Monday, December 01, 2014
Energy Market Impacts of Recent Federal Regulations on the Electric Power Sector
The Environmental Protection Agency (EPA) has issued several new regulations on the electric power sector in recent years, the vast majority of which target power plant emissions under the authority of the Clean Air Act (CAA).
These regulations include, but are not limited to: new National Ambient Air Quality Standards (NAAQS) for ozone and particulate matter; the CrossState Air Pollution Rule (CSAPR) to address interstate transport of air pollution; Mercury and Air Toxics Standards (MATS) under CAA Section 112; and regional haze regulations intended to improve visibility in public parks.
Most recently, in June 2014, under the authority of CAA section 111(d), the EPA proposed guidelines to cut carbon dioxide (CO2) emissions from existing fossil-fueled power generating units in the electric power sector. The proposed rule is referred to as the Clean Power Plan (CPP), and the EPA believes it would achieve CO2 emission reductions from the power sector of approximately 30% by 2030 versus 2005 levels.
Each of these regulations has imposed new costs on the electric power sector, and, by extension, consumers.
A great deal of research has been put forward to assess the impact of the CPP on the U.S. economy. Most has focused on the incremental costs of the CPP relative to a particular baseline.
The purpose of this study by Energy Ventures Analysis (EVA) is to better understand the cumulative impact the proposed CPP, recent air regulations and other market forces will have on both the U.S. economy as a whole and on average U.S. households. The study analyzes the increases in electricity and gas costs from 2012 (the base year of EPA’s CPP proposal) to 2020, the first year of EPA’s interim CO2 targets.
The cost comparisons are presented in both nominal and real dollars. However, because income growth is being outpaced by inflation for many Americans (the lower earning half of U.S. households experienced a 25% decline in real income from 2001-2014), the authors of this report believe that it is more appropriate to focus on the results in nominal terms.
EVA’s evaluation identified potential oversights in the EPA’s assumptions and analyses across multiple regulations, the combination of which has resulted in the EPA underestimating the actual cost of compliance with these regulations and their impact on energy markets. Additionally, baseline electricity and natural gas prices are expected to rise over the next 10 years. EVA’s study estimated the combined impact of these market factors, recent final regulations, and the proposed CPP and found:
* Annual power and gas costs for residential, commercial and industrial customers in America would be $284 billion higher ($173 billion in real terms4) in 2020 compared to 2012—a 60% (37%) increase. ± Electricity cost increases represent $177 billion ($98 billion) and natural gas increases represent $107 billion ($75 billion) of the $284 billion ($173 billion) cost increase from 2012 to 2020.
* In 2020, annual residential power and gas costs would be $102 billion ($87 billion) higher and would continue to escalate in subsequent years.
* Average annual household gas and power bills would increase by $680 ($293) or 35% (15%) from 2012 to 2020. ± Annual average electricity bills would increase approximately $340 ($102) or 27% (8%) from 2012 to 2020. ± Annual average home gas heating bills would increase approximately $340 ($190) or 50% (28%) from 2012 to 2020.
* The cost of electricity and natural gas will be impacted in large part due to an almost 135% increase in the wholesale price of natural gas (100% in real dollars), from $2.82/mmbtu in 2012 to approximately $6.60/mmbtu ($5.63) in 2020. These increases are due to baseline market and policy impacts between 2012 and 2020 as well as significantly increased pressure on gas prices resulting from recent EPA regulations on the power sector and the proposed CPP.5
* On a percentage basis, the U.S. industrial sector would be affected most severely, as its total cost of electricity and natural gas would approach $200 billion ($170 billion) in 2020, a 92% (64%) increase from 2012. ± Increased operational costs in the industrial sector are of particular concern for energy intensive industries in the U.S. such as aluminum, steel and chemicals manufacturing, which require low energy prices to compete. ± Industrial power consumers would be expected to pass energy cost increases on to their customers, affecting the costs of goods purchased by American consumers over and above increased monthly utility bills.
