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Energy policy - June 20

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Voters Furious over Surging Energy Prices

Dirk Kurbjuweit, Wolfgang Reuter and Christian Schwägerl; Spiegel (Germany)
Natural gas prices are expected to rise by 40 percent in Germany. A battle of the populists has begun as politicians promise to put more money into citizens' pockets. But any financial relief will likely be eaten up before long by rising energy costs.

... That number is 40, which represents the predicted percentage rise in the price of natural gas in Germany, announced a little more than two weeks ago by Michael Müller (more...), a deputy minister in the German Environment Ministry.

... Taken together, all these factors make for a dismal mix for German and international policies. The issues at the top of today's agenda are global warming, the growing scarcity of raw materials and commodities, and fears of social decline. The challenge for politicians is to figure out how to reconcile goals like energy security, protecting the environment and achieving prosperity for all. Merkel regards the current situation as the most dramatic she has experienced since German reunification in 1990.

... Merkel fears that, in the future, any measure designed to provide financial relief will be perceived as such for no more than two weeks -- at which point citizens will already be clamoring for the next measure. But no government is capable of providing enough tax relief to offset the anticipated rise in energy prices.
(17 June 2008)

Scarcity in an age of plenty

Joseph Stiglitz, Guardian
As food and fuel prices continue to increase the world must look to new patterns of consumption and production
... Two factors set off today's crisis: the Iraq war contributed to the run-up in oil prices, including through increased instability in the Middle East, the low-cost provider of oil, while biofuels have meant that food and energy markets are increasingly integrated. Although the focus on renewable energy sources is welcome, policies that distort food supply are not. America's subsidies for corn-based ethanol contribute more to the coffers of ethanol producers than they do to curtailing global warming. Huge agriculture subsidies in the US and the European Union have weakened agriculture in the developing world, where too little international assistance was directed at improving agriculture productivity. Development aid for agriculture has fallen from a high of 17% of total aid to just 3% today, with some international donors demanding that fertiliser subsidies be eliminated, making it even more difficult for cash-strapped farmers to compete.

Rich countries must reduce, if not eliminate, distortional agriculture and energy policies, and help those in the poorest countries improve their capacity to produce food. But this is just a start: we have treated our most precious resources - clean water and air - as if they were free. Only new patterns of consumption and production - a new economic model - can address that most fundamental resource problem.

Joseph Stiglitz is university professor at Columbia University. In 2001, he was awarded the Nobel Prize in economics. His latest book is Making Globalization Work.
(15 June 2008)

The Anti-Dollar

Byron W. King, Howe Street
Oil has become the "anti-dollar" of modern times. Oil is now serving as the source of global monetary discipline that gold used to perform.

Oil is the energy life-blood of all modern economies. So when a nation debauches its currency, the oil markets react instantly. And oil will not accept monetary malpractice, certainly not by the U.S. Federal Reserve. If traders perceive that the dollar is declining, this perception lights the fuse for oil prices to rise.

There is an old saying that "You can't fight the Fed." But oil is fighting the Fed. In fact, oil is scoring a knockout, like Muhammad Ali over Sonny Liston. Oil is floating like a butterfly and stinging like a bee - landing body blows and pinning the Fed against the ropes.
(June 2008)

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