On the sidelines of the G20 Hamburg summit, U.S. President Trump found time to meet with UK Prime Minister May and to offer welcome words that the United States will sign a bilateral trade deal with the UK as soon as Brexit is complete.
It’s very good news for the UK and also for PM Theresa May (who has had a rough time in domestic politics of late) and it was obvious that the U.S. president went out of his way to assure Ms. May that a reciprocal trade agreement — one that works for both America and for Britain — is one of his administration priorities.
So much of the UK’s post-Brexit success will hinge on bilateral trade accords because no matter how good the final Brexit agreement, there will be some amount of economic adjustment for Britain in the months following Brexit. A quick trade agreement with the United States will not only ease the Brexit transition, but also improve the UK (and America’s) economy indefinitely.
It was a classy thing for Mr. Trump to do for Theresa May knowing that her domestic political fortunes have taken a hit. Let’s hope the Prime Minister is able to return the favour at some point during the Trump administration. That sort of respect makes for strong allies.
During WWI, but especially during WWII the relationship between America and Britain was raised to a very high level by Prime Minister Winston Churchill and President Harry S. Truman, and in the postwar era during a time of unprecedented economic growth, President Ike Eisenhower continued the wise course set by his predecessor.
However, it could’ve so easily gone the other way if the leaders hadn’t gotten along.
Both sides would’ve missed geopolitical opportunities of huge importance such as the formation of NATO, the establishment of the Nuremberg trials and the creation of other institutions and agreements such as Bretton Woods and the IMF. Without the ambition of the UK and the power of the United States those things simply wouldn’t have occurred.
Millions of Americans and Britons prospered over the past 72 years because their postwar political leaders *didn’t drop the ball* and made a conscious decision to *make the best of the postwar relationship* for their respective people.
What Kind of Free Trade Agreement Should Prime Minister May and President Trump pursue in the post- Brexit timeframe? (Hint: A ‘Win-Win‘ agreement)
Present-day Prime Minister of Canada Justin Trudeau was still in school when Canada first approached the European Union to ask about a bilateral trade deal, and that many years later it still hasn’t come into effect. (It’s about to, they say)
It will have taken eight years to hammer out and begin to abide by, the Comprehensive Economic and Trade Agreement (CETA) which arrives so late in the game and market conditions do change over time (remember way back to the 2008/09 financial crisis when the CETA agreement was first floated?) that some of the hard-won negotiating points are no longer relevant and may never be finalized.
I’m sure it’s a fine agreement and congratulations are due. However, with America and Britain at the controls of a mutually beneficial trade agreement between two friendly Anglophone nations, it should take less than a year from first discussion to signed agreement.
Though we don’t know what shape an Anglo-American trade agreement might look like from our vantage point in July of 2017, probably the best idea would be for both sides to embrace reciprocity and fair dealing in all trade matters as a way to enhance both economies, and as a way to later attract other Anglophone nations such as Canada, Australia and New Zealand to sign on to such an agreement.
Hitting the Right Note with Commonwealth of Nations member India
What a great thing it would be if all Commonwealth nations eventually agreed to sign on to a U.S. / UK trade agreement. Commonwealth of Nations member India has 1.5 billion consumers alone!
Both America and Britain could add 5% to their respective GDP just on the improved trade flows of doing business in the booming Indian economy.
“Although India’s rapid population growth is part of what accounts for the forecasted jump […] that is only part of the story. Drastic improvement in terms of per-person productivity due to capital investments and better technology will play an even more important role.
“PwC predicts that India’s economy will grow by about 4.9% per year from 2016 to 2050, with only 0.7% of that growth caused by population growth.
Both America and Britain just need to hit the right note with India — a respectful note — in order to profit from the massive growth that is available in that burgeoning country.
Working out an Anglo-American trade agreement with a view to adding all Commonwealth member nations within 24 months, guarantees that other powerful trade blocs don’t beat the Anglo-American alliance to supply the rocketing Indian economy with much-needed goods and services.
