From the Barry Ritholtz authored Big Picture blog, an old Calvin and Hobbes cartoon is discovered. Ritholtz is a frequent contributor to CNBC Squawk Box, as well as other CNBC segments.
Archive for March, 2011
Truthfully, despite the recent Japan nuclear disaster, nuclear power is looking better and better as a clean ‘bridge’ energy source to sustainable or renewable energy systems. Consider this information contained in a Worldwatch Institute article.
Plenty of Shale, Plenty of Problems
The Green River Basin in the western United States is home to vast oil shale resources.
“In a new report, the Natural Resources Defense Council (NRDC) warns about the dangers of producing transportation fuel from oil shale, a crude oil alternative that has not yet been commercially developed in the United States. The study, Driving It Home: Choosing the Right Path for Fueling North America’s Transportation Future, explores the economic viability and potential environmental impacts of extracting oil from shale and presents a range of other energy and policy options. Written in conjunction with Western Resources Advocates and the Pembina Institute, the report also focuses on the implications of developing transport fuel from two other controversial sources: tar sands and coal.
Oil shale—sedimentary rock that contains a petroleum-like substance called kerogen—is found in great quantities in the western United States, particularly in the Green River Basin spanning portions of Colorado, Utah, and Wyoming. According to Bobby McEnaney, a public lands advocate at NRDC, there are two main ways to extract the kerogen from the shale. The first, an “ex-situ” process, involves mining the shale in an open-pit or underground mine, crushing it, and then distilling it at temperatures exceeding 800 degrees Fahrenheit. The other method, which remains largely unproven, is an “in-situ” process whereby heaters are placed in the ground to liquefy the kerogen in place. The liquid can then be extracted using current oil well technology and sent to a refinery to be processed.
The U.S. Energy Policy Act of 2005 requires the Department of Interior to promote research and development of oil shale resources and to establish a commercial leasing program, accelerating the potential commercialization of the fuel source. The Bureau of Land Management (BLM) has already set aside three separate 160-acre (65 hectare) tracts of land for research activities, and plans to hold a sale of commercial oil shale leases by the end of 2008. However, data from any research projects—including information on the environmental and social impacts and economic viability of the resource—would likely not be available by the time the commercial leases are offered.
Studies conducted so far suggest that oil shale extraction would adversely affect the air, water, and land around proposed projects. The distillation process would release toxic pollutants into the air—including sulfur dioxide, lead, and nitrogen oxides. Existing BLM analysis indicates that current oil shale research projects would reduce visibility by more than 10 percent for several weeks a year. And NRDC states that in a well-to-wheel comparison, greenhouse gas (GHG) emissions from oil shale are close to double those from conventional crude, with most of them occurring during production. According to the Rand Corporation, producing 100,000 barrels of oil shale per day would emit some 10 million tons of GHGs.
The BLM reports that mining and distilling oil shale would require an estimated 2.1 to 5.2 barrels of water for each barrel of oil produced—inputs that could reduce the annual flow of Colorado’s White River by as much as 8.2 percent. Residues that remain from an in-situ extraction process could also threaten water tables in the Green River Basin, the agency says.
NRDC notes that the infrastructure needed to develop oil shale would impose equally serious demands on local landscapes. The group warns that impressive arrays of wildlife would be displaced as land is set aside for oil shale development. And it says that while open pit mining would scar the land, in-situ extraction would require leveling the land and removing all vegetation.
In addition to the environmental impacts of oil shale, vast amounts of energy are required to support production. In Driving it Home, NRDC cites Rand Corporation estimates that generating 100,000 barrels of shale oil would require 1,200 megawatts of power—or the equivalent of a new power plant capable of serving a city of 500,000 people. Proponents of oil shale have a stated goal of producing one million barrels of the resource per day.
So far, large-scale oil shale projects have not yet been started in the United States, and the BLM is still drafting its environmental impact study. The public examination and comment period is scheduled to begin this summer. Unless oil shale development receives considerable government support, the industry is not expected to be economically viable. According to the Denver Post, the oil company Shell recently withdrew its application for a mining permit for an oil shale research and development lease, citing economic reasons.”
