Supply, Not Speculation, Responsible For Volatile Energy Prices

Supply, Not Speculation, Responsible For Volatile Energy Prices
Latest CFTC Action a Diversion from the Real Cause, Supply and Demand
Institute for Energy Research, Jul 08, 2009

WASHINGTON – This week, the Commodities Futures Trading Commission (CFTC) unveiled a new plan for government takeover of how energy commodities are traded, valued and sold. In response to these proposed actions, Thomas J. Pyle, president of the Institute for Energy Research (IER), issued the following statement:

“For politicians who consistently oppose responsible energy development here at home, the demonization of so-called speculators remains a popular tool for absolving themselves of responsibility for the historically high prices they helped create. But for those with a genuine interest in punishing speculators who make money when oil prices are high, no single action would hurt them more than flooding the market with new supply.

“The CFTC, at least as an institution, understands this fact, and has published dozens of studies over the past several years debunking the myth that market trading activity artificially inflates the price of energy. Unfortunately, it appears that the current head of the commission has not read much of its previous work, joining a long list of policymakers either unwilling or unable to understand the difference between cause and effect.

“Washington has kept billions of barrels of oil shale in the Inter-mountain West under lock-and-key. Billions of barrels of oil remain effectively off-limit in our deep oceans, especially in Alaska. And at the same time, Washington is working to halt American energy production even further through massive tax hikes, mandates, and job-killing regulations. Interested in understanding the real causes of high energy prices? Speculate no more.”

READ MORE:

• IER: Speculators Fixing Oil Prices? Don’t Bet On It
• IER: Question: How Many Times Has the FTC Found Evidence of Price Gouging by Energy Companies?
• Paul Krugman: “Speculative nonsense, once again … The mysticism over how speculation is supposed to drive prices drives me crazy, professionally … A futures contract is a bet about the future price. It has no, zero, nada direct effect on the spot price … As I’ve tried to point out, there just isn’t any evidence from the inventory data that this is happening.” (New York Times, 6/23/08)
• Krugman: “Hyperventilation over oil-market speculation is distracting us from the real issues.” (New York Times, 6/27/08)
• T. Boone Pickens: “A U.S. probe into whether speculators manipulated oil prices up to more than $135 a barrel is a ‘waste of time,‘ … ‘There’s nothing to it to start with,’ Pickens said.” (Bloomberg, 6/3/08)
• Pickens: “Speculation has become a ‘scapegoat’ for what is largely a supply and demand problem.” (Houston Chronicle, 7/10/08)
• Warren Buffett: “But it’s not speculation, it is supply and demand …” (CNBC’s Power Lunch, 6/25/08)
• Federal Reserve Chairman Ben Bernanke: “The most important cause [of high gas prices] is the global supply-and-demand balance.” (Congressional testimony, 7/16/08)
• Bernanke: “If financial speculation were pushing oil prices above the levels consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But in fact, available data on oil inventories show notable declines over the past year.” (Congressional testimony, 7/15/09)

The economic reality of climate-change policy is sinking in at last in Europe

European Hot Air. WSJ Editorial
The economic reality of climate-change policy is sinking in at last.
WSJ, Jul 08, 2009

Climate change is set to figure prominently in this week's Group of Eight summit in Italy, but take any pronouncements about greenhouse-gas emissions targets with a grain of salt. While leaders may still think it's good politics to sing from the green hymnal, other realities are finally starting to sink in, especially in Old Europe. To wit: Restrictions on greenhouse-gas emissions involve huge costs for uncertain gains and are just what economies in recession don't need.

Concerns about high costs and lost jobs have already threatened carbon-emissions control plans in Australia and New Zealand, and to make sure cap-and-trade would pass in the U.S. House of Representatives, supporters had to push through the legislation before anyone could read it. The fraying of the anti-carbon consensus in Western Europe is especially striking. Polls consistently show that voters in most Western European countries support attempts to ameliorate climate change, at least in the abstract. The EU implemented a cap-and-trade Emissions Trading Scheme in 2005.

But that enthusiasm may be reaching its limit. Governments in industry-heavy countries are now less willing to sacrifice jobs for cooler temperatures. Germany's generally environmentalist Chancellor Angela Merkel insisted on exemptions for her country's industry from December's EU climate package, which pledged to reduce carbon emissions by 20% below 1990 levels by 2020. Germany also plans to build several dozen coal-fired power plants in the next few years.

Italy insisted on a clause in the December climate deal that requires the EU to renegotiate its climate policy after the United Nations summit in Copenhagen later this year. That amounts to a veto since China and India aren't expected to sign up for aggressive emissions targets; any renegotiated EU deal is likely to contain even more loopholes and exemptions to keep from denting European competitiveness.

Just as telling, Europe has been at best half-hearted in meeting its emissions-reduction targets under the 1997 Kyoto Protocol. To the extent Europe appears on track to meet its targets, it's largely because warmer weather and higher market prices for energy have driven consumption down.

Credit a deteriorating economy for this about-face. Businesses and unions finally are starting to speak out against intrusive and expensive emissions regulations. In December, Phillipe Varin, chief executive of Corus, Europe's second-largest steel producer, told the London Independent that the cost of carbon credits and new technologies needed to reduce emissions would destroy European steel production, forcing manufacturing overseas.

Jaroslaw Grzesik, deputy head of energy at Poland's Solidarity trade union said last month that the union estimated the EU's climate policy would cost 800,000 European jobs. Before the December negotiations, the London-based think tank Open Europe estimated the EU climate package would cost governments, businesses and householders in the EU-25 more than €73 billion ($102 billion) a year until 2020. No wonder leaders decided to water it down.

Meanwhile, the supposed economic benefits of climate-change amelioration are evaporating. In Germany, government subsidies for installing solar panels -- and, it was presumed, thereby creating domestic manufacturing jobs -- backfired when it turned out that it was cheaper to make solar panels in China. A recent paper by Gabriel Calzada Álvarez, an economics professor at Universidad Rey Juan Carlos, said that since Spain starting investing in "green jobs" policies in 2000, the country has lost 110,500 jobs in other parts of the economy. That amounts to 2.2 jobs lost for every new "green job" created.

This has politicians worried. They might have been willing to sacrifice a few jobs when they signed Kyoto in 1997. But economic times were flush then. Now a global slowdown is forcing a rethink on whether emissions control is worth the cost. With the scientific debate about the causes, effects and solutions of climate change growing more vigorous, that's a question worth asking.

Despite all the backtracking in practice, climate rhetoric is still alive and well. Sweden, which assumed the EU presidency last week, promises more action on emissions control. Gordon Brown, Nicolas Sarkozy and other leaders continue to talk a good game. Mr. Brown has even proposed a $100 billion-a-year fund to help countries like China and India clean up their emissions acts. Good luck getting that passed in the current fiscal and economic environment.

In other words, Western European leaders are the latest to discover that climate-change talk is cheap, but carbon-emissions regulation is expensive. That might be bad news for green activists, but it's very good news for Europeans worried about their jobs and their economy.