[This guest post is by a reader who comments using the name, “Skeptical once again,” who writes: ” I’ve been following the issues of restructuring and the jevons paradox for some time, and hope to get some feedback on it.”]
Many of the issues facing alternative energy development in Hawaii are due to a PUC that is severely underfunded and understaffed. (This might account for the obscurity surrounding how polluting biofuels are, as well as the obscurity of the PUC’s public communication, such as cryptic postings of public meeting times, as opposed to any intentional obfuscation.)
Civil Beat has a story on this.
The article states that Governor Abercrombie had his own proposal to bypass the PUC:
“Neil Abercrombie during his campaign for governor said he was going to change this with the creation of the Independent Hawaii Energy Authority, a new government agency that would bolster the state’s transition to renewable energy. … The new energy authority would draw powers from the PUC and the state energy office into a single body. The argument was that the state energy office lacked sufficient power to implement public policy, and the PUC lacked the resources and expertise to act swiftly. PUC rulings that take 60 to 90 days to decide in other states, take two to three years in Hawaii, according to the governor’s campaign literature. No such agency has materialized. Nor is there the funding to support this goal, according to PUC Chair Hermina Morita, who spoke during a panel discussion on Thursday sponsored by the Hawaii Venture Capital Association. “I’ve heard discussion about moving the energy authority to an energy commission,” said Morita. “Either way, you can try fooling around with the structure of regulation, but unless there’s funding, it’s not going to make a difference.””
In fact, the State legislature tried to bolster the PUC some time ago:
“In 2007, the Legislature approved a plan, proposed by the PUC, to shore up its resources. Four years later, not much has changed. Nearly half of the PUC’s 62 funded staff positions remain vacant. And despite plans to relocate, the department remains in its cramped offices. The department can’t hire more staff because the current space can’t accommodate additional personnel without being in violation of federal occupational safety and health regulations, said Morita.”
PUC funding generally comes from the utilities it regulates, as an article in Hawaii Business reports.
“The real issue is money. The PUC is mostly funded by fees collected from the utilities it regulates. This special fund should be more than adequate for the commission’s regulatory duties, but it doesn’t actually get all the money. “In 2009, we collected $17.6 million in revenues, most of which are from the public utilities,” Caliboso says. “At the same time, our expenditures were only about $8.2 million, $2.9 million of which went to the consumer advocate. That means about $9.4 million went back to the general fund. So, the money is there. The problem, as far as money goes, is that a lot of it is being used for something other than regulatory purposes.” Money also plays a role in another challenge facing the commission: attracting quality staff. PUC positions go unfilled for so long partly because the pay isn’t competitive with private industry. As one industry insider put it, it’s not uncommon for commission attorneys to be sitting across the table from utility attorneys making four or five times more money. This is a national problem, but, even so, according to Sen. Baker, the disparity in Hawaii is larger. “We did a study where we looked around the country,” she says, “and other state salaries, almost without exception, are higher than ours.” Similarly, other states pillage utility commission revenues, just not so wantonly.”
As for the 2007 effort at reform:
“Utility professionals routinely complain about the underfunding of the commission. In her 2004 report on the PUC, the state auditor recommended the commission undertake serious strategic planning, pointing specifically at the agency’s deficiencies in personnel management. In 2006, the Legislature passed Act 143, which required the PUC and the consumer advocate to prepare a reorganization plan specifying their budget, resource and manpower needs. The following year, Acts 177 and 183 approved and funded most of the commission’s requests. The PUC’s reorganization plan included:
• Increasing the staff level to 62 for the PUC and 15 for the Division for Consumer Advocacy;
• Redescribing several positions to better reflect new responsibilities;
• Restructuring the agencies’ hierarchy to improve organizational effectiveness, especially by creating an Office of Policy and Research to better address highly technical policy issues; and
• Relocating the PUC offices to accommodate the larger staff and new organization.“Nothing happened as planned. In 2008, the Legislature reduced the commission’s budget again, removing nine existing positions, and not funding two new positions or the agency’s relocation. The following year, the consumer advocate lost eight positions and other new positions went unfunded. Yet, even with funding and legislative approval, the commission still can’t reorganize on its own. It needs approval from the Department of Budget and Finance to release the funds, and the Department of Human Resources and Development has to rewrite job descriptions. Both departments presented roadblocks to the PUC’s reorganization.”