Beezer here. Compare the ugliness of shale with the following nuclear power development called a ‘pebble bed’ reactor. It’s being developed in China, a country of 1.3 billion people growing at double digit rates which needs to grasp every energy straw to continue growing. From the Wired blogsite.
“Known as China’s MIT, Tsinghua University sprawls across a Qing-dynasty imperial garden, just outside the rampart of mirrored Blade Runner towers that line Beijing’s North Fourth Ring Road. Wang Dazhong came here in the mid-1950s as a member of China’s first-ever class of homegrown nuclear engineers. Now he’s director emeritus of Tsinghua’s Institute of Nuclear and New Energy Technology, aka INET, and a key member of Beijing’s energy policy team. On a bright morning dimmed by Beijing’s ever-present photochemical haze, Wang sits in a spartan conference room lit by energy-efficient compact fluorescent bulbs.
“If you’re going to have 300 gigawatts of nuclear power in China – 50 times what we have today – you can’t afford a Three Mile Island or Chernobyl,” Wang says. “You need a new kind of reactor.”
That’s exactly what you can see 40 minutes away, behind a glass-enclosed guardhouse flanked by military police. Nestled against a brown mountainside stands a five-story white cube whose spare design screams, “Here be engineers!” Beneath its cavernous main room are the 100 tons of steel, graphite, and hydraulic gear known as HTR-10 (i.e., high-temperature reactor, 10 megawatt). The plant’s output is underwhelming; at full power – first achieved in January – it would barely fulfill the needs of a town of 4,000 people. But what’s inside HTR-10, which until now has never been visited by a Western journalist, makes it the most interesting reactor in the world.
In the air-conditioned chill of the visitors’ area, a grad student runs through the basics. Instead of the white-hot fuel rods that fire the heart of a conventional reactor, HTR-10 is powered by 27,000 billiards-sized graphite balls packed with tiny flecks of uranium. Instead of superhot water – intensely corrosive and highly radioactive – the core is bathed in inert helium. The gas can reach much higher temperatures without bursting pipes, which means a third more energy pushing the turbine. No water means no nasty steam, and no billion-dollar pressure dome to contain it in the event of a leak. And with the fuel sealed inside layers of graphite and impermeable silicon carbide – designed to last 1 million years – there’s no steaming pool for spent fuel rods. Depleted balls can go straight into lead-lined steel bins in the basement.
Wearing disposable blue paper gowns and booties, the grad student leads the way to a windowless control room that houses three industry-standard PC workstations and the inevitable electronic schematic, all valves, pressure lines, and color-coded readouts. In a conventional reactor’s control room, there would be far more to look at – control panels for emergency core cooling, containment-area sprinklers, pressurized water tanks. None of that is here. The usual layers of what the industry calls engineered safety are superfluous. Suppose a coolant pipe blows, a pressure valve sticks, terrorists knock the top off the reactor vessel, an operator goes postal and yanks the control rods that regulate the nuclear chain reaction – no radioactive nightmare. This reactor is meltdown-proof.
Zhang Zuoyi, the project’s 42-year-old director, explains why. The key trick is a phenomenon known as Doppler broadening – the hotter atoms get, the more they spread apart, making it harder for an incoming neutron to strike a nucleus. In the dense core of a conventional reactor, the effect is marginal. But HTR-10′s carefully designed geometry, low fuel density, and small size make for a very different story. In the event of a catastrophic cooling-system failure, instead of skyrocketing into a bad movie plot, the core temperature climbs to only about 1,600 degrees Celsius – comfortably below the balls’ 2,000-plus-degree melting point – and then falls. This temperature ceiling makes HTR-10 what engineers privately call walk-away safe. As in, you can walk away from any situation and go have a pizza.”
Beezer again. Smaller, safer nuclear power. And more dispersed too so a country doesn’t have to rely on mega nuclear plants and all their costs and risks. Hope the US can develop its own version. Otherwise, as in so many other areas, China will beat us to the finish line–and the profits.
