Category: Energy/Environment

   Source of graph:  online version of the WSJ article cited below.

U.S. utilities are significantly increasing their spending on new electricity-transmission lines, a trend that could ease choke points in the flow of power, enhance reliability and increase the potential for renewable energy.

The spending should put a dent in the chronic problem of underinvestment, a factor in the big 2003 blackout that left 50 million people in the eastern U.S. and Canada in the dark.

. . .

American Electric Power created buzz in November when it announced it will partner with Berkshire Hathaway Inc.’s utility unit, MidAmerican Energy Holdings Co., to build more transmission lines in Texas. AEP is budgeting about $1 billion for Texas projects, some designed to serve wind power developers.

AEP has identified $9 billion in important transmission projects in its 11-state region, including $3 billion for a 550-mile line that would bring cheaper power to New Jersey from West Virginia. AEP Chairman Michael Morris said transmission projects "will begin to pay benefits to shareholders as early as 2007."

. . .

Some projects pay for themselves, in effect, by eliminating grid choke points that limit power flows. In Connecticut, a new high-voltage line to Norwalk from Danbury, cost $340 million but will produce immediate savings for consumers by allowing less costly power to flow into the area. That eliminates so-called congestion costs, or the difference between what it would cost to supply the need in the most economical way versus what it actually costs because transmission capacity is limited.

For the full story, see: 

REBECCA SMITH.  "Money on the Lines Utilities Invest in Transmission."  The Wall Street Journal (Tues., February 6, 2007):  A10.

   In Mexico City, protesters complain about the high price of tortillas and other corn-based food staples.  Source of photo:  online version of the NYT article cited below.

Support for the free market is very fragile in places like Mexico.  Calderón won a close election, and is, by all accounts, an advocate for the free market.  So it is sad that United States government subsides for ethanol result in pain in Mexico that makes it harder for Calderon to effectively move Mexico toward the free market, and a better life for the Mexican people.

So do we blame Bush for coming out for ethanol in his State of the Union address on Tuesday (1/23/07)?  Well maybe Bush can only afford to fight the political trends on one or two issues.  And he has seen the war against terrorism as the big issue of our time.  On that he is right. 

So while we can see why political survival may force Bush into support of ethanol, and Calderón into support for price controls on tortillas, we still need to identify policies that are inefficient and wrong. 

Subsidies on ethanol, and price controls on corn, are inefficient.  And inefficiency means that the economy produces less, and grows more slowly, and lives are lived less well.

MEXICO CITY, Jan. 18 — Facing public outrage over the soaring price of tortillas, President Felipe Calderón abandoned his free-trade principles on Thursday and forced producers to sign an agreement fixing prices for corn products.

Skyrocketing prices for corn on the world market have pushed up the price of the humble tortilla, the mainstay of the Mexican diet, by nearly a third in the past three weeks, to 35 cents a pound in Mexico City and even higher in other parts of the country.

Half of the country’s 107 million people live on $4 a day or less, and many of them survive largely on tortillas and beans. The price increases have riled the public to such an extent that it has created a political storm that threatens to swamp Mr. Calderón’s fresh presidency.

This month, the president, who took office in December, was booed and heckled at events around the country over food prices. Mexican lawmakers called on him to impose price controls, while leftist opposition leaders suggested that he was protecting giant corn companies.

. . .

There is a continuing debate here about what caused the price of tortillas to shoot up so quickly. Some economists blame the increased demand for corn from ethanol plants in the United States, and it is true corn prices in the States last week reached their highest point in a decade, the United States Agriculture Department said. At the same time, the cost of white corn has risen about 13 percent here over the past year, Mexican government figures show.

. . .

The spike in corn prices has hurt small storefront tortilla makers, a hallmark of the Mexican street. José Solano, a 27-year-old tortilla maker in Mexico City, said he had lost about 40 percent of his business since early January, when he was forced to start raising his prices.

“People are still buying tortillas, but many of them buy less,” he said. “Look, we can’t give our product away because we need a profit, and if they raise the cost of corn, there’s no other way.”

The crisis has hit hardest for the poorest Mexicans, who may spend more than a quarter of their daily salaries on tortillas.

“This really affects my budget, the expenses of my family, because I cannot tell my kids to eat less,” said Ruth Soria, a 37-year-old housewife, who was buying four pounds of tortillas for her six children on Thursday. “This is something that they must control well. The tortilla is something basic for us. What the government did today is the least they could do.”

