuels development for Exxon Mobil Corp., which is working with GM on research.

Note also that this quote points out that GM is performing hydrogen research, even before the additional $1.7 billion of federal funding that President Bush wants to commit to subsidize research. This article in the Detroit Free Press discusses the efforts going into R&D for hydrogen storage, on the egg side of the chicken-and-egg problem.

The Wall Street Journal article also picks up on last week's decision by the California Air Resources Board to eliminate its zero-emission electric vehicle rquirement target (NY Times, registration required).

In 1990, the California Air Resources Board proposed requiring car companies to introduce about 20,000 non-polluting vehicles in the state each year. In January, it dropped the proposal to 10,000. This week, its staff proposed cutting the number to 250. Given the estimated cost of about $1 million per car, a spokesman said, "the feeling was that fuel cells cost so much you clearly can't demonstrate thousands of them."

Federal officials are getting a similar message. Last summer, DaimlerChrysler engineers drove a fuel-cell-powered Mercedes-Benz from California to Washington, where they displayed it on the Capitol steps. In a press release, the company likened the trip to Charles Lindbergh's 1927 trans-Atlantic flight, saying both "conquered landmark endurance challenges that signaled entirely new transportation possibilities to come."

But DaimlerChrysler's view was less enthusiastic last month in a written response to the Bush administration, which has proposed toughening federal requirements for automotive fuel economy starting in 2005. According to the company's comments, technologies such as fuel cells "have no hope, in the near term, of reaching high volume or of making a significant impact" on the average fuel economy of the U.S. auto fleet.

This San Jose Mercury News editorial analyzes California's move away from its electric vehicle mandate, and correctly points out that the incremental and unpredictable nature of technological change means that thinking more in terms of existing technologies, like hybrid vehicles, can go a long way toward improving air quality.

posted by lkkinetic | 3/08/2003 02:11:00 PM

Friday, March 07, 2003  

REGULATORY ABSURDITY AND WINE LABELING: This article by Jacob Sullum in Reason Online today is an absolute must-read. Notwithstanding the mounting evidence that moderate alcohol consumption is good for your health, federal regulations mandate that winemakers cannot claim health benefits on their labels. An excerpt:

That is the upshot of regulations published this month by the Treasury Department's Alcohol and Tobacco Tax and Trade Bureau (TTB), which has taken over the speech policing duties that used to be handled by the Bureau of Alcohol, Tobacco, and Firearms. In 31 pages of tiny type, the TTB reiterates the government's position that "a specific health claim on a label or in an advertisement," no matter how well documented, "is considered misleading" unless it is accompanied by detailed warnings about the risks of alcohol consumption.

When it comes to alcohol, the puritan manifestation of our government's desire to protect us from ourselves can actually be a knee-jerk, emotional, zero-tolerance response that does us more harm than good. And, as Jacob notes, it also gives free speech a kidney punch.

posted by lkkinetic | 3/07/2003 01:59:00 PM

Wednesday, March 05, 2003  

In this commentary on NPR's Morning Edition on Friday, Russell Roberts explains how oil companies cannot "gouge" us with high gas prices. You can also read a transcript of the commentary. Here's the intro, to entice you to read the whole thing:

Whenever gas prices go up, we hear about the power of oil companies to gouge us. We're stuck paying whatever they charge. After all, everyone needs gasoline. It seems big oil always raises prices whenever there's a convenient excuse.

There's only one problem with this theory of gouging. The facts don't support it.

Once you account for inflation, the average price of gasoline today is about the same as it was in 1950.

How can this be? After fifty years of increased demand? And after fifty years of population growth! Yet those greedy oil companies squeeze less money out of us for a gallon of gasoline than they did in 1950. There have been long stretches of time where the price corrected for inflation fell steadily, year after year.

posted by lkkinetic | 3/05/2003 03:23:00 PM

This Christian Science Monitor article and this Economist article provide some insightful analysis on the economic costs of high oil prices. Regular readers of this page will already know much of what's contained in these articles -- the unfortunate concatenation of Venezuelan unrest, possible war in Iraq, and an unusually cold winter in the US Northeast has led to higher and more volatile oil prices. And if these high and volatile prices are sustained for more than a couple of months, then economic recession is a likely consequence.