Projected growth for selected countries – As measured by Purchasing Power Parity (PPP)
It’s so obvious but still worth repeating; ‘Hitch your wagon to the fastest horses if you want to place well in the race.’
Britain has the Commonwealth of Nations connections, Britain needs a trade agreement with NATO ally America and with Commonwealth partner India, and the United States wants to increase mutually beneficial trade with Britain and its 2-billion-strong Commonwealth partners.
In all of human history, rarely has such a synergistic match-up suddenly appeared where different but extremely valuable benefits are available to all three parties.
Just as nobody predicted the massive Japanese economic boom which began to form the day after WWII ended, an Anglo-American trade agreement, followed by a Commonwealth trade agreement (before other trade blocs grab the low-hanging fruit!) could match or exceed the massive performance statistics of the postwar Japanese economy.
Dear United States and Commonwealth of Nations, Let’s not miss this rather obvious ‘Win-Win-Win’ opportunity!
U.S. renewable energy has made impressive strides in recent years
“According to a new report from the U.S. Department of Energy, solar power employs more people than coal, oil and gas combined.
Last year, solar power accounted for 43 percent of the Electric Power Generation sector’s workforce, while fossil fuels combined employed 22 percent. The statistic will be welcomed with open arms by those trying to refute Donald Trump’s assertion that renewable energy projects are bad news for the U.S. economy.
Around 374,000 people were employed in solar energy, according to the report while generation through fossil fuels had a workforce of just over 187,000. The solar boom can be attributed to construction work associated with expanding generation capacity.
The report states that the employment gap is actually growing with net coal generation decreasing 53 percent over the last 10 years. During the same period of time, electricity generation through gas expanded 33 percent while solar went up by an impressive 5,000 percent.” — Niall McCarthy | Statista
Solar Power and Wind Power combine to provide 475,545 U.S. jobs — while Nuclear Power and Fossil FuelPower generation combine to provide only 255,293 U.S. jobs — but in recent years the Fossil Fuel industry gets 4 times more subsidy than Renewable Energy
Renewable Energy = Clean Air and Twice as many Jobs on 1/4 the Subsidy!
Here is a look at historical U.S. federal subsidies paid from 1918 to 2009 for various energy producers.
What Do Americans Think About Fossil Fuel vs. Renewable Energy?
Solar power and wind power (alone!) employ almost twice as many Americans as all nuclear and all fossil fuel power plants combined, but renewable energy gets only one-quarter of the subsidies in from 2010 onward.
Which might be a factor in the minds of Americans who look forward to renewable energy meeting their future energy demand.
Renewable Energy Continues to Grow in the U.S.
Despite the low subsidy amounts paid to renewable energy in the United States, non-hydropower energy continues on its growth trajectory and it’s now cheaper to build new solar capacity, than to build new coal capacity.
New Solar Now Cheaper Than New Coal
Costs for new solar power plants continue to plummet (without subsidy) vs. new coal power plants (with a small subsidy) is reflected in the Levelized Cost of Electricity (LCOE) per Kilowatt Hour price.
Billions of Gallons of Water Used Monthly by Conventional Energy
Many coal-fired power plants and several nuclear power plants produce well over 1000MW (1 GW) of electricity and it is easy to extrapolate their water usage.
For instance, a 1.6 GigaWatt(GW) coal-fired power plant (for the purposes of this discussion there’s a 1.6GW coal-fired power plant in Texas) uses 1,760,000 gallons of water per hour, while an equivalent-sized nuclear power plant uses 1,280,000 gallons of water per hour.
Meanwhile, a natural-gas-fired power plant producing the same 1.6GW of electricity would consume 480,000 gallons per hour, while a 1.6GW solar or wind power would consume zero gallons per hour.
Of course hydro-power does not consume any water during its decades of reliable power production, water merely falls through turbines and back into the river a bit further downstream — although during the construction of the dam, spillways, and hydro-electric turbine rooms, millions of gallons of water are used to make the concrete.
