Group items tagged

the US will maintain this new standing for the foreseeable future, according to official projections.

It should be no surprise, then, that in the past rising oil prices were associated with recessions and falling oil prices with booms. If the oil price carries on falling back towards $50 a barrel, and if history is any guide, the western economy should respond – to the good.

But although particular companies may lose out, the first-round effect of this fall should provide good news. High oil prices depress economic activity. They suck money from consumer spending and redirect it to oil-exporting countries, which typically hoard it in elephantine foreign exchange reserves or unspent  bank deposits. It is a tax by the few on the many.

With the US needing to buy less oil on international markets and China’s growth sinking to its lowest mark for 40 years, there is now, amazingly, the prospect of an oil glut. The oil price instantly nosedived to its lowest level for four years, around $70 a barrel – down more than a third in three months.

Suddenly, the balance of economic advantage with Russia, no less dependent on oil and gas exports, will flip. Russia’s 2014 budget was based on an oil price of $100 a barrel. At $70 a barrel, the economy will contract by at least 3% in 2015, the country will run a balance of payments deficit and the government’s finances will spin out of control.

The chances of Russia sustaining a surrogate war in Ukraine have suddenly been reduced. All good news.

But western governments cannot hope that economic benefits will arrive automatically. These are new times.

Uncertainty and fear abound. Interest rates in Britain alone have been pegged at 0.5% for more than five years. But still business is reluctant to invest, not knowing what technologies to back or not knowing how much demand there will be for new products and services. We live in an era of stagnation, “secular stagnation”

So falling oil prices offer the world economy a great opportunity. But if it is not leapt upon purposefully by aggressively expansionary economic policy, secular stagnation might worsen.

Surprisingly, a carbon tax would operate much like a diamond tax, for reasons both of demand and supply.

Demand: The wealthy actually consume a disproportionate amount of carbon. Discussions of a carbon tax usually focus on the price of gasoline. One gallon of gas produces about 17 pounds of CO2. One metric ton is 2,204 pounds. So a $100 tax on a ton of CO2 comes to $0.77 per gallon -- a significant cost to low-income commuters and small truckers.

A May 2013 federal study of the Social Cost of Carbon estimated costs of additional CO2 emissions for 2010 to 2050 ranging from $27 to $221 per metric ton in 2050, depending on assumptions.

Demand elasticity for oil is low, about 0.5; so a 1 percent increase in oil price would cause a 0.5 percent decrease in consumption. That makes sense, since in the short run, it's hard for people to cut energy consumption, especially if they must drive to work. But, though numbers are hard to come by, elasticity of supply is much, much lower, for two reasons. First, oil production takes decades and billions in capital investment; producers cannot quickly increase or decrease supply. Second, oil producers form an international cartel, an organized mega-monopoly, which holds down production to drive up prices. Since they're already charging what the traffic will bear, they can't much raise prices to cover a tax.

As economists long ago figured out, buyers and sellers share a tax in inverse proportion to elasticity. Therefore, if supply elasticity of carbon is, say, 0.1, while demand elasticity is 0.5, the suppliers will pay five times as much of the tax as consumers. That reduces that $0.77 per gallon gas tax to only $0.13. Moreover, precisely because most of the tax falls on suppliers, it will generate plenty of revenue to help those unfortunate long-distance commuters and small truckers, to build more public transportation, to invest in renewable energy, and even to cut super-regressive taxes like the payroll tax.

According to Edward Wolff, in 2007, the top 1 percent in the U.S. owned 43 percent of non-home wealth, mostly securities, including of course energy company stocks and bonds. The top 10 percent of wealth holders owned 83 percent.

But the very poor don't drive or travel or occupy much space; the rich fly planes, including private jets; drive to low-density suburbs; occupy and heat multiple houses and hotels; and buy lots of stuff. Clearly the rich consume much more carbon per capita than the poor.

So we have good news and bad news. Good news: The cost of reducing carbon emissions will fall hardest on the 1 percent, who consume the most energy and own the energy companies. Bad news: Ditto. Expect a fight!

The figures from the Overseas Development Institute suggest that Britain is now the world's fifth largest subsidiser of fossil fuels

For every $1 spent to support renewable energy, another $6 were spent on fossil fuel subsidies

In 2011, the latest year for which data is available, Britain gave tax breaks of £280m to oil and gas producers and reduced VAT on fossil fuels by several billion pounds

£2.6bn yearly incentive favours investment in carbon at the expense of green energy, says thinktank

Rich countries have committed to phase out "inefficient" fossil fuel subsidies but the ODI figures, drawn from the International energy agency, OECD and other sources, suggest global subsidies to fossil fuel producers totalled $523bn a year in 2011 – dwarfing subsidies to renewable energies.

In effect, each of the 11.6bn tonnes of carbon emitted from the top 11 developed countries comes with an average subsidy of $7 a tonne – around $112 for every adult

The figures have been released as ministers prepare to go to Poland for the deadlocked UN climate talks and as uncertainty surrounds the future of government-mandated levies on energy bills that support fuel poverty schemes and renewable energy.

G20 governments accepted in 2009 that fossil fuel subsidies encourage wasteful consumption, reduce energy security, and undermine efforts to deal with the threat of climate change.

The report said: "Investors are being sent the wrong signals on two fronts as carbon prices decline and fossil fuel subsidies increase."

The report argues that fossil fuel subsidies also fail in one of their core stated objectives, which is to to benefit the poorest.

The ruble strengthened slightly to 36 against the dollar and 49.4 against the euro Wednesday evening. This was well above the lows reached on Monday

Tightening fiscal policy was topped by possibly impending U.S. sanctions, including economic ones, followed by President Vladimir Putin's claims that Russia may use force in Ukraine if necessary.

The heap of these latest events has caused some analysts to revise their overall economy forecasts.

PSB Research said Wednesday it would decrease its initially modest GDP growth estimates for the year from the range of 1.5 to 1.8 percent to 1.1 to 1.3 percent.

Political standoff will also further stimulate the outflow of capital, Fedotkova said, as investors are reluctant to channel their money into the country that may be possibly involved in any kind of military activity

As for businesses, a recent survey done by the Gaidar Institute suggests that more than a third of CEOs and owners of private companies would consider investing in production this year if the price for equipment went down and if the macroeconomic outlook were more certain, Vedomosti reported Monday. At the same time macroeconomic uncertainty was a headache for only 10 percent of surveyed state-controlled companies. No margin of error was given for the survey.