Coyote Blog

One of the recurring themes in my climate video "What is Normal?" is that despite the fact that we have only observed climate for about 100 years, and have only studied it with modern tools like satellites for about 30 years, we want to insist on calling some condition "unusual."  My favorite example of late was when a number of news sources claimed "Arctic Ice at All-Time Low."  Really?  The lowest in the 6 billion year history of Earth?  Well, no, "all-time" means since satellite measurement began ... 28 years ago.  (By the way, the simultaneous story that Antarctic ice hit an "all-time" high on the exact same date failed to be mentioned in the press for some reason).

TJIC has a great post (mercifully unrelated to climate, for all of you with climate fatigue):

http://www.boston.com/business/articles/"¦

As the price of crude oil approaches $100 a barrel, New Englanders are bracing for their most expensive winter ever.

May I suggest that the average family expended more hours of labor
to procure their firewood in 1650, and more hours of labor to procure
their coal in 1750, and more hours to procure their gas in 1850 than
they are spending, today, to heat their (much larger, much better
furnished) homes today?

I swear, whenever a journalist says the word "ever" I hear
"since I was in high school, or since 1990, whichever was more
recent"¦and I was drunk at the time, so I honestly can't tell you which
one that was".

LOL

Thanks to a reader comes this article from the NY Times that yet again discusses a water shortage and possible government action without once mentioning the word "price."  If water prices floated like gas prices, we wouldn't have to discuss things like these:

Within two weeks, Carol Couch, director of the Georgia Environmental
Protection Division, is expected to send Gov. Sonny Perdue
recommendations on tightening water restrictions, which may include
mandatory cutbacks on commercial and industrial users.

If that
happens, experts at the National Drought Mitigation Center said, it
would be the first time a major metropolitan area in the United States
had been forced to take such drastic action to save its water supply.

But of course politicians love being responsible for resource allocation through command-and-control government, because it creates winners and losers and both will then donate to the next election cycle.  Atlanta already has fairly expensive water, but a quick 50% rate hike about 3 months ago would have likely obviated this shortage while also providing the municipality with additional funds to develop new sources.

I wrote a lot more about water scarcity and the price mechanism, including the observation that Phoenix ridiculously has some of the lowest water prices in the country, here.

postscript: One of the media tricks to make things look worse and panicky is to present asymmetric charts.  For example, the NY Times presents this drought map:

All you see is what one presumes to be normal in white and then a lot of drought.  But in fact, this chart is truncated.  It omits all the data for areas that are wetter than usual.  Here is the chart for September form the NOAA with both over and under precipitation over the past 12 months:

Whoa, that shows a different picture, huh?  Basically, about as much stuff is wetter than normal as drier than normal.  Which is exactly what one might expect in any period.  And by the way, if you look at the last five years, the US is pretty freaking wet:

Today I was working on a bid for a retail concession in a county park in California.  In these bids we usually promise a set percentage of sales as rent in exchange for the concession and use of certain fixed assets.  One of our standard clauses is to exempt gasoline sales (if there are any) from this rent calculation, because gas sales are so horribly low margin.  Considering the licensing, environmental, and safety issues, gasoline is always a money loser for us that we offer either a) because it is expected, as in the case at large marinas or b) because it gets people in the door to buy other stuff.  And I sell gas in rural areas where I have less price competition than in cities.

It is for this reason that I am always flabbergasted at how much time and attention the government and media tend to pay to retail gasoline pricing.  The portion of my business that is clearly the worst, most unprofitable piece, so much so I have to make special contract provisions for it, gets all the attention for price gouging.   It's like the FEC dedicating most of its labor to investigating Mike Gravel's campaign donations.  I mean, why bother, there's nothing there.

The AZ Republic, long-time cheerleader for our current light rail project, writes another ode to commuter rail.  Today's love note is on the Albuquerque commuter rails system.

Sharon Hedrich heads out a little before 7 each morning for the 20-mile
trip to the law office where she works in downtown Albuquerque. She
used to leave home earlier for the dreaded crawl down the city's
congested freeway.

Driving to work could take 40 minutes or
more, depending on the number of emergencies stalling traffic. Now, she
boards a commuter train, settles into a plush red seat and spends the
half-hour ride reading a novel.

She says the train saves her aggravation - and money.

"I put 7 miles a day on my car instead of 50," Hedrich said recently as
the train zipped toward Albuquerque, New Mexico's largest city. "It's
50 bucks a month for me to ride this. I couldn't even get two tanks of
gas for that."

I am just all aglow for Sharon.  But does the project make sense for the taxpayers of the city and the state (and probably nation) that funded it?  Well, we don't know.  Because the AZ Republic writes 56 paragraphs lauding the system without once telling us anything about the system performance.  Does it cover its costs?  Are city roads visibly less congested?  Is there a net energy savings?  Is there measurably less pollution?  We don't know.  All we know is that three people, Geronimo Trujillo, Briana Duran, and Sharon, like it. 

Well, let's see if we can do the analysis that the Republic couldn't manage.  We are told it has 3000 presumably round-trip riders a day, and the fare for these riders is $50 per month.  That's $150,000 of revenue a month or $1.8 million a year.  How much does it take to operate?  Well, we are not told by the Republic and the Albuquerque authority ties itself in pretzels avoiding the question in this FAQ (question 1) comparing apples to oranges and lemons and bananas and any other fruit that might divert our attention.  But I can absolutely guarantee that it costs a hell of a lot more than $1.8 million.  I am not sure that covers the fuel bill, but it certainly does not cover wages, fuel, maintenance and whatever the state is paying the private owner of the rails for trackage rights. 

Let's see if we can find an analog that does disclose its costs to the public.  The commuter rail system in Northern Virginia called the VRE is about twice as long and carries about twice the passengers as the Albuquerque system.  Its costs are $55.4 million per year, so we can conservatively assume that the Albuquerque system is costing perhaps $20 million a year, a figure that exceeds its revenues by a factor of 11x.  That equates to a taxpayer subsidy of $6,000 per rider per year, which is not atypical for these systems.

And this ignores the capital cost.  Unbelievably, the article does actually mention the capital cost in the 36th paragraph, which is $135 million.  That is $45,000 per rider, or enough to buy two Prius's for each rider.

So Sharon Hedrich is happy?  Of course she is freaking happy.  The taxpayers paid $45,000 up front costs and $6,000 per year so she can save 43 miles of driving a day.  Assuming she has a 20 mpg car, pays $3 a gallon for gas, and rides the train to work 250 days a year, taxpayers are paying $6,000 a year to save Sharon $1,612.50 a year in gas.  If we want to consider gas plus wear and tear on her car at 45 cents per mile, taxpayers are paying $6,000 a year to save Sharon $4,837.50 per year.   The taxpayers would have been better off -- by a LOT -- buying her a Prius and paying her expenses to drive than buying and operating a train for her.  This is consistent with my past number crunching on other urban rail systems here and here.

Does the Republic mention these problems?  Sort of:

The system endured the typical raps against a big public-works project:
It fell behind schedule, an anti-tax foundation called it a bad idea
and there were some startup problems.

Dang those tax foundation guys - always getting in the way of progress!  Thank god such a great idea as subsidizing Sharon "endured" these Luddites.

By the way, I am a long-time train watcher and model railroader.  I love trains.  And, all things being equal and if everything was free in the world, I would love to have more commuter rail trains. Unfortunately, all things are not free.  And in most cases, particularly low-density cities outside the northeast, rail tends to be the most expensive possible option.  As a libertarian, I would rather the government just not appropriate this money in the first place.  But given that they are insisting on spending $135 million plus $20 million a year on transportation, nearly any other conceiveable project would have gotten more bang for the buck.

Update:  Below is a picture of Brianna Duran riding in an empty rail car.  It's good Albuquerque is keeping all those empty seats off the highway.

Update 2: Here is the predictable response to the empty seat snark:  Well, it's the people's fault for not choosing such an obviously superior mode of transport.  Wrong.  Its the government's fault for not taking people's preferences into account when spending all that taxpayer money.  A government that adjusts itself to the citizens is a Democracy.  A government that demands citizens adjust themselves to the government is fascism.

Update #3:  I am getting email about the government subsidy of highways.  In theory, this is not supposed to be a subsidy.  The large gasoline prices we pay at the pump are supposed to be for highway funds.  This is actually a pretty intelligent way to pay for roads, because it does a decent job at matching use to fees, with a bit of a penalty thrown in for low mpg cars.  To the extent that gas taxes do not match road costs, I am all for eliminating any subsidy and making them match with the right gas tax.  But I know whatever subsidy there is is not as high as for this rail.  Using the numbers for this example, applied to 100 million US commuters, would imply a capital cost of $4.5 trillion and a yearly operating subsidy of $600 billion.  And this would only cover commuting.  Remember, the people in the story can't give up their cars - rail lines only run a few places.  These costs would be to allow commuters to give up their cars part of the time -- about the same number of roads and cars would still be necessary.

