Markets vs. Mandate: the American energy dilemma
New York State’s fracking ban has evoked strong polarising sentiment. Local anti-fracking supporters welcomed the ban as a necessary intervention against corporations pursuing profits at the expense of local safety. The fracking industry on the other hand, saw it as a political move; an example of political interference in the markets at the expense of jobs, energy security and the principles of enterprise and free markets that America stands for. This dynamic is symptomatic of a bigger tension between markets and mandate within the US energy industry; one that that lies at the heart of hotly contested issues like the Keystone pipeline and the proposed TTIP EU-US free trade agreement.
And against the backdrop of a President carving out climate action as a top priority, historic US commitments to reducing emissions, a Republican House majority that views Obama’s Environmental Protection Agency as big-government interventionism, and America’s emergence as a global energy producer, how this tension is resolved affects not just the future of American energy, but has wider global ramifications.
Six years ago I wrote in the Financial Times about the need for less interference in European energy markets to enhance competitiveness; a perspective I still find myself inclined towards today, and for good reason.
Take energy security for example. Shifting responsibility for energy security from suppliers to government would reduce, not increase, security. A liberalised market provides strong incentives for producers to diversify supply and respond to consumer demand. OPEC’s current oil price war might even eventually strengthen a fracking industry forced to become more technically innovative and cost efficient to survive, despite the shorter-term challenges.
Then there is the danger of vested interests influencing a wide government mandate and effectively using government as a proxy for their own interests as illustrated by recent alleged links between energy company Devon Energy and Oklahoma Attorney General Scott Pruitt.
And of course there is the notion that climate change justifies state intervention to make cleaner renewables more competitive against oil and gas. But while this is a logical argument, its worth noting that government intervention is at least partly to blame for renewables having less market share in the first place. Federal research for US oil and gas as well as tax credits and subsidies totalling $10 billion between 1980 and 2002 dwarfed state support for renewables, ensuring there was never a level playing field to begin with. And modern-day fracking could not have developed without federal research and demonstration efforts in the 1960s and ’70s.
But as valid as all this is, it fails to tell the whole story.
What makes the energy industry unfortunately unique is the speed with which it could environmentally impact our planet; a factor so exceptional it justifies exceptional action in addressing it, including, if need be, some level of market intervention.
The real problem with the US energy debate is its deep ideological polarisation. Energy discourse is too often pulled towards dogmatic extremes; between those who believe strong government intervention is necessary to further centralise and regulate energy markets, sometimes to the point of protectionism, or conversely those who, as economist Paul Krugman put it when describing the GOP, “believe climate change is a hoax concocted by liberal scientists to justify Big Government, who refuse to acknowledge that government intervention to correct market failures can ever be justified”.
A healthy balance is probably somewhere in-between with sound market based interventions that do not plan energy markets or pick winners through polices like the ethanol blending mandate, but instead couple responsibility for environmental damage and carbon emissions with individual companies and consumers. A carbon tax could help achieve this by using market incentives to strengthen cleaner energies and encourage efficient consumption. After all, why should the burden of carbon emissions, which have a cost, not be factored into a transaction?
And just as timely market adjustments within the financial sector could have averted the worst of the 2008 financial crash and subsequent government bailouts, a carbon tax today would prevent a more drastic future government response to disasters that rising CO2 emissions would undoubtedly cause if left unchecked.
Yet with the looming 2016 Presidential elections, the potential for politicised narratives and populist slogans to take priority over any meaningful measured balance in the US energy discourse is all too real and present.
Somewhere between climate deniers, including prominent GOP members, refusing to acknowledge the need for any climate action, and those attempting to address the problem in a vacuum without considering how sweeping interventionist solutions undermine economic competitiveness (an approach that creates an inevitable political, business and electoral backlash), lie more sustainable, effective solutions. It is vital moderates across the political aisle work together to reach them.
