How are YOU telling BP to go **** itself?

[Japher]

BP is AWESOME!

[DaShi]

I hope there will be more oil spills.

[Kuciwalker]

I'm saying that these are my points.

And what concrete policy do you think those points suggest?

KH wanted to argue about what's the best form of royalties, because those sort of areas are his strong point and he wanted to reframe the argument, but what I was saying is really in the quotes above.

No, KH argued about what's the best form of royalties BECAUSE YOU OPENED THE DEBATE BY SUGGESTING A PARTICULAR FORM OF ROYALTIES (esp. since the form you suggested is economically horrible).

[ricketyclik]

You know, given your track record, I doubt I'll get much in the way of a reasoned economics argument from you at any time so I might as well enjoy myself and make fun of you for it.

Let me know when you grow up

[Kuciwalker]

edit: apparently the above was an xpost, retracted

[Solomwi]

Good lord, why do you keep coming back to this thread, ricketyclik? It's like watching the frog jump back in the blender, over and over.

[ricketyclik]

And what concrete policy do you think those points suggest?

Fair treatment of the renewable energy industry, in the form of subsidies to get it up and running (probably in the form of tax breaks) and bringing the non-renewable industry on to a footing that takes in to account that they are benefiting from the commons, which despite what Asher amusingly states are non-renewable, that as an industry they got their start from large public investment in the way of roads, railways, ports, land and powerlines, and that as a civilisation we need to move away from massive carbon dependence and wasting of that valuable resource.

KH wanted to argue about what's the best form of royalties, because those sort of areas are his strong point and he wanted to reframe the argument, but what I was saying is really in the quotes above.

No, KH argued about what's the best form of royalties BECAUSE YOU OPENED THE DEBATE BY SUGGESTING A PARTICULAR FORM OF ROYALTIES (esp. since the form you suggested is economically horrible).

Yes, but my suggestion of the particular form of royalties was a side-note to my central theme. KH was circling for what he perceived as a weakness in order to come in for a kill, regardless of the rights and wrongs of the central premise. His ego demands a regular victory.

Now, Kuci, I will happily discuss the relative merits of forms of royalty with you, because I know you are a reasoned debater who is primarily interested in the truth.

In my opinion a resource tax on profits is good because:

1. It rises and falls according to the market for the commodity in question, which can be a great deal over the life of a well or mine,
2. It doesn't penalise an investment when it is struggling due to a market downturn, and
3. It is pro-competitive, in that because it applies to profits only, start-ups won't have to pay it until their investments are repaid.

My problem with an auction system is that it is a fixed moment in time when the market may not be reflective of market conditions over the life of the investment.

Plus, being the public's resource, I defend the right of the public to set the price, rather than the industry. This allows the public to take other factors in to consideration besides "what the market will bear". If the industry doesn't want to invest at that price, then the public is free to reconsider, or not, as the case may be.

[ricketyclik]

I haven't insulted you once. I've asked reasonable questions. You've consistently refused to answer. Grow up yourself, and learn at least a little intellectual rigor.

I do apologise, I've tried to keep up with answering you, but what with the sharks circling it's hard to keep a level head. Go ahead, ask away.

[ricketyclik]

Good lord, why do you keep coming back to this thread, ricketyclik? It's like watching the frog jump back in the blender, over and over.

What was that movie with Michael Douglas where he snaps after a bad day? KH is my bad day.

[ricketyclik]

General apology

I'm sorry if I've offended any with my foul language in this thread. I allowed KH to get under my skin over a period of some months, and flipped out a bit.

I will try to not let this happen again.

In my defence, that is what he tries to do, and he succeeded.

Another win for you KH I hope it makes you happy.

[ShaneWalter]

1. It rises and falls according to the market for the commodity in question, which can be a great deal over the life of a well or mine,
2. It doesn't penalise an investment when it is struggling due to a market downturn, and
3. It is pro-competitive, in that because it applies to profits only, start-ups won't have to pay it until their investments are repaid.

I'm going to respond to each point you've made in that list individually. I hope that's okay.

1) Doesn't that allow significant manipulation? If you only tax profits, the company has a motivation to under-report earnings or over-report expenses.

2) It also penalizes more efficient companies, does it not? A company has less motivation to attempt to extract oil in the least costly manner because they will see less reward from innovation.

3) I think where KH said "fairness doesn't exist" is very applicable here. You're trying to make things "fair" for start up companies, but in the process you are basically penalizing the public. To make this clear, imagine as if you are the sole owner of two oilfields (oilfield 1 and oilfield 2 we'll say). You lease them out to two seperate companies. Oilfield 1 is leased out to a mature company with already existing infrastructure, an ability to easily transport their oil to market, a well trained workforce, easy access to capital, etc. Oilfield 2 is leased to a new company. This company has a generally inexperienced staff. They've just recently formed and this is actually their first major project. Their debt rating is poor, they do not have proper infrastructure or equipment for a project of this size, don't really have the capability of transporting large amounts of oil to market, etc. All these things contribute to make it more expensive for them to operate than the other company. However, you have tried to make things "fair" by implementing a royalty scheme based on profits rather than revenues.

At the end of the year, the company leasing oilfield 1 gives you a great big cheque, as they were easily able to get the project going (due to their already existing infrastructure and equipment, their easy access to capital, their experience with transportation, etc). Even in the first year they already made a profit. The company leasing oilfield 2 on the other hand has experienced one mess after another. They struggled to get the proper equipment, financing has been a serious problem, resuling in a much higher cost of capital, marketing has been a serious issue because they've never had a project this size. At the end of the first year in fact, you don't see any payment from them. Would you consider this acceptable? I doubt it. I'm sure the CEO of the second company thinks that the arrangement you guys have is fair, but as the owner of the resources, you surely don't think it is.

[Solomwi]

What was that movie with Michael Douglas where he snaps after a bad day? KH is my bad day.

Falling Down.

"We are not the same. I'm an American and you're a sick *******."

[Kuciwalker]

Fair treatment of the renewable energy industry, in the form of subsidies to get it up and running (probably in the form of tax breaks) and bringing the non-renewable industry on to a footing that takes in to account that they are benefiting from the commons, which despite what Asher amusingly states are non-renewable, that as an industry they got their start from large public investment in the way of roads, railways, ports, land and powerlines, and that as a civilisation we need to move away from massive carbon dependence and wasting of that valuable resource.

The only concrete proposal I saw there was subsidies for renewable energy. Regarding that point, any past subsidies to the oil industry are sunk costs - they were probably bad ideas, but they've been spent and can't really be taken back in an efficient way. Imagine that we had two different ways of making cars, one highly automated and one labor-intensive, and that the automated way was actually cheaper and more efficient. If we improperly gave a big subsidy to the labor-intensive companies in the past to encourage them to build factories, it doesn't make sense for us to subsidize the automated ones now to "correct" the imbalance - the factories are already built, and they represent huge investments. Subsidizing the automated companies now will just leave us with too many factories. The best policy is to repeal the subsidies and, eventually as capital is replaced, the labor-intensive factories will be replaced by automated ones.

re: the commons: note that if the rights to extract minerals were auctioned then the fact that they are "benefiting from the commons" has already been taken into account in any rigorous economic sense.

Yes, but my suggestion of the particular form of royalties was a side-note to my central theme. KH was circling for what he perceived as a weakness in order to come in for a kill, regardless of the rights and wrongs of the central premise. His ego demands a regular victory.

Look, essentially what you're asking is for the oil companies to internalize the cost "to the commons" of their use of a non-renewable resource. Anyone with a serious interest in economics understands and agrees with that point, including KH. He disagreed with you on the method, claiming [rightly] that the tax you support results in a decrease in welfare for everybody relative to the current system of auctions.

In my opinion a resource tax on profits is good because:

1. It rises and falls according to the market for the commodity in question, which can be a great deal over the life of a well or mine,
2. It doesn't penalise an investment when it is struggling due to a market downturn, and
3. It is pro-competitive, in that because it applies to profits only, start-ups won't have to pay it until their investments are repaid.

My problem with an auction system is that it is a fixed moment in time when the market may not be reflective of market conditions over the life of the investment.

1 and 2 in particular are actually bad things. Whenever the market price* of oil is greater than the marginal cost of extracting it, we want that oil extracted. Placing a tax on profits from these sales makes investing in new machinery and such to extract oil less attractive than investing in other markets, and so a suboptimal amount of oil is extracted (meaning fewer jobs, fewer profits, and more expensive oil for everyone). Note that the price of using a "common" resource has already been internalized because of the auction, as I mentioned before.