There’s a consensus building that the rising price of petroleum will inevitably slow consumer spending in developed countries, but that the rapid growth of Far East developing countries (primarily China and India) will continue to power over all economic growth.
First some detail regarding the price of oil and it’s impact on US consumer driven spending. From the econobrowser blog site.
Consumption spending slowing down
Guess what: rising energy prices are taking a toll on consumers.
On Monday the Bureau of Economic Analysis released details on personal consumption expenditures for February, allowing us to update our graph of how big a share energy is in American budgets. A 6% expenditure share marked the point at which we started to see significant consumption responses a few years ago. The share in February is essentially there (5.98%, to be exact), the highest it’s been since October 2008. For poorer households, energy’s budget bite is a significantly larger percentage.
Not surprisingly, overall spending on other items is slowing down. Real personal consumption expenditures grew at a 3% annual rate in February after falling slightly in January. Bill McBride (and you know I don’t like to argue with him) thinks this means real consumption spending for 2011:Q1 may only grow at a 1.4% annual rate. That’s less than half the rate that many analysts had been anticipating prior to Monday’s data.
Beezer here. After this piece there comes this from a commentator.
“Again, weak demand in developed countries, e.g., the US, since 2005 is not a new story. But the real story is increasing demand in developing countries. Oil consumption in the US and four developing countries for 1998 to 2009 (100 = 1998 consumption, EIA):
At Chindia’s 2005 to 2009 rate of increase in net oil imports, as a percentage of global net oil exports, Chindia would be consuming 100% of global net oil exports in 2025. As they say, somethings gotta give, and that something will largely be consumption in the US, as we will probably continue to be gradually priced out of the global net oil export market.”
Beezer again. The shift from west to east of economic growth appears pretty obvious. But the implications of this shift towards where 40% of all humans live seems not to have been recognized by the US public. In his energy policy speech Wednesday Obama spent some time addressing the medium to long term implications of not having a real non-fossil fuel energy system. But he skirted what may be the real challenge: There is not likely to be enough energy to go around with our current systems. Claims that all we need to do is develop shale oil, which is relatively abundant in the US, are blinding the US public to the real problem of resource demand outstripping supply. Nevermind that the stripping of shale rock through the process of fracking will inevitably produce yet another environmental disaster. A similar set of issues arise when you consider shale gas, including the same problem of water pollution and use in fracking.
Something else needs to be done, and done quickly. Ignoring the necessity of building a sustainable or renewable ‘plan b’ is a fatal mistake. The US economy is now trapped between periods of external shocks and recession and periods of slow growth that are not sustainable. Leadership talks in terms of decades as if we actually have 40 or 50 years to transform our systems. We don’t. Not even close.
What follows is testimony regarding the health care reform legislation given by Congressional Budget Office (CBO) Director Douglas Elmendorf to the House Subcommittee on Health March 30.
Basically it nails down that 95% of Americans will have health coverage in 2021, compared to 83% today and 82% in 2021 absent the legislation. Elmendorf also predicts that the legislation will have a net deficit reduction of $210 billion. There’s also some charts that help visualize this information.
Testimony on Last Year’s Major Health Care Legislation
This morning I testified before the House Energy and Commerce’s Subcommittee on Health on CBO’s analysis of the Patient Protection and Affordable Care Act (PPACA) and the health care provisions of last year’s Reconciliation Act. With the staff of the Joint Committee on Taxation (JCT), we have provided the Congress with extensive analyses of the legislation, and my written statement summarizes that work.
Effects of the Legislation on Insurance Coverage and on the Federal Budget
- Number of People with Insurance Coverage: We estimate that the legislation will increase the number of nonelderly Americans with health insurance by roughly 34 million in 2021. About 95 percent of legal nonelderly residents will have insurance coverage in that year, compared with a projected share of 82 percent in the absence of that legislation and 83 percent currently. The legislation will generate this increase through a combination of a mandate for nearly all legal residents to obtain health insurance; the creation of insurance exchanges through which certain people will receive federal subsidies; and a significant expansion of Medicaid.
