Bioenergy Part Deux (Pronounced "Duh")

Following up on last night's blog on the instability of oil prices, for all of the wonderful ideas and insights of Dr. Enrique's TED Talk on bioenergy I almost had to weep at the very end of his presentation. Energy price instability is more of a problem than the averages around which they currently fluctuate, and this may indeed lead to disincentives for entry to the "alternative energy" market. If he had ended his talk there, I would have stood up, applauded, and gotten to work thinking of options that would help resolve the issue.

But he didn't stop there. He called for a "stable price of oil." He said it should be $35, $40, whatever you want it to be (keep in mind the talk was given several months ago and the video was posted recently). In light of recent developments $80 or $90 might be more appropriate, but the number really does not matter much. But wait, there's more. In order to maintain that price, he proposed that a tax be levied when the price is below that arbitrary level and a(n) (implicit) subsidy be remitted when the price is above it. I can not think of a more destructive way to "manage" the problem than price controls-they simply do not work, and they have disastrous unintended consequences like black markets, disincentives for investment, and so on.

So, let's be deliberate and actually carefully outline Dr. Enrique's stated policy objectives: 1. A stable price of oil; 2. Reduced dependence on fuels whose extraction may be dangerous or otherwise unfriendly to the environment or mankind; 3. "Incentives" (read: subsidies) that allow for a predictable return for alternative energies, including biological hydrocarbons.

I'm going to be a jerk and drag it out... I have papers to grade. See you tomorrow.

Bioenergy

Just a quick thought -- I watched November's release of this year's TED Talks Presentations. Juan Enriquez on Bioenergy. It's not just for ethanol anymore. The concept of bugs eating coal and tunring it into gaseous hydrocarbons or accelerating the farming of hydrocarbons from plants as "concentrated sunlight" seems a lot more appealing than gutting an entire mountain, but I'm not sold that it's the first best idea--somewhere the policy has to account for global warming, which won't happen when we use organic byproduct.

Dr. Enriquez makes one important economic point though: The instability of oil prices (not their levels) may prove to be a disincentive for innovation, which involves entry to the energy market and a threat to OPEC's profit. One day price is high and it's all well and good for investing in alternative energy (bugs eating coal and creating hydrocarbon gas) because you can make money at it, but suddenly, BAM! OPEC sees competition entering, and suddenly engages a limit pricing strategy to drive out the competition by producing more and allowing the price to plummet. Then, once the coast is clear of credible competitors, they jack the price up again. Since it's never clear which strategy is the best for OPEC in "pure" strategies (setting a high monopoly-like price or a lower, entry-deterring, "limit price"), OPEC oscillates between the two, depending on certain conditions for entry, essentially playing what game theorists call a "mixed strategy." On top of this unpredictability in the outcome in the cooperative side of the game, each country has an "incentive to deviate" or break the cartel agreement by over-producing, which also would tend to lower the price until the cartel re-organizes. Hence, inherent price instability.

More on this tomorrow. I just wanted to give a quick teaser on OPEC and their cartel price/limit price/deviate strategies and how they contribute to the wild fluctuations in energy prices.

No more Monopolies for Apple

I've often wondered why Microsoft is so villified for their downstream so-called "monopoly" over their operating system/office suite software. Or, better still why is Apple so sactified by folks when they in fact excercise considerable monopoly power in their own segment of the market. (In fact, Apple's monopoly may in fact be more insidious to competition and consumers because their protected "trade secrets" extend not only to software, but also to hardware, which is proprietarily owned by Jobs' company. PC hardware is public-knowledge and mostly reproducable.)

The latest chapter in the saga is phones. The iPhone was supposed to be revolutionary, and Apple knew it had (for the time being) a tidy little monopoly, so they priced it at $599. Sorry, Steve-O, but I can get a laptop PC with Windows pre-installed for that! Now we can all thank Microsoft and that dirty greedy Bill Gates for offering competition. Initially, the Windows Mobile Phones are retailing at around $600 as well, but the Windows be offering a mobile operating system for phones and PDAs that will rival Apple's, and will also be compatible with a wider range of devices, which should ultimately lead to a lower price for the consumer. So all you suckers for the latest technology go buy yours now while I wait for competitive pricing to begin to take hold of the market.