JAMES C. McKINLEY, Jr.  "Cost of Corn Soars, Forcing Mexico to Set Price Limits."  The New York Times  (Fri., January 19, 2007):  A11.

    Calderón on right shakes the hand (and picks the pocket?) of Roberto González, who is the head of Gruma, one of Mexico’s large tortilla and corn flour distributors.  Source of photo:  online version of the NYT article cited below.

THE recent warm weather in the Northeast might not have been great for makers of winter coats, but the economy and markets could be poised for a small fillip.

. . .

Putting agriculture aside, there are other potentially important macroeconomic effects, said Michael Greenstone, a professor of environmental economics at the Massachusetts Institute of Technology. “The basic idea is that extremes of temperatures, really hot and really cold, are dangerous for human health,” he said. “To the extent that the recent warm weather on the East Coast moved us from cold days to more moderate days, that’s likely to reduce mortality rates. Having more people around is obviously good for consumption and economic activity.”

. . .  

The temporary warm weather does have very real benefits for poor families.

A warm winter can relax their financial constraints by requiring less spending on heating, said Steven J. Haider, an associate professor of economics at Michigan State University.

“They often are making very tough decisions, whether those decisions are paying bills, child care, clothes or food during a particular month,” he said. “If there is a cold-weather shock, and their heating bill goes up in a particular month, there are poor people who struggle.”

Professor Haider and three colleagues researched the effect of weather on poor families’ budgets and found that there were substantial effects from extreme temperatures.

“For the short-run effects that we’re seeing this year, the answer is, yes, the poor families are feeling a little less constrained,” he said. “I’m sure the families have other important uses for that money.”

Indeed, lower demand for heating oil in the United States, along with rising inventories for other refined petroleum products, has helped to push crude oil prices down— a boon for the rest of the world, too.

For the full commentary, see:

DANIEL ALTMAN.  "ECONOMIC VIEW; A Tepid Winter Warms Some Wallets."  The New York Times, Section 3  (Sun., January 14, 2007):  4.

(Note:  ellipses added.)

  Forests are burned on plantations in Indonesia to clear land to produce palm oil which is "a key ingredient in biodiesel."  Source of caption quote and photo:  online version of WSJ article cited below.

(p. A1)  PONTIANAK, Indonesia — Investors are pouring billions of dollars into "renewable" energy sources such as ethanol, biodiesel and solar power that promise to reduce the world’s reliance on petroleum.  But exploiting these alternatives may produce unintended environmental and economic consequences that offset the expected benefits.

Here on the island of Borneo, a thick haze often encloses this city of 500,000 people.  The cause:  forest fires that have blazed across the island.  Many of them were set to clear land to produce palm oil — a key ingredient in biodiesel, a clean-burning diesel fuel alternative.

The bluish smoke is at times so dense that it leaves the city dark and gloomy even at midday.  The haze has sometimes closed Pontianak’s airport and prompted local volunteers to distribute face-masks on city streets.  From July through mid-October, Indonesian health officials reported 28,762 smog-related cases of respiratory illness across the country.

"I feel it in my breath when I breathe," said Imanuel Patasik, a 26-year-old delivery man, as he sat in one of Pontianak’s many open-air coffee shops on a recent evening.  When the smoke is really bad, he wears a mask to work, but still wakes up the next morning feeling sick.  "It’s part of life here," he sighed.

Seasonal rains have helped quell the fires over the past few weeks.  But the miasma of smoke from Borneo and the island of Sumatra — an annual phenomenon that blankets large parts of Southeast Asia in smog — underscores a troubling dark side of the world’s alternative-energy boom.  Among other problems, the fires in Indonesia spew millions of tons of carbon dioxide and other greenhouse gases into the atmosphere, experts say.  In doing so, they exacerbate the very global-warming concerns biofuels are meant to alleviate.

Such side effects are not an isolated problem.  In Indonesia, Malaysia, Canada and elsewhere, forests are being slashed for new energy-yielding crops or other unconventional fuels.  In India, environmental activists say, water tables are dropping as farmers try to boost production of ethanol-yielding sugar.

For the full story, see:

PATRICK BARTA and JANE SPENCER.  "Crude Awakening As Alternative Energy Heats Up, Environmental Concerns Grow Crop of Renewable ‘Biofuels’ Could Have Drawbacks; Fires Across Indonesia Palm-Oil Boom Ignites Debate."  Wall Street Journal  (Tues., December 5, 2006):  A1 & A13.

   Midday in Pontianak the smoke haze from palm oil is dense, and causes respiratory problems.  Source of caption quote and photo:  online version of WSJ article cited above.