The reason we prefer an up-front payment to an ongoing per-barrel type payment is the investment has been made in all the expensive machinery and drilling and such, we want them to be exploited to capacity. We don't want to discourage existing capital from being used, because that's just wasteful. We want as much of the costs to be known right at the start, because that lets companies make the best decisions where to allocate their capital - and drilling is really, really expensive, so mistakes represent huge wastes.

* this represents the true value of oil, and incorporates our best knowledge as to future demand and supply for it. Oil has an extremely active and liquid market, and an active and liquid futures market, with many very smart people employed predicting the future supply and demand of oil as best they can. It genuinely approaches the sort of ideal market used in basic economic theory.

Plus, being the public's resource, I defend the right of the public to set the price, rather than the industry. This allows the public to take other factors in to consideration besides "what the market will bear". If the industry doesn't want to invest at that price, then the public is free to reconsider, or not, as the case may be.

The public has the right to do plenty of things, but it ought to pick the policies that will maximize state revenue while minimizing economic distortion (except to correct for externalities such as pollution and global warming).

[ricketyclik]

I'm going to respond to each point you've made in that list individually. I hope that's okay.

1) Doesn't that allow significant manipulation? If you only tax profits, the company has a motivation to under-report earnings or over-report expenses.

True. But then, that applies to any tax. They could under-report the quantity of resource at the time of purchase, or in the case of royalties under-report the amount extracted.

2) It also penalizes more efficient companies, does it not? A company has less motivation to attempt to extract oil in the least costly manner because they will see less reward from innovation.

To a degree, but the bottom line will still be more profit = more revenue. Your argument is the one generally put against progressive tax systems. If you are anti-progressive tax, then I won't convince you on this one I don't think.

3) I think where KH said "fairness doesn't exist" is very applicable here. You're trying to make things "fair" for start up companies, but in the process you are basically penalizing the public. To make this clear, imagine as if you are the sole owner of two oilfields (oilfield 1 and oilfield 2 we'll say). You lease them out to two seperate companies. Oilfield 1 is leased out to a mature company with already existing infrastructure, an ability to easily transport their oil to market, a well trained workforce, easy access to capital, etc. Oilfield 2 is leased to a new company. This company has a generally inexperienced staff. They've just recently formed and this is actually their first major project. Their debt rating is poor, they do not have proper infrastructure or equipment for a project of this size, don't really have the capability of transporting large amounts of oil to market, etc. All these things contribute to make it more expensive for them to operate than the other company. However, you have tried to make things "fair" by implementing a royalty scheme based on profits rather than revenues.

At the end of the year, the company leasing oilfield 1 gives you a great big cheque, as they were easily able to get the project going (due to their already existing infrastructure and equipment, their easy access to capital, their experience with transportation, etc). Even in the first year they already made a profit. The company leasing oilfield 2 on the other hand has experienced one mess after another. They struggled to get the proper equipment, financing has been a serious problem, resuling in a much higher cost of capital, marketing has been a serious issue because they've never had a project this size. At the end of the first year in fact, you don't see any payment from them. Would you consider this acceptable? I doubt it. I'm sure the CEO of the second company thinks that the arrangement you guys have is fair, but as the owner of the resources, you surely don't think it is.

Good argument. I capitulate on that one. (Except for the part about fairness not existing. You've successfully pointed out that in this way the profits tax is unfair to existing, larger companies vs startups).

[ricketyclik]

The only concrete proposal I saw there was subsidies for renewable energy. Regarding that point, any past subsidies to the oil industry are sunk costs - they were probably bad ideas, but they've been spent and can't really be taken back in an efficient way. Imagine that we had two different ways of making cars, one highly automated and one labor-intensive, and that the automated way was actually cheaper and more efficient. If we improperly gave a big subsidy to the labor-intensive companies in the past to encourage them to build factories, it doesn't make sense for us to subsidize the automated ones now to "correct" the imbalance - the factories are already built, and they represent huge investments. Subsidizing the automated companies now will just leave us with too many factories. The best policy is to repeal the subsidies and, eventually as capital is replaced, the labor-intensive factories will be replaced by automated ones.

Yes, but the point here is that the sunk subsidies make the oil industry appear more efficient than renewable sector more than they actually are. It is a built in distortion that if allowed to continue reaches a sub-optimal outcome.

As for the car example, it works if you internalise all costs of non-renewables, but that hasn't been done, and as per my original point, the oil industry fights tooth and nail to prevent that happening.