Vicente Lopez Ibor Mayor is currently Chairman of one of Europe’s largest solar energy companies – Lightsource Ltd. He is former General Secretary of Spain’s National Energy Commission between 1995-1999 and was previously a member of the Organizing Committee of the World Solar Summit and Special Advisor of the Energy Program of UNESCO (1989-1994).
This picture is illegal in California
Or rather, the action being performed in that picture is illegal in California. It's not that the lettuce is not organic or anything. It's that it is evidence of someone working during their lunch break:
I mentioned earlier that we had struggled to comply with California meal break law. The problem was that my workers needed extra money, and so begged me to be able to work through lunch so they could earn a half-hour more pay each day. They said they would sign a paper saying they had agreed to this. Little did I know that this was a strategy devised by a local attorney who understood meal break litigation better than I. What he knew, but I didn't, was that based on new case law, a company had to get the employee's signature every day, not just once, to avoid the meal break penalties. The attorney advised them they could get the money for working lunch AND they could sue later for more money (which he would get a cut of). Which is exactly what they did, waiting until November to sue so they could get some extra money to pay for Christmas bills. This is why -- believe it or not -- it is now a firing offense at our company to work through lunch in California.
Eventually a system becomes so encrusted by such nonsense that nothing useful can ever be done and all that can be is to chase the paper around in ever decreasing circles. That is arguably what happened to the Ottoman Empire, various incarnations of the various Indian and Chinese empires and so on and on. It's one of the reasons that we here shout so loudly about regulation and the necessity of a bonfire of much of it.
We do not say that there should not be regulation, not at all. But we do say that we need to carefully consider who is doing the regulating. There are times and circumstances when it does need to be the bureaucrat or the politician. But far more often tasks that they take upon themselves will be better regulated through what we might call simple market processes. Markets are, after all, just the interaction of voluntary behaviour and surely we can trust two adults to agree between themselves about whether someone might usefully check a spreadsheet, or not, while munching on a salad?
Marijuana legalization in Colorado: One year on
It's been a year since Colorado became the first US state to permit the commercial sale of marijuana for non-medicinal purposes, and statistics which hint at the impact of legalization have just started to emerge. With these come two conflicting reports— one from the pro-legalization Drug Policy Alliance (DPA), and another from the anti-legalization Smart Approaches to Marijuana (SAM). The two together make for an interesting read. Unsurprisingly, there’s been an increase in the amount of cannabis consumed in Colorado, as well as in Washington, where it has also been legalized.
Both states already had a higher than the US average use of marijuana, but between 2011/12 to 2012/13 the percentage of over-18s who had used marijuana in the past year rose from 16.1% to 18.9% in Colorado, and from 15.3% to 17.6% in Washington, compared to a national increase from 11.6% to 12.2%. Past monthly use of marijuana by 18-25 year olds in 2012/13 was 29.1% in Colorado and 25.6% in Washington, compared with a 18.9% US average.
Of course, an increase in marijuana use isn't in and of itself a bad thing; what matters are the other costs and benefits to society and individuals that legal and increased use creates. Predictably, the two reports paint very different pictures of these.
The DPA point out that Marijuana possession rates in Colorado have fallen 84% since 2010, from over 9,000 arrests a year to under 1,500. However, SAM's report claims that citations for the public display of marijuana have rocketed - from 183 in 2013 to 668 in 2014 in Denver alone.
Both violent crime and property crime fell in Denver in 2014. Violent crime was down by 2.2% in the first 11 months of 2014, compared with a 1.1% decline the year before. Burglaries were down 9.5%, and overall property crime 8.9%. This, the DPA say, is evidence of legalization’s success. However, at the same time, SAM report that drug violations in Denver are up 12%, disorderly conduct up 51%, and public drunkenness up 53%.
SAM also report that the number of citations given for driving under the influence of marijuana in Colorado have risen markedly between 2013 and 2014. However, despite concerns that marijuana legalization would result in an increase in traffic fatalities, the DPA point out that Colorado saw a 3% fall in the number of fatal accidents in 2014, continuing a 12-year downward trend.