- Costs of Expanded Insurance Coverage: According to our latest estimate, the provisions of the laws related to health insurance coverage will have a net cost to the Treasury from changes in direct spending and revenues of $1.1 trillion during the 2012-2021 decade. (Direct spending is that which is not controlled by annual appropriation acts.) That amount is larger than CBO’s original estimate of the cost of those provisions during the 2010-2019 decade that represented the 10-year budget window when the original estimate was produced. The increase owes almost entirely to the shift in the budget window; as you can see in the figure below, the revisions in any single year are quite small. Over the eight-year period (2012-2019) that is common to our original analysis and the most recent one, the net cost of the coverage provisions is now 2 percent higher than CBO and JCT estimated in March 2010.
Comparison of CBO’s 2010 and 2011 Estimates for PPACA and the Health Care Provisions of the Reconciliation Act
(Billions of dollars, by fiscal year)
- Net Budgetary Impact of the Legislation: PPACA and the Reconciliation Act also reduced the growth of Medicare’s payment rates for most services; imposed certain taxes on people with relatively high income; and made various other changes to the tax code, Medicare, Medicaid, and other programs. As you can see in the figure below, those provisions will reduce direct spending and increase revenues, providing an offset to the cost of the coverage provisions. According to our latest comprehensive estimate of the legislation, the net effect of changes in direct spending and revenues is a reduction in budget deficits of $210 billion over the 2012-2021period. In addition to those budgetary effects, the legislation will affect spending that is subject to future appropriation action. CBO has estimated that the Internal Revenue Service and the Department of Health and Human Services will each incur costs of between $5 billion and $10 billion over the next 10 years to implement the legislation. The laws also authorized other appropriations, most of which were for activities that were already being carried out under prior law or that had been previously authorized.
Estimated Effects of PPACA and the Health Care Provisions of the Reconciliation Act on the Federal Budget
(Billions of dollars, by fiscal year)
My written statement describes this estimate in more detail and touches on other effects that we have estimated—including the budgetary impact in the second decade and the laws’ impact on health insurance premiums and employment.
Critiques of CBO’s Analysis
Observers have raised a number of challenges to our estimates. At the hearing, I discussed the three most common areas of concern that I’ve heard expressed:
First, some analysts have asserted that we have misestimated the effects of the changes in law. These concerns run in different directions: Some analysts believe that the subsidies will be more expensive than we project, while others maintain that the Medicare reforms will save more money than we project.
Certainly, projections of the effects of this legislation are quite uncertain, and no one understands this better than the analysts at CBO and JCT. Our estimates depend on myriad projections of economic and technical factors, as well as on assumptions about the behavioral responses to federal policies by families, businesses, and other levels of government. All of those projections and assumptions represent our objective and impartial judgment, based on our detailed understanding of federal programs, careful reading of the research literature, and consultation with outside experts. In addition, our estimates depend on our line-by-line reading of the specific legislative language. Our goal is always to develop estimates that are in the middle of the distribution of possible outcomes, and we believe that our estimates achieve that goal.
A second type of critique of our estimates is that budget conventions hide or misrepresent certain effects of the legislation. As one example, the numbers most often cited involve changes in direct spending and revenues because that is what is relevant for pay-as-you-go procedures and because those changes will occur without any additional legislative action. However, PPACA and the Reconciliation Act will also affect discretionary spending that is subject to future appropriation action. We noted many times the costs that we expect the Department of Health and Human Services and the Internal Revenue Service to incur in implementing the legislation. PPACA also includes authorizations for future appropriations. Those referring to specific amounts total about $100 billion over the decade, with most of that funding applied to activities that were being carried out under prior law, such as programs of the Indian Health Service.
Another example of concern about budget conventions involves the Hospital Insurance trust fund, which covers Medicare Part A. The legislation will improve the cash flow in that trust fund by hundreds of billions of dollars over the next decade. Higher balances in the fund will give the government legal authority to pay Medicare benefits longer, but most of the money will pay for new programs rather than reduce future budget deficits and therefore will not enhance the government’s economic ability to pay Medicare benefits in future years. We wrote about those issues as the legislation was being considered.