Although the short run may look fairly bleak, though, always remember and never forget that it's situations like these that lead both producers and consumers to shift away from oil-intensive technologies, engage in research to produce technological change, and make other energy sources more competitive and commercially viable.

posted by lkkinetic | 3/05/2003 02:52:00 PM

And here's a cool article from last week on electricity customers in Washington state choosing green power and being willing to pay more (typically $5 more/month) for it. Funny how giving consumers choices creates value for both producers and consumers ... yes! The world is positive sum! And companies can make money by offering services that create a cleaner environment!

Just had to vent that cheerleading rah-rah about aligning environmental and profit incentives.

posted by lkkinetic | 3/05/2003 02:44:00 PM

Check out this AP story from Saturday on consumer demand for hybrid vehicles. The article makes what I think is the correct point -- when consumers choose a vehicle, they are simultaneously satisfying a large array of preferences and characteristics, not just fuel economy or reducing our dependence on foreign oil. So what will be a crucial factor in whether or not hybrids proliferate and begin to drive out the old internal combustion technology is the adaptability of the hybrid technology to more spacious vehicles with better driving performance. As the article puts it, soccer moms may well decide the fate of hybrid vehicles.

posted by lkkinetic | 3/05/2003 02:41:00 PM

Tuesday, March 04, 2003  

CALIFORNIA'S ENERGY REFUNDS: Yesterday the state of California filed 3,000 pages with the Federal Energy Regulatory Commission to substantiate their claims for larger refunds from energy companies that provided power in the state during the electricity crisis in 2000-2001. The documents have been filed to support a claim for $7.5 billion in refunds, much more than the $1.8 billion that a FERC administrative judge suggested in December. Today Senator Dianne Feinstein and otherCalifornia officials have asked to make their FERC filing public.

And of course Governor Gray Davis continues his inflammatory rhetoric:

Gov. Gray Davis (D) said today's filing was the first to provide to FERC significant evidence of widespread market manipulation not just by Enron, the energy trader now under bankruptcy court protection, but by most of independent electricity generators operating in the state, including Duke, Sempra, Dynergy, Reliant and AES/Williams. Some 70 companies are named in the filing, which remains under seal.

Davis said his investigators had found a mountain of evidence to prove the energy companies guilty of "stealing, cheating and lying" and "a massive coverup."

"There's not one smoking gun," Davis said. "There's an arsenal."

Although they finally do acknowledge that municipal utilities behaved in the same way, with the same motives, as the "greedy, price-gouging, out-of-state generators":

Moreover, the FERC filing alleges that even public municipal utilities serving Los Angeles, Anaheim, Glendale, Pasadena and Redding got into the game. Among the accusations: that public utilities colluded with the electricity traders in so-called "ricochet export-import games," or "megawatt laundering," whereby electricity was sold out of state at a cheaper price and then re-sold back to California just as demand and spot market prices reached their peak.

Enough already. Let it go. And admit that these firms were responding to incentives created through bad rules, policy failure, and continued finger pointing. As my friend Christine Tezak said in the Forbes article I quoted initially above,

Others said the case has dragged on long enough, especially at a time when the industry has been hit by credit downgrades and multimillion-dollar losses.

"The financial markets are pleading for resolution. When will it stop?" said Christine Tezak, an analyst with Schwab Capital Markets.

posted by lkkinetic | 3/04/2003 12:02:00 PM

Megan McArdle has a good post on CAFE standards and their perverse incentives. See also Virginia Postrel's NYT column on CAFE standards that I referred to earlier.

posted by lkkinetic | 3/04/2003 07:51:00 AM

NEW REASON STUDY ON TOLL LANES: One of the main culprits in gasoline consumption and mobile-source emissions in urban areas is traffic congestion. A new Reason study provides practical suggestions for turning HOV lanes into toll lanes. From the press release:

An accident or traffic jam is going to cause you to miss your flight or your child’s soccer game; Would you pay to use a fast moving lane that would allow you to arrive at your destination on time?

A new report recommends giving commuters the option of a congestion-free trip by transforming existing carpool lanes into a network of toll lanes that would guarantee drivers and buses at least one lane moving at the maximum speed limit, at all times, on most urban freeways. Buses and high capacity vans would use the lanes free of charge, while individual motorists would pay a variable toll. Tolls would be debited electronically from smart cards placed on a car’s dashboard, thus doing away with tollbooths and cash transactions. The number of vehicles in the managed lanes would be controlled through variable pricing, ensuring the lanes are free-flowing at all times and providing local transportation agencies with a significant source of income for construction and maintenance projects. In Los Angeles, for example, toll revenues would exceed $900 milllion per year. In Washington, D.C., and San Francisco, toll revenues would surpass $400 million per year.