* The five states that would bear the greatest increases in annual residential power bills are Texas, Mississippi, Pennsylvania, Maryland and Rhode Island. Families in these states would experience average electricity increases of more than $660 ($566) annually beginning in 2020 compared with 2012. ± In order to comply with the combined impact of recent power sector regulations and the proposed CPP, these states would face the choice of significantly increasing gas generation and/or significantly increasing wind and solar generation. The reduced operation of coal-fueled generation would render the surviving coal-fired power plants less efficient, producing more CO2 per megawatt hour (MWh) than if they operated at full output.
* With regard to gas bills, colder weather states in the Northeast and Upper Midwest that use the most natural gas per household would bear the greatest impacts.
* The states that would incur the largest total cost increases on a percentage basis are Texas, Mississippi, Louisiana and North Dakota, averaging more than 115% increase in annual electricity and natural gas bills from 2012 to 2020
Much more HERE
CARBON MAKES THE WORLD GO ROUND
In my view, industrialisation has added to the greenhouse gases of the world and thus to global warming (1). Moreover, CO2 is the most significant manmade greenhouse gas. So we should move to a low-carbon or zero-carbon world, right?
Not so fast. This simplistic, black-and-white view of carbon is far too prevalent. About 18 per cent of the human body is carbon. Trees and plants, which form a sink for CO2 and turn it, through photosynthesis, into oxygen, are made of carbon. Coal- and gas-fired power stations that emit CO2 are not ‘dirty’, and nor is it right, when referring to CO2 emissions, to contrast ‘dirty’ coal with ‘cleaner’ gas. It’s time to rescue carbon from its pariah status.
There is widespread hatred for the stuff. In America, the National Resources Defense Council wants to ‘stamp out’ humanity’s carbon footprint, even though no two calculators of one’s personal footprint have been known to agree. Not content with inveighing against ‘dirty’ energy, Canadian radical Naomi Klein’s new book, This Changes Everything, uses the phrase ‘carbon-spewing’ five times – about roads, container ships, jumbo jets, holidays and China’s Pearl River Delta. Away from the vomit, environmentalists want zero-carbon homes, cities and resorts. And there are the websites: here, for example, or here.
It’s all very one-sided. As the Italian chemist Primo Levi reflected in Auschwitz, carbon is ‘the only element that can bind itself in long stable chains without a great expense of energy, and for life on Earth (the only one we know so far) precisely long chains are required. Therefore carbon is the key element of living substance.’ The chemistry of carbon (2) gives it a unique versatility, not just in the artificial world, but also, and above all, in the animal, vegetable and – speak it loud! – human kingdoms. Not for nothing was the EU’s recent Rosetta space mission to one of our solar system’s comets dedicated to – and successful at – finding carbon, the source of life on Earth.
Carbon apps in materials, electronics, solar power – and materials again
The applications of carbon in the world of materials alone show how wonderful it is. As it happens, Rosetta’s lander module, Philae, had a frame, antenna and landing legs made of carbon fibre. Back on Earth, America’s Food and Drug Administration last year approved our old carbon-based friend, plastics, for cranial implants. Connecticut’s Oxford Performance Materials uses polyetherketoneketone, which is a high-performance thermoplastic, for the job.
In electronics, one kind of carbon – carbon nanotubes, or CNTs – is now working with another, one-carbon-molecule-thick graphene. The result is applications that promise to be impressive once they move out of the lab. Carefully aligned single-walled CNTs, when mixed with nitrogen-doped sheets of reduced graphene oxide, can make fibres that can be woven into clothing to act as long-life micro-supercapacitors, so powering wearable medical devices with as much clout as conventional lithium-ion batteries. Again in flexible electronics, strong, fast-working CNT circuits can now be doped by another carbon-based material, DMBI, so they can handle fluctuations in power just as well as rigid silicon chips, and can beat bendy but specially formulated plastic electronics on strength and performance.