The Future of Energy in the United States
Renewable generation capacity expected to account for most 2016 capacity additions in the U.S.
The chart below shows just how much wind power in the United States has grown in recent years.
The chart below shows the expected growth of solar photovoltaic power in the United States (does not include solar thermal)
The chart below displays total utility-scale capacity additions from 2010 to 2016. For the third consecutive year, more than half of the capacity additions are renewable technologies, especially wind and solar.
From 2013 through 2040, U.S. electricity demand is expected to grow approximately 1 trillion kiloWatt hours(kWh) with natural gas and renewable energy showing steady growth, while coal-fired power generation and nuclear power show slight declines according to the U.S. Energy Information Administration.
If the United States converted their existing coal-fired power generation to natural gas by 2020, the U.S. could easily meet every international and domestic clean air target until 2050 as coal burns 10,000 times ‘dirtier’ (anthracite, or black coal) to 1,000,000 times ‘dirtier’ (lignite, or brown coal) when compared to natural gas.
It goes without saying that if the United States replaced coal-fired power generation with renewable energy, it would surpass every U.S. international and domestic clean air target, lower U.S. heathcare and infrastructure spending by billions of dollars annually, save the U.S. billions of gallons of fresh water per month, provide millions of good-paying jobs for American workers — and prove the United States is still an exceptional power in the 21st-century. Not bad!
A hundred years ago in America, the federal government decided to help a new industry take its first baby-steps by legislating oil and gas subsidies which were paid for by increased citizen taxation.
It’s commonly done by governments everywhere and it’s not the worst thing for a nation to do.
Here’s how that works: (1) A new industry appears (2) the government sees economic potential (3) citizens are told they must pay more tax to support the new industry (4) the subsidies continue long after they’re no longer required (5) the subsidies tend to increase over time and expand into other areas of the business (6) until the subsidies reach obscene amounts and the taxpayers revolt.
In short: Subsidies are a ‘good thing’ — until they aren’t
Energy subsidies accumulate over time
Arithmetic tells us that U.S. oil & gas subsidies total $442 billion from 1918-2009.
It’s worse if you add the additional $80 billion/yr in U.S. oil & gas subsidies paid from 2010-2017, which total $560 billion.
Here’s what U.S. oil & gas subsidies look like when totaled over the entire 1918-2017 timeframe: $1,002,260,000,000.
U.S. oil and gas subsidies since 1918 total one trillion dollars
And U.S. taxpayers paid every penny. That’s a trillion dollars of income tax and fuel tax paid by U.S. citizens to subsidize American oil & gas companies since 1918.
Subsidies are a fine thing for new industries taking their first baby-steps. Wherever the federal government sees economic potential for a new industry, subsidies are the way to grow the opportunity and help stabilize the new industry UNTIL it can stand on its own two feet.
But Mature Industries Don’t Need Subsidies
The problem with oil & gas subsidies is that by 1950 they were 100% redundant. No longer needed. At all.
When mature industries continue to receive taxpayer-funded subsidies long after the original need for them disappears, that revenue goes to support pro-industry advertising, pro-industry organizations and pro-industry politicians.
In that way, some $80 billion/yr in oil & gas subsidies became available for pro-industry causes as it was no longer required to support a new industry taking its first steps.
Note: Not all oil and gas subsidies are bad! Additional subsidies paid for research on ‘cleaner-burning’ fuels via high-tech additives, a transformation that began slowly in the 1970’s and continues — to remove lead from gasoline, and for catalytic converter research in the 1980’s, are two such examples. Billions of dollars were well spent and were very cost-effective. But once the research has been done and the clean-burning fuel goals have been achieved, no reason exists to continue to pay such subsidies.
Except for the dollar amounts, much that applies to U.S. oil and gas subsidies also applies to U.S. nuclear power subsidies.
So let’s skip directly to the nuclear power numbers, shall we?
Simple arithmetic tells us that U.S. nuclear power subsidies amounted to $182 billion from 1947-2009.