The study concludes the projected toll revenues would enable tax-exempt toll revenue bonds to cover two thirds of the costs of adding the new lanes and interchanges that would be necessary to create a seamless network of high-occupancy toll lanes in most cities. The rest of the funding would come from traditional federal and state transportation programs.

Everyone wins with high occupancy toll networks because they dramatically increase the overall throughput compared with typical carpool lanes and they provide a substantial source of transportation revenue,” said Robert Poole, director of transportation at Reason Foundation and co-author of the report. “Individual drivers get the option of faster, more reliable travel when saving time is of the utmost importance. Mass transit riders get a region-wide express bus service. Taxpayers win because they get a major improvement of the transportation system without the need for new taxes. Even drivers who never use the lanes benefit from less congestion in the regular lanes.”

The report, HOT Networks: A New Plan for Congestion Relief and Better Transit, offers maps, detailed descriptions of construction costs, and toll revenue projections for HOT networks in eight of the country’s most congested cities, including: Washington D.C., Atlanta, Dallas, Houston, Los Angeles (and Orange County), Miami, Seattle, and San Francisco.

HOT lanes are currently used in San Diego, Orange County (CA), and Houston. A recent evaluation of Orange County’s HOT lanes found that although the lanes represent only 33 percent of the freeway’s capacity, they carry 40 percent of the traffic during the busiest peak hours - an indication that HOT lanes are more effective than carpool lanes. Furthermore, vehicles in the toll lanes move at 65 miles per hour, while the other lanes average 10 to 20 miles per hour at rush-hour.

The California HOT lane projects have shown the power of variable pricing to manage traffic flow under peak-demand conditions,” Poole stated. “The lanes have also demonstrated that a significant portion of the public is willing to pay for faster rush-hour trips when it is important to them and that the lanes can provide substantial revenue for transportation agencies.”

Robert Poole served on the Bush-Cheney transportation task force in 2000. He has advised the last four presidential administrations on various transportation issues. Co-author Kenneth Orski is president of Urban Mobility Corporation and editor of Innovation Briefs, a transportation newsletter.

The full report can be found online at the Reason Public Policy Institute website.

See also media articles on the study from the New York Times, the San Francisco Chronicle, the Atlanta Journal-Constitution, and the Houston Chronicle.

posted by lkkinetic | 3/04/2003 07:46:00 AM

Monday, March 03, 2003  

MORE INFORMATION ON ECONOMIC RELATIONS WITH IRAQ: For those of you who are interested in continuing to "follow the money trail" with Iraq, this Heritage Foundation research brief concisely summarizes the known economic relations.

posted by lkkinetic | 3/03/2003 12:34:00 PM

I expect oil prices will hover around $40/barrel for a bit here, especially if Kuwait closes its northern oilfields to protect them in case of US-Iraq action and OPEC is really producing as close to capacity as they say they are.

Thank goodness for proven reserves and increasing production in Azerbaijan, Kazakhstan, and Russia, and for continuing production and trade with Mexico and Canada.

The US country analysis brief points out that as of November 2002,

The United States averaged total gross oil (crude and products) imports of an estimated 11.2 MMBD during the first nine months of 2002, representing around 57% of total U.S. oil demand. Around two-fifths of this oil came from OPEC nations, with Persian Gulf sources accounting for about one-fifth of total U.S. oil imports. Overall, the top suppliers of oil to the United States during the first nine months of 2002 were Canada (1.9 MMBD), Saudi Arabia (1.5 MMBD), Mexico (1.5 MMBD), and Venezuela (1.4 MMBD).

posted by lkkinetic | 3/03/2003 12:27:00 PM

CNN'S OIL SPECIAL PAGE: This CNN/Money special report on oil markets has a lot of good content and background on how the oil industry and global oil markets function. Note especially their list of best- and worst-mileage cars, in the context of earlier post on how high gas prices are the mechanism that will induce consumers to reconsider their choice of vehicle. High gas prices will do more than any research subsidies to increase purchases of fuel-efficient vehicles, because it's consumer demand that is the predominant driver (pun intended!) of the fuel efficiency portfolio that we see today.

posted by lkkinetic | 3/03/2003 12:11:00 PM
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