New Blog Name; Feedback

Tonight a new name was found for this blog over a bowl of ramen with TMalk, who was quite taken by it.  I think it conveys the perspective I’m bringing, and I like the idea of transmission.  I believe it will do the trick.  Sorry to those who have linked to this site, I think you’ll have to manually change your link.  To top the night off, ’Doc’ Halladay just pitched a 4 hit shutout in Seattle, the sun has been shining in Vancouver and I am about to embark on a road trip with a good friend.  So all’s well.  Also loving the feedback on the last post.  It’s funny to think random people out there can stumble over my little corner of the web and then type out a comment.  Strong reactions give me something to ponder and I will have to write another post dealing with fossil fuels in a more complete manner to take back my good name as a moderate.

Fossil Fuels and ‘Peak Oil’

Peak oil is a funny idea.  Basically, it’s like saying, this time things are different.  This time, faced with a scarce and finite resource that we will run out of, there will be sky high oil prices and bad news for everyone involved in energy consuming countries.  So, what does economics say about this?  High oil prices will spur innovation, encourage substitution away from oil (say, towards nuclear energy, renewables, or even coal), discourage profligate energy use, and high prices will fire up the pursuit of heretofore unknown and/or unrecoverable reserves of oil.  These effects will force the price of oil down towards it’s long run average.  At that time, auto makers will start dusting off plans for the latest and greatest SUV and high cost projects like the tar sands in Alberta will be severely curtailed, possibly even mothballed. 

The substitution effect is a powerful force in economics and important for understanding broad trends.  When prices rise, economic agents will often substitute a similar item for the higher priced one.  As an example, if all of a sudden donuts became very expensive, I might buy a cookie instead of a donut the next time I want a sweet snack; I am substituting a similar item for my normal preference in response to a change in price.  In terms of energy, oil also has various substitutes.  South Africa has produced synthetic gasoline and oil from coal for years.  This process is economically viable at $US35 a barrel.  If oil prices sustain their recent highs, or go even higher, then companies will start planning or expanding projects to produce unconventional oil.  The tar sands in Alberta is one such project.  You can also produce synthetic oil and gasoline from biomass and natural gas.  The substitution effect will ensure that during periods of high prices, other, cheaper sources of energy will be exploited.  This will enforce a ceiling on the price of oil, though in the short term it might not be apparent.

Peak oil theorists are concerned about the amount of oil left in the ground, fearful that it is rapidly running out.  If you examine the aggregate of fossil fuel supplies, which includes coal, oil and natural gas, running out of them won’t be a problem in our lifetime, or your grandchildren’s lifetime.  Fossil fuel enegy reserves were estimated in 2000 to last for 131 years, and as a resource it is estimated to last 786 years.  For clarity, reserves are what is available for use, whereas a resource is what is estimated to be occuring geologically.  As reserves are depleted, more of the resource is brought into production to replace consumed reserves.

I can’t predict the time line of energy use and prices, but once everyone is used to the idea of high priced oil, and the structural economic changes described above are afoot, then the price of oil will be on it’s way back to the long run average real price, which has been about US$30 a barrel since 1970 (real means that the price is adjusted for the effects of inflation, as opposed to the nominal price which is what the posted price is).  If you include all the data prior to 1970, the average real price of oil drops to about US$21 a barrel. 

This process has been observed in the recent past, with the nadir of oil prices in the 1990’s.  The headline from The Economist for March 4th, 1999, is Drowning In Oil.  Interestingly enough, if you had purchased shares in Encana (a Canadian energy company) at that precise moment, by today you would have achieved compounded annual returns of 30%, or an absolute increase of 11 times, not including dividends.  So, in 9 years we’ve gone from having way too much of the stuff, to ‘Peak Oil’.  Things will swing back, they have in the past, and they will again.

These ideas ignore the environmental issues with fossil fuel use.  Moving away from fossil fuel dependency is a noble and imperative goal, but it should not be spurred on by fanciful talk of a looming oil/energy shortage.  I’ve cribbed heavily here from Mark Jaccard’s book, Sustainable Fossil Fuels, an excellent book, and taken items from a few other sources.

 

 

Back in town, new post soon

Made it back from Haida Gwaii yesterday after a week of guiding.  It was very cold and very wet and was the worst fishing I had ever seen up there.  Among the guides, there were long faces all round.  I pretended like it would be old times and that worked to my advantage for a couple of days, but then I came crashing back to earth.  However, summing up the week, doing the rock star tour was awesome; it was great to catch up with old friends, make a little cash, and do some fishing.

This piece by Andrew Baxter has got me fired up to write a new post that will be about ‘peak oil’ and energy.  Basically, it will be a long time before we run out of fossil fuels on this planet, regardless of what has been happening in the last few years with the price of oil.  But doom and gloom sells no?  The reality is that there is a bountiful deposit of energy on this planet, and no matter what we do in our lifetimes it will not run out.  More to follow.

It’s going to be a busy summer for me with various trips planned in and around about 4 more weeks of guiding, so I’ll post when I can!  Still working on the name…

Pacific Salmon

I’ll often be asked if their is any hope for the salmon stocks of the Pacific.  With certainty, I always say that Pacific salmon are in long term decline.  I’ve worked at a sport fishing lodge for the past 9 summers; most of my direct knowledge is with chinook salmon, the largest of the Pacific salmon and highly prized by anglers, but I do have anecdotal knowledge of pink and coho salmon as well.  It’s not a straight line decline, but fishing is not as good as it was 10 years ago, and it’s not as good at it was 20 years ago.