It’s worse if you add the additional $102 billion (conservative estimate) in U.S. nuclear power subsidies that were paid by taxpayers from 2009-2017.
Here’s what all (federal) U.S. nuclear power subsidies look like when totaled over the entire 1947-2017 timeframe: $284 billion.
U.S. nuclear power subsidies since 1947 total $284 billion
But if one were to include all nuclear power subsidy costs including; safe storage, disposal, or reprocessing of spent fuel, transportation of spent fuel to other countries for safe storage or reprocessing, the decommissioning of nuclear power sites such as Hanford, the cleanup and cost of replacement electricity due to U.S. nuclear power plant malfunctions, and future reactor design spending, nuclear power subsidies could total $500 billion. Perhaps as much as $1 trillion.
NOTE: That’s not including billions of dollars worth of grants awarded by the federal government for new nuclear power reactor designs to replace America’s aging reactors. Nor does it include the tens of billions paid to store and defend so-called ‘spent fuel’ which is highly radioactive and useful to terrorists. Nor does it include reprocessing costs for spent fuel. Nor does it included shipping costs to ship spent fuel to other countries for storage or reprocessing. Nor would it include any costs associated with nuclear power plant malfunctions. Nor would it include any costs associated with nuclear powered US Navy ships. Due to the sensitive nature of nuclear materials some information is difficult to obtain, therefore, the $102 billion nuclear power subsidies figure used for the 2009-2017 timeframe is an estimate.
Biofuels are a new-ish industry. It’s about where the U.S. oil & gas industry were, in their first 20-years. It’s an industry where subsidies can make a difference to get the thing up-and-running and add stability to the new industry.
Biofuel energy subsidy in the early years was subsidized at $1.00 per gallon, which then declined to $.66 per gallon, but since 2011 has fallen to $.45 per gallon.
Total U.S. biofuel subsidies amount to $31 billion from 1980-2009 and an additional $65 billion from 2010-2017.
For a grand total of $96 billion from 1980 to 2017.
U.S. biofuel subsidies have totaled almost $100 billion since 1980
Note: The original U.S. biofuel subsidies enacted by President Carter during the 1970’s fuel crisis were later expanded to allow U.S. biofuel producers to compete with the much larger and more heavily subsidized Brazilian biofuel producers.
Coal subsidies follow the pattern described in the introduction to this post (subsidy steps 1 to 6) and subsidy costs are in the same neighborhood as oil & gas.
But U.S. coal subsidies in all its forms — including so-called ‘Externalities’ might total half a trillion dollars annually
Here is what a landmark Harvard Medicine study said about the externality costs of U.S. coal:
“Each stage in the life cycle of coal—extraction, transport, processing, and combustion—generates a waste stream and carries multiple hazards for health and the environment.
These costs are external to the coal industry and are thus often considered “externalities.”
We estimate that the life cycle effects of coal and the waste stream generated are costing the U.S. public a third to one-half of a trillion dollars annually.
Many of these so-called externalities are… cumulative.
This study illustrates the most vexing problem with U.S. energy extraction, refining, processing, storage, end use, and decommissioning of energy sites — energy ‘externalities’. And such externalities aren’t limited to the coal industry.
Energy production externalities (also called ‘Indirect Subsidies’) may cost America $1 trillion per year due to higher healthcare and infrastructure maintenance costs.
Damage to infrastructure arrives in the acid rain falling downwind from fossil fuel power stations, causing damage to bridges, buildings, and roads constructed with concrete (so-called concrete spalling) and causes paint damage on cars and trucks, and is responsible for crop losses downwind or downstream from fossil fuel extraction sites or power stations, and harms aquatic life found in rivers and coastal areas near river outlets.
Terms to remember: Energy ‘kind’ and ‘type’
There are only two ‘kinds’ of energy: Non-renewable and Renewable energy.
There are many ‘types’ of energy: Natural gas-fired, oil-fired, coal-fired, nuclear energy, solar photovoltaic, solar thermal, wind turbine, hydro-electric, ocean thermal, ocean wave, ocean tidal, biomass, wood-burning, and pellet-burning.