When the left lambasts a government intervention into the economy and energy policy, you know the program has to be bad.  From Kevin Drum:

Terrific. Let's see: (a) environmentally speaking, corn ethanol is a
pretty dodgy idea, (b) we're subsidizing it anyway to the tune of $3
billion per year, (c) farmers, as you'd expect, are responding to the
subsidies by reducing the amount of farmland used for food production,
(d) this is driving up the price of staple food worldwide, and (e)
we're going to toss another $10 billion in ag welfare to already-rich
corn farmers on top of all that. Jeebus. Can anyone think of any other
single policy that has as many simultaneous baneful effects? Are we
complete morons?

The only quibble I would have with this paragraph is to change environmentally "dodgy" to "provably disastrous in study after study."  Corn ethanol subsidies and regulations raise gas prices, raise food prices,raise taxes, actually increase total energy use (since it takes more energy to make than it provides) and increases CO2 production.  A lose-lose-lose-lose-lose.

Here is an interesting question:  How much of the current government corn ethanol support and regulation would exist if Iowa has the last presidential primary, rather than the first  (yeah, I know, its a caucus, whatever).

I have written on a number of occasions that the real problem in American health care is the insulation between the person who receives the services and the true cost of the services.  Other than a few folks like me with high deductible policies, there is no incentive to shop around and no incentive to eschew certain avoidable and high cost procedures.

Marc Cooper complained that he went to the hospital for a day and it ended up costing the insurance company over $100,000.  His take-away form this is that the government needs to step in.  My take-away was different:

Did he ask for a price estimate in advance? Did he ask, as most of
us do with all of our large purchases, for a written estimate or
quotation? Did he get such estimates from two or three competitors? Did
he shop around?

Of course not! Because in a system where someone else is paying the
bills, we have no incentive to shop around. So providers have no
incentive to compete on price or to worry about productivity and cost
control.

Sure, this looks like a rip-off.  But if you went in to buy a car,
concerned only with the quality of the
car, and never asked the price and then got a bill for $100,000 a few
weeks later, would you be surprised?  Would anyone give you sympathy if
you complained you paid $100,000 for the car but admitted you never
asked what the price was?

So I was very pleased to see this from John Stossel:

America's health-care problem is not that some people lack insurance, it is that 250 million Americans do have it.

You have to understand something right from the start. We Americans
got hooked on health insurance because the government did the insurance
companies a favor during World War II. Wartime wage controls prohibited
cash raises, so employers started giving noncash benefits like health
insurance to attract workers. The tax code helped this along by
treating employer-based health insurance more favorably than coverage
you buy yourself. And state governments have made things worse by
mandating coverage many people would never buy for themselves.

Competition also pushed companies to offer ever-more attractive
policies, such as first-dollar coverage for routine ailments like ear
infections and colds, and coverage for things that are not even
illnesses, like pregnancy. We came to expect insurance to cover
everything.

He concludes:

Imagine if your car
insurance covered oil changes and gasoline. You wouldn't care how much
gas you used, and you wouldn't care what it cost. Mechanics would sell
you $100 oil changes. Prices would skyrocket.

That's how it works in health care. Patients don't ask how much a
test or treatment will cost. They ask if their insurance covers it.
They don't compare prices from different doctors and hospitals. (Prices
do vary.) Why should they? They're not paying. (Although they do in
hidden, indirect ways.)

Well, the Arizona Republic has done it again.  It has published yet another first-section front page water article (this makes about 50 in a row) discussing ways to make demand match supply without once discussing price.  This time, the reporting centers on a new online water supply and demand simulation model (here) introduced by Arizona State University.  With the model, the public gets to play dictator, implementing all kinds of policies and restrictions on individual consumers to see what effect these command and control steps have on water supply and demand.  And it is almost anti-climactic when I tell you that price does not enter in any way into the model. 

I probably don't have to remind readers that Phoenix has some of the cheapest water in the country, with prices less than half what they are in, say, water-logged Seattle.  Don't you think that might have a little to do with why supply and demand don't match?

Let's say there are about a 1000 key raw materials we use in modern society -- oil, natural gas, iron ore, uranium, bauxite, titanium, gold, silver, etc.  Of these, how do we match supply and demand?  Well, for 999 of the 1000, we use this thingie called the price mechanism.  The exception is water.  And it is incredible to me that not one but dozens of articles could be written by our newspaper about matching water supply and demand and not one of them could mention price, the mechanism we use to match supply and demand for 99.9% of commodities.  Remember when Hillary suggested a while back we need a special academy for government workers?  This is what they would teach -- that all problems can only be solved by government command and control.  As I wrote before:

In their general pandering and populism, politicians are afraid to
raise water prices, fearing the decision would be criticized.  So, they
keep prices artificially low, knowing that this low price is causing
reservoirs and aquifers to be pumped faster than their replacement
rate.  Then, as the reservoirs go dry, the politicians blame us, the
consumers, for being too profligate with water and call for ... wait
for it ... more power for themselves, the ones whose spinelessness is
the root cause of the problem, to allocate and ration water and
development

A while back, I wrote of my conversation with a friend who was convinced that oil prices are set by a small cabal of traders, and that while they have been at $60-70 over the last several years, they would have been at $40 or less without the traders manipulating the price.  I won't go into my arguments again here, but I wrote that it would be virtually impossible to maintain a price artificially above the market clearing price for so long without 1) massive product gluts or 2) almost-impossible-to-hide widespread suppression of production involving thousands of parties.

Michael Giberson at the Knowledge Problem writes about a price-fixing case by natural gas traders.  Amaranth is accused of manipulating gas prices, and I won't judge their guilt or innocence.  But, apropos of my statement above, it is interesting to note that the key question is whether it was possible for the company to manipulate commodity prices for eight minutes.  It looks as if they tried it, but it also looks as if they were not successful (since the government is charging they attempted to manipulate the market, but is not trying to prove they succeeded in doing so).  Making it hugely absurd to think that anyone could do it for three or four years.

Yep, I admit it, air conditioning may indeed be causing us to measure higher temperatures.  Here is the historic temperature plot of Detroit Lake, MN, one of the thousand or so measurement points in the data base that is used to compute historical warming in the US.

Look at that jump in the last 10 years.  It must be global warming!  Can't possibly be due to these air conditioning units installed around 2000 and venting hot gas on the temperature instrument (in that round louvered thing on the post).

More from Anthony Watts, who is leading the effort to document all these stations. You too can help.  The odds are you live less than an hour from one of these stations -- take your camera and add it to the data base.  Its fun!

Incredibly, the global warming community still argues that documenting the quality of the installations used in the official global warming numbers is unnecessary.  More air conditioners blowing on official temperature measurements here.  Worst temperature installation found to date here, "coincidently" at the site with the highest measured 20th century warming.

A bit over five years ago, I wrote an op-ed piece in our local paper calling for further privatization of public recreation.  The editorial was in response to a proposal for a large bond issue to rebuild recreation infrastructure.  I argued that the state should instead be focusing on attracting private investment.  Not only was there more money for recreation in private hands than public, but I sensed that private funds would more likely be invested in facilities the public really wanted, rather than goofy politically correct projects.  Further, private operators could operate recreation facilities much less expensively, in part because they are not tied to ridiculous public pay scales, pension plans, and job classifications.

Soon after, I had a business broker call me and ask me if I wanted to put my money (such that it was) and time where my mouth was.  After a lot of twists and turns, I ended up the owner of a recreation concession company.  In a recreation concession, a private operator pays the government rent in exchange for the ability to charge visitor fees and run the recreation facility for profit.  In most cases, our company can operate a property and make a profit on fees lower than the government must charge just to break even.

My business, Recreation Resource Management, has prospered since then.  And as I have gotten deeper into public recreation, what I have learned has only confirmed what I wrote in that editorial.  I have seen that when the government runs recreation facilities, it almost never spends enough money on capital maintenance and refurbishment.  The reason seems to be that legislators, given the choice, would much rather spend $X on a shiny new facility they can publicize to their constituents than spend $X maintaining facilities that already exist.  I laugh when I here progressives argue that private industry is too short-term focused and only the government invests for the long-term.  In practice, I find exactly the opposite is true.  Think about hotels, or gas stations, or grocery stores.  Private businesses understand that every 15-20 years, they need to practically rebuild existing infrastructure from scratch to keep them fresh for customers.  This kind of reinvestment almost never happens in public recreation.

Except this week!

After years of building up our business, we just completed a project with California State Parks that is what I have always wanted to achieve with the company.  At McArthur-Burney Falls State Park, California State Parks had an aging concession store and an outdated section of the campground that it really did not have the money to rehabilitate (by the way, this is an absolutely beautiful park -- I highly recommend it).  We crafted a two-part lease with the state which eventually led to us investing over a million dollars in the park:  In phase one, we built a new concession store (old store on left, our new store on right):

In phase two, just complete, we took an old tent-camping loop with no utilities and added 24 new cabins.  These cabins not only refurbish an aging and dated section of the campground, but they also add new amenities to the park to attract visitors who may not own an RV and who don't want to sleep in a tent.  In addition, since they are insulated and heated, these cabins will extend the camping season -- in fact, we already have a number of reservations for Thanksgiving, a time when no one would have wanted to tent camp here.

Its a  win-win-win, where  we make money, the state gets lease revenues
from us that exceed their previous camping revenues, and the public
gets new amenities without any taxes or public spending.