The Legislature did pass Act 130 in 2010.
“Finally, in the 2010 session, the Legislature relented, passing Act 130, which acknowledged that the PUC’s reorganization was essential, especially to “successfully implement meaningful energy policy reform.” Act 130 puts numbers to that, noting that the commission regulates “electric and telecommunications services worth between $3 billion and $4 billion annually.” The legislation also notes that the potential savings from appropriate regulation may save the state more than the cost of fully funding the reorganization. Put another way, a well-run PUC is good business.””
There are now further efforts to restructure the PUC, including the specialization of staff, under SB 99.
“Baker has proposed legislation that will further complicate the PUC reorganization. “I have a bill that tries to professionalize the staff and adds two more commissioners, so there would be a total of five,” she says. This would simplify adding a requirement that the commission include Neighbor Island representation. And, according to Baker, it would also allow PUC staff to specialize. “The bill also creates two panels,” she says. “One to deal with energy and private water systems – because that’s a big piece of what the commission does – and the other would deal with water carriers, motor carriers and warehousing. That way, you’ve got some specialization, so both the commissioners and the staff can zero in.””
SB 99 is largely motivated by the sudden deregulation of shipping in 2010.
“The mood was tense in the packed Senate hearing room in December, as angry Neighbor Island businessmen, farmers and representatives from community organizations testified before the Committee on Commerce and Consumer Protection against the Public Utilities Commission. The immediate cause for the rancor was an interim decision by the PUC in September that allowed Pasha Hawaii Transport Lines to begin limited interisland cargo shipping between Honolulu and Kahului and Hilo. Before this ruling, interisland cargo service was provided exclusively by Young Brothers – a monopoly contingent on the barge company serving not only the state’s large, profitable ports, but also the smaller, unprofitable ones, such as those on Lanai and Molokai. But the interim order imposed no such obligations on Pasha. That’s what caused the stir. In the wake of all the discontent, Sen. Rosalyn Baker, chair of the committee, spoke testily of the need to reform the PUC, a process that this blowup may have both hastened and complicated.”
(In fact, there has been criticism that SB 99 has an embedded provision that protects the Young Brothers’ monopoly of shipping. “At first glance, Senate Bill 99 looks to be about improving the structure and functioning of the Public Utilities Commission. But near the bottom of the measure is a section that essentially gives a monopoly to existing water carriers in Hawaii. The bill says the commission shall not approve an application for any other company to operate as a water carrier if the existing carriers are providing adequate service, among other reasons.”)
(http://hawaiifreepress.com/main/ArticlesMain/tabid/56/articleType/ArticleView/articleId/4153/SB99-Preserve-Young-Bros-Monopoly-on-InterIsland-Shipping.aspx)
Interestingly, the Blue Planet Foundation supports several bills that aim to restructure the PUC: SB 99, SB 141482 and SB 1517.
All of these various efforts to reform the PUC seem to most observers to be worthy. The ultimate problem is that of funding. It is on the Blue Planet Foundation website that we might find a solution to the impasse, which is essentially a carbon tax.
This gets to the heart of the problem of energy policy. The main problem is that … the public and the policy makers conceive the problem all wrong.
There is a tendency to see high energy prices as the problem, and the effort is to lower prices.
But if could be argued that lower energy prices simply mean increased consumption of more energy – followed by higher prices.
This is what happened in the 1990s, when — in part because of increased conservation and government efforts to impose CAFÉ standards on American-built cars — the price of oil dropped to $20/barrel.
Of course, this led consumers to simply rush out and buy trucks and SUVs.
In economics, this is known as the ‘Jevons paradox’ or the ‘rebound effect’.