CNTs show the myriad roles that carbon can perform. When bonded to graphene, they could make powerful solar cells. There is also the extraordinary news that, at modest temperatures and pressures and with no hairy chemicals, pushing controlled, alternating voltage pulses across single-walled networks of CNTs can enlarge their diameter, give them multiple walls, or turn them into multi-layered nanoribbons of graphene: good for high-conductivity electronics, as well as for reinforcing composites in transport and sports equipment.
Apart from its physics and chemistry, the biology bound up with carbon confirms its technological prowess. From wood and fibre crops, the EU’s Bio-based Industries Consortium (BIC) aims to develop pulped cellulose – (C6H10O5)n – into textiles, films and thermoplastics. It wants to improve the fermentation of crops to make biosurfactants for cleaning, and specialty carbohydrates with applications cheaper than those that already exist in cosmetics and pharmaceuticals.
Other BIC projects may create, from new techniques of processing forest products, materials for packaging, papers, fibres and glues, as well as components in construction and cars. Through similar strategies with beet pulp, potato pulp and brewers’ spent grain, the BIC also hopes for new paints and coatings, too (3).
Making use of CO2
The miracles of carbon, whether in nanotubes, layers of graphene, or long-chain molecules, give the lie to environmentalism’s absolutist disgust for it. But what verdict should be made about CO2, the gas? Once again, it isn’t an unalloyed evil.
In the US, three companies – Skyonic, Joule and Novomer – are worth tracking over the next few years. Skyonic combines salt, water and electricity with the emissions from power plants to produce baking soda, hydrochloric acid and bleach.
Joule? Deploying genetically engineered bacterial catalysts, it uses modular, scalable converter ponds to turn concentrated industrial waste CO2, non-potable water and sunlight directly into different fuels, including a species of diesel which it claims is free of sulphur and aromatic chemicals. Joule believes this process is superior to that which generates fuels from algae.
Last, Novomer has developed metallic catalysts, such as beta-diiminate zinc acetate, that can quickly polymerise CO2 by bonding it, in pressurised reactors that operate with low temperatures and energy inputs, to small organic molecules called epoxides. The outcome: relatively inexpensive and biodegradable plastics (polycarbonates, polyurethanes) that are up to 50 per cent composed of CO2.
Much more tricky than these kinds of processes is the retrieval of CO2 from the atmosphere, rather than from industry. Such a process has both advocates and detractors. But we shouldn’t yet rush to dismiss ‘air capture’ as eternally difficult and uneconomical or, to paraphrase Klein, as a falsely comforting distraction from the need to change our lifestyles. Global warming has still left us plenty of years in which to make the technology a viable proposition (4).
Toward a new carbon infrastructure
Richard Branson’s Virgin Earth Challenge is a competition for air capturers of CO2 that offers just $25million in prize money. Yet as Klein notes, Branson is on record as saying: ‘Carbon is the enemy. Let’s attack it in any possible way we can, or many people will die just like in any war.’ Clearly, hyperbole and alarmism characterise even the can-do camp among those who make global warming their Alpha and their Omega.
The industrial-scale recycling of CO2, and the harnessing of carbon in all branches of industry, exposes how a messianic – indeed, Manichean – hostility to carbon is a one-sided fraud. In the third paragraph of Capital, Karl Marx observed that to discover the various uses of things ‘is the work of history’. On the whole, then, the world is still in a prehistoric period in relation to carbon. It has yet fully to realise the potential of this most remarkable of atoms.
We will never enter a New Carbon Economy – that phrase, too, would be hyperbolic, just like the Internet Economy, the Biotech Century and all the rest. But the world could really do with a new carbon infrastructure (5), in which the properties of the element are used on a truly ambitious scale.
Some greens like ‘organic’ farming; yet that irrational cause does not prevent even them from castigating carbon in all its other forms. It’s time to get things straight. Even CO2 need not always be a problem. So let’s hear it for carbon!
