Well, so much for getting started on my post about California Water. GV Wire (a local news outlet) reached out to me for comment on Gov Newsom's latest proposal to ban gasoline powered cars by 2035. The irony was too irresistible. Two weeks ago we were having "brown outs" because the state of California was not producing enough power during a heat wave, yet now the governor wants everyone to plug their electric cars into the grid. Really? Doubly ironic since my family has a house at Shaver Lake. We are selling it, and it was in escrow slated to close this past week. Miraculously, the home survived the fires, AND the buyers want to proceed! Yet in the midst of this crisis, Gov Newsome poses in the rubble to double down on his "Global Warming!" initiatives! The local air pollution control district regulates the use of wood burning fireplaces, yet lets 300,000 acres of forest burn to the ground. Oh, don't get me started...
Did you know that economics has a lot to say about pollution, and hence, "Global Warming"? My love for economics is rooted in compromise. What you say? Yes, economics is about the allocation of scarce resources. We can't have it all, so we have to compromise. Ferrari only produces a few hundred cars a year, and the price is set so that only the well off can get one. Fundamentally, I'm OK with that outcome. But what if the production of Ferrari's entails pollution? Economic theory tells us that Ferrari is adept at factoring in all of the costs of production (steel, labor, red paint, etc.); however, they are unable to factor in the external costs of the pollution they create. Therein lies the problem. "Society" is concerned about pollution, but Ferrari, not so much, per se. Economics tells us that if we can make Ferrari internalize the cost of their pollution, they will produce fewer Ferrari's and reduce their "carbon footprint" to an optimal level. To carry this economic logic further, less Ferrari's will mean a higher price, so ultimately the consumer will pay for a portion the pollution. The optimal production occurs where the marginal benefit of the Ferrari (the excitement I would get cruising down the road in one) is balanced against the marginal cost of producing one (to include the pollution costs). Free markets tend to pollute too much, but free markets produce incredibly wonderful things. This is where compromise comes in. Let the free markets produce the goods we love, but the ones that involve pollution get taxed so that they produce less. The economic solution is rarely to tax them out of existence. Consider the market for heavy duty diesel trucks. No one, including me, wants to drive behind a diesel truck belching out black smoke, so regulations (a form of taxation) have become increasingly stringent! Our entire fleet of diesel trucks had to be replaced around 2011 at a cost of hundreds of thousands of dollars. The newer trucks were of course more expensive, but we were told that the new technology would allow them to be used "forever." So much for that promise. In addition, fuel regulations have required that the diesel fuel being used in California be "reformulated". We now use "Ultra Low Sulphur California Air Resource Board #2 Diesel." If you get behind one of these new trucks going down the road burning CARB diesel you won't see any smoke! I'm OK with that compromise to achieve cleaner air, but to now ban these trucks entirely? These same trucks, by the way, transported all the stuff you bought on Amazon during the pandemic. Just let that sink in for a moment...
Unfortunately, economics and politics often collide, and become inseparable. The current political climate is an "all or nothing" approach. Clean energy, yes, petroleum energy, no! Save the spotted owls, yes, manage the forests, no! Socialism, yes, Free Markets, no! One need only look at history to see where this binary thinking leads. How many endangered species died in the California wildfires? The same endangered species which were used to justify the ban of logging, by the way! Has anyone seen ONE article on this issue? That tells me the original argument was never about saving the endangered species, only about stopping logging! I will throw in a little California water policy as a teaser. Newsflash -- environmentalists would like nothing better than for farming to disappear from California! They have fought tooth and nail hindering every attempt to create more water storage (always using endangered species, by the way). It was especially interesting for them to watch as farming continued during the draught. How was this possible, they asked? They finally thought they had won for good!! However, farmers kept their crops alive by pumping groundwater! What did the environmentalists do? They are now going after the groundwater! Farming no, tumbleweeds, yes!!
You can argue that I have a vested interest in both petroleum and agriculture, and you'd be right. But, I'm tired! I'm tired of spending hundreds of thousands of dollars to purchase the latest and greatest diesel trucks, only to have them rendered obsolete with the stroke of a pen. I'm tired of having every aspect of my operation perpetually inspected. Working in the petroleum industry is like having a daily prostate exam! I'm tired of having a target on my back and perpetually be labeled as public enemy number one. When I started in this industry almost 30 years ago, I had come from the Air Force and was used to gov't bureaucracy. My father in law told me what I'm telling you today, "it's just not fun anymore!" "Fun' for us is getting a call from customer out of diesel, and telling them we'll be there in an hour! The feeling that what we do actually matters in the production of food and fiber is extremely exhilarating. To compound matters, we were declared "Covid Essential" just months ago. Seriously? Someone recognized that what we do out in the westside community of San Joaquin was important? Hallelujah! Oh, wait, we were "Covid Essential Evil" just like the plastic bags that suddenly appeared in stores.
An early lesson in economics was that "there is no free lunch." Billions of dollars will be spent in the pursuit of green energy, yet I fear at the end of the day, the climate will not be cooled! I read recently that if the politicians were serious about global warming then the most cost effective approach would be to send the money to India or China. Does anyone really believe that having electric cars in California will save the planet? I get calls all the time telling me how reasoned my economic logic is, yet my logic runs counter to just about every politician in California. Mind you, I'm not denying climate change. Once upon a time, there was an ice age, the climate warmed (no humans involved), and here we are. I was always taught to be careful in economic research of confusing correlation with causation. You don't want your research to fall prey to "post hoc ergo prompter hoc."(It follows therefore it is caused by). Is our climate getting warmer? Yes. However, just because this warming follows an increase in human carbon emissions, does not prove that mankind is responsible. Free Market economics has always been inherently sensible to me. Even in grad school, I rebelled against the leftward leaning faculty attempting to argue that we had become more "enlightened" and government should certainly has a greater role in determining the economic course of events. I think I've read somewhere that "only a fool says in his heart there is no God." God help us
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Nice blog Scott. It's difficult to explain to someone that the optimal level of pollution is not zero. Zero is just a number with emotional appeal, but it ignores completely the simple fact that pollution is a by-product of creating something that people find valuable. Kudos explaining the trade-off.