So, in answer to the question I so often get, "why does a libertarian run a company that works with the government?"  Now you know why.  I will admit that from time to time I find myself on the losing end of libertarian-intellectual-purity debates because I choose this path rather than, say, living in a cabin in the wilderness and manufacturing rifle barrels for a living.  *Shrug*

Postscript:  One lesson I have also learned is that state governments are not always a monolith.  Texas and Florida, for example, while being beloved of libertarians for having no state income tax, can be horribly bureaucratic in certain areas (e.g. sales tax reporting and vehicle registrations).  California, on the other hand, which in many ways is one of the worst states to do business in, actually has what is probably the most innovative and business-friendly state parks organization in the country.  Go figure.

PS#2:  By the way, the cabins shown are actually modular buildings, built here in Phoenix by Cavco, and shipped to the site.  The classy interior work was done my by maintenance supervisor.

I drive into my local Shell station to fill up, and stick my card in the pump, but the pump refuses to dispense.  I walk into the office and ask the store manager why I can't get gasoline.  She checks my account, and says "Mr. Meyer, your Volvo fuel prescription has expired."  I say, "Oh, well its OK, I am sure I am using the right gas."  She replies, "I'm sorry, but the law requires that you have to have a valid prescription from your dealership to refill your gas.  You can't make that determination yourself, and most car dealerships have their prescriptions expire each year to make sure you bring the car in for a checkup.  Regular checkups are important to the health of your car.  You will need to pay for a service visit to your dealership before we can sell you gas."  I reply, "RRRRRRR."

OK, so if this really happened we would all scream SCAM!  While we all recognize that it may be important to get our car checked out every once in a while, most of us would see this for what it was:  A government regulation intended mainly to increase the business of my Volvo dealership's service department by forcing me to pay for regular visits.

So why don't we cry foul when the exact same situation occurs every day with glasses and contact lenses?  The parable above is nearly exactly the conversation I had the other day with the operator at 1-800-CONTACTS, except with "gas" substituted for "contacts".  I know that my contact lens prescription is a bit out of date, but I really needed them for a trip, and in terms of safety, a slightly out-of-date contact lens in my eye is much better than none (My contacts are about -6.5, which means I am pretty blind without them).  No joy, though.  I did not have time to get to the doctor, so I wore -5.0 contacts I found in a drawer just to have something.  The operator told me that doctors have the prescriptions expire each year so that I am forced to come see them.  Why with eye doctors do we consider this "for my own good" when in any other profession it would be called a scam? 

In fact, each year I know my eyes get about 0.25 worse on each lens.  I would really like to just self-medicate and order myself the next level up, but of course that is way out of bounds.  Can't trust people to figure out their own lens correction (though we do allow this for reading glasses, go figure).

The table of contents for the rest of this paper, . 4A Layman's Guide to Anthropogenic Global Warming (AGW) is here.  Free pdf of this Climate Skepticism paper is here and print version is sold at cost here

I will not even try do full justice here to the basic theory
of AGW theory.  I highly encourage you to check out RealClimate.org.  This is probably
the premier site of strong AGW believers and I really would hate to see AGW
skeptics become like 9/11 conspiracists, spending their time only on
like-minded sites in some weird echo chamber. 

If you are reading this, you probably know that CO2 is what
is called a greenhouse gas.  This means that it can temporarily absorb
radiation from the Earth, slowing its return to space and thereby heating the
troposphere (the lower 10KM of the atmosphere) which in turn can heat up the
Earth's surface.  You probably also know that CO2 is not the only
greenhouse gas, and that water vapor, for example, is actually a much stronger
and more prevalent greenhouse gas.   

It is important to understand that the greenhouse gas effect
is well-understood in the laboratory.  No one really disagrees that, all
other effects held constant in a laboratory, CO2 will absorb certain
wavelengths of reflected sunlight.   What may or may not be
well-understood, depending on your point of view, is how this translates to the
actual conditions in our chaotic climate.  Does this effect dominate all
other climate effects, or is it trivial compared to other forces at work?
Does this greenhouse effect lead to runaway, accelerating change, or are there
opposing forces that tend to bring the climate back in balance?  These are
hugely complex questions, and scientists are a long way from answering them
empirically.

But wait, that can't be right -- scientists seem so
sure!  Well, some scientists, particularly those close to microphones,
seem sure.  Their proof usually follows one or both of these paths:

1. Some scientists argue that they believe they have
        accounted for all the potential natural causes, or "forcings," in the
        climate that might cause the warming we have observed over the last century,
        and they believe these natural forcings are not enough to explain recent
        temperature increases, so therefore the changes must be due to man.
        This seems logical, until I restate their logic this way:  "the
        warming must be due to man because we can't think of anything else it
        could be." 
2. Scientists have created complicated models to predict
        future climate behavior.  They argue that their models show man-made
        CO2 causing most 20^th century warming.  Again this sounds good,
        until one understands that when these models were first run, they were
        terrible at explaining history.  Since these first runs, scientists
        have tweaked the models until they match historical data better.  So,
        in effect, they are saying that manmade CO2 is the cause of historical
        warming because the models they tweaked to match history"¦ are very good at
        matching history; and because the models they programmed with CO2 as the
        major driver of climate show that"¦CO2 is the major driver of
        climate.  We will see a lot of such circular analysis in later
        chapters.

The best evidence we could expect to find (lacking a second
identical Earth we can use as a control in an experiment) is to find a historic
correlation between temperature and CO2 that is stronger than the correlation
between temperature and anything else (and of course, even this would not imply
causation).  There is a lot of argument whether we have that or not, a
topic I will cover in the next chapter.  Of course, the lack of unequivocal
evidence at this point does not make the AGW theory wrong, just still"¦
theoretical.   

Before we get to the historical evidence, though, there may
be a few other facts about CO2 and warming that you don't know:

• CO2 is a really, really small part of the atmosphere.
       Currently CO2 makes up about 0.0378% of the atmosphere, up from an
       estimated 0.0280% before the industrial revolution.  (Just to give an
       idea of scale, if you were flying from Los Angeles to New York City,
       traveling 0.0378% of the distance would not even get you off the runway at
       LAX.  AGW advocates are arguing that a CO2 concentration increase of
       0.009% has heated the world over a half a degree C.
• The maximum warming should, by greenhouse gas theories,
       occur in the troposphere (the first 10km or so of atmosphere).
       Global warming theory strongly predicts that the warming in the
       troposphere should be higher than warming at the ground.  We will see
       later that the opposite is actually occurring.
• The radiated energy returning to space consists of a wide
       spectrum of wavelengths.  Only a few of these wavelengths are
       absorbed by CO2.  Once these few wavelengths are fully absorbed,
       additional CO2 in the atmosphere has no effect whatsoever.  Also,
       these absorbed frequencies overlap with the absorption of other gasses,
       like water, which further lessens the incremental effect of extra CO2.

What does this mean?  In
effect, the warming effect of CO2 is a diminishing return relationship.
The first increase of, say, 100 parts per million (ppm) in the atmosphere has a
greater effect than the next 100 ppm, and so on until increased CO2 has
essentially no effect at all. 

I once bought a house that had
fuchsia walls in the kitchen and family room (really).  I spent all night
painting the rooms with a coat of white paint, and when I was done, I found
that some of the  fuchsia still showed through the white paint, making it
kind of light pink.  A second coat of white made the wall nearly perfectly
white.  The effects of CO2 in the atmosphere are similar, with the first
"coat" making for the most warming and later "coats" having much less effect
but still adding a bit.  At some point, the wall is white and more coats
have no effect. 

This relationship of CO2 to warming
is usually called sensitivity, and is often expressed as the number of degrees
of global warming that would result from a doubling in global temperature.

There are lots of values floating
around out there for sensitivity, but a preponderance (I won't say consensus)
seem to center on an increase of one degree C for a doubling of CO2 levels from
the pre-industrial figure of about 280ppm.  Note that you will see numbers
much higher than this, but these generally include feedback loops, which we
will get to later.  Without feedbacks, 0.5 to maybe 1.5 degrees seems like
a fairly well accepted number for sensitivity, though there are people on both
side of this range.

Luboš
Motl provides a handy approximation of the diminishing return effect from
CO2 concentration on temperature.  I have taken his approximation and
graphed it below.

This is a very crude approximation,
but the shape of the curve is generally correct (if you exclude feedbacks,
which we will discuss in MUCH more depth later).   Other more
sophisticated approximations generally show the initial curve less steep, and
the asymptote less pronounced.  Never-the-less, it is generally accepted
by most all climate scientists that, in the absence of feedbacks, future
increases in atmospheric CO2 will have less effect on world temperature than
past increases, and that there is a cap (in this chart around 1.5 degrees C) on
the total potential warming.

Note that this is much smaller than
you will see in print.  The key is in "feedbacks" or secondary effects
that accelerate or slow warming.  We will discuss these in more depth
later, but typically AGW supporters believe these will triple the sensitivity
numbers, so a non-feedback sensitivity of one degree would be tripled to three
degrees.  Remember, though, these three points:

· Warming from CO2 is a diminishing return, such that future CO2 increases
has less effect than past CO2 increases

· In the absence of feedback, a doubling of CO2 might increase
temperatures one degree C

· In the absence of feedback, the total temperature increase from future
CO2 increases is capped, maybe as low as 1-1.5 degrees C.

