Blog

If you are interested in writing for the blog, please email ces@cornell.edu for more information.

___________________________________________________________

 

A Highlight of US – India’s Big Clean Energy Cooperation

 

Post by: Naman Sanghvi 

 

______________________________________________________________

President Obama was recently the chief guest at the celebrations in New Delhi of India’s Republic Day, becoming the first US president to do so. India’s Prime Minister Narendra Modi and USA President Obama also held extensive bilateral talks on the cooperation and partnerships between the two countries. Among various areas such as defence and economic growth in which further strategic partnerships were announced, climate change and clean energy received a significant push. As the 4th largest importer of oil and 6th largest importer of petroleum products and LNG, the Indian government is aggressively focusing on renewable energy as a future solution. These announcements will give an economic push to the renewable energy sector, and are a step towards making clean energy more mainstream in India. Some key highlights are
 

1. With a $1 billion financing made available by the US Export-Import Bank to Indian Renewable Energy Development Agency for onward lending, clean energy financing received one of the strongest pushes. In fact the US Export-Import bank is the first international financing institution to finance a solar project in India and is one of the largest financiers of Indian solar projects, having lent to various solar projects developed under the National Solar Mission (Indian government’s flagship solar program) including India’s largest solar thermal project. The Indian government has recently announced extremely ambitious plans to increase India’s solar capacity by nearly 33 times over the coming seven years from ~3000 MW to 100,000 MW. The task would require a colossal investment to the tune of $100 billion, and the current partnership seems to be a step in this direction. In fact, additionally Modi has also committed to setting a percentage of the total energy generation that will come from renewable energy.
 

2. India has 13 of the world’s 20 most polluted cities, with air pollution considered to be the country’s fifth largest cause of death. To further help Indian cities battle air pollution, the EPA’s (Environmental Protection Agency) AIRNow International programme will now also be expanded to India. Initiated over 15 years back, AIRNow is an information dissemination platform that provides urban citizens information about air quality, and thus equips them to reduce their exposure to air pollution. There were also major discussions towards reducing emissions of heavy-duty vehicles through adoption of cleaner fuels and better efficiency standards. In fact, in 2011 the Obama administration put in fuel economy standards for heavy-duty vehicles that are expected to save about 530 million barrels of oil and $50 billion in fuel costs . As with the US auto industry, steps on this front can have huge potential impact on India’s heavy-duty auto industry.
 

3. Back in 2009, PACE-R (US-India Partnership to Advance Clean Energy) – a $125MM joint program funded by the US and India government and private sector was set up to push for research in solar energy, building energy efficiency, and biofuels. The program has been further extended by five years, and impetus would be given to new research in the space of smart grid and grid storage. Further, both countries will collaborate to accelerate deployment of off-grid appliances that would be critical to meet the ambitious target of installing 20 GW from off-grid systems by 2022. Nearly 25% of India’s population, which is roughly equal to the population of USA does not have access to electricity, and with the Indian government having committed to providing 24-hour electricity for all by 2019, this push in accelerating off-grid applications will be critical.
 

4. With 2014 being the hottest year on record , the pressure to agree on a climate deal at the UNFCCC convention in Paris is mounting up. USA and China had recently announced a mega deal where both countries committed to reducing their emissions. This step by two of the biggest emitters is seen as a historic step forward, paving the way for other countries to commit to long-term steps to reduce emissions. One of the major outcomes of the current dialogue was a re-iteration by both Modi and Obama towards cooperating to achieve a strong legally binding climate agreement at the Paris UNFCCC conference. With the 3rd largest emitter also joining in, pressure on the international community to strike a climate deal will be huge, which could have major economic implications for environment and energy markets the world over. Both leaders also made a strong commitment to phasing out hydroflurocarbons under the Montreal Protocol. The US-India deal further seeks to better assess climate risks and engage local communities about adaptation to risks of climate change, which threatens nearly 8000 km of India’s coastline and nearly half of India’s 28 states.
 

The agreement has definite economic implications for the Indian renewable energy sector. The various steps will not only help make clean energy much more mainstream and address climate change and pollution issues, but also have larger economic implications for India’s growing economy in terms of improving energy accessibility, generating employment, and boosting manufacturing and services industries.

