Sunday, March 15, 2009

OPEC decisions, Cap and Trade, and Scientific Conclusions

The real impact, as opposed to the immediate market response, of the decision of OPEC not to cut their current levels of production will not be seen for some time. The impact will lead to a slow but steady increase in price if it is married with a more rigid compliance, by the OPEC partners with target production cuts, particularly if Russia stands by its commitment to redirect oil from export to domestic production, though there is some question as to whether the Russian cut is completely voluntary. The question out of this remains, however, how well discipline will be retained, through the summer, by the OPEC partners. Now this is, to a degree, a guessing game, and one has to offset the annual increase in gasoline demand as driving picks up for the summer, with the declines that arise out of the shrinking economy to first decide whether there will be increased demand to consume any surplus in the existing supply volumes, thereby increasing prices, before one begins. This is where, at the moment, opinions differ. What will happen first, an increase in demand, or the impatience in the OPEC nations to individually make more money by increasing production, while the rest of the group practice restraint.

My take at the moment is that the ability to show restraint has had an effect. Prices are beginning to rise, and this effect of the cuts has to have an effect on the thinking of those trying to sneak out additional supplies. Further, if Russia does go along with their proposed export cuts, then this is going to further reduce supply, even as China is still providing incentives to increase demand. But these factors take time to realize. Shipping volumes of oil from point A takes time, and the impact of stopping the tankers takes time also, before it has an effect. How long? About a month before the hypothetical becomes the real in this case, I suspect. The market will react in the next few days, and their result is more ephemeral, but will not, in the longer term stop the slow increase in prices that we have now been seeing for a while. Whether that increase will stop at the end of the summer is a whole different question, and for that we’re going to have to see, among other things, what happens with Russian supplies.

The second thread I would like to weave is that of the move toward cap and trade legislation. The early assumption that this would be a simple deal already seem unrealistic, and the forces lining up on either side have become more numerous that in earlier times.
In the five years since Congress last voted on climate change, there's been a 300 percent increase in the number of climate lobbyists, according to the Center for Public Integrity. There are now more than 2,300 lobbyists from 770 companies and organizations -- more than four lobbyists for every member of Congress.

And those lobbyists collected at least $90 million last year from 770 companies and organizations, including the American Coalition for Clean Coal Electricity, a group of 48 firms that spent a total of $9.95 million exclusively on the issue.
The explosive growth in energy lobbying was reported last month by the Center for Public Integrity, which noted that just 45 percent of the interests now weighing in on the issue were energy companies and manufacturers, compared with 70 percent in 2003. Finance and investment firms, which had virtually no role in the debate in 2003, now have about as many lobbyists as alternative energy corporations, according to its report, "The Climate Change Lobby Explosion."
At one time the President had, apparently thought to use reconciliation procedures (which require only a Senate majority) to get the legislature through, but:
By threatening to use the budget reconciliation process (which requires fewer votes) to pass climate legislation, the administration has kicked a hornet’s nest. Yesterday, 28 senators led by Robert Byrd warned the President not to try such a “backdoor” approach to such sweeping regulatory change.

The second type of opposition is more substantive. It started after the budget was unveiled, which included $646 billion in federal revenues from a yet-to-be-written climate bill. The lion’s share of that money–$63 billion out of $78 billion in 2012—is set aside for tax breaks, not for energy research or anything else directly related to the environment or climate change. Some $15 billion per year is earmarked for clean-energy research, exactly matching President Obama’s campaign pledge.
As Mr. Leonard notes, that kind of rebate has many environmentalists upset—what’s the point of a cap-and-trade plan to change energy behavior if consumers don’t feel a reason to change?
The note is from Andrew Leonard at “How the World Works.”. I have written earlier about the need for cap and trade money to cover some of the tax cut needs. The only change since then is a growing sense that this is not going to happen this year. Senator Reid has said he will divide the process, and this way well further weaken the chances of getting there this year. And then next year gets back into an election year, so it may, again, prove more expensive to try and get that final part of the process through.

And the revenue from the system, and its viability are vulnerable to the recession, and fall in power demands. Consider the experience in New England:
The complex arrangement, called a "cap and trade" plan, works like this: Power plants obtain emission allowances from states for every ton of carbon dioxide they emit, with plants that emit larger amounts having to obtain more allowances than cleaner ones. As the cap is reduced, there are fewer available allowances, pushing the price up and thus encouraging the dirtiest power plants to instead invest in cleaner technologies. Over time, cleaner power plants will then out-compete dirtier ones.

But with emissions now about 17 percent below the cap, allowances are not in particular demand, so market forces are not kicking in. Emission allowances are not expected to get high enough anytime soon to spark investment in clean energy.
The experience has been similar in Europe. So without the surety of income, and the political cost of putting up the price of power, this may be a lot longer coming, and all those lobbyists will just have to work that bit harder to get there.

And the final thought relates to President Obama’s comment earlier this week on scientific integrity:
But let's be clear: promoting science isn't just about providing resources - it is also about protecting free and open inquiry. It is about letting scientists like those here today do their jobs, free from manipulation or coercion, and listening to what they tell us, even when it's inconvenient - especially when it's inconvenient. It is about ensuring that scientific data is never distorted or concealed to serve a political agenda - and that we make scientific decisions based on facts, not ideology. 

By doing this, we will ensure America's continued global leadership in scientific discoveries and technological breakthroughs. That is essential not only for our economic prosperity, but for the progress of all humanity.

That is why today, I am also signing a Presidential Memorandum directing the head of the White House Office of Science and Technology Policy to develop a strategy for restoring scientific integrity to government decision making.
And is this where I ask how well that is going to be applied to the debate on climate change ? David Shaywitz has an interesting column on this (I really do read other papers) on Saturday, and I agree with a fair bit of what he says. He points out that the initial announcement of a research result gets lots of press, but should it prove wrong the correction rarely gets much of a mention. He discusses the paper by John Ionnidis who found that the majority of research findings published are in error, and
In this framework, a research finding is less likely to be true when the studies conducted in a field are smaller; when effect sizes are smaller; when there is a greater number and lesser preselection of tested relationships; where there is greater flexibility in designs, definitions, outcomes, and analytical modes; when there is greater financial and other interest and prejudice; and when more teams are involved in a scientific field in chase of statistical significance.
Mainly this was written about medical research, but it has considerable application, I would expect, in other fields. And so consider Shaywitz’ opinion
University researchers are in a constant battle for recognition and the rewards associated with success: research space, speaking engagements, funding and autonomy. Consequently, while academic research is often described as "curiosity-driven," the reality is messier . . . . . . since academic success is determined almost exclusively by the number and prestige of research publications, the incentives to generate results are exceedingly powerful and can encourage investigators to see patterns that may not exist, to disregard contradictory observations that might be important, to overvalue data that might be preliminary or unreliable, and to embrace conclusions that deserve to be viewed with far greater skepticism.

I leave you therefore with the thought that I did offer some conclusions in this post, but on the other hand, it is hard to see my reward in the list provided (grin).

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