The table of contents for the rest of this paper, . 4A Layman's Guide to Anthropogenic Global Warming (AGW) is here.  Free pdf of this Climate Skepticism paper is here and print version is sold at cost here

The open comment thread for this paper can be found here. 

Today, the price of gasoline at the pump before taxes is about $2.50 a gallon.  The price of milk per gallon is about $3.50 a gallon, and may rise to $5.00 by the fall. 

So I will present you with a heresy:  Gasoline is an absolutely screaming deal.  Having worked a brief stint in the oil industry, it is incredible what has to happen and the investments that are in place to get gas into your car.  Offshore oil platforms, dealing with unstable governments, thousand mile long pipelines, fleets of supertankers, huge complex refineries, and massive distribution networks are required to get gas to your car.  And yet, it's a buck cheaper than milk, which in comparison is nearly trivial to produce.  Sure, the milk needs a little processing and transportation, but compare this to oil, where processing involves reforming the very molecules in the oil to perfect the gas, and where transportation is across distances one to two orders of magnitude greater than for milk.  And don't even get me started on production:  a) cow  b) offshore oil platform in 1000 foot deep water.

It is perhaps even more instructive to see how the government regulates these two commodities.  Oil companies are constantly harassed by government as the world's great Satans, with windfall profits taxes and price gouging regulations, all on an industry that barely makes a 10% profit on sales in the best of times.  Milk, on the other hand, gets huge government subsidies and handouts, including a price support system that is both arcane and incredibly costly.  So Oil:  windfall profits taxes.  Milk, which is pricier but easier to produce: price supports.  Does anyone really want to argue that regulation is a result of real market realities rather than just populist pandering for and against favored and unfavored groups?

I had an odd and slightly depressing conversation with a friend the other night.  He is quite intelligent and well-educated, and in business is probably substantially more successful, at least financially, than I.

Somehow we got in a discussion of oil markets, and he seemed to find my position suggesting that oil prices are generally set by supply and demand laughable, so much so he eventually gave up with me as one might give up and change the subject on someone who insists the Apollo moon landings were faked. I found the conversation odd, like having a discussion with a fellow
chemistry PHD and suddenly having them start defending the phlogiston
theory of combustion. His core position, as best I could follow, was this:

1. Limitations on supply in the US, specifically limitations on new oil field development and refinery construction, are engineered by oil companies attempting to keep prices high.
2. Oil prices are set at the whim of oil traders in London and New York, who are controlled by US oil companies.  The natural price of oil today should be $30 or $40, but oil traders keep it up at $60.  While players upstream and downstream may have limited market shares, these traders act as a choke point that controls the whole market.  All commodity markets are manipulated, or at least manipulatable, in this manner
3. Oil supply and demand is nearly perfectly inelastic. 
4. If there really was a supply and demand reason for oil prices to shoot up to $60, then why aren't we seeing any shortages?
5. Oil prices only rise when Texas Republicans are in office.  They will fall back to $30 as soon as there is a Democratic president.  On the day oil executives were called to testify in front of the Democratic Congress recently, oil prices fell from $60 to $45 on that day, and then went right back up.

Ignoring the Laws of Economics (Price caps and floors)

While everyone (mostly) knows that we are suspending disbelief when the James Bond villain seems to be violating the laws of physics, there is a large cadre of folks that do believe that our economic overlords can suspend the laws of supply and demand.   As it turns out, these laws cannot be suspended, but they can certainly be ignored.  Individuals who ignore supply and demand in their investment and economic decision making are generally called "bankrupt," at least eventually, so we don't always hear their stories (the Hunt brothers attempt to corner the silver market is probably the best example I can think of).  However, the US government has provided us with countless examples of actions that ignore economic reality.

The most typical example is in placing price caps.  The most visible example was probably the 1970's era caps on oil, gasoline, and natural gas prices and later "windfall profit" taxes.  The result was gasoline lines and outright shortages.  With prices suppressed below the market clearing price, demand was higher and supply was lower than they would be in balance. 

The my friend raised is different, one where price floors are imposed by industry participants or the government or more likely both working in concert.   The crux of my argument was not that government would shy away from protecting an industry by limiting supply, because they do this all the time. The real problem with the example at hand is that, by the laws of supply and demand, a price floor above the market clearing price should yield a supply glut.  As it turns out, supply guts associated with cartel actions to keep prices high tend to require significant, very visible, and often expensive actions to mitigate.  Consider two examples:

Realtors and their trade group have worked for years to maintain a tight cartel, demanding a 6% or higher agency fee that appears to be increasingly above the market clearing price.  The result of maintaining this price floor has been a huge glut of real estate agents.  The US is swimming in agents.  In an attempt to manage this supply down, realtors have convinced most state governments to institute onerous licensing requirements, with arcane tests written and administered by... the realtor's trade group.  The tests are hard not because realtors really need to know this stuff, but because they are trying to keep the supply down.   And still the supply is in glut.  Outsiders who try to discount or sell their own home without a realtor (ie, bring even more cheap capacity into the system) are punished ruthlessly with blackballs.  I have moved many times and have had realtors show me over 300 houses -- and you know how many For Sale By Owner homes I have been shown?  Zero.  A HUGE amount of effort is expended by the real estate industry to try to keep supply in check, a supply glut caused by holding rates artificially high. 

A second example of price floors is in agriculture.  The US Government, for whatever political reasons, maintains price floors in a number of crops.  The result, of course, has been a supply glut in these commodities.  Sopping up this supply glut costs the US taxpayer billions.  In some cases the government pays to keep fields fallow, in others the government buys up extra commodities and either stores them (cheese) or gives them away overseas.  In cases like sugar, the government puts up huge tarriff barriers to imports, otherwise the market would be glutted with overseas suppliers attracted by the artificially high prices.  In fact, most of the current subsidy programs for ethanol, which makes almost zero environmental or energy policy sense, can be thought of as another government program to sop up excess farm commodity supply so the price floor can be maintained.

I guess my point from these examples is not that producers haven't tried to impose price floors above the market clearing price, because they have.  And it is not even that these floors are not sustainable, because they can be if the government steps in to help with their coercive power and our tax money to back them.  My point is, though, that the laws of supply and demand are not suspended in these cases.  Price floors above the market clearing price lead to supply gluts, which require very extensive, highly visible, and often expensive efforts to manage.  As we turn now to oil markets, we'll try to see if there is evidence of such actions taking place.

The reasons behind US oil production and refining capacity constraints

As to his first point, that oil companies are conspiring with the government to artificially limit oil production and refining capacity, this certainly would not be unprecedented in industry, as discussed above.  However, any historical study of these issues in the oil industry would make it really hard to reach this conclusion here.  There is a pretty clear documented record of oil companies pushing to explore more areas (ANWR, offshore) that are kept off-limits due to environmental pressures.  While we have trouble imagining the last 30 years without Alaskan oil, the US oil companies had to beg Congress to let them build the pipeline, and the issue was touch and go for a number of years.  The same story holds in refining, where environmental pressure and NIMBY concerns have prevented any new refinery construction since the 1970's (though after years and years, we may be close in Arizona).  I know people are willing to credit oil companies with just about unlimited levels of Machiavellianism, but it would truly be a PR coup of unprecedented proportions to have maintained such a strong public stance to allow more capacity in the US while at the same time working in the back room for just the opposite.

The real reason this assertion is not credible is that capacity limitations in the US have very clearly worked against the interests of US oil companies.  In production, US companies produce on much better terms from domestic fields than they do when negotiating with totalitarian regimes overseas, and they don't have to deal with instability issues (e.g. kidnapping in Nigeria) and expropriation concerns.  In refining, US companies have seen their market shares in refined products fall since the 1970s.  This is because when we stopped allowing refinery construction in this country, producing countries like Saudi Arabia went on a building boom.  Today, instead of importing our gasoline as crude to be refined in US refineries, we import gas directly from foreign refineries.  If the government is secretly helping oil companies maintain a refining capacity shortage in this country, someone forgot to tell them they need to raise import duties to keep foreign suppliers from taking their place. 

What Oil Traders can and cannot do

As to the power of traders, I certainly believe that if the traders could move oil prices for sustained periods as much as 50% above or below the market clearing price, they would do so if it profited them.  I also think that speculative actions, and even speculative bubbles, can push commodity prices to short-term extremes that are difficult to explain by market fundamentals.  Futures contracts and options, with their built in leverage, allow even smaller players to take market-moving positions.  The question on the table, though, is whether oil traders can maintain oil prices 50% over the market clearing prices for years at a time.  I think not.

What is often forgotten is that companies like Exxon and Shell control something like 4-5% each of world production (and that number is over-stated, since much of their production is as operator for state-owned oil companies who have the real control over production rates).  As a point of comparison, this is roughly the same market Toshiba has in the US computer market and well below Acer's.  As a result, there is not one player, or even several working in tandem, who hold any real power in crude markets.  Unless one posits, as my friend does, that NY and London traders somehow sit astride a choke point in the world markets.

