Tuesday, September 3, 2013

Pennsylvannia Tea

So I've been tracking the development of the natural gas industry, and while Syria and Egypt have been hogging all the good press lately (bloody ingrates), these developments warrant interest. Since 2008, when large deposits of natural gas were discovered in the Marcellus and Utica shale deposits in the Midwest, unprecedented investment dollars have been plowed into their extraction. In recent months gas has finally begin flowing, and how. It turns out we have more gas then anticipated, and in fact it looks like investment overreached. And now prices have collapsed in the States. Cheap natural gas seems to be the new norm, and this is big news for the future of the economy, the environment, and the balance of trade.

Cheap natural gas is already spurring investment in steel, petrochemicals, and other industries that supply the sector and use it as an input. In addition, natural gas burns cleaner than coal and oil, and as such while result in reduced CO2 emissions and cleaner air at a lower, not higher, cost.

Our natural gas resources also herald in an export opportunity, albeit one that needs to be approached carefully. Natural gas is about twice as expensive in Europe as it is here and eight times as expensive in Japan. The Department of Energy is in the process of approving up to 20 applications by various firms to export their gas. Unfettered exports of gas would increase output and stimulate employment in the sector by allowing the domestic price to drift upward to the world equilibrium. But the increase in price would also reduce the quantity of natural gas demanded in the States and slow the transition from other fossil fuels and increase input costs to industry.

In light of this tradeoff, I'd recommend the resurrection of a policy tool we haven't seen in a long time: the export tariff. In the ante-bellum period, the Federal government was almost entirely funded bu export tariffs from Southern cotton (brings the importance of preserving the integrity of the Union into context, doesn't it?). In recent years, of course, we've been more interested in increasing exports than taxing them. But levying a modest export tax on America's recent find would allow the industry to make a profit from exports while limiting the extent of domestic price increase, all while adding a new revenue stream to the public coffers. Hell, we could even use some of the money to research alternative energy.


  1. Really appreciated entry in Classic Teas and its environmental benefits! It has greatly captured my attention and I am highly impressed with your writing style and presentation of viewpoints.

  2. I don't understand why an export tariff would help the environment besides just lowering the transacted volume (as in any other tax). If we use more natural gas here, they're just going to use more other stuff over there, and vice versa. Now, you could argue that the portfolio of natural gas substitutes ("other stuff") over there includes a higher percentage of clean shit. But that may or may not be true and even if it were it would take some calculating to try and guess if a tariff would lower global emissions.