“In economics, the Jevons paradox (sometimes Jevons effect) is the proposition that technological progress that increases the efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource. In 1865, the English economist William Stanley Jevons observed that technological improvements that increased the efficiency of coal-use led to the increased consumption of coal in a wide range of industries. He argued that, contrary to common intuition, technological improvements could not be relied upon to reduce fuel consumption. The issue has more recently been reexamined by modern economists studying consumption rebound effects from improved energy efficiency. In addition to reducing the amount needed for a given use, improved efficiency lowers the relative cost of using a resource, which increases the quantity demanded of the resource, potentially counteracting any savings from increased efficiency. Additionally, increased efficiency accelerates economic growth, further increasing the demand for resources. The Jevons paradox occurs when the effect from increased demand predominates, causing an increase in overall resource use. The Jevons paradox has been used to argue that energy conservation is futile, as increased efficiency may actually increase fuel use. Nevertheless, increased efficiency can improve material living standards. Further, fuel use declines if increased efficiency is coupled with a green tax that keeps the cost of use the same (or higher). As the Jevons paradox applies only to technological improvements that increase fuel efficiency, policies that impose conservation standards and increase costs do not display the Jevons paradox.”
http://www.treehugger.com/files/2009/09/jevons-paradox.php
• Because of improvements in refrigerator efficiency, consumers can afford more and larger refrigerators.
• Because of improvements in vehicle efficiency, car owners can afford to drive more miles per year.
• Because of improvements in airtightness, window performance, and insulation techniques, homeowners can afford to build larger houses.
Insidiously, money saved in one area can be spent wastefully in another way.
• Savings resulting from energy-efficiency improvements — or even savings resulting from giving up meat in one’s diet — allow consumers to take more vacations, resulting in greater energy use.
So the irony is that the money that will supposedly be saved by shifting to alternative fuels before peak oil becomes fully realized will simply be squandered through greater consumption (more imported plasma TVs, more trips to Disneyland and Vegas).
Now, to the likes of HEI, potential new consumption resulting from lowered fuel prices might be all fine and dandy, on the rationale that this would be improving people’s quality of life. If this is true, then the Hawaii Clean Energy Initiative is not about the environment, but about increasing consumption and maintaining an energy monopoly. In that case, we might as well burn some coal. (HEI’s attitude toward a carbon tax would be a measure of its true intention: profits v. the environment.)
But if it is about the environment, then a stiff carbon tax is needed and should be used to fund the various initiatives to reform the PUC. In fact, I would assert that all of the proposed initiatives, from the Governor’s attempt to form an Energy Authority to all of the various iterations of reforming the PUC, should be actualized. The cost would in fact be part of the attractiveness of these policies if these reforms were paid for with a carbon tax (or several simultaneous forms of carbon tax).
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If the PUC is only getting about 50% of the money that is collected from us to fund their operations, wouldn’t a more prudent approach be to see that they get 100% of the monies collected in their name rather than just proposed another tax?
To me, that’s one of the problems in this state. We collect a lot of money that is supposed to serve as a dedicated funding stream or go into a special fund for a specific purpose, but then it just gets “raided” to fund something else. e911 is an other example. it’s a really dishonest way to run a government.
The transfer of regulatory fees paid by utilities to the General Fund is highly questionable under the Supreme Court’s decision in the Hawaii Insurance Council v. Lingle, decision in 2008
http://www.inversecondemnation.com/hawaiiappellate/2008/12/hawaii-insurers-council-v-lingle.html
In the 1990s the Legislature doubled the utility fee that goes to fund the PUC Special Fund & simultaneously capped it with the excess going to the general fund. This mechanism was created solely to increase the money in the general fund.
Many delays at the PUC are political in nature as the Administration needs time to develop policy positions and thus are not delays caused by the PUC itself.
In addition, the majority of time it takes to for an independent power producer to get access to the grid is not getting PUC approval but getting the utility to accept the project. The regulation phase is the scapegoat for utility delays.
Lowering rates increases energy demand and leads to a significant population rise. Look at the 20th century, a period of low energy prices led to a massive world population growth which taxes every natural resource imaginable.
The Jevons paradox/rebound effect did not get as much play here as I had hoped. I think that it is kind of a ‘pons asinorum’ of energy policy, a tricky concept that some people cannot grasp and that others don’t want to let out of the bag, so to speak. The carrot dangled before taxpayers and politicians is that fusion/solar/wind/etc. and going to provide cheap — sometimes supposedly completely free! — energy. But environmentally speaking, that would be a disaster, as it would set off an wave of consumerism. That would not just be environmentally irresponsible, but economically disastrous; the US can no longer continue to be a debt-based consumer economy that does not invest or build things.