But here is the real problem with saying that these traders have kept oil prices 50% above the market clearing price for the last 2-3 years:  What do they do with the supply glut?  We know from economics, as well as the historic examples reviewed above, that price floors above the clearing price should result in a supply glut.  Where is all the oil?

Return to the example of when the Hunt's tried to corner the silver market.  Over six months, they managed to drive the price from the single digits to almost $50 an ounce.  Leverage in futures markets allowed them to control a huge chunk of the available world supply.  But to profit from it (beyond a paper profit) the Hunts either had to take delivery (which they were financially unable to do, as they were already operating form leveraged positions) or find a buyer who accepted $50 as the new "right" price for silver, which they could not.  No one wanted to buy at $50, particularly from the Hunts, since they knew the moment the Hunt's started selling, the price would crash.  As new supplies poured onto the market at the higher prices, the only way the Hunt's could keep the price up was to pour hundreds of millions of dollars in to buy up this excess supply.  Eventually, of course, they went bankrupt.  But remember the takeaway:  They only could maintain the artificially higher commodity price as long as they kept buying excess capacity, a leveraged Ponzi game that eventually collapsed.

So how do oil traders' supposedly pull off this feat of keeping oil prices elevated about the market clearing price?  Well, there is only one way:  It has to be stored, either in tanks or in the ground.  The option of storing the extra supplies in tanks is absurd, especially over a period of years - after all, at its peak, $60 of silver would sit on the tip of my finger, but $60 of oil won't fit in the trunk of my car.  The world oil storage capacity is orders of magnitude too low.  So the only real option is to store it in the ground, ie don't allow it to get produced. 

How do traders pull this off?  I have no idea.  Despite people's image, the oil producer's market is incredibly fragmented.  The biggest companies in the world have less than 5%, and it rapidly steps down from there. It is actually even more fragmented than that, because most oil production is co-owned by royalty holders who get a percentage of the production.  These royalty holders are a very fragmented and independent group, and will complain at the first sign of their operator not producing fast and hard enough when prices are high.  To keep the extra oil off the market, you would have to send signals to a LOT of people.  And it has to be a strong and clear signal, because price is already sending the opposite signal.  The main purpose of price is in its communication value -- a $60 price tells producers a lot about what and how much oil should be produced (and by the way tells consumers how careful to be with its use).  To override this signal, with thousands of producers, to achieve exactly the opposite effect being signaled with price, without a single person breaking the pack, is impossible.  Remember our examples and the economics - a sustained effort to keep prices substantially above market clearing prices has to result in visible and extensive efforts to manage excess supply.

Also, the other point that is often forgotten is that private exchanges can only survive when both Sellers AND buyers perceive them to be fair.  Buyers are quickly going to find alternatives to exchanges that are perceived to allow sellers to manipulate oil prices 50% above the market price for years at a time.  Remember, we think of oil sellers as Machiavellian, but oil buyers are big boys too, and are not unsophisticated dupes.  In fact, it was the private silver exchanges, in response to just such pressure, that changed their exchange rules to stop the Hunt family from continuing to try to corner the market.  They knew they needed to maintain the perception of fairness for both sellers and buyers.

Supply and Demand Elasticity

From here, the discussion started becoming, if possible, less grounded in economic reality.  In response to the supply/demand matching issues I raised, he asserted that oil demand and supply are nearly perfectly inelastic.  Well, if both supply and demand are unaffected by price, then I would certainly accept that oil is a very, very different kind of commodity.  But in fact, neither assertion is true, as shown by example here and here.  In particular, supply is quite elastic.  As I have written before, there is a very wide range of investments one can make even in an old existing field to stimulate production as prices rise.  And many, many operators are doing so, as evidenced by rig counts, sales at oil field services companies, and even by spam investment pitches arriving in my in box.

I found the statement "if oil prices really belong this high, why have we not seen any shortages" to be particularly depressing.  Can anyone who sat in at least one lecture in economics 101 answer this query?  Of course, the answer is, that we have not seen shortages precisely because prices have risen, fulfilling their supply-demand matching utility, and in the process demonstrating that both supply and demand curves for oil do indeed have a slope.  In fact, shortages (e.g. gas lines or gas stations without gas at all) are typically a result of government-induced breakdowns of the pricing mechanism.  In the 1970's, oil price controls combined with silly government interventions (such as gas distribution rules**) resulted in awful shortages and long gas lines.  More recently, fear of "price-gouging" legislation in the Katrina aftermath prevented prices from rising as much as they needed to, leading to shortages and inefficient distribution.

Manipulating Oil Prices for Political Benefit

As to manipulating oil or gas prices timed with political events (say an election or Congressional hearings), well, that is a challenge that comes up all the time.  It is possible nearly always to make this claim because there is nearly always a political event going on, so natural volatility in oil markets can always be tied to some concurrent "event."  In this specific case, the drop from $60 to $35 just for a Congressional hearing is not even coincidence, it is urban legend.  No such drop has occurred since prices hit 60, though prices did drop briefly to 50.  (I am no expert, but in this case the pricing pattern seen is fairly common for a commodity that has seen a runup, and then experiences some see-sawing as prices find their level.)

This does not mean that Congressional hearings did not have a hand in helping to drive oil price futures.  Futures traders are constantly checking a variety of tarot cards, and indications of government regulatory activity or legislation is certainly part of it.  While I guess traders purposely driving down oil prices ahead of the hearing to make oil companies look better is one possible explanation;  a more plausible one (short of coincidence, since Congress has hearings on oil and energy about every other month) is that traders might have been anticipating some regulatory outcome in advance of the hearing, that became more less likely once the hearings actually occurred.  *Shrug*  Readers are welcome to make large short bets in advance of future Congressional energy hearings if they really think the former is what is occurring. 

As to a relationship between oil prices and the occupant of the White House, that is just political hubris.  As we can see, real oil prices rose during Nixon, fell during Ford, rose during Carter, fell precipitously during Reagan, were flat end to end for Bush 1 (though with a rise in the middle) and flat end to end for Clinton.  I can't see a pattern.

If Oil Companies Arbitrarily Set Prices, Why Aren't They Making More Money?

A couple of final thoughts.  First, in these heady days of "windfall" profits, Exxon-Mobil is making a profit margin of about 9% - 10% of sales, which is a pretty average to low industrial profit margin.  So if they really have the power to manipulate oil prices at whim, why aren't they making more money?  In fact, for the two decades from 1983 to 2002, real oil prices languished at levels that put many smaller oil operators out of business and led to years of layoffs and down sizings at oil companies.  Profit margins even for the larges players was 6-8% of sales, below the average for industrial companies.  In fact, here is the profitability, as a percent of sales, for Exxon-Mobil over the last 5 years:

2006:  10.5%

2005:  9.7%

2004:  8.5%

2003:  8.5%

2002:  5.4%

2001:  7.1%

Before 2001, going back to the early 80's, Exxon's profits were a dog.  Over the last five years, the best five years they have had in decades, their return on average assets has been 14.58%, which is probably less than most public utility commissions allow their regulated utilities.  So who had their hand on the pricing throttle through those years, because they sure weren't doing a very good job!  But if you really want to take these profits away (and in the process nuke all the investment incentives in the industry) you could get yourself a 15 to 20 cent decrease in gas prices.  Don't spend it all in one place.

** One of the odder and forgotten pieces of legislation during and after the 1972 oil embargo was the law that divided the country into zones (I don't remember how, by counties perhaps).  It then said that an oil company had to deliver the same proportion of gas to each zone as it did in the prior year  (yes, someone clearly took this right out of directive 10-289).  It seemed that every Representative somehow suspected that oil companies in some other district would mysteriously be hoarding gas to their district's detriment.  Whatever the reason, the law ignored the fact that use patterns were always changing, but were particularly different during this shortage.  Everyone canceled plans for that long-distance drive to Yellowstone.  The rural interstate gas stations saw demand fall way off.  However, the law forced oil companies to send just as much gas to these stations (proportionally) as they had the prior year.  The result was that rural interstates were awash in gas, while cities had run dry.  Thanks again Congress.

Gary Galles at Mises has a good post on why currently proposed "anti-gas-gouging" law is rediculously vague and effectively ex-post-facto law.  I have made this point before as well.

I wanted to comment on something different.  As he begins:

In May, the House of Representatives passed a bill that could lead to
fines as high as $3 million per day for gasoline price gouging, which
it defined as charging a price that "grossly exceeds the average
price"¦offered for sale by that person during the 30 days prior" or
"grossly exceeds the price at which the same or similar gasoline"¦was
readily obtainable in the same area from other competing sellers."

Lets take these two cases in reverse order.  If I am charging a prices that "grossly exceeds the price at which the same or similar gasoline"¦was
readily obtainable in the same area from other competing sellers," then what for God's sakes is the harm?  People will just go to one of the "readily obtainable" other sources.  My business will take a beating, but that's my problem.