Sources include (i)Whitehouse.gov, (ii)Cleantechnica, (iii)US-India Partnership to Advance Clean Energy, (iv)Reuters, (v)Cleantechnica, (vi)Economics Times, (vii)Whitehouse.gov, (viii)Yahoo Finance, (ix) World Resources Institute, (x)TIME, (xi)World Resources Institute, (xii)World Resources Institute 

___________________________________________________________

 

A Brief Deconstruction of Oil Dynamics

 

Post by: Moshe Wakil, Economics '

 

______________________________________________________________

The last 3 months have seen a dramatic 20% drop in oil prices; from a high of $105 to the current West Texas Intermediate price point of $81 per barrel. While a decrease in the price of a fundamental factor of production can stimulate the manufacturing sector and create jobs, the question remains as to whether the negative causes of the current price decrease might outweigh its positive effects.
 

Oil is a highly liquid commodity and thus, its world-market trading price is reflective of the underlying forces of demand and supply. The current steep decline in prices is a function of decreasing demand and increasing supply. The euro-zone is flirting with deflation and negative growth, China’s growth forecasts have recently been revised downwards from 7.5% to 5.5% and Abenomics in Japan hasn’t stimulated domestic consumption as much as hoped. All this means that less oil is demanded and hence, there is a downward pressure on price.
 

Surprisingly, oil production in Russia, Iraq and Libya has not been hampered by the bouts of war that the countries are experiencing. Moreover, the US is pumping out over 11 million barrels of crude a day, a fact that positions them as the world’s number one oil producer, according to Bloomberg. Additionally, Saudi Arabia, often considered the world’s swing oil producer, is responding to geo-political pressures by refusing to reduce its oil production. If the Saudis decrease oil production the upward price pressure would profit the Americans and Qataris, something they would loathe to do. Weak global economies are synergizing with an increasing supply of oil to push the commodity’s price to dangerously low levels.
 

Iran, Venezuela and Russia are countries where political and social stability are heavily influenced by the price of oil. In its latest edition, The Economist reported that in order to balance their budgets, Iran requires an oil price per barrel of $140, Venezuela $120 and Russia above $100 per barrel. While western pundits might not care for the ability of these regimes to balance their budgets, it is important to consider the fragile nature of these countries and the potential for violence and anarchical outbreaks in the absence of a strong and well-financed leading political party.
 

On the bright side, a 10% decrease in the price of oil can generate a 20 basis point increase in world GDP according to the World Bank. Ironically, falling commodity prices caused by weak global demand will help stimulate manufacturing, consumption and ultimately aggregate global demand. While these cyclical economic fundamentals help prop up the economy, much more is needed in the form of fiscal stimulus to deter the onset of deflation. Considering that many countries around the world have their official cash rates between 0-0.2% their ability to stimulate demand through the monetary mechanism has largely been exhausted. Therefore, further rounds of fiscal stimulus or the unconventional and European taboo of quantitative easing might be warranted.
 

Narendra Modi, the Prime Minister of India has taken opportunity of the slump in oil prices to abolish a decades old petroleum subsidy. If current crude prices can prompt similar structural reform in China and elsewhere, long-term economic benefits might be realized. While geo-political complexities will impede any concerted effort by OPEC to maintain a reasonable price-point for crude oil, falling oil prices is a positive phenomenon in itself. The fact that the current drop in prices is a function of anemic global growth is of concern. However, if countries realize this opportunity to abolish subsidies and boost manufacturing capacity, the long term benefits might outweigh the short term costs associated with the current economic landscape.

___________________________________________________________

 

The House GOP vs. President Obama’s 2013 Budget Proposals

 

Post by: Michael Vodka, Economics '13

 

______________________________________________________________

Each year, the President of the United States submits a budget request to Congress for the following fiscal year as required by the Budget and Accounting Act of 1921. Recently, President Obama and the House Republicans have submitted competing budget proposals for fiscal year 2013. Due to the upcoming election, both plans are seen as political documents with little chance of being enacted in their original form. In this article, I will list and explain the proposals for both plans.

President Obama's Budget House GOP Budget
Size: $3.8 Trillion Size: $3.53 Trillion
Deficit in 2013: $901 Billion Deficit in 2013: $797 Billion
Debt Accumulated Through 2022: $6.4 Trillion Debut Accumulated Through 2022: $3.1 Trillion
  Balance the Budget?: Yes by 2040
  New Revenues?: No

Taxes

Under President Obama’s plan, the Bush Tax cuts would be allowed to expire for families earning over $250,000. Also, his administration would implement the “Buffet Rule” which requires millionaires to pay an effective tax rate of 35%. Obama would also lower the corporate tax rate to 28% and close corporate tax loopholes. These proposals would accumulate to $1.5 trillion in new revenues over the next 10 years.

