[MUSIC] Welcome to week 5, this week we're going to discuss how political decisions are made. And because political dimensions of energy business are very significant, it's important to understand the process of political decision making if you're going to understand how the business is operate. So let's begin. By talking about what we mean by political decisions. What I want you to think about is institutional decision making. So, decisions that instead of being made by laterally in sort of market-based exchange with someone presumably handing over some, some money or purchasing power for real good that they like to have. These are decisions that are made collectively in a number of different forums either legislative, executive, judicial, which are some formal political forums. Awkward of public opinion, where you can [SOUND] enterprises can feel political influence just by collective action that's not coming through formal formal institutional mechanisms, like legislative, executive, or judicial. So What we're really talking here, about here, when we're talking about political decisions, are those decisions that are not made in real markets. Now, I know there may be some cynical views which, you know, you are entitled to, that, well, you can pretty much buy political outcomes, just like you can buy Products and goods and services and real markets, but really what we're talking about when we feel like we're, we're observing the effect of, of money in political markets is we're observes attempting to influence outcomes in a variety of ways. But they are decidedly different. Forums for decision making, real markets versus political markets. I mean political markets have all kinds of controls that in the least make it much more difficult to just go out and buy things like votes, or buy elections or things like that. It's, it's just A completely different situation than going out and buying something like lumber that you need to build a house. [SOUND] So, let me make this a little bit more tangible. What we're talking about when I say political decisions are decisions over things like taxes and subsidies. Or regulated activities [SOUND] maybe development of state owned assets, decisions that happen in courts and then of course protests and boycotts so I just want to talk through a couple of specific examples to just provide a little more texture here. So for instance think about The decisions that come out of the legislative process that result in things like our tax code. These are, you know, when I talk about taxes and subsidies, this is what I'm talking about. It changes the relative valuation of investments and expenditures on certain types of activities. So this map on the left, for instance, shows property tax incentives. At across the US at either the state or local level, incentives for investing in renewables. Some states provide incentives [SOUND] at the state level, in the, in the state tax code. Other Within states you'll also see some incentives at the local or municipal level where property taxes may, may be reduced for depending on certain investments in renewables and then some states of course will offer both of those kinds of things. And then on the right hand side we see a couple of charts that show invest, public investments [SOUND] in renewables subsidies for investment in renewables on the top and then more generally energy subsidies on the bottom and the thing to notice here isn't anything in particular about the number but just notice that. They vary. You know, someone is making a decision to advantage investments in biofuels more than biomass, for instance. Across the more general energy spectrum, somehow we're making a decision to provide more subsidies for things like renewables and much less for things like Coal, or nuclear, okay? You'll also notice that these things change over time, depending on political administrations. So these are, you know, public decisions. Decisions that are not happening through the normal market for goods and services. [BLANK_AUDIO] Another example would be [SOUND] regulated activities so whereas things like subsidies and, and tax advantages typically come through legislative decision making. [SOUND] Often once rules are set in place, it's handed over to the executive branch and maybe the regulators. That basically report up through that branch may promulgate their own set of rules, to actually administer the laws passed in the legislature. So here I just have a couple of pictures of [SOUND] Of drilling activity [SOUND] and what we see is the specific rule here is set back restrictions. So what that means is [SOUND] a drilling company will be limited on just how close it can get on this right hand picture I think we have Downtown Fort Worth, Texas. So there is going to be Different different requirements depending on how close you can be to a road versus how close you can be to a commercial building, versus how close you can be to a heavily occupied public building, versus how close you can be to a residence for instance. And then in the top of the, of the chart here, of the image, we see some Set back requirements in the State of Pennsylvania which may, which limit just how close a drilling location and the broader well pared can be from let's say sensitive ecological areas like wetlands and streams. [SOUND] regulated activities can also extend to not just limiting the types of things you can do with your operations, but also specifying the types of things you have to do with your operations. So this slide illustrates [SOUND]. The what's called best available control technology which is a requirement in clean air legislation, clean air act legislation for point source emitters of air pollute. So on left, we just have, simple diagram illustrating how. One of these scrubbers works. It's not really important for the purpose of this discussion and then on the right a natural picture of one of these scrubbers. But, basically the, the rules that are administering the legislation specify a type of Apparatus that needs to be included on point source emitters of air pollution, to limit the amount of particulates going into the air and the amount of noxious gases that are, that are going into the air. [BLANK_AUDIO] And then, even if in, in the case that there are not regulations on specific activities, or requiring specific activities, or limiting specific activities, what we often don't realize, particularly in the US, is that in the vast majority of places around the world as indicated in the red here, the actual minerals that we may be developing are not necessarily owned by private enterprises. So the green, basically the US, shows where we largely have private ownership of mineral rights. The red shows where we have public ownership or state ownership of mineral,mineral rights, largely. It's pretty much everywhere in the world even if there is carte blanche to do whatever you'd like within your operations, there, there is going to be some degree of interaction with the government, possibly just as a partner, in the development of resources. [BLANK_AUDIO] And then lastly I mentioned the court of public opinion. So, here I'm thinking about things like protests and boycotts. And, and individuals can get together to try to influence either the rules that structure interaction inside of formal political forums like the legislature or the executive branch. But they can also get together and protest just simply to affect how [SOUND] customers or other market participants choose to interact and bargain with the targets of protests and boycotts. For instance, an enterprise might be a target of. [SOUND] protest activity, or a boycott that's not intended to effect the enterprise's bargaining position inside of a formal political forum, but instead is just trying to affect potential customers' or other market participants' evaluation of the benefits of interacting with, with an enterprise. So you know if you're a, a oil company and someone starts protesting you even if you have the cheapest gasoline, people might choose not to purchase, not to drive into your store and purchase your gasoline. So all of these things are the, the types of activities we're talking about when we talk about political action and political decision making. [MUSIC]