The first case is an open invitation for gas lines.  It does not say "grossly exceeds the average
price"¦offered for sale by that person during the 30 days prior unless there is some kind of supply discontinuity or change in wholesale prices."   It sets up a clear if-then:  If you raise your prices by some amount we later rule to be too much, we can fine you $3 million per day.  In the confusion of a supply disruption, gas stations will be afraid to raise their prices despite the new supply-demand reality. They will be afraid of this kind of arbitrary enforcement.  Therefore, the first 100 random people who show up to top off their tanks  or fill their generators to keep their TV running will get the available supply, rather than letting price allocate the gas to the people who value it the most.

I lived through gas lines of the 1970's.  In fact, as the low-driver-on-the-totem-pole, it was my job in the family to cruise around town looking for an open station and then sitting in whatever line I found.  I don't think younger people remember, but in major cities (not in the countryside) in the 1970s, there were weeks when there simply was no gas to be found.  Since that experience, I have pleaded to allow gas gouging in supply emergencies.

All these years of writing about climate change, and I always have claimed that I was not in the pay of any interested industry groups.  Well, I guess I lied.  It appears "Big Recreation" is lobbying against greenhouse gas controls.

Sen. James Inhofe (R-Okla.), Ranking Member of the Environment and Public Works Committee, said: 

"The
recreation industry's true threats come not from climate change --
which has always changed and will always change -- but from the
so-called global warming "˜solutions' being proposed by government
policymakers. Misguided efforts to "˜solve' global warming threaten to
damage the travel and recreation industry and consequently threaten the
American dream."

This is probably true, though the ski resort guys don't agree.

For those who don't know, several years ago I quit both boneheaded Fortune 50 life and boneheaded startup life to run my own recreation business, where I am trying to push a vision of, and make a little money from, privatization of public recreation.  I am actually fairly well insulated from gas price shocks, though by accident rather than thought-out-in-advance strategy.  We have mainly taken over government recreation facilities where the customer base is local weekend traffic (rather than say cross-the-country-to-see-old-faithful travelers).   This is really by accident, because these facilities took less investment than the big national attractions.  As it turns out, when gas prices go up, we actually do a bit better, because people still want to camp and use their RV, but they do it 100 miles from home rather than 1000.

By the way, I am working on a skeptics primer to anthropogenic global warming, which is why blogging has been light.  If you'd be willing to read and comment on a pre-release version, email me and I will put you on the list for a pdf which will be coming in a week or so.  In the mean time, some of my previous work is here

Via Hit and Run:

Federal Price Gouging Prevention Act - Makes it unlawful for any person
to sell crude oil, gasoline, natural gas, or petroleum distillates at a
price that: (1) is unconscionably excessive; or (2) indicates the
seller is taking unfair advantage unusual market conditions or the
circumstances of an emergency to increase prices unreasonably.

Well, since they establish such a bright-line legal standard like "unconscionably excessive," I guess it is OK.

A few days ago, I was astounded to find that oil prices had a here-to-for unsuspected (at least by Congress) utility - that they can actually manage demand to help match supply.  But this strange phenomenon is even more amazing, because it now appears that higher oil prices also have the ability to stimulate investments in increasing production of this scarce commodity:

The American oil patch, once left to languish during an extended
period of low oil prices, is on the rebound. Wildcatters like Mr.
Bryant are ready to pounce. With oil prices now hovering around $60 a
barrel "” three times higher than they were throughout the 1990s "” the
industry is expanding at a pace last seen decades ago.

"The oil
industry has changed dramatically in the last 20 years," Mr. Bryant
says. "Barriers to entry have dropped significantly. It doesn't matter
if you've been in the business 100 years or 100 days."

Easily
available capital and technology, once the preserve of traditional oil
companies, are reordering the business. Investors are lining up to
finance energy projects while leaps in computing power, imaging
technology and collaborative online networks now allow the smallest
entities to compete on an equal footing with the biggest players.

"There's
a lot of money out there looking for opportunities," said John
Schaeffer, the head of the oil and gas unit at GE Energy Financial
Services. "It seems like everyone wants to own an oil well now."

Advice to Nancy Pelosi and Maria Cantwell:  You may need to study this phenomenon.

Of late, Democratic lawmakers have argued that gasoline prices are set at the caprice of oil companies, and mainly serve to provide them with undeserved profits.  However, we here at Coyote Blog try to bring you breaking news at the frontiers of scientific inquiry, and, via the USA Today, we get this fascinating revelation:

The average American motorist is driving
substantially fewer miles for the first time in 26 years because of
high gas prices and demographic shifts, according to a USA TODAY
analysis of federal highway data.

The growth in miles driven has leveled off
dramatically in the past 18 months after 25 years of steady climbs
despite the addition of more than 1 million drivers to the nation's
streets and highways since 2005. Miles driven in February declined 1.9%
from February 2006 before rebounding slightly for a 0.3% year-over-year
gain in March, data from the Federal Highway Administration show.
That's in sharp contrast to the average annual growth rate of 2.7%
recorded from 1980 through 2005....

The nation has not seen such stagnant growth in
driving since 1981, when the USA staggered through an oil shortage and
a recession. Gas prices reached an all-time high of $3.223 in March
1981 when adjusted for inflation in today's dollars.

Wow!  This seems to imply that prices have a here-to-for unsuspected utility.  They might actually be useful for matching supply and demand of scarce resources.  Fascinating.  Maybe Congress can commission a study of this phenomenon.

Postscript: Leaving the snark aside, it is hilarious in this article to see an urban planning group trying to bend over backwards to say that really, price was only a minor factor -- this really had to do with demographics and the success of our urban planning and public transportation.  Of course, it's just a coincidence that this step change occurred at the same time as a gas price spike, and that the last time it happened was the last time that gas price spiked.  Note that none of the data in the article actually supports the point of view that this was anything but a direct response to price signals.

Straight from the 1970's, the US's golden era of bumbling government intervention in the economy, come the same proposals that worked oh-so-well the first time around.  Democracts blame big oil for gas prices, and propose channeling solutions from Hugo Chavez:   (via Q&O)

Congressional Democrats are taking aim at big oil companies as U.S. gasoline prices near a record average $3.05 a gallon.

Although
industry experts doubt it will have any effect, half a dozen senators
gathered in front of a Washington service station to push their own
remedies to the situation, the Washington Post said.

The latest average price for a gallon of unleaded regular gas was $3.042, according to the AAA Fuel Gauge report.

Sen.
Charles Schumer, D-N.Y., called on Congress to consider breaking up the
giant companies. Sen. Bernard Sanders, I-Vt., pushed for a windfall
profits bill.

Sen. Maria Cantwell, D-Wash., promoted her
anti-price-gouging bill, which the Senate Commerce Committee adopted
earlier this week.

Gee, since every transaction in a free market requires a willing buyer and a willing seller, wouldn't it be just as correct to blame profligate consumers for the increase?  And why is it I don't remember any of these actors in Congress rushing to clamp down on greedy sellers when home resale prices skyrocketed far more than gas prices have?  Does anyone remember Maria Cantwell imposing windfall profits taxes on home-sellers?  Or, for that matter, on sellers of Internet stocks who financed their campaigns selling stock above $80 that would soon trade only in the single digits?  And by the way, how can any party who elected Maria Cantwell to the Senate seriously call members of the other party "stupid."

Let's do a thought experiment.  Let's assume that through a series of government actions, Congress is able to return oil profits "to the people."  Oil company profits are now reduced to zero.  That should make a huge difference in gas prices, right?  Well, out of a $3.00 gas price, taxes and the retailers margin are probably 75 cents or so (46 cents tax, 10% or 30 cent retail margin).  This leaves $2.25 for the greedy oil companies.  It turns out large oil companies like Exxon make about 6% of revenues in the bad times, and 10% in the good times, like now.  So, this leaves a profit of  14-22 cents per gallon.  The "people" are saved!  Gas prices can come down by a whole 15-20 cents.  Of course, in return for saving a buck or two on fill-ups, we've nuked the whole incentive system for investment and finding new oil and improving efficiency.  Gas prices over time will rise much higher than they are now, and lines will start reappearing at gas stations, but that probably won't show up until after the next election, so why should anyone in Congress care?

A while back, I wrote about wealthy, legally savvy parents exploiting disabled-education funds to get their high achieving kids into private schools, paid for by the state.  Apparently we can't get $6000 vouchers, but this is legally OK, if you are persistent enough in gaming the system:

In Sonoma County, for example, a family recently enrolled its child in an
out-of-state boarding school, then billed its district not only for tuition,
but airfare, car rental, hotel, cell phone calls, meals, tailoring, new
clothes, an iBook computer, stamps, tolls, gas and 13 future round-trip visits.
Total tab: $67,949....

Here is the mom, in this case, explaining her son's "disability" which justified this largess

"He was not offered the classes that I thought he needed," the mother
said. "If my son didn't get what he needed, my fear was that he would drop out
of school.'' 

She acknowledged he had never been a discipline problem. The hearing
records describe him as a "young adult who is likable, friendly, energetic and
highly motivated. He is physically active, plays lacrosse and soccer, and
enjoys wakeboarding and snowboarding."

