The Unassuming Economist

From Our World in Data:

From Conversable Economist:

“M. King Hubbert was a big-name geologist who worked much of his career for Shell oil. Back in the 1970s, when OPEC taught the US that the price of oil was set in global markets, discussions of US energy production often began with the “Hubbert curve,” based on a 1956 paper in which Hubbert predicted with considerable accuracy that US oil production would peak around 1970. The  2019 Economic Report of the President devotes a chapter to energy policy, and offers a reminder what happened with Hubbert’s curve.

The red line shows Hubbert’s predicted oil production curve from 1956. The blue line shows actual US oil production in the lower 48 states. At the time of Hubbert’s death in 1989, his forecast looked spot-on. Even by around 2010, his forecast looked pretty good. But for those of us who had built up a habit since the 1970s of looking at US oil production relative to Hubbert’s prediction, the last decade has been a dramatic shock.

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From VoxEU post by Mengjia Ren, Lee Branstetter, Brian Kovak, Daniel Armanios, Jiahai Yuan:

“Despite leading the world in clean energy investment in recent years, China continues to engage in massive expansion of coal power thanks to policies that effectively subsidise and (over)incentivise coal power investment. This column examines the effects of the 2014 devolution of authority from the central government to local governments on approvals for coal power projects. It finds that the approval rate for coal power projects is about three times higher when the approval authority is decentralised, and provinces with larger coal industries tend to approve more coal power.

After three decades of building up its capital stock, China has entered a phase where efficient allocation of capital resources is vitally important for sustained economic growth. However, due to governance problems and market distortions, many key industries in China have experienced serious capital misallocation and overcapacity issues in the past few years, with the energy industry being one of the most salient examples.

In line with high-profile government pledges to transform China’s energy system, China has led the world in investment in clean energy. In 2015 alone, China built a soccer field of solar panels every hour and one large wind turbine every hour (Carbon Tracker Initiative 2016), easily outpacing green energy investment in any other country. However, at the same time, China was building two coal plants per week. China approved nearly 200 gigawatts of new coal power capacity in 2015, even though the total capacity of the existing coal plants was 884 gigawatts (Ren et al. 2019). Competition from coal power has led to massive curtailment of wind and solar power generation because power grids were obligated to purchase a certain amount of coal power and thus had to reject much of the energy generated by China’s wind and solar power plants.

In the past five years, utilisation levels of all energy types fell sharply as growth in energy supply shot past energy demand (Figure 1 and Table 1). Nearly 50% of China’s coal power plants faced net financial loss in 2018 (Ji 2018). While policy efforts¹ have been made to contain the coal overcapacity crisis, under the existing governance structure and market rules, coal power investment in China is unlikely to return in the near future to an equilibrium where plants can still profit under a competitive market price of electricity. It also seems likely that coal power will continue to crowd out solar and wind power for the foreseeable future, raising concerns that China’s vaunted transition to a less carbon-intensive economy will not be managed efficiently.

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From an IMF working paper by Nicoletta Batini:

“France is the top agricultural producer in the European Union (EU), and agriculture plays a prominent role in the country’s foreign trade and intermediate exchanges. Reflecting production volumes and methods, the sector, however, also generates significant negative environmental and public health externalities. Recent model simulations show that a well-designed shift in production and consumption to make the former sustainable and align the latter with recommended values can curb these considerably and generate large macroeconomic gains. I propose a policy toolkit in line with the government’s existing sectoral policies that can support this transition.”

From the IMF’s latest report on Senegal:

“The natural resource landscape in Senegal has changed substantially following significant oil and gas discoveries between 2014 and 2017. This paper estimates the macroeconomic impact of these discoveries and discusses potential fiscal frameworks for managing related revenues. Pre-production investment (2019-2021) will lead to an increase in the current account deficit, but this will be followed by a boost to exports as hydrocarbon production comes online (2022 onwards). Discoveries are important but will not lead to a major transformation of the economy, with hydrocarbons expected to make up not more than 5 percent of GDP. Fiscal revenues would average about 1.5 percent of GDP over a 25-year period and about 3 percent of GDP when production peaks. Given the relatively small gains in revenue, staff recommends a fiscal framework that allows for an initial draw down of government resources to finance large up-front investment needs, followed by an appropriate target level of the non-resource primary balance which is to serve as a medium-term fiscal anchor. Issues related to managing the volatility of resource revenues are also discussed.”