In the recent past, Langara Island (the location of the lodge I worked/work at) used to support a chinook salmon commercial  fishery.  The big blow to the chinook runs came with the adoption of GPS technology in the ’80s.  It allowed the commercial boats to systematically target a run of salmon as it migrated down the coast, where in the past you’d have to pick a likely spot and wait for a run to swim by.  Naturally fishing regulations were lagging the new technology, and it was boomtime for catching chinooks.  But with a flooded market, fishermen had to catch more chinook just to pay their bills, and so a real death spiral took off.

These days, the commercial boats are seen much less and the fleet is a quarter of what is used to be.  Commercial salmon fishing is a sunset industry with an aging workforce and It’s been described to me as a hobby fishery, where the boat is owned by the captain, and the likelihood of making a profit is small.  As for the sport fishing lodges, they are squeezing a much higher dollar value out of every salmon caught, but the focus at higher end lodges is shifting away from the variables (such as salmon) and moving towards luxury accomodation, eco-tourism and wilderness excursions.

The Department of Fisheries and Oceans (DFO) is responsible for this fantastic resource, but they are beholden to the various interests involved, that being First Nations, commercial and sport fishermen.  This results in an oversight body that seems intent on just managing the decline as opposed to halting or reversing the decline.  DFO is a political organization which doesn’t have the teeth or werewithal to perform its mandate in regards to Pacific salmon; they will not solve or alleviate the problems facing the salmon.

Ocean conditions play a large part in the health of salmon stocks.  If food is plentiful, salmon grow quickly and grow strong and then are more likely to return to the river to spawn.  However, ocean conditions are clearly out of our control except in the long term.  River habitat, harvest limits, hatchery funding and aquaculture are under our control.  Salmon are a fairly robust species with the potential to recover quickly, but they need a chance.  River habitat must be maintained and improved, a reduction in fishing limits for all parties must be considered and implemented, hatchery funding sustained or increased, and fish farming practices need to be fundamentally altered. Think Salmon and let’s keep them around for the future.

 

Blogging

First of all, I want to express my gratitude for everyone that read my first post, and extra thanks to those who felt compelled to comment, directly or on the blog.  I am looking forward to further expressing myself in this medium.  I believe careful illustration of economic ideas to a wide audience is important, so that people can be informed about the larger forces at work and get away from reactionary thinking about gas prices, China as workshop to the world, and peak oil, to name a few items.  

Now, about that title.. yes, it’s lame, and yes it’s temporary.  I’ve given it some thought but haven’t yet come up with a title that I have found to be appropriate.  We’ll see what develops.  Suggestions are welcome.  The photo is staying btw, that part of the title I think I knocked out of the park.

I’ve been working on my next post, and it’ll be up later in the week.  It’ll be fairly topical to my life as I am heading up the coast to do some work and I’ll be demonstrating my trade of sport fishing guide in the wilderness of Haida Gwaii from the 20th to the 30th of this month.  So, with salmon on the brain, I thought I would ruminate on the state of the pacific wild salmon stocks.  Stay tuned true believers.

Carbon Taxes

Climate change is a big problem requiring varied and well planned solutions.  One of these will be a carbon tax.  It can be a simple market device to affect consumption.  If carbon emissions have been over produced or under costed, then adding a tax onto carbon will make it more expensive and that will bring down production.  This is how a tax designed to affect behaviour works.  In BC, this is going to happen by taxing fuel, first just a little bit, but then gradually ramping up over time.  This rising revenue stream will be offset by a reduction in income taxes. 

By making carbon more expensive, there will be choices and opportunities created.  As a consumer, I can decide to properly insulate my house to reduce fuel costs, for example.  Corporations can gain a competitive advantage by reducing their carbon emissions.  Old and carbon intensive processes will be either phased out or priced out of the market.

These kinds of changes won’t happen overnight, and they shouldn’t.  Rapid and sudden changes can be particularly destructive and if they are not necessary, they should be avoided for the undue suffering they cause .  If carbon emissions slowly and steadily become more expensive, the economy will be allowed to adjust at a measured pace and wrenching changes kept to a minimum.  This is the plan put out by Premier Campbell and the Liberals of BC.  It appears the public is onboard, although we’ll find out for sure at the next provincial election.

On the federal level, Dion is going to be releasing his own carbon tax, no doubt based on and inspired by Campbell’s initiative.  Harper and the Conservatives are already bashing it through attack ads. You can read more about this here. I urge Dion to stick to his guns and take the higher ground on this by ignoring the politics around this issue.  I believe Canadians are ready and willing to tackle the problem of climate change and carbon emissions.  If that awareness is there, then the Conservatives will look rather silly and out of touch with the voters on this issue, forcing them to either get on board or to get out of the way. 

Canadians have been known to accept difficult measures in the past in order to deal with big problems.  The budgetary deficits and public debt problem of the 90’s is a good and recent example.  At the time, there was talk of Canada slipping into third world financial problems.  Chretien’s Liberals slashed spending and raised taxes to deal with the deficit.  Typically unpopular moves, but they saw re election and the last majority governments in this country because the public was on board and ready to accept tough medicine.  Canada is once again faced with a big problem, a problem this time shared by all countries, and we are ready to step up and move forward on carbon emissions.  The federal Liberals led by Stephane Dion have an opportunity to do a great thing for this country and the world by honestly addressing this problem.