So, that DECC’s renewables plans entirely up in smoke then

One of the little fables, falsities really, of the DECC’s approach to climate change rests upon just the one number. And that’s what is the price of natural gas per therm going to be off into the future. We could assume that the price will be roughly the same as today. Or it might fall as a result of fracking, or it might rise as a result of supplies running out. But we obviously do need to make a forecast because that’s the only way we can work out whether those damn windmills and so on are ever going to be economic.

So what DECC did was assume that gas prices would roughly double from their current level. In that manner they could then say that those windmills would in fact be cheaper. Not because the windmills are cheaper now, nor because they’re going to become cheaper in the future, but because the gas price is going to double.

They were very insistent about supporting this too. We recall one of their pronouncements being that fracking wouldn’t reduce the price at all. Because it would all be exported we think was the mantra. Then they said, well, maybe, a few percent reduction: look, here’s a report about Cuadrilla’s find which says 3 or 4% reduction in price!

Yes, well, that report was actually about the price impact of just he extra gas find that Cuadrilla had announced as the result of just the one borehole: and that price reduction applied to the entirety of the connected European gas market. Obviously the entirety of the Bowland Shale was going to have a larger impact than that.

But everything, the whole shooting match, the entire strategy of solar, windmills, nuclear and everything, has been based upon that one single number: the price of natural gas is going to double.

DECC’s latest projections assume average gas prices for this year of 47 pence per therm, down from the 62p it projected last year.
It estimates the price will barely rise over the next four years, remaining at just 49p/therm in 2019, and only ticking up slightly to 52p/therm in 2020.
A year ago it had expected prices of 60.3p/therm in 2020, while two years ago it was forecasting they could hit 73.8p/therm.

Ooops! And of course the decline in price is being driven by that fracking that would never affect the UK price. Tight oil fracking in the US has driven down the oil price, to which many gas contracts are linked, and gas fracking has increased the amount of LNG sloshing around the world markets. These price decreases being before anyone’s even considered whatever may be fracked right here at home.

The entire strategy thus needs to be re-examined. Starting with those numbers for what the future price of gas might be.

And of course, this is also why planning centrally of anything doesn’t work. Here it’s obvious that, to put it at its most kindly, people became wedded to a particular analysis and simply did not want to hear of changes to it (less kindly they manufactured that analysis to order). But even when that does not happen, we still end up with a plan which depends upon the assumptions which go into it. Rather than leaving things to market forces, which means that we get a multiplicity of plans, with a multiplicity of such assumptions.

Yes, it’s true, climate change isn’t a problem that entirely pure markets are likely to solve, involving as it does externalities. But that’s why the correct answer is to intervene in the market price, add in that externality, and then still have the markets with their mulitple answers and assumptions. Rather than the monolithic central plan reminiscent of Stalinism. Which has just failed as did that Stalinism, reality having to intrude.

The Overseas Development Institute is as stupid as the IMF

Or maybe they’re being deliberately misleading. Back in May, Sam wrote a barnstormer in The Telegraph refuting an IMF report that called it a ‘subsidy’ when the government didn’t tax oil and gas as much as the IMF would have liked it to. This report was important because the IMF is taken seriously, especially by those who don’t usually find themselves on its side, when it says stuff they like (‘even the IMF’ etc).

Sam made the obvious point that a subsidy is a subsidy and not taxing something is never a subsidy, even if you think we should—even if your model says that it should—tax that thing more to increase social welfare. If it were a subsidy to tax something (like fossil fuels) below the optimal amount, then it would also be a tax not to subsidise something (like basic research) the optimal amount. But it’s not; it’s patently, blatantly, ridiculous and obfuscatory use of language.

We might have thought the issue was put to bed. But here we go again, this time with the Overseas Development Institute’s new report, which tells us:

While other nations have responded to the drop in energy prices by reducing fossil fuel consumer subsidies, the UK has reduced taxes on fossil fuel production, increasing subsidies to fossil fuel producers.

The industry pays £30.1bn in total taxes, including downstream levies like fuel duties, but since this is not £35bn or £40bn, it’s being ‘subsidised’ according to the IMF and ODI.

It gets onto actual things we might call ‘subsidies’ later, and they are as piffling as you might expect, given how they are buried:

The International Energy Agency (IEA) estimates for budgetary support for R&D to all fossil fuels in the UK were $76 million in 2013

Note the units.

In addition, the UK government has committed to providing significant direct support for the development of CCS. The largest commitment is for the $1.6 billion for the Commercialisation Programme, although this has not yet been disbursed.

OK, this is a real subsidy, and of a significant size (but nothing compared to oil and gas tax contributions!), but you might note that (a) it’s not been paid yet; and (b) it’s specifically tied to abating emissions!

So this is a non-story. The real story is ‘the energy industry pays a large amount in tax, slightly lower this year, but probably still enough to cover its externalities, and even if it wasn’t it’s certainly not a “subsidy”‘.

And the ODI are as stupid as the IMF.

