Thank you Wyoming
By Jorge David Chapas | February 15, 2015
The recent announcement of the National Energy