Under the House GOP plan, tax deductions and credits would be eliminated, and two tax brackets would be created: 10% and 25%. They will also eliminate the Alternative Minimum Tax and lower the corporate tax rate from 35% to 25%. They would compensate for the lost revenue by closing the tax loopholes and deductions previously mentioned.

Health Care

Under President Obama’s plan, there would be no structural changes made to Medicare or Medicaid. However, the administration claims that entitlement spending is projected to fall from 8.7% of GDP in 2011 to 5.0% of GDP in 2022 and they will build on the $500 billion in savings over the next 10 years from the Affordable Care Act.

On the other hand, the House GOP proposes major changes to Medicare and Medicaid. For Medicare, their budget plan would offer seniors a choice between the traditional fee-for-service plan or a Medicare approved private insurance plan. The GOP would also block grant Medicaid to the states.

Military Spending

Under President Obama, the Pentagon plans to spend $487 billion less by pulling two of its four brigades out of permanent European bases and getting rid of older Navy ships that don’t have the latest ballistic missile defense.

The House GOP plan protects defense spending by undoing a scheduled $55 billion cut in the Pentagon budget. They would allow the military budget to grow with inflation over the next 10 years.

Domestic Spending

President Obama and the House Republicans also differ on domestic spending. Under the Budget Control Act passed last summer, discretionary spending is capped at $1.047 trillion. President Obama’s allocates his domestic budget under this cap, but the House Republicans domestic budget plan is capped at $1.028 trillion.

As I mentioned before, both of these budget proposals are political documents that outline the political parties’ priorities for the upcoming election. If either side sweeps Congress and the Presidency, look for a lot of these reforms to be enacted. However, if power is brokered between the two political parties in both branches of government, Republicans and Democrats will be forced to compromise on a new budget. All eyes are on November 6, 2012 to see who the winner will be.

___________________________________________________________

 

Reconstruction in Disaster-Affected Areas of Japan: Companies that Create Communities (and Jobs)

 

Post by: Sumire Takamatsu, Economics '13

 

______________________________________________________________

3/11/12 marks the one-year anniversary of the earthquake and tsunami that deeply affected the Japanese society. At Cornell, the East Asia Program, the Clarke Program for East Asian Law and Culture, and the Mario Einaudi Center for International Studies hosted a two-day symposium commemorating the tragedy in Japan. Having family and friends in the affected areas, it was heartwarming to hear from professors and students who were passionate about Japan's reconstruction. In particular, I had the chance to hear thoughts about job creation in Fukushima prefecture from Professor Yuji Genda from University of Tokyo.

Professor Genda believes that reconstruction of the Japanese society has been too slow. He is in line with the Japanese media, and blames the all talk no action nature of the bureaucrats and think tanks. In addition, with the so-called political amnesia, the country can no longer rely on the federal government to recover from the economic and physical damage. If Japan can't rely on their own government for reform, the only Japanese firms must reconstruct their prospective businesses entirely, and respond to the communities’ needs.

Currently, job creation in affected areas is facilitated by private enterprises called Community Creation Companies (CCC). What makes CCCs appealing is the potential to revitalize a community. CCCs gather a broad range of people, regardless of gender, age, or education, and encourage them to take action in their community. In Fukushima prefecture, CCCs recruit individuals with skills or resources to find ways to cater to those who are in need. For example, a man who owns a car can drive an elderly woman to the hospital for a routine check-up. In return, CCCs provide training to the man to develop new skills so he could contribute more to his community.CCCs do not give out resources, expecting the individuals to figure out a way to find a job. Instead, these companies facilitate community development and reconstruction in the affected areas by actively matching skills with needs.

Too often, Japan focuses too much of their attention to the unemployment rate. However, the employment alone does nothing to reconstruction in the affected areas, as employees tend to get relocated to bigger cities. CCCs will incentivize victims to stay in the affected areas and ensure that individuals feel needed in their community. Japan needs more intermediaries and support CCCs to create jobs based on the needs of the community and to guarantee a more sustainable reconstruction.

___________________________________________________________

Event Calendar

« August October »
September 2017
SunMonTueWedThuFriSat
     12
3456789
10111213141516
17181920212223
24252627282930