The trend of large subsidies in a sector like the energy sector, is that subsidies reward less efficient energy producers and punish more efficient producers in relative terms.
“Just pump it Fred, we’re getting our subsidy money per barrel of oil, who cares if it’s #4 sour crude oil? We get paid to pump oil, not look for better quality oil.”
Although there’s a separate ‘oil exploration’ subsidy too.
And let’s not forget the more ‘sour’ the crude oil, the more processing it requires at the refinery, and because #4 sour is very tough on oil refinery maintenance budgets, it further increases costs at the gas pump.
The more oil you pump of whatever quality, the more subsidy money you get — and that isn’t the way to maximize the efficiency of money in the energy market.
The oil industry delivers an easy example, but every energy subsidy scheme changes the behavior of the principals involved towards lower quality energy, whether it’s subsidized non-renewable energy or subsidized renewable energy.
In the primary energy segment (electricity and district heating) the type of energy varies by region.
Hydro-electric, coal-fired, and nuclear power are astonishingly costly to build and couldn’t have been built without massive subsidies. And even with huge subsidies for R&D, construction, millions of acres of land grants, generous tax incentives and more, some of those energy types still require small per kW/h subsidies to compete in the marketplace. In their favor, all of these have been extremely reliable primary energy producers for decades, but are mature industries that no longer require subsidies as financing such projects in the 21st century is considered routine. But it wasn’t always so.
In secondary energy (transportation) oil and gas infrastructure is also costly to build and the necessary infrastructure couldn’t have been built without massive subsidies. Yet, with sufficient refinery capacity already available there is little need for new refinery capacity, and today’s fuel prices support easy financing for future capacity additions.
Especially for vertically integrated oil companies that own their oil concessions (oil fields) their own distribution system (pipelines, or rarely, rail) and their own refineries, these can thrive during times of low crude oil prices.
Removing oil & gas subsidies would cause oil companies to become vertically integrated with no loss in profits. But why bother, when there’s no incentive due to a high subsidy scheme?
That won’t be the only change. Every subsequent change to the business would necessarily be designed to improve the overall efficiency of the company, sans-subsidies. That’s been missing since 1918.
By leveling the playing field for all kinds and types of energy, the most efficient energy kind and type will become king, and energy investors will earn more profit. (Because profits are earned on the ‘spread’ — the difference between what energy costs to produce and what it can be sold for. Subsidies make markets significantly less efficient and muddy the waters)
In summary: Removing energy subsidies will cause every energy producer to concentrate their efforts on the most efficient kind and type of energy in their region of the country, instead of choosing their energy kind and type by how many subsidy dollars they can capture via their energy choice.
President-elect Donald Trump, please tear down these subsidies!
And let the marketplace determine the most efficient energy.
Federal energy subsidies should return to their proper place. That is; When the federal government sees a new industry with economic potential; To invest, subsidize, and promote that new industry using taxpayer dollars for only as long as it remains a new industry. And not one day longer.
Markets are perfectly efficient when left to their own devices. Massive, taxpayer-funded subsidies for mature industries only serve to warp the markets and punish the most cost-efficient U.S. energy producers.
People either believe in free markets or they don’t
We can’t say we believe in free markets AND THEN massively intervene in the market with humongous, taxpayer-funded energy subsidies for some kinds and types of energy, but not other kinds and types energy.
With the greatest respect Mr. President-elect, I urge you to allow all U.S. energy producers to compete in a free market by phasing-out energy subsidies for every kind and type of energy over the next five years.
In late 2015, report after report after report emerged showing that coal consumption on the global scale was headed for an impressive decline, and possibly that dependence on coal had peaked all over the world. For example, China, one of the largest consumers of coal on the planet, was rapidly decreasing their dependence on the fossil fuel, and when this decline was paired with declining reliance in other countries and here in the U.S., it made the coal industry significantly weaker…