So let me venture further and suggest that a carbon tax be used not only to reform and fund the PUC, but to fund a broad array of energy related activities. For example, the counties could be funded to repair their roads, since the carbon tax would be paid in part at the gas pump. At that point, it would not be a tax so much as a fee for services rendered — much the way that utility fees are supposed to fund the PUC for chosen services rendered. (When those fees are confiscated by the State and channeled to the general fund, those fees are implicitly transformed into taxes because they are not derived for chosen services.)
This brings us to the issue of negative externalities, and how to compensate for involuntary socialized costs by second parties and privatized profits by making the hidden cost of oil explicit — which is what is done in all developed countries except for the US. This in turn is related to issues like corporate welfare and the free rider problem (e.g., NIMBYism).
I don’t know if these issues are going to be talked about. Jay Fidell suggested that criteria be developed to distinguish between the worthy and implausible grand projects proposed in Hawaii. These are some basic issues that any college grad should know about from ECON 101.
1. corporate welfare
2. the free rider problem
3. the Jevons paradox/rebound effect
4. externalities
If these issues are too sophisticated for Hawaii, then these projects are probably likewise just too much for us. Time to burn some coal.
There is an article in the Disappeared News by Henry Curtis from August 6 on the creation of Hawaii’s PUC as well as the formation of the Division of Consumer Advocacy (DCA), entitled “The Devil is in the Details”.
http://www.disappearednews.com/2011/08/devil-is-in-details.html
According to Curtis, PUCs all over the United States were originally established in order to protect the status quo, and Hawaii’s PUC is no exception:
“These state commissions were established to protect incumbent privately-owned utilities from losing market share to municipally-owned utilities which were undercutting them by charging reasonable rates for electricity. Here in Hawai`i in 1913 the Gas Company proposed competing head-to-head against HECO. HECO agreed to be regulated by the newly created PUC in exchange for being designated as a monopoly. Following enactment of the law, the owners of HECO sold their company to the interlocking Atherton-Cooke missionary families, who then controlled HECO for the next three decades.”
Curtis writes about the DCA:
“The last public positions stated by the Hawai`i Consumer Advocate are that the utility is going too slowly in adopting biofuels; that climate change is irrelevant; that the Commission should not look at environmental impacts; that Big Wind is crucial; that there should be a long delay in requiring the utility to buy electricity from ratepayer-owned rooftop solar systems (via feed-in tariffs) while the utility contemplates updating their reliability standards; and that the utility should pay top-dollar for untested non-commercially proven microwave technology while there is another renewable energy option that could provide the same benefits at half the cost. To subsidize this expensive solution, the Consumer Advocate recommends that O`ahu ratepayers pay $25M/year for 20 years to subsidize this Big Island project. Who needs an advocate, the utility or the consumer?”
(He also wrote another article on the DCA.)
(http://www.disappearednews.com/2011/08/hawaiis-utility-advocate.html)
Curtis states that the PUC is reviewing several important project now:
“The Commission has or will shortly take up several bad proposals that are being presented as “green” proposals. These include Big Wind (Lana`i and Moloka`i wind energy feeding into O`ahu), Aina Koa Pono (expensive biofuels produced in Pahala for the HELCO Keahole Generator), and Hu Honua (a proposed biomass project in Hamakua).”
Curtis also has an article relating to the biofuels project published on August 5.
http://www.disappearednews.com/2011/08/solar-or-black-gold.html
Curtis asserts that while the AKP seeks a subsidy to build the biofuels plant on Hawaii island, one of the bi-products of that plant will be considerable amounts of rather expensive fertilizer-grade charcoal.
Now, let’s compare the Big Wind with the biofuels project in terms of the following criteria:
1. corporate welfare
2. the free rider problem
3. the Jevons paradox/rebound effect
4. externalities
Starting with the charcoal that will be a bi-product of the biofuels project, we find that the biofuels project will provide certain positive externalities to the Big Island; it will also provide a considerable number of jobs. This is not true of the Big Wind, which will provide few long-term jobs on Lanai or Molokai, and will not positively impact the populace on those islands (in fact, there are those who assert that the Big Wind will destroy entire communities). The Big Wind will seemingly only have negative externalities.
As for the Jevon’s paradox, in which innovation leads to greater efficiency in resource consumption which ironically leads in turn to lower prices for the resource and then increased consumption, the biofuels project will increase the price of electricity to the tune of $25M/year — a de facto carbon tax. The Big Wind will also increase rate payer bills, a definite asset in terms of lowering the consumption of energy (if that is indeed the goal, as HECO at least claims in public). (In fact, these rate hikes may accelerate the move to distributed generation.)