"He's a model child," she said. "However, his frustration and anxiety were
so high that I could see that this is the type of person who, out of
frustration, turns to drugs or something that he shouldn't be doing."

Well, the good news, I hope, is that the Supreme Court is set to review this kind of legal abuse of the ADA and other disable rights legislation:

the Supreme Court has accepted for review a case in which, according to
the New York Times's account, a former chief executive of Viacom did
not even give a public school program a try before enrolling his son in
a private school and demanding that New York City pick up much of the
resulting bill. The New York Times's account is distinctly
unsympathetic toward the parent, and quotes Julie Wright Halbert,
legislative counsel for the Council of the Great City Schools, as
saying: "Many wealthy, well-educated people are gaming the system in
New York City and around the country."

Let's have school choice for everyone, not just for the well-connected, legally savvy, or downright irritating.

I promise, cross my heart, this is my last post on climate change for a while.  I thought my series of posts last week about the funny math of carbon offsets was the last, but Joe Miller at Catallarchy wrote something that caused me some introspection:

Just one caveat, though: I'm really, seriously, profoundly uninterested
in your skepticism about man-made global warming. Personally, I think
that the debate is just about as fruitful as a discussion of the
relative merits of evolution and Genesis as models of the origins of
the universe. It's called scientific consensus, people. You seem to
like it well enough for every other subject. And even if that
overwhelming scientific consensus turns out to be wrong, it's not like
a debate here is going to help with that. When scientists are wrong,
it's up to, you know, like, other actual scientists to settle
the question. A bunch of non-scientists googling studies that say what
we like them to say isn't accomplishing much, really.

Certainly I have always been in favor of facts and science over hysteria.  I criticized the rampant breast implant litigation in the face of science that showed no real long-term harms.  Ditto vaccinations.  So am I being a Luddite by, as an amateur, being skeptical of the scientific "consensus" on global warming?  Certainly climate change hawks want to paint my positions as "holocaust denial."  I had a few thoughts:

• For what it is worth, I have actually read much of the 2001 IPCC climate report (not the management summary, which is a worthless political document, but the report itself).  Courtesy of JunkScience.com, who has posted some of the 2007 report, I have read key parts of that report as well.  So I have at least informed myself beyond random Google searches.  My original university training was as a scientist, and later an engineer, though neither in climate (physics and mechanical engineering).
• The media has been known to declare a consensus ahead of its actual existence.  One example that comes to mind is a recent letter that a number of economists wrote supporting a Federal minimum wage increase, which much of the media spun into a "consensus" among economists that a minimum wage increase would be desirable and would not reduce employment.  I don't know Mr. Miller, but my bet is that some of the folks at Catallarchy might dispute this particular scientific consensus.
• To even imply that there is a single consensus on something as complex and multi-faceted as anthropomorphic global warming is facile.  I will take the movie "An Inconvenient Truth" as a fair representation of what the media perception of the consensus is  (the IPCC report actually does not agree in full, but we will get there in a minute).  Taking that movie as our straw man, the "consensus" or hypothesis is as follows:

1. The world has been warming for a century, and this warming is beyond any historical cycles we have seen over 1000 years  (ie, the hockey stick)
2. The last century's warming is almost all due to man's burning of fossil fuels and other releases of greenhouse gasses
3. In the next 100 years, CO2 produced by man will cause a lot more warming
4. Positive feedbacks in the climate, like increased humidity, will act to triple the warming from CO2
5. The bad effects of warming greatly outweigh the positive effects, and we are already seeing them today (polar bears dying, glaciers melting, etc)
6. These bad effects, or even a small risk of them, easily justify massive intervention today in reducing economic activity and greenhouse gas production

I believe this is a mostly fair representation of the media reporting of the scientific "consensus", with the exception that the media never really goes into step #4, and assigns all the blame for 6-8 degree temperature rise forecasts to CO2.  But this split between #3 and #4 is important to understand the science at all, and is included in the IPCC report, so I will make it. 

This is a complicated string of logic, with multiple assumptions.  I hope you see why declaring a scientific consensus on all points of this hypothesis is facile.  So where is there a scientific consensus on all of this?  My interpretation from the recent IPCC report and other sources is:

1. The world has been warming for a century, and this warming is beyond
   any historical cycles we have seen over 1000 years  (ie, the hockey
   stick)   There is a strong consensus on the first half.  We can argue about urban heat island corrections and ground vs. satellite all day, but the earth has pretty clearly warmed for a hundred years or so, after cooling before that.  The second half of the proposition is trickier.  The 2001 report relied on the Mann hockey stick to make the point that the 20th century is not just warmer but uniquely warmer.  I sense the 2007 report backing off this -- the Mann analysis has a lot of problems, and ongoing climate research continues to point to the great variability and cyclicallity of climate over time.  There is too much historical evidence, for example, of a warm middle ages for Mann to dismiss it with a few tree rings.
2. The last century's warming is almost all due to man's burning of fossil fuels and other releases of greenhouse gasses.   The 2001 IPCC report implied about half of the century's warming was man-made.  The new report seems to put more of the blame on man.  My sense is this will move over time back to half and half -- the evidence today of increased solar activity is becoming too strong to ignore as a cause along with man-made CO2.  However, I recognize right now that I am out of step with the IPCC and perhaps the "consensus" on this.
3. In the next 100 years, CO2 produced by man will cause a lot more warming.  CO2 production by man will cause more warming.  How much is the subject of models, which any economist or businessperson can tell you are notoriously flaky.  However, here is one fact that is part of the scientific consensus but you never hear in the media -- the relationship between atmospheric CO2 concentration and warming is a diminishing return.  In other words, the next doubling of CO2 in the atmosphere will have less impact on temperatures than the last doubling.  At some point, the effect of CO2 maxes out, and further increases in CO2 have no effect on temperatures.  My reading of the newest IPCC seems to imply that if the models predict about 6 degrees of warming over the next 100 years, of which about 2 is directly from CO2, while the rest are from positive feedbacks (discussed next)
4. Positive feedbacks in the climate, like increased humidity, will act to triple the warming from CO2.  OK, this strikes me as the key point in the scientific consensus.  Hypothesized positive feedback loops in the climate are what take the IPCC models from results that are warmer but probably manageable to results that appear catastrophically warmer.  Their models assume that as the world warms a bit from CO2, other effects take hold, and the world will warm even more.  For example, they posit that if the world is warmer, more water evaporates into water vapor in the atmosphere, which is a strong greenhouse gas, which accelerates the warming.  I think it is absurd to say there is a consensus on this point, which is adding 2/3 or more of the warming.  The notion of positive feedbacks in nature offends my intuition --  there are just not that many such processes in nature, or else nothing would be stable -- but then again Einstein's intution was offended by quantum mechanics and he was wrong.  However, using the IPCC's own findings (starting in section 8.6 here) the IPCC admits to there not even being a consensus on the sign (ie if it is positive or negative feedback) of what they describe as by far the strongest feedback process (cloud cover)!  I don't know how you can declare a consensus if you admit you don't even know the sign of the largest effect.
5. The bad effects of warming greatly outweigh the positive effects,
   and we are already seeing them today (polar bears dying, glaciers
   melting, etc)  It would be absurd to declare a consensus here because no one has really done much definitive work.   Most folks, including me, presume that since substantial warming would take us beyond the temperature range for which our bodies and our civilization has been adapted, the net effect would be bad.  But there are positive offsets to the negative effects (e.g. oceans rising) that you never really hear about in the press (longer growing season, for one) but which are in the IPCC report.  Climate scientists themselves have admitted there is no consensus on what effects that we are seeing today are due to warming.  Part of Antarctica (about 2%) shown in Al Gore's movie is warming, but most scientists now think that this may be due to cyclical variations in ocean currents, while most of Antarctica has actually been cooling of late.  Greenland is warming, but glaciers may not be receding as fast as once feared.  Polar bear populations, despite reports to the contrary, are increasing.
6. These bad effects, or even a small risk of them, easily justify
   massive intervention today in reducing economic activity and greenhouse
   gas production.  Many climate scientists express an opinion on this, often definitively, but if one argues that I am not qualified to test the consensus as a layman on global warming, then certainly climate scientists are far from qualified in drawing any conclusions on this topic.  The effects of a worldwide rollback on CO2 production at current technologies could be catastrophic, particularly for a billion people in India and China just on the verge of emerging from poverty.  Even in some of the most dire forecasts for warming, it is a very open question with little consensus as to whether a cooler but poorer world is better.  In fact, one can argue that even the pious Kyoto-signing countries are voting with their actions, rather than their words, on this issue, since they have resisted taking the hard economic steps necessary to meet their targets.

OK, that is more than I meant to write.  My point is that the word consensus is an absurd word to apply to the topic of anthropomorphic global warming.  Some things we understand pretty well (the world is warming, in part due to man-made CO2) and some we understand less well (the effect of feedback loops).  And some issues, like whether the harms from climate change are worth the cost of avoiding them, are entirely outside the purview of climate science.

Update: Strata-Sphere has a funny bit of related snark:

Global warming on Neptune's moon Triton as well as Jupiter and Pluto, and now Mars has some scratching their heads over what could possibly be in common with the warming of all these planets....