A third type of critique is that PPACA and the Reconciliation Act will be changed in the future in ways that will make deficits worse. As with all of CBO’s cost estimates, the ones for this legislation reflect an assumption that the legislation will be implemented in its current form. We do not attempt to predict the intent of future Congresses that might choose to enact different legislation. At the same time, we have emphasized that the budgetary impact of this legislation could be quite different if key provisions of the legislation were changed, and we have highlighted certain provisions that we expect might be difficult to sustain for a long period of time.
Many of CBO’s publications related to the health reform legislation can be found here. ”
Consumer confidence has rolled over and that means buyers are pessimistic. Pessimistic people don’t buy as much as optimistic ones. Gasoline prices are at $3.50 per gallon and the current futures market in petroleum forecasts higher prices ahead. The demand for gasoline is inelastic which means it’s hard to cut back on gasoline usage and that means each additional dollar to buy gasoline is a dollar not spent elsewhere.
Yet the S&P and the Dow continue to climb upwards. Unfortunately both these markets are rallying because of two sectors primarily, Industrials and Energy/Minerals. In the S&P these two industry groups account for 60% of the gains. Experience shows that there’s two likely developments from this kind of narrow rally. Either the rally spreads out into other sectors making the rally more broad based and therefore stronger, or the outperforming sectors roll over and the markets roll over broadly and there is a strong correction.
There’s a couple other developments of note. One is that the financial sector isn’t participating in this rally. Strong upward leaning markets normally coincide with strong upward moves in financial stocks. Another is the rise in Merger and Acquisitions (M&A). M&A activity, such as the proposed $20 billion buy of TMobile by AT&T (financed entirely by bank JP Morgan, so money isn’t a problem) is a consolidation. People will be laid off certainly in such a consolidation. As for customers, their choices will have been narrowed to three at best: AT&T/TMobile, Verizon Wireless and Sprint, with Sprint being a very weak sister in comparison. Prices will rise in this scenario.
Narrow markets can rally for a long time, of course. The voracious economic rise of the Far East means prices for raw materials, food, energy and industrials can rally in the face of weak North Atlantic growth. But outside of these sectors, my guess the game’s heading for a fairly serious interruption.
Supply side economics, as the name implies, counsels that it’s the supply side that must be used to fight recessions.
We now have an ‘output gap’ where the ability to supply goods and services far outstrips what’s demanded. This is our recession in a nutshell. Supply siders counsel that supply must be lowered to match the depressed demand. Which means laying off people and adding to unemployment. Which reduces demand even further. Which means supply must be lowered even further. Which means more unemployment.
In economics this is called pro-cyclical. Pro-cyclical means the policy increases the existing cyclical dynamic. In our case this dynamic is recessionary. Supply side nostrums reinforce the dynamic creating the recession. They are pro-cyclical.
What we need is a policy that’s counter-cyclical. What we need is more employment, which increases demand, which creates more employment. And thus we close the output gap.
The private market is de-leveraging and increasing savings. This is the root cause of the drop in demand that’s created the output gap. There’s no lack of liquidity. There’s plenty of cash on hand. Private corporations have more than $2 trillion in cash on their balance sheets. But they won’t spend it, much less borrow more, because they don’t have sufficient customer demand for what they can already produce from what they already have.
Therefore, the federal government must create employment and be a primary agent for counter-cyclicality. The government must force hiring. But how? The most effective and efficient way is to require modernization of infrastructure. Such an effort would create more jobs than were lost in the recession while making private industry more efficient and competitive for decades to come. Additionally, the jobs created will pay livable wages which increases the impact of the counter-cylical dynamic.
But this is a multi-year, laborious effort. Unfortunately, so far at least, the nation lacks political will for such an effort. This lack of will is not surprising because the political leadership, particularly those of the Republican Party, want to continue supply side approaches to fight the recession.
The will to apply counter-cyclical, demand side policies won’t appear until the public is so incensed by their declining prospects that they will demand a different approach. They will demand jobs. Only then will the leadership change it’s tune.