CFR Presents

Energy, Security, and Climate

CFR experts examine the science and foreign policy surrounding climate change, energy, and nuclear security.

Posts by Category

Showing posts for "Economics"

Is the Ethanol Mandate Pumping Up Gas Prices?

by Michael Levi

An esoteric fight of the Renewable Fuels Standard (RFS2), which mandates that the United States use an increasing volume of ethanol each year, has become a bit more prominent in recent weeks, with some accusing the mandate of contributing to rising gasoline prices in new and troubling ways. I remain perplexed as to what exactly is going on – more on that a bit further down – but I do find the defense from the Renewable Fuels Association, published last week in the form of a white paper commissioned from Informa Economics, hugely unpersuasive. Read more »

Three Graphs That Resource Pessimists Don’t Want You to See

by Blake Clayton

My last post noted that inflation-adjusted natural resource prices—even for exhaustible resources—tend to fall over time. This trend surprises people who think that prices are doomed to rise indefinitely because it gets more and more expensive to mine/grow/pump these resources in larger volumes over time. So what’s behind the downtrend? Read more »

Bad News for Pessimists Everywhere: Malthus Was Wrong

by Blake Clayton

There is a tempting intuition to the idea that the real prices of non-renewable goods like coal, iron ore, or oil should rise, more or less, forever. It’s an easy argument to make, and it sounds right: The world’s population is getting bigger and bigger, so more and more goods like metals and hydrocarbons are being consumed. Every year, the sum total of what we’ve taken out of the ground mounts, never to be replaced. Supply of the stuff is limited—once it’s gone, it’s gone. So, this argument goes, as we exhaust our resources, we’ll have to mine, drill, or otherwise get our hands on it somehow but it will get more and more expensive to do so, because we’ll have exhausted the best stuff. Left to exploit ever-greater quantities of ever-more-marginal deposits, prices will rise indefinitely into the future. Read more »

Could the North American Shale Boom Happen Elsewhere?

by Blake Clayton

The dramatic takeoff in oil and gas production in the United States and Canada over the last half decade has left many people asking whether a similar boom will happen in other countries. It’s a good question. To answer it, you have to start by identifying what critical factors enabled the boom to happen here, then figure out whether these same enabling factors exist elsewhere. Read more »

Asking the Right Questions About Changes in Derivative Markets

by Blake Clayton

As part of a book I’m working on, I’ve spent some time wading through the econometric literature on speculation in commodity markets, oil in particular. This body of research tries to shed light on how the inflow of investor money into commodity derivatives over the last decade has affected these markets. I’m skeptical of a lot of what’s out there on this topic, though there is also some excellent work, too, like from Bassam Fattouh at the Oxford Institute for Energy Studies. Read more »

A New Study on Oil Taxes

by Michael Levi

Dan Ahn and I have a new energy brief out that takes a fresh look at oil taxes. From the introduction:

“Policymakers are confronting difficult choices [regarding tax hikes and spending cuts]…. In this context, it might be possible to reconsider oil taxes not only as an unwelcome burden, but as an alternative to something worse. We have modeled the potential consequences of substituting taxes on oil consumption for either higher non-oil taxes or reduced government spending, both as part of a larger deficit reduction package. [We show that] doing so can improve economic performance while reducing oil consumption if done right.” Read more »

Why Roll Yield Matters to Oil Benchmark Preferences

by Blake Clayton

In my last post I discussed how trading volumes show a migration into ICE Brent from NYMEX West Texas Intermediate (WTI), two of the world’s most watched crude oil benchmarks. The trend is part of Brent’s broader rise as the preeminent world price of oil. Here I’d like to show graphically part of the reason why some financial market participants are opting to trade the North Sea crude instead of its American cousin. It has to do with recent trends in the futures prices for both crudes. Read more »

Five Critical Questions About the U.S. Strategic Petroleum Reserve

by Blake Clayton

Constant chatter about an impending oil release from the U.S. Strategic Petroleum Reserve (SPR) was a prominent feature of the oil market last year. Much of the speculation was driven by the ongoing loss of crude from Iran, due to sanctions, and the possibility of a confrontation with Tehran over its nuclear program, which could have cut off traffic through the vital Strait of Hormuz. Read more »