How the Government’s Decision to Declare This Species Threatened May Hurt Its Survival
No good deed goes unpunished. Or at least, such was the case earlier this month when the U.S. Fish and Wildlife Service listed the Gunnison sage grouse as a “threatened” species.
Threats to the bird resulting from drought, disease, and habitat moved the states and particularly Gunnison County, Colo., to find creative solutions to protect and re-establish the bird.
Over the past 20 years, Utah’s and Colorado’s ranchers, conservationists and state and local leaders have worked to protect the Gunnison sage grouse. Utah, Colorado and the citizens of Gunnison County have spent more than $50 million during the past 20 years to conserve the Gunnison sage grouse.
Their mistake? They thought that a stable population in the Gunnison Valley would prevent the bird from being federally listed.
Yet the Fish and Wildlife Service did exactly that.
Despite Coloradans’ efforts, the Wild Earth Guardians—an environmental extremist lobbying organization—pressured the Fish and Wildlife Service to list the bird as endangered under the Endangered Species Act by Nov. 12 in an out-of-court settlement. The Fish and Wildlife Service announced its decision to list the bird as “threatened” and to designate more than 1.4 million acres of potential habitat.
The decision has been met with bipartisan displeasure.
House Natural Resources Chairman Doc Hastings, R-Wash., said it was “further evidence that the administration is more interested in meeting arbitrary settlement deadlines than basing decisions on actual science and data.”
Colorado Gov. John Hickenlooper, a Democrat, responded that “this sends a discouraging message to communities willing to take significant actions to protect species and complicates our good-faith efforts to work with local stakeholders on locally driven approaches.”
Utah Gov. Gary Herbert, a Republican, called the decision a step backward for conservation and the economy.
Obama repeatedly has said we don’t need to choose between the environment and stewarding our natural resources, but the administration’s decision dangerously assumes the exact opposite.
The Endangered Species Act, under which the Fish and Wildlife Service acted, perversely incentivizes the endangerment of vulnerable species by pitting landowners—the bird’s most immediate and natural caretakers—against vulnerable species by inviting heavy-handed federal intervention that often completely devalues property.
Property owners wanting to take action to protect a threatened species on their property invite federal intervention.
Given the way the Endangered Species Act works now, federal bureaucrats too often attempt to solve the problem by simply stopping development. For many, that risk is too costly and, as a result, these species suffer. For example, in the 1980s, one North Carolina landowner was arrested for cutting down pine trees on his property because the trees were a potential habitat for endangered red-cockaded woodpeckers.
Or consider this example from 2012. The Friends of Animals and WildEarth Guardians filed suit against the Fish and Wildlife Service to require Texas game ranchers to get a “take permit” from the federal government before hunting animals raised on their own private property. The addax, Dama gazelle and scimitar-horned oryx (affectionately known as the “three amigos”) are endangered in their native Africa, but Texas game ranches had begun raising and building up herds. They funded their efforts by offering select hunts.
Before the “environmentalists” won their lawsuit, ranchers pre-emptively offered inexpensive hunts to capitalize on their investment before regulations were finalized and devalued the hunts. As a result, the Exotic Wildlife Association estimated that the “three amigos” numbers in Texas are now at one-half to one-third of their 2010 levels.
The Fish and Wildlife Service’s Gunnison sage grouse decision also may have a similar chilling effect on existing efforts to conserve the species. Of course this doesn’t matter to some extremists groups already promising to sue Fish and Wildlife Service for anything short of an “endangered” listing for the grouse.
Listing the Gunnison sage grouse disempowers and alienates rural landowners and ignores the concerted efforts of states and communities to protect the grouse. Species conservation efforts should be conducted on a situation-specific basis where the respect of private property and personal liberty are recognized as some of the most important tools to protecting America’s threatened species.
EPA Proposes Extreme Air Quality Standards
The Environmental Protection Agency just released its proposed new standard on ground-level ozone, which is a component of smog.
Every five years, the EPA is required by law to review and, if appropriate, revise these standards.