Ten initiatives to help young people: 5. Youth start-up loans

Young people who opt for university education are eligible for loans at preferred rates.  They qualify for tuition loans of up to £9,000 per year, and for maintenance loans which could go as high as £8,200 per year for those from low income families.  Most students assume this is a good investment that will lead to higher salaries over the course of their working lives, and are cushioned by the fact that only those earning more than £21,000 per year have to start repaying those loans.

But young people who do not qualify for university admission, or who decide against it, are not eligible for similar loans.  In fact young people starting out in work or seeking work find there and many associated costs.  They often have to face deposits for accommodation; they sometimes have to buy new clothes appropriate for their work or their job-seeking.  Most have no cushion of saving since few will have yet earned any money.

If young people not at university were given access to loans on terms similar to those available to students, many would find their lives much easier.  For some it would help cover the costs of moving into their first independent accommodation.  For others it might help pay for a bicycle to travel to work on.  

For others, loans such as these would offer the opportunity to start a small business.  Paying for driving lessons to pass the test and buying a car would be a real possibility for those who wanted to become professional drivers.  Others might find themselves able to rent premises to set up as independent hairdressers.  A range of small business possibilities would open up.  Far from the world of multi-million software businesses, there are small one-person businesses that operate as gardeners, window-cleaners, street traders, hairdressers, and the like.  

To set up a one-person business such as these takes initial capital, capital that young people simply do not have.  Some of the lucky ones might borrow from parents.  Some might persuade a bank to loan them money, but banks are wary of lending to those without collateral, so for most the possibility is ruled out by lack of available finance.  
A scheme like that which provides student loans, but which made them available instead to non-university young people would open up countless opportunities for advancement.  For some it would help them with their move into the city to find work and accommodation.  For others it would open the possibility to start up their own small business.  It would reduce unemployment and encourage ambition.

Wisdom on housing and land from across The Pond

It’s a sad commentary on contemporary British politics that it would be almost impossible to even imagine an even vaguely lefty economic adviser making the following statement:

In today’s remarks, I will focus on how excessive or unnecessary land use or zoning regulations
have consequences that go beyond the housing market to impede mobility and thus contribute to
rising inequality and declining productivity growth.

While land use regulations sometimes serve reasonable and legitimate purposes, they can also
give extranormal returns to entrenched interests at the expense of everyone else. As such, land
use regulations are an example of a broader range of situations that may give rise to economic
rents. By this I do not mean the check you write to your landlord every month, but a situation in
which any factor of production—in this case, land—is paid more than is needed to put it in


I want to be clear from the outset, some land use regulations can be beneficial to communities
and the overall economy. There can be compelling environmental reasons in some localities to
limit high-density or multi-use development. Similarly, health and safety concerns—such as an
area’s air traffic patterns, viability of its water supply, or its geologic stability—may merit height
and lot size restrictions. But in other cases, zoning regulations and other local barriers to housing
development allow a small number of individuals to capture the economic benefits of living in a
community, thus limiting diversity and mobility. The artificial upward pressure that zoning
places on house prices—primarily by functioning as a supply constraint—also may undermine
the market forces that would otherwise determine how much housing to build, where to build,
and what type to build, leading to a mismatch between the types of housing that households
want, what they can afford, and what is available to buy or rent.

The tradeoffs inherent in land use regulations are well known and have been of concern to
policymakers and academics for decades, since at least 1961, when Jane Jacobs wrote The Death
and Life of Great American Cities. In it, she argued that limits on density and mixed-use
development, as well as an imbalance between preservation and new construction, can reduce
housing affordability, socioeconomic diversity, and economic activity.

That’s all from Jason Furman, currently chair of the Council of Economic Advisers to that well known right winger, President Obama. If only any single one of Jeremy Corbyn’s advisers, heck, if just one of two of those somewhat to the left of us were this clear on the cause of our basic housing problems then we’d be able to solve them by next Tuesday afternoon.

We simply place too many restrictions on who may build what, where. To solve the problem we thus have to remove some to all of those restrictions. And that really is it.

American police now steal more from the citizenry than the robbers do

There’s a good reason why we don’t arbitrarily allow the State or any of its agents to take the property of the citizenry. That reason being that however logical those first steps onto hte slippery slope seem it always, but always, descends into an orgy of said State and its agents plundering the population they are supposed to be protecting.

A case in point:

Between 1989 and 2010, U.S. attorneys seized an estimated $12.6 billion in asset forfeiture cases. The growth rate during that time averaged +19.4% annually. In 2010 alone, the value of assets seized grew by +52.8% from 2009 and was six times greater than the total for 1989. Then by 2014, that number had ballooned to roughly $4.5 billion for the year, making this 35% of the entire number of assets collected from 1989 to 2010 in a single year. According to the FBI, the total amount of goods stolen by criminals in 2014 burglary offenses suffered an estimated $3.9 billion in property losses. This means that the police are now taking more assets than the criminals.

The point of the police, of the criminal justice system in general, is to protect us from the thieves, not for them to become the thieves.

We in the UK have only just started down this road: we should change path immediately and go back to the old system. Once you’ve been convicted by a jury of your peers you can be fined, jailed, forced to pay compensation, all sorts of things. But absolutely nothing is due to the State until that jury has ruled.