Thursday, January 10, 2013

Energy Markets

Why is Europe (the heart of environmentalism) use of coal sky rocketing? While North America (not exactly known for being green) moving away from coal?

In a word: Hydrofracking.

In a sentence: Because markets are efficient like that.

The Long Version:

Coal is easy to move and sell on international markets because its natural state is a solid. Natural gas is very difficult to move and sell on international markets because its natural state is a gas, even though it can be liquefied - which improves the situation, but not dramatically because the infrastructure is spotty at best.  Natural gas is therefore more of a regional good, whereas coal is an international one.

Because of new Hydraulic fracturing gas drilling (hydrofracking) technology being implemented in shale plays across North America, the price of natural gas declined significantly. Coal power plants were converted into natural gas plants as a response to input prices. US greenhouse gas emissions fell dramatically as natural gas emits 1/3 less carbon dioxide than coal does.

North America coal producers did not simply roll over and go bankrupt; instead they sought new markets. Natural gas prices are very high in Europe because they have to import this resource from Russia, who basically controls a monopoly on it and therefore has significant leverage when it comes to negotiating contracts. European power plants proved to be more than willing buyers of relatively cheaper North American coal. European natural gas power plants were converted into coal power plants. European carbon dioxide emissions rose.

This is why environmentalists are undertaking a Sisyphean task. The world is still subject to market forces.

Two steps forward; one step back.

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