In 2008, the EPA issued an ozone standard of 75 parts per billion (ppb). The new standard proposed by the EPA would decrease that level to 65–70 ppb, though the EPA is still openly considering an even lower standard of 60 ppb.
The EPA will use every reason under the sun to explain why this new standard is necessary for public health and safety. But here are a few things to keep in mind as the nation begins to discuss what such a standard could mean:
EPA Administrator Gina McCarthy expects you to take her word for it. Announcing the proposal, McCarthy wrote: “Critics play a dangerous game when they denounce the science and law EPA has used to defend clean air for more than 40 years. The American people should know better.” This kind of bullying sets up a false choice for the American people where any disagreement with the EPA’s conclusions is equivalent to being anti-science and pro-filthy air. It shows that the EPA is not interested in open debate or disagreement with the proposed rule. In essence, she is asking Americans to suspend their reason and accept the rule “because she said so.
The quality of our air has vastly improved. We’re not living in the days of the Industrial Revolution or even the days of rivers catching fire. Concentration levels of every major pollutant regulated under the Clean Air Act have decreased since the EPA started measuring in 1980 (and were decreasing before then, too). Ozone levels have decreased by 33 percent, nitrogen dioxide levels by 60 percent, sulfur dioxide by 81 percent, carbon monoxide by 84 percent and lead by a whopping 92 percent. High ozone days in one of the nation’s worst counties, Los Angeles, have decreased 83 percent and average high ozone days around the nation have decreased 75 percent. (Figures are from the EPA’s database.)
The rule is premature. States are still implementing the current standard of 75 ppb. We don’t even know what kind of impact, positive or negative, this last standard will have, and yet the EPA has proposed that states should already get moving on a new standard.
The standards proposed would throw most counties out of compliance. There are 698 counties in the U.S. monitored for ozone (using 2010–2012 EPA data). Thirty-one percent of the 698 counties with ozone monitors would fail to meet the current 75 ppb ozone standard. If the EPA went forward with a 70 ppb standard, more than half of those counties would be in violation. If the EPA went forward with a 60 ppb standard, 647 of those counties, or 93 percent, would be in violation of the standard. Furthermore, a 60 ppb standard may be impossible to meet because background levels in some areas of the country have been found to regularly exceed 60 ppb.
McCarthy and others continue to trivialize the costs of the proposed ozone rule. McCarthy writes that America does not have “to choose between a healthy economy and a healthy environment.” The truth is, we still don’t have a healthy economy and this rule, if Congress sits by and allows it to go through, is certainly going to hurt.
The National Association of Manufacturers has said a 60 ppb standard would be the costliest regulation in U.S. history. According to a NERA Economic Consulting study conducted for NAM, a 60 ppb standard would:
Reduce gross domestic product by $270 billion per year on average over the period from 2017 through 2040;
Result in an average annual loss of 2.9 million job-equivalents (a measurement of lost jobs, fewer hours, and lower wages) through 2040;
Impose $2.2 trillion in compliance costs from 2017 through 2040; and
Decrease average household income by $1,570 per year.
Congress should not fund the implementation of any new ozone standard and should review the air quality process to protect the health and well-being of Americans.
Congress, not this unelected and unaccountable agency, needs to make the decision regarding standards that could have such a devastating impact on the economy.
Big Wind is pressing Congress for yet another bailout
Mary Kay Barton
Taxpayers beware! While you were sleeping, enjoying your family and eating turkey, Congress has been busy.
Congressional Republicans are negotiating with Senate Democrats to extend the infamous wind energy Production Tax Credit through to 2017, after which it will supposedly be phased out, just as was supposed to happen in the past. This sneaky, dark-of-night “lame duck” session tactic should be flatly rejected.
While you’ve been busy just trying to make ends meet, wondering why the cost of everything is going up, and agonizing over how your children and grandchildren will ever pay the mounting $18 TRILLION dollar national debt – the wind industry lobbyists’ group, the American Wind Energy Association (AWEA), just sent Congress a letter seeking to extend the federal, taxpayer-funded wind Production Tax Credit (PTC).