I still don't know. Could there be something in common with all the
planets in our solar system that might cause them all to warm at the
same time?

On a serious note, he has some nifty graphs of historic earth temperature reconstructions (including Mann) vs. sunspot activity reconstructions (sunspot activity generally being a proxy for solar output).  Short answer:  Sunspot activity at historical highs, at the same time as historical highs in temperature. 

I don't have any inside information on TerraPass, the company made famous by providing the $399.75 certificates that offset all your emissions for a year.  I do know that the numbers don't seem to add up, as I wrote here and Protein Wisdom similarly wrote here.

However, I thought about their business model some (since I have been on a role with new business models) and it strikes me that it is brilliant.  Because I am almost positive that they are (legally) reselling the same carbon credits at least three times!

Think of TerraPass not as a company that hands out little certificates, but as a business who makes money through energy projects.  These projects generate electricity without producing CO2 (e.g. wind), or in the case of their cow-poop projects they generate electricity by converting a very bad greenhouse gas (methane) to a less bad one (CO2).

So, for each Kw they generate, there is a certain number of tons of greenhouse gas emissions avoided vs. if they had generated the same Kilowatts with fossil fuels.  (How many tons depends on what fuel you assume the power would have been made with -- my guess is they assume coal, since that gives them the biggest offset, though in fact the marginal fuel in most areas is natural gas in peaking turbines, which produces a lot less CO2).

Anyway, they can claim some number of tons of avoided CO2.  But I am pretty sure they are reselling these abated tons at least three times!  Here is how I think it works:

1. Their energy projects produce electricity, which they sell to consumers.  Since the
   electricity is often expensive, they sell it as "CO2-free"
   electricity.  This is possible in some sates -- for example in Texas, where Whole Foods made headlines by buying only CO2-free power.  So the carbon offset is in the bundle that they sell to
   electricity customers.  That is sale number one. 
2. The company most assuredly seeks out and gets
   government subsidies.  These subsidies are based on the power being
   "CO2-free".  This is sale number two, in exchange for subsidies. 
3. They still have to finance the initial construction of the plant, though.  Regular heartless
   investors require a, you know, return on capital.  So Terrapass
   finances their projects in part by selling these little certificates that you
   saw at the Oscars.  This is a way of financing their plants from people
   to whom they don't have to pay dividends or interest "”just the feel-good
   sense of abatement.  This is the third sale of the carbon credits.

All, by the way, entirely legal, though perhaps not wholly ethical if you really care about reducing CO2 emissions and not just being able to cover your ass to smugly deflect criticism.  This is actually a brilliant way to finance electricity projects, one that Enron wasn't even smart enough to dream up.

And there is nothing wrong with buying these certificates.  The International Star Registry has sold thousands (millions?) of people on the idea that they can have a star named after themselves.  Of course, no actual official body that names stars accepts these as real names, but that's OK, the certificate kind of makes a cool graduation gift (friends of ours did the ISF thing for my father-in-law after he died and my wife really liked it).

Postscript:  By the way, this ignores the ability of such a company to resell the same credits to multiple certificate holders, since the whole CO2 credit thing is pretty damn hard to audit and no one is even trying.  I don't think these guys are doing so, but someone will think of it.

Apparently one of the reasons all those stars at the Oscars were so pleased with themselves is that they all got a smugness coupon in their gift bags (emphasis added):

Hollywood's wealthy liberals can now avoid any guilt they might feel
for consuming so much non-renewable fossil fuel in their private jets,
their SUVs, and their multiple air-conditioned mansions. This year's
Oscar goodie bag contained gift certificates representing 100,000
pounds of greenhouse gas reductions from TerraPass, which describes
itself as a "carbon offset retailer." The 100,000 pounds "are enough to
balance out an average year in the life of an Academy Award presenter,"
a press release from TerraPass asserts. "For example, 100,000 pounds is
the total amount of carbon dioxide created by 20,000 miles of driving,
40,000 miles on commercial airlines, 20 hours in a private jet and a
large house in Los Angeles. The greenhouse gas reductions will be
accomplished through TerraPass' [program] of verified wind energy, cow
power [collecting methane from manure] and efficiency projects." Voila,
guilt-free consumption! It reminds us of the era when rich Catholics
paid the church for "dispensations" that would shorten their terms in
Purgatory.

Something smells here, and it is not the cow-poop methane.  This 100,000 pound coupon retails for $399.75 (5x79.95) on the TerraPass web site.  First, this rate implies that all 300 million Americans could offset their CO2 emissions for about $100 billion a year, a ridiculously low figure that would be great news if true. 

Lets look at solar, something I know because I live in Arizona and have looked at it a few times.  Here is the smallest, cheapest installation I can find.  It produces 295 CO2-free Kw-hours in a month if you live in Phoenix, less everywhere else.  That is enough to run one PC 24 hours a day -- and nothing else.  Or, it is enough to run about 10 75-watt light bulbs 12 hours a day -- and nothing else.  In other words, it is way, way, way short of powering up a star's Beverly Hills mansion, not to mention their car and private jet.  It would not run one of the air conditioning units on my house.  And it costs $12,000!  Even with a 20 year life and a 0% discount rate, that still is more than $399.75 a year.  For TerraPass's offset claim to be correct, they have to have a technology that is one and probably two orders of magnitude more efficient than solar in Arizona.

[update:  Al Gore's house 221,000 kwH last year.  Call it 18,400KwH per month, that would require about 62 of these solar installations for $744,000.  I don't think $399.75 is really offsetting it]

So if Al Gore and the Hollywood-ites start whipping out these coupons and claiming to be green, be very, very skeptical.  My guess is that TerraPass is less like a real carbon offset and more like, say, the International Star Registry, where you get a nice certificate for the wall and the internal glow of having a star named after you (which, officially, it really is not).  Both the star registry and TerraPass are selling the exact same thing -- fluff.  Actually, TerraPass's certificate is a bit cheaper than the star registry.  Smugness on sale!  Think of it as the "International Earth Good-Guy Registry."

Update:  This type of thing is incredibly amenable to fraud.  If you sell more than 100% of an investment, eventually the day of reckoning will come when you can't pay everyone their shares (a la the Producers).  But if people are investing in CO2 abatement -- you can sell the same ton over and over and no one will ever know.

Also, this is a brilliant way to finance a power station.  Say you want to build a wind power station.  Actual regular investors will, you know, want a return paid to them on their investment.  But TerraPass has apparently found a way to get capital from people without paying any return.  They just give these people a feel-good share of the lack of CO2 emissions and a little certificate for the wall, and TerraPass gets capital they never have to repay to build a power station they likely would have built anyway that they can then in turn sell the power from and not have to give any of the revenues to investors.  Smart.

More thoughts:  My guess is that TerraPass, when it sells the electricity from these projects to customers, is selling it on the basis that it is earth-friendly and causes no CO2 emissions.  This lack of emissions is likely part of the "bundle" sold to electricity customers.  But note that this would be selling the same lack of emissions twice -- once to TerraPass certificate holders, and once to the electricity customers.  I am sure they are both told they are avoiding X tons of emissions, but it is the same X tons, sold twice (at least).  Even Enron didn't try this. 

I really wish I had fewer scruples, because this would be a fabulous business model -- free capital, the ability to sell the same goods multiple times to different people, all the while getting lauded for saving the world in the press and getting invited to the Academy Awards.

Update #2:  LOL. IowaHawk is offering the same thing, but for the discounted rate of $9.95!  And with much better bumper stickers.  He also suggests a multi-level marketing approach.  Here are just two of many choices:

While we all argue about man's impact on the climate (my most recent take here), why isn't anyone checking the thermostat?

The New
Scientist report, along with other scientific assessments warning of
global cooling, also come as a blow to the campaign -- led by David
Suzuki and one of the directors of his foundation -- to portray all who
raise doubts about climate change theory -- so-called skeptics -- as
pawns of corporate PR thugs manipulating opinion. If the Suzuki claim
is true, then the tentacles of Exxon-Mobil reach deeper into science
than anyone has so far imagined.

Dramatic global temperature fluctuations, as New Scientist
reports, are the norm. A Little Ice Age struck Europe in the 17th
century. New Yorkers once walked from Manhattan to Staten Island across
a frozen harbour. About 200 years earlier, New Scientist reminds us, a
sharp downturn in temperatures turned fertile Greenland into Arctic
wasteland.

These and other temperature swings corresponded with changing
solar activity. "It's a boom-bust system, and I expect a crash soon,"
says Nigel Weiss, a solar physicist at the University of Cambridge.
Scientists cannot say precisely how big the coming cooling will be, but
it could at minimum be enough to offset the current theoretical impact
of man-made global warming. Sam Solanki, of the Max Planck Institute
for Solar System Research in Germany, says declining solar activity
could drop global temperatures by 0.2 degrees Celsius. "It might not
sound like much," says New Scientist writer Stuart Clark, "but this
temperature reversal would be as big as the most optimistic estimate of
the results of restricting greenhouse-gas emissions until 2050 in line
with the Kyoto protocol."

It turns out that while we may be encountering some of the highest temperatures in a couple of centuries, the sun's output is also at its highest point in centuries: