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Can We Afford Renewable Energy?
Can We Afford Renewable Energy?
Over a decade ago we got involved in the development of the biofuels industry in Europe, when it began to take off in earnest there.
At that time estimated profits from biodiesel production created considerable enthusiasm, which at one point turned euphoric with new production facilities being announced almost on a weekly basis.
What was not to like? Europeans would get to drive their cars using green, very low-carbon, seemingly affordable fuels, saving the environment in the process. And investors would make a ton of money.
However, reality turned out to be rather more complicated than that, much to the chagrin of those investors. Production margins were quite volatile and very difficult to hedge into the future. All that new demand ended up spiking the prices of vegetable oils – the key biodiesel production input – way above those of fossil fuels. Entire domestic production complexes went bust as a result, prompting governments across Europe to eventually implement a range of support measures to make biofuels part of the fuel mix.
Biodiesel became the biofuel of choice in Europe for many reasons. It can be used as a blend component for diesel or replace it completely (typically referred to as B100, or biodiesel 100%). Both options were available in many pumps across Germany, the industry’s pioneer and largest European market by far at that time. Despite being staunch environmental supporters and relatively wealthy, when the price of a liter of B100 was higher just by one cent German consumers immediately switched to its fossil fuel counterpart.
In other words, when push came to shove the willingness to pay for a “green” premium was not there – even in one of the most environmentally conscious countries in the world. This stunned us at the time.
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Carbon Taxes, Cow Farts, And Central Planning
Carbon Taxes, Cow Farts, And Central Planning
In a centrally planned economy decisions on what to produce, how to produce and for whom are taken primarily by the government.
The term is usually associated with communist economies. However, since US President Franklin D. Roosevelt implemented a robust range of government policies in the 1930s to counter the effects of the Great Depression, using principles that would be popularized by UK economist John Maynard Keynes, Western governments (along with their central bank consorts) have also taken on very interventionist roles in economic affairs.
But not even Stalin or Roosevelt could come up with a rather exotic tool that can take central planning to a whole new level: carbon taxes.
The reason why it is so powerful is that virtually all market activities produce some type of greenhouse gas, meaning carbon and other equivalents that contribute to warming our planet. Here’s the emissions breakdown by sector in the US according to the Environmental Protection Agency (as of 2014):
Virtually all economic activities (as well as most daily personal affairs in any modern society) produce some type of emissions. So by putting a cost on carbon any of them, from the most mundane to the most complex, would be impacted. Entire industries could be impaired with the stroke of a pen. Powerful stuff indeed.
Furthermore, the tax base could be greatly expanded as a result, at a time when governments are desperate for new sources of revenue.
Climate change skeptics, pointing to alleged gaps in the theory of manmade climate change (where carbon emissions resulting from human activity are primarily responsible for the rise in global temperatures since the 19th century) and the heavily politicized nature of the process have long argued that having such a powerful interventionist tool is really the ultimate goal of the politicians pushing for it.
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What A Cashless Society Would Look Like
What A Cashless Society Would Look Like
Calls by various mainstream economists to ban cash transactions seem to be getting ever louder, while central bankers have unleashed negative interest rates on economies accounting for 25% of global GDP, with $5.5 trillion in government bonds yielding less than zero. The two policies are rapidly converging.
Bills and coins account for about 10% of M2 monetary aggregates (currency plus very liquid bank deposits) in the US and the Eurozone. Presumably the goal of this policy is to bring this percentage down to zero. In other words, eliminate your right to keep your purchasing power in paper currency.
By forcing people and companies to convert their paper money into bank deposits, the hope is that they can be persuaded (coerced?) to spend that money rather than save it because those deposits will carry considerable costs (negative interest rates and/or fees).
This in turn could boost consumption, GDP and inflation to pay for the massive debts we have accumulated (leaving aside the very controversial idea that citizens should now have to pay for the privilege of holding their hard earned money in a more liquid form, after it has already been taxed). So at long last we can finally get out of the current economic funk.
The US adopted a policy with similar goals in the 1930s, eliminating its citizens’ right to own gold so they could no longer “hoard” it. At that time the US was in the gold standard so the goal was to restrict gold. Now that we are all in a “paper” standard the goal is to restrict paper.
However, while some economic benefits may arguably accrue in the short-run, this needs to be balanced in relation to some serious distortions that could rapidly develop beyond that.
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