The list of signers to AWEA’s letter include rent-seeking industries and “green” groups who’ve all benefitted by tapping into taxpayers’ wallets via the Big Wind PTC (aka: Pork-To-Cronies). It certainly isn’t hard to figure out why these corporations pay many millions of dollars to hire lobbyists and run national TV advertising campaigns geared at convincing crony-politicians to vote to continue these TAXES and higher energy prices on American citizens.
AWEA’a letter is typical of wind industry propaganda. It makes specious claims about creating jobs and reducing pollution, without providing a shred of evidence to PROVE any of their claims. AWEA apparently hopes Congressional officials are “too stupid” to understand what energy-literate citizens nationwide know: Industrial wind can NEVER provide reliable power. It raises electricity costs, even after subsidies are factored in. It kills more jobs than it creates. It defiles wildlife habitats and kills eagles, hawks, other birds and bats – with no penalties to Big Wind operators.
Here’s the reality: After 22+ years of picking U.S. taxpayers’ and ratepayers’ pockets, industrial wind has NOT significantly reduced carbon dioxide emissions. It has not replaced any conventional power plants, anywhere. However, the $Trillions spent on these “green” boondoggles to date have significantly added to the $18+ TRILLION dollar debt that our children and grandchildren will have to bear.
AWEA’s own statements from years and decades past can be used against them. To cite just one example, 31 years ago, a study coauthored by the AWEA stated:
The private sector can be expected to develop improved solar and wind technologies which will begin to become competitive and self-supporting on a national level by the end of the decade if assisted by tax credits and augmented by federally sponsored R&D.
[American Wind Energy Association, et al. Quoted in Renewable Energy Industry, Joint Hearing before the Subcommittees of the Committee on Energy and Commerce et al., House of Representatives, 98th Cong., 1st sess. Washington, DC: Government Printing Office, 1983, p. 52.]
In other words, the PTC should have ended 20 years ago, because wind energy would be self-sustaining by then. It wasn’t. It still isn’t. It never will be. We need to pull the PTC plug now!
Here are some details about the bill that is currently being negotiated during the lame duck session –before the newly elected, Republican majority Senate takes office and can do much about it.
In 2016, wind developers would be eligible for 80% percent of the PTC's value. They could also claim 60% of its value through the first nine months of 2017, after which it would supposedly expire.
The proposed congressional deal also seems to continue basing PTC eligibility on when project construction project begins. That opens huge doors for abuse.
The last time Congress extended the PTC, as part of its “fiscal cliff” deal in 2013, it said “eligibility” for taxpayer largesse covered projects “under construction,” rather than requiring that they be “placed in service” by a certain date. In practice, this means just a shovelful of dirt has to be moved by that date.
Remember too that the Production Tax Credit supposedly expired last year. But this clever language has allowed construction and expansion in the meantime. Meanwhile, Lois Lerner’s Internal Revenue Service has helpfully said projects that were started or “safe-harbored” prior to the PTC’s most recent pseudo-expiration can claim tax credits if they are in service by 2015. And then they can claim the $23-per-MWh credit for ten more years!
What a wonderful holiday gift for Big Wind and its political sponsors – at your expense.
Our government should NOT be in the business of picking and choosing the winners and losers in the energy marketplace – while assaulting and harming the very citizens they are forcing to pay for this “green” energy scam. It’s time for government to get out of the way and let the markets work!
The best solutions will rise to the top of their own accord because they will provide modern power at the best prices – thereby maintaining the reliable, affordable power that has made America great.
Citizens nation-wide have awakened to this massive “green” energy scam. Many have sent letters to Congress like the one below. You can join the fight by contacting your representatives and urging them to do the right thing: Protect American consumers, taxpayers and ratepayers. END Wind Welfare (#EndWindWelfare)!
Shale and cheap oil make America the new lucky country
We normally think of Australia as the “lucky country” but that label is surely better applied to the US today.
