California’s auto-emissions policy hits a Tesla pothole — Christopher Knittel

MIT Sloan Prof. Christopher Knittel

From The Wall Street Journal

It is a basic tenet of economics that regulations almost always have unintended consequences. While Adam Smith may have been one of the first to understand this, he could not have possibly foreseen the morass of expensive and unwanted consequences that could come from conflicting emission and fuel standards enacted by the state of California and federal programs, such as for greenhouse gases and Corporate Average Fuel Economy.

Both the state and federal regulations have worthy goals: to decrease greenhouse-gas emissions and lower petroleum consumption. Yet taken together, the federal standards effectively cancel out the California standard. Instead of promoting fuel reduction as intended, the California standard allows for the production of less-efficient vehicles, while facilitating a massive transfer of cash via credit trading. It also forms a de facto industrial policy that sends us down a path toward electric vehicles that may or may not be the best technological or environmental choice for the future.

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Think speculators cause high oil prices? Don’t bet on it — Christopher Knittel and Robert Pindyck

Image credit: Mike Derer/AP on Cognoscenti

From WBUR Cognoscenti

Americans are spending more money at the pump than ever before. According to a recent estimate by the Energy Department, the average U.S. household spent nearly $3,000 on gasoline last year. Earlier this month, the U.S. Energy Information Administration forecast that the price for regular gasoline will average $3.63 a gallon this summer — a slight decline from last summer, not far from the record levels set in 2008. Why do oil prices remain so stubbornly high?

According to some in Washington, the blame lies with “speculators” — investors who buy and sell oil futures contracts to bet on the price of oil. As they see it, these scheming speculators — which may be individuals, but can also be mutual funds, hedge funds, or other investment institutions — inject billions of dollars into commodity exchanges in pursuit of a limited number of barrels, which in turn drives up the price of oil. Speculators, critics say, rake in piles of money at the expense of ordinary people who are going broke fueling their cars and heating their homes. Read More »

Energy efficiency needs more research — Christopher Knittel

MIT Sloan Prof. Christopher Knittel

From USA Today

In his State of the Union, President Obama set a goal to “cut in half the energy wasted by our homes and businesses over the next 20 years.”

Many Americans get nervous when we hear the government wants to step into our homes. We think we make prudent choices without conferring with Uncle Sam. We shop sales. We clip coupons. We refinance our mortgages. So is the president right? Do we systematically waste energy? And if so, can he help us save? Read More »

John Reilly: Carbon tax offers win-win-win

MIT Sloan Sr. Lecturer John Reilly

From Politico

This time last year, Washington’s AAA credit rating was downgraded, as Congress held hostage an agreement on a debt ceiling increase while looking for a long-term debt reduction plan. A year later, not much has changed.

Congress is no closer to reaching consensus on reining in our nation’s debt. The Bi-Partisan Tax Commission laid out the harsh reality: Closing the deficit would require both tax increases and cuts to key programs like Social Security. Read More »

Christopher Knittel: Don’t Blame It on the Rain–The Ethanol Mandate Is a Bad Idea in Any Year

MIT Sloan Prof. Christopher Knittel

From Huffington Post

The long drought will have real consequences for the nation’s food and energy markets. But it also creates an opportunity for Washington to take a hard look at the Bush-era mandate known as the Renewable Fuels Standard (RFS), which requires that 10 percent of the gasoline we put in our cars be comprised of ethanol, most of which is made from corn.

Because both sides in the debate over the standard tend to exaggerate, we conducted extensive research into the issue. We conclude that the ethanol mandate has some significant negative consequences and few redeeming features. Even without a drought, the policy is inefficient; with a drought it is much worse. Two economic myths drive support for the ethanol mandate. Read More »