SAM’s report contains a handful negative incidents which can be directly attributed to legalization, including a rise in the number of children in ER from the accidental consumption of marijuana edibles, and an increase in people attempting to make hash oil and setting themselves on fire. However, perhaps the most interesting claim of the report is a quote from a Colorado policeman that legalization has ‘done nothing more than enhance the opportunity for the black market’.
A potential reason for continued underground dealing is that, with taxes, legally-purchased weed is up to twice the price of that on the street. However, the market demand for legal weed has far exceeded earlier estimates, including those of the Department of Revenue’s. Unsurprisingly, there’s also been a huge increase in the amount of marijuana which has been stopped from leaving Colorado for other states — a 400% rise between 2008 and 2013, SAM claim. This has resulted in neighbouring Nebraska and Oklahoma suing Colorado for the flow of marijuana across state lines. However, whilst this might present a nice new business for criminal gangs or college students, it seems unlikely that it would increase the black market's size or power compared to pre-legalization.
Of course, it’s also very difficult to know if other reported stats like falling violent crime can actually be linked to marijuana legislation, and even things like a rise in disorderly behaviour arrests could be down to other factors. But there are a few stats we can be certain about, and these come down to cold hard cash.
Retail marijuana sales raised $40.9m in tax for Colorado between January and October 2014, and that’s not including revenue from medical sales, licenses or fees. Of the revenue collected, $2.5m has been directly set aside to fund more health professionals in Colorado public schools, many of whom will focus on mental health support and drug use education programs.
Legalization has been great for entrepreneurship, too. 16,000 people have been licensed to work in Colorado's marijuana industry so far, and unemployment is at a 6-year low. A study of two marijuana dispensaries by the University of Denver’s economics department found that they generated $30m of economic output and 280 jobs between January and July 2014 – and whilst paying ten times the amount of tax of a typical restaurant or store.
Though we can measure things like tax intake, both the DPA and SAM’s reports highlight the need for much more high-quality data, which can help unravel the effects of legalization, and quantify their impact. This is something which will likely to emerge with time, but without reliable facts and evidence campaigners on both sides will cherry-pick stats to confirm their existing views — which is no good for the policymakers elsewhere who are watching this experiment closely. (It's certainly a shame that Theresa May is not one of them....)
Nevertheless, a year on and we can tell a couple of things. Legalization is obviously a learning curve. To avoid serious backlash, marijuana users should stop lighting up where they shouldn’t (at school, in public places, before driving, etc), whilst the green industry should probably do more to provide information on the strength and dosage of new products, and particularly edibles.
However, it’s also clear that legalization is a major boon to the public coffers, takes millions of dollars of business out of the hands of criminals and into legitimate businesses, and is a major win for liberty.
SAM may be concerned about the 100 kinds of marijuana gummy bears out there, but these THC-ripened snacks are also testament to the creativity and entrepreneurship that flourishes when the state gets out of the business of deciding what peaceful activities adults are allowed to partake in, for recreation and for profit.
It's always a bit risky to critique a Nobel Laureate but here goes....
There's no doubt that the work of Amartya Sen has enriched the human race. His studies of famine, as an example, have led to a general realisation that in the modern era they're not a result of insufficient food, they're a result of insufficient ability to purchase food that is extant (or to attract food from outside the area to the one of earth). The solution is therefore not to ship corn or wheat, but to ship money and simply give it to people. That this idea has so penetrated even the US government sufficiently that both the Bush and Obama Administrations have attempted to change the method of US famine relief in the face of the usual vested interests is evidence of quite how powerful the point is. However, this does not mean that Professor Sen is correct in all things. And this piece on universal health care shows us this:
The usual reason given for not attempting to provide universal healthcare in a country is poverty. The United States, which can certainly afford to provide healthcare at quite a high level for all Americans, is exceptional in terms of the popularity of the view that any kind of public establishment of universal healthcare must somehow involve unacceptable intrusions into private life. There is considerable political complexity in the resistance to UHC in the US, often led by medical business and fed by ideologues who want “the government to be out of our lives”, and also in the systematic cultivation of a deep suspicion of any kind of national health service, as is standard in Europe (“socialised medicine” is now a term of horror in the US).