You could hardly envisage a more benign backdrop for its economy and stock market than the current environment of tumbling energy prices, low inflation, narrowing deficits, competitive industry, a popular currency and consequently lower-for-longer interest rates.
The frantic shuttle diplomacy in the run up to last week’s Opec summit in Vienna illustrated the pain being felt by the world’s less favoured nations – those like Venezuela and Russia which simply can’t balance the books at a $75 oil price. The meeting showed how difficult it can be to persuade individual countries, even members of a supposedly co-operative cartel like Opec, to work together if doing so runs counter to their own self-interest.
It may be beneficial to Opec as a whole to curb production in the face of surging US shale oil output and flagging global energy demand, but individual countries may quite rationally decide it is better to keep the oil flowing to protect their market share.
If you have built up enough foreign currency reserves in the good years (as Saudi Arabia has) and you want to make life tough for your new rivals in the marginal oilfields of North Dakota, you might feel a couple of years of cheap crude is a price worth paying.
The excess supply created by America’s shale revolution has been disguised in recent years by capacity reductions in war-torn countries such as Libya. But the producers’ luck has run out this year as supply has picked up around the world even as China’s slowdown and stagnation in Europe and Japan has reduced demand.
The jockeying for position by Saudi Arabia and others might sound like a game, but it really matters. With world oil exports amounting to around 40m barrels a day, the $40 drop in the oil price since June represents a transfer from oil exporters to oil consumers of more than $400bn a year.
US consumers have an extra $70bn in their pockets, money they used to spend on fuel and can direct towards eating out, buying electronic gizmos or going on holiday.
Even with the usual lag before consumers see the benefit of falling petrol prices, we are starting to feel the impact. Last week’s revision to third quarter US GDP, from 3.5pc to 3.9pc, was in part a reflection of more confident consumers with higher disposable incomes.
Americans’ increased purchasing power could hardly have come at a better time, as the annual Black Friday and Cyber Monday consumption splurge gets under way.
With consumption accounting for two thirds of the US economy, this is one key benefit of the oil price slide. But it is not the only one. Cheap energy is rapidly replacing cheap labour as the key differentiator between countries competing for investment in a global marketplace. As emerging markets’ wage bills rise, America’s energy advantage becomes ever more significant.
Europe, which missed out on the first big shift, looks like being squeezed as badly by the second. No wonder companies like BASF are choosing to build any new chemical capacity on the shores of the Gulf of Mexico and not the banks of the Rhine.
The third key benefit of cheap oil for the developed world, and America in particular, is the downward pressure it applies to an inflation rate that might otherwise have started to pick up on the back of a recovering housing market and falling unemployment.
Low inflation is providing the cover needed by central banks such as the Fed to keep monetary policy much looser for longer. Even when rates do start to rise, probably in the middle of next year in America and later still in the UK, the trajectory will be shallower and the end point lower in a world of cheap energy.
The falling oil price is not unqualified good news. For every consumer business looking at a Thanksgiving bonanza this weekend there is an over-borrowed oil drilling company that took advantage of super-cheap debt in the junk bond market and is now wondering how it will pay the coupon.
Energy companies represent 16pc of the US high-yield bond market, compared with 4pc a decade ago. Junk bonds can be the canary in the mineshaft for the stock market.
But that is a problem for another day. In the short-term, the US market’s string of new highs is a logical response to the emergence of the new lucky country.
For more postings from me, see DISSECTING LEFTISM, TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC and AUSTRALIAN POLITICS. Home Pages are here or here or here. Email me (John Ray) here.
Preserving the graphics: Most graphics on this site are hotlinked from elsewhere. But hotlinked graphics sometimes have only a short life -- as little as a week in some cases. After that they no longer come up. From January 2011 on, therefore, I have posted a monthly copy of everything on this blog to a separate site where I can host text and graphics together -- which should make the graphics available even if they are no longer coming up on this site. See here or here
Posted by JR at 1:40 AM