Energy Studies, Volume 7, Number 2, November/December 1981 Page: 3
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JUL 2 6 198Z
Except as it may be associated
with failure to detect some de-
posits of oil, this in itself is not a
social cost. It represents a trans-
fer from government to industry.
But indirectly there may be a so-
cial cost. Economic rent is a sur-
plus which can be extracted from
the industry without affecting in-
centives and the margin of exploi-
tation. The receipts of rent by the
government substitute for taxes
that otherwise would have to be
levied, taxes which in general
would affect incentives and mar-
gins of activity. To the extent that
the government receives less rent
and levies more taxes, the econ-
omy is made less productive. This
is the social cost, of course.
How can we minimize this cost
while accelerating the offering of
lands for lease? To some extent,
my proposal to announce a leas-
ing program well in advance and
to accelerate land offerings gradu-
ally will deal with this problem. Be-
yond that, we can alter the typical
leasing system:
In the past nearly all federal
OCS leases have been granted on
the basis of a lease bonus bid, a
lump-sum bid for the privilege of
exploring. In some respects, this is
the ideal way to capture economicrent; the lease bonus is relatively
neutral with respect to develop-
ment, production, and abandon-
ment decisions. But it maximizes
front-end capital requirements and
locates the burden of uncertainty
on the prospective lessee. It may
be associated with loss of eco-
nomic rent, largely because of un-
certainty, under accelerated offer-
ing of lands for lease.
A second-best alternative,
which greatly eases the uncer-
tainty problem, is the granting of
leases on the basis of a profit
share bid, a bid that promises the
government a certain percentage
of the profits, if any, in return for
exploratory privilege. Recent
amendments to the law specifi-
cally allow profit share bidding as
an alternative to bonus bidding.
This alternative may be usefully
employed, particularly in the ac-
celeration phase of the "fast"
leasing plan.
Minimizing
Environmental
Damage
One of the difficult problems in
handling environmental costs is
how to compensate those who ex-
perience damages, despite the
controls imposed on the produc-ing industry that are designed to
prevent them. It is fear of uncom-
pensated damages that leads
groups like beach-side communi-
ties or a localized fishing industry
to resist the siting of oil activities
in their areas.
Much resistance and litigation,
which slow the leasing of federal
lands, could be avoided if such
groups could be compensated
with unconditional payments in
contemplation of possible dam-
ages. Payments to a community
government could substitute for
taxes, thus benefiting all members
of the community. It would not
matter whether the payment was
made by the industry or by the
government as lessor. With the
world price determined by OPEC,
the burden of payments made by
the industry would take the form
of reduced rents to the govern-
ment. The latter might as well
make the payments out of rent re-
ceipts. Such payments by the gov-
ernment should be regarded as na-
tional defense expenditures, the
burden of which rightly falls on the
nation as a whole. A system of
payments to communities or
groups at risk might well facilitate
and support a program of acceler-
ated leasing.CES Update
Electric Power
Demand for electricity is ex-
pected to go up in the future, but
how much and at what rate, no-
body knows. CES Electric Power
Division researchers hope to pro-
vide some more precise answers
to those questions in a project
that deals with computer modeling
of electricity demand.
Models that project future de-
mand trends for electricity are a
chief tool used by the electric
power industry in long-range plan-
ning. In this project, conducted by
electrical engineering graduate
student Vewiser Turner, Jr., and su-
pervised by Dr. Martin L.
Baughman, head of the Electric
Power Division, two demand
models are being compared and
contrasted. The two models are
the demand submodel of the Re-
gionalized Electricity Model (REM),
developed by Dr. Baughman and
Dr. Paul Joskow of MIT, and theState-Level Energy Demand model
(SLED), developed by Oak Ridge
National Laboratory.
Mr. Turner said he is analyzing
an independent version of the
REM demand submodel, updating
it and integrating a state-by-state
data base of actual 1977 energy
data. He is developing a series of
electricity demand scenarios for
the model that involve different
combinations of low, medium, and
high rates for (1) economic growth,
(2) electricity price escalation, and
(3) oil and gas price escalation.
For each scenario, the REM de-
mand submodel will project a de-
mand trend for the period 1980-
2000.
The SLED model is a similiar
econometric model that contains
a 1976 data base. Mr. Turner said
he has modified the growth projec-
tions of SLED so that the demand
projections of the two models can
be compared. Different demand
trends, particularly for the residen-
tial and commercial sectors, have
3emerged. Mr. Turner said he hopes
to learn a great deal about the
range and nature of electricity de-
mand projected by the two
models.
Environmental
Studies
Dr. Joseph F. Malina, Jr., head of
the Environmental Studies Divi-
sion and chairman of the UT De-
partment of Civil Engineering, has
been appointed director of the
Texas Water Pollution Control As-
sociation.
Nuclear Studies
A study of the fission products
created in the blanket of a hybrid
fission-fusion nuclear reactor is
under way within the Nuclear
Studies Division.
(Continued on page 4)
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University of Texas at Austin. Center for Energy Studies. Energy Studies, Volume 7, Number 2, November/December 1981, periodical, November 1981; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1032255/m1/3/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.