The problem with this is that the US does have universal health care. What it does not have is universal health care insurance. And that's a vital distinction. We do not think that the US health care financing system is something that anyone should really be desiring to imitate. We most certainly don't suggest that the NHS, or any other of the European health care systems, should be rebuilt upon the American model. But it is the financing of the system, not the actual treatment, health care delivery, system that is the undesirable thing to copy.
Rock up to any emergency room in the US and you will be treated regardless of capacity to pay. Every county runs a health care system for the indigent and those otherwise unable to pay. Medicaid provides treatment to the poor. Everyone, but everyone, in the US has access to medical treatment. What they do not have access to is treatment without the possibility of having to pay for it out of pocket: and pay for it after the treatment has been given of course.
The importance of this distinction is that Sen is discussing how other countries, ones which don't in fact have universal health care, might move to having such. Great, excellent, a subject well worth discussing. It's also true that we wouldn't go around recommending the US system to those poor countries which currently don't have universal healthcare. But if we don't distinguish between healthcare and the method of financing access to it then we're going to get horribly confused as we try to design the appropriate systems.
A blagger's guide to the US midterm elections
Tomorrow's midterm federal elections in the United States will determine the political landscape of President Obama's final two years in office, and even though he's not up for re-election, his policies 'are on the ballot'. Here’s a quick breakdown of the game-changing races, the political mood across the swing states, and what to look for on Tuesday night.
Currently
As President Barack Obama resides over the White House, the legislative branch is operated by a divided Congress, with the Republicans in control of the House of Representatives (233/199 with John Boehner as Majority Leader) and the Democrats in control of the Senate (55/45 with Harry Reid as Majority Leader).
On Tuesday
The House of Representatives will remain firmly controlled by the Republican Party, whose historic sweep to victory in 2010 took 63 seats away from the Democratic Party. Even if the Democrats managed to win all 26 swing-elections this year, enough seats securely lean GOP to give the Republicans a comfortable majority (218+ seats).
It also appears the GOP will retain the majority of Governorships, though a few key races–like Governor Scott Walker’s (R) highly contested race in Wisconsin–threaten to throw GOP darlings out of office, who otherwise would be strong presidential candidates in 2016.
The real toss-up tomorrow will be which party controls the Senate for the next two years. And looking at the polls, it’s the Republican’s election to lose.
The Breakdown
Republicans have to gain 6 seats in the Senate to have a clear majority - if they take 5 and leave the Senate 50 / 50, Vice President Joe Biden gets the tie-breaking vote, meaning Democrats would retain control of the Senate regardless of any other race won.
Currently, the GOP is set to pick up three ‘easy’ seats in West Virginia, South Dakota and Montana: traditionally red states on the state and national level; not to mention areas where President Barack Obama lost badly in 2012.
That leaves the GOP in need of three more wins in the swing states, of which there are roughly 7 or 8, depending on your source: Alaska, Colorado (leans GOP), Georgia, Iowa, Kansas, Louisiana, New Hampshire, North Carolina.
The Republican advantage
The GOP has small, built-in advantages to any mid-term election, though this year is looking even better for the party than usual. Unlike the House, where each elected representative is up for re-election every two years, Senate seats are elected every six years on a rotating basis. This year, it just so happens that more Democrat-held seats are up for re-election, and they’re up for election in areas that aren’t considered ‘safe seats’ or ‘strongholds’.
It’s also the case that significantly less people show up at the voting polls for mid-term elections than for presidential elections (roughly 37.8% in 2010, compared 56.8% and 53.6% in 2008 and 2012); and those who do show up tend to lean Republican.
