Whenever I write about the economic problems posed by volatile energy prices, I inevitably receive a query from my editor: don’t I mean high energy prices? After all, people don’t really dislike volatility – they’re quite happy when prices fall. Read more »

It’s been nearly a month since Robert Howarth’s paper claiming that shale gas was worse for climate change than coal made its big splash in the New York Times. I expressed quite a bit of skepticism at the time – and readers of this blog proceeded to dissect the paper in the comments. Now, the Department of Energy’s National Energy Technology Laboratory (NETL) has applied ISO standard methodology, and a substantial understanding of industry operations, to do the calculation itself (PDF of a presentation last week at Cornell). Its conclusion? Used to generate electricity, natural gas – conventional or not – results in far less emissions than coal. Read more »

I’m just back from a trip to Europe where, among other things, I talked to people about international climate policy. At one point, I was asked about differences between the United States and Europe in the realm of climate diplomacy. I observed that the biggest difference was that most Europeans remain focused on concluding a legally binding climate treaty, while most Americans advocates of serious action on climate change are far less attached to that particular outcome. I noted that one can have strong action without a treaty, and weak action with one, and then offered three hypotheses for why many in Europe remains so treaty-focused: Read more »

Bob McNally and I have an essay on oil markets in the July/August issue of Foreign Affairs. We argue that big oil price swings are here to stay for awhile, outline the consequences for economics and geopolitics, and describe some ways that the United States can cope with the situation. The issue won’t hit the newsstands until June, but I sat down with FA editor Gideon Rose to talk a bit about what’s in the article. Take a look: Read more »

I received some thoughtful (offline) responses to my post yesterday on the impact of speculators on oil prices – or, to be more precise, the relationship between financial and physical oil markets. One group insisted that financial markets can’t push up the price of physical oil without also leading to substantial inventory buildups. (Higher prices mean more supply and less demand, and thus, everything else being equal, growing inventories.) Since in many of the cases where people blame speculators for high prices, we haven’t seen big inventory buildups, financial markets can’t be responsible. The other group insisted that huge volumes of paper oil trade mean that financial markets can overwhelm physical ones, and basically dictate prices, at least for some time. In particular, these people noted that most financial traders sell out their futures contracts before they expire, rather than taking delivery of physical oil. Thus, they argued, it is possible for financial markets and physical markets to become largely decoupled from each other. Read more »

The issue du jour, at least until last night’s excellent news, was high gasoline and oil prices. Central to that discussion was a fight over whether speculators were to blame. The public debate has been disappointingly uninformed. For one side, speculators are obviously to blame; for the other side, they can do no wrong. Ezra Klein has admirably turned to a couple top flight economists for help in sorting through the muddle. His conclusion: “Speculators probably aren’t the problem.” They’re right in substantial part, but they’re also missing some important things about how real oil markets work, which make it much harder to dismiss speculators’ influence. This is as good a time as any to try and set a few things straight. Read more »