There is the free rider problem, in which certain beneficiaries of a common public good seek to avoid contributing to its maintenance. In terms of localities, this often takes the form of NIMBYism. There is no NIMBYism on the Big Island toward the biofuels project, in fact it is desired there. With the Big Wind, some say that Oahu is being NIMBY with wind power, and other state that the outer islands are NIMBY; since the outer islands would not be receiving any electricity, critics of the Big Wind would seem to be correct.
In terms of corporate welfare, these projects both seem to be pretty typical cases of socialism for the rich, especially considering how the biofuels project with supposedly be making a pretty penny by selling charcoal fertilizer on the side.
So when I add up the numbers, adding a -1 to a project for its flaws according to these criteria and a +1 for its virtues, with a 4 as a perfect score and a -4 a worst possible score, the biofuels project gets a “2” and the Big Wind gets a “-2”.
That is, the biofuels project gets a -1 for corporate welfare, but three points subtotaled for the other three criteria, bringing it to a total of 2 points.
The Big Wind gets a +1 in terms of the rebound effect (it helps raise the price of energy), but a subtotal of -3 for all other things combined, bringing it to a total of -2 points.
I’d like to add one more criteria:
5. grandiosity, as in an unrealistic and unworkable scale of construction
The Big Wind just might be a classic overly complex and grand scheme that will collapse under its own weight. Add -1 to its score.
The biofuels project is just one plant, but it has unproven technology. It’s not that grandiose, but it is an unknown quantity. The lessons learned and mistakes made at this plant will help to launch other plants like it all over the world, which can be taken as an ambivalent compliment. So I give the biofuels project a zero (0) on this matter.
In sum, the biofuels project on the Big Island is semi-pono whereas the Big Wind is semi-evil, at least according to my evaluation along the lines of these five criteria.
1. corporate welfare
2. the free rider problem
3. the Jevons paradox/rebound effect
4. externalities
5. grandiosity/realism
This has been an off-hand attempt at objective analysis. I’d rate my own analysis here as semi-pono.
Here’s a New York Times-sponsored debate on why the US is falling behind in renewable technology.
http://www.nytimes.com/roomfordebate/2011/09/20/why-isnt-the-us-a-leader-in-green-technology
Reading these entries, I perceive a few themes that some of the different voices and competing ideologies engaged in the debate might agree on:
1. The US is not investing enough on basic research, but is wasting its time on development. Related to this:
2. The gov’t needs to get out of the energy marketplace.
3. The US gov’t is not imposing fees on petroleum consumption for the negative effects of carbon emissions for political reasons (fees are unpopular); other countries are doing this, and it spurs on innovation and development of alternative energy by making it competitive.
So we really might be doing it all wrong in Hawaii.
Ian, here’s some good/bad news about peak oil that has not gotten a lot of discussion (actually, almost none at all).
The title of a Time magazine article from the middle of May, 2013 says it all:
“The IEA Says Peak Oil Is Dead. That’s Bad News for Climate Policy”
http://science.time.com/2013/05/15/the-iea-says-peak-oil-is-dead-thats-bad-news-for-climate-policy/
First of all, the IEA did not even acknowledge that peak oil existed (no mention of ‘peak oil’ anywhere in its literature or its website) until November 2010, when it produced a report stating that the world crude oil production had actually already peaked back in 2006. So by the IEA’s 2010 estimation, not only did peak oil exist, but it was already four years in the past. We now live in a post-peak world.
This is how this 2010report was reported back in 2010:
http://green.blogs.nytimes.com/2010/11/14/is-peak-oil-behind-us/?_r=0
Second, the 2018 date is nothing new. Shell always stated that peak oil would hit around 2015, but then later restated that claim, asserting that the recession of 2009 and slow recovery (or New Normal), would postpone peak oil until 2017 or 2018.
Third, it seems like ‘peak oil’ is being redefined. The 2010 IEA report was referring to crude oil, not unconventional oil, when it stated that the peak of production had hit in 2006 and now we are in a post-peak oil world. Now the IEA seems to be referring to oil from various sources (tar sands, etc.).