Interesting race to note: Kansas and 'The Establishment'
“Why Kansas Senate race could decide everything” –No pressure, but the traditionally red state that should be a safe seat for GOP candidates has been upset by Democrat-mascarading-as-Independent Greg Orman, who is running against establishment GOP candidate Pat Roberts.
Orman is, for all intensive purposes, a left-wing candidate (left-wing enough for Kansas Democrats, at least, who pulled their candidate off the ballot to give Orman a better shot at the seat). He’s shown commitment to Obamacare and campaign finance reform, and hasn’t ruled out caucusing with Reid and the Democrats, even as an Independent, to give them the 51-majority-mark to retain control of the Senate.
But as opposed as Kansas voters are to Orman's policies, they're potentially more offended by Robert's status as a 'Washington insider'. This rebellion is not just a trend in Kansas, but rising up across the entire country, as the majority of Americans now claim they don't trust the Federal Government. The Tea Party movement capitalised on this sentiment in 2010, and even 2012, but has done little to convince Kansas voters that Roberts isn't part of the structural problem.
Interesting race to note: Colorado and the 'War on Women(?)'
Colorado’s Senate race between Cory Gardner (R) and Mark Udall (D) was thought to be a swing race until very recently, when polls started indicating that the race was leaning red.
Traditionally a semi-swing state, with strong recent ties to the Democratic Party (Colorado voted for President Obama in 2008 and 2012), all signs indicate that it is not necessary the Democratic Party’s platform, but rather their political tactics, that have put left-leaning voters into the opposition’s camp.
Mark Udall (nicknamed Mark Uterus by journalists) used and abused the ‘war on women’ rhetoric to the point where it has become a joke, not just in Colorado, but throughout the entire country.
And unlike 2010/2012 elections, when it was politically popular and beneficial to use the phrase, Colorado Democrats are watching it backfire, as the gender-voting gap (for women, not for men) shrinks between Gardner and Udall.
It’s important to note the tide isn’t simply turning because of Democrat error. The GOP has finally gotten some sense on the issue, and Gardener has been campaigning to make birth control over-the-counter, non-prescription drug. A politically smart tactic on multiple levels: not only does it relieve fear that he is an anti-reproductive rights candidate, but making birth control over-the-counter is a step past what Democrats can offer women; Obamacare relies on birth control being provided via insurance policies.
If Udall loses tomorrow night, the Democrats would be unwise to see it as any kind of fluke. The ‘war on women’ has always been based on inaccuracies and lacked substance or evidence, and may not continue to sway voters as it once did.
Why is the Senate a game-changer?
Who controls the Senate for the next two years will not only have a deep impact on the end of Obama's presidency, also on the 2016 elections, when several prominent Senators will be looking to claim both the Democrat and GOP nomination.
Over the past four years, Harry Reid's policy of obstruction has stopped major legislation from being voted on in the Senate, protecting Democrats and the President from having to state their opinions publicly (by casting their vote or being put in the situation to veto legislation). If Republicans take control of the Senate, new Majority Leader Mitch McConnell (R) will most certainly hold the Senate to votes on legislation from the House; come 2016, ambitious Senators will be running on their voting records, not just their political promises.
Early signs on Tuesday night
If North Carolina and New Hampshire, which are thought to be leaning ever-so-slightly blue, come out early for the GOP candidates, we are probably looking at a sweep across the board, with a strong majority of GOP reps taking the Senate.
Likewise, if Montana, South Dakota, and West Virginia–all leaning red–turn out to be tight races with close vote counts, the GOP could be looking at a long night of close races and very possibly a crushing defeat.
If neither scenario plays out, anything goes. There's no doubt that the GOP will be taking seats away from Democrats on Tuesday night–but if they fall short of 6, even by 1, it's at least two more years Harry Reid and political gridlock, Not to mention an even tougher hill to climb come next fall. As if Capitol Hill weren't elevated enough.