Fourth, there is the possibility that the postponement of peak oil, however it is defined, is in some ways irrelevant. Here is the conceptual history of peak oil theory from the wiki on ‘peak oil’:
What is not mentioned here is that Hubbert predicted in the 1970s that the world would reach peak oil production in the year 2000. That did not happen, and that cast a cloud of skepticism over Hubbert’s theory.
But this overlooks something: price gains in oil.
If you look at a graph of oil prices from the year 1880 to 2000 in 2008 dollars, the price is consistently around $20 a barrel. New fields and new technology kept the price down. The exceptions were the 1970s, because of political unrest in the middle east (Israel’s wars, and the Iranian Revolution). Later in 2008 prices went up to $145 and fell to $50. These hikes look like sharp, unnatural spikes.
But there was a gradual climb in oil prices starting in 2000. Such a gradual climb was also true in 2009, which has led to prices of just over $100 by 2013. So if one looks at rising prices, and not for falling production rates, what one finds might be termed ‘Hubbert’s revenge’.
This has implications for tourism in Hawaii, because oil prices and air travel are joined at the hip, so to speak. What will happen to oil prices in 2018? And tourism? And government revenues? And social services? What will Hawaii’s finances be like in 2013?
(I forgot to mention that I did not know where else to write this, so I looked under ‘energy’ in your section of categories. I used to follow this issue.)
If we are to engage in educated guessing about post-peak oil and tourism in Hawaii, we can divide this into two problems/issues.
The first is the future of oil prices.
As stated above, there seem to be different definitions of ‘peak oil’, so there are different predictions. For example, the chief engineer at ExxonMobil recently stated that peak oil is a bogus theory because the supply of hydrocarbons is practically infinite. So what we find is a gradual reinterpretation of ‘oil’ from the original ‘crude oil’, to current diversification into forms of ‘unconventional oil’, and, in the future, ‘oil’ will refer to any liquified hydrocarbon.
But this gradual terminology shift also means a gradual shift toward more expensive forms of oil. So instead of an apocalyptic collapse of an oil-based civilization, what we might experience and/or are experiencing is a more like a gradually increasing discomfort. Throughout the 20th century, oil has almost always been about $20/barrel when adjusted for inflation, but now it has stabilized at $100/barrel from a gradual increase starting from $50/barrel in 2009. That’s over a $10/year/barrel increase unrelated to any sort of political turmoil. (Indeed, the one year forecast at the website OIL-PRICE.NET is $120. That is, oil will be at $120/barrel in 2014.) Thus, talk about oil production reaching its peak in 2018 might be irrelevant if oil prices continue to climb at current rates, because by 2018 oil would already then be about $150/barrel anyway. That’s slightly above the 2009 crisis levels that sent the global economy into recession.
Let me state that again: 2018 is often trumpeted as the year that prices are expected to escalate to 2009 levels; however, the way things are going, there is the chance that prices will have already arrived at that level before then — and then will start to rise at an accelerated pace. This is stunning. No one in Hawaii is talking about this, which is also stunning.
The other issue is tourism in Hawaii. Alternatives to oil can be found in all sectors of the economy with the exception of air travel.
One question that I have is how the oil shocks of the 1970s affected air travel. I cannot readily find specific information on this.
One fascinating article I did find is the following piece in Mother Jones entitled “Deregulation May Not Have Lowered Air Fares After All”.
http://www.motherjones.com/kevin-drum/2013/02/deregulation-may-not-have-lowered-air-fares-after-all
It’s much touted that thanks to deregulation of the airline industry, the cost of airfares has fallen by 50% over the past 30 years. However, thanks to technological progress since the end of the Second World War (e.g., the jet engine and larger planes), the cost of flying had already been falling since the 1950s at the same pace following airline deregulation launched in 1978.
On the graph provided, the oil shocks of 1973 and 1978 barely register on the gradually falling price of air travel per mile. The author speculates that the technological innovations leading to lower airfares were tapering off in the late 1970s, and without deregulation airfares might have flattened rather than continued to fall.
One obvious question is whether there will be further technological breakthroughs to further lower the cost of air travel, like the new superjumbo jets. The real growth industry, however, seems to be private jets. Another trend is influence of the internet, especially on business travel. Business travel in 2012 was supposedly down 25% from 2007, and leisure travel down 8%. Moreover, jet travel hurts the environment anyway. How can we discourage it? Or so asks the following guy, a libertarian environmentalist who complains that politicians keep building airports to stimulate the economy when air travel is becoming obsolete (supposedly) and is damaging the environment.
http://www.monbiot.com/2013/07/22/ghost-plane/
If there are no technological breakthroughs to lower the cost of jet travel, the price of jet travel may rise significantly and constantly if oil prices rise continuously. This is because deregulation of the airlines has cut all the fat out of travel. In the 1970s, the average cost, adjusted for inflation, of an air ticket from New York to Los Angeles was $1,440 because it was illegal for airlines to sell that ticket for less. That was meant to protect major airlines for the sake of economic stability. This is an example of ‘corporate liberalism’. From the wiki:
But in the case of the airline industry, corporate liberalism was not so much a conspiracy theory as an explicit policy with good intentions. Here’s the wiki on the Airline Deregulation Act of 1978.
What’s interesting is the role that President Jimmy Carter played in shepherding in deregulation of the air industry. He is a liberal, but also a populist, and this particular deregulation was anti-elitist.
But this deregulation came with a price. In 2011, Supreme Court Justice Stephen Breyer (who worked with Senator Kennedy on airline deregulation in the 1970s) wrote:
The good news is that flying is still cheap even with oil at $105/barrel. The bad news is that oil prices are going to go up and the airlines have already cut to the bone, and that current innovation points not toward cheaper air travel, but instead suggest the increasing obsolescence of mass air travel (joining newspapers, the music industry, publishing, etc., on the great scrap heap of history).
How does disruptive innovation affect tourism?
‘Disruptive innovation’ refers not to any disruption caused by technological change, but by the process of an inferior yet cheaper and/or more convenient technology finding a particular market niche, then improving gradually until it overcomes the dominant technology.
The Internet has made some business travel obsolete. The Internet is an inferior way to communicate for business, but it is so cheap that it suffices. Perhaps in the future, virtual reality or certain massively multiplayer online roleplaying games (MMORGs) like World of Warcraft will supplant leisure travel as well. (I think I stumbled across a virtual hike in Tahiti on the Internet, maybe on YouTube, and after a while I just felt bored because it was really almost identical to Hawaii, except for the language.)
Also, disruptive technology – like the jet engine – makes tourism cheaper, attracting a lower class of tourists. Waikiki used to be the reserve of the Hawaiian nobility, but by the early 20th century, luxury liners could bring upper class tourists. Air travel in the 1950s brought the upper-middle class, doctors and lawyers and business executives. By the 1970s and beyond, it was the middle class and the working class that visited Waikiki. The same downward trajectory might be found among Japanese tourists: in the 1980s, Japanese businessmen favored Hawaii and Japanese shopped at Prada and Armani outlets; but today the Office Ladies dominate, and they shop at Ross Dress-for-Less.
Now, there is a concept that is superficially similar to disruptive innovation, and that is Gresham’s Law.
http://en.wikipedia.org/wiki/Gresham%27s_law
This apparently happens in tourism as well. This is the index to the book The Economics of Tourism Destinations, by Guido Candela and Paolo Figini. Click on ‘Gresham’s Law’ to find the relevant page (335) entitled “Adverse Selection and the Decline of the Destination”.
http://books.google.com/books?id=3MrU1dZirQkC&pg=PA610&lpg=PA610&dq=gresham%27s+law+and+tourism&source=bl&ots=2NjhqdjtaQ&sig=gL35GOM9b_uO7Akr4ocueCEPm5w&hl=en&sa=X&ei=quoFUuG7KufqyQHOhIHwDw&ved=0CDIQ6AEwAg#v=onepage&q=gresham%27s%20law%20and%20tourism&f=false
Their argument is that the tourist market is full of ‘asymmetric information’ because prospective tourists just don’t have adequate information on the quality of goods and services on their potential trip. In the long run, the argument seems to be, that tourists tend to choose the cheaper amenities, driving down quality in the destination’s offerings and, in a sense, destroying it as a destination.
Disruptive innovation and Gresham’s Law might work together to drive off the more affluent tourists from a destination.
Hawaii does have high-end resorts, but trend could be for domination from the low end. But that low end of the market – Joe the Plumber, Sachiko the Secretary – might prove highly sensitive to increases in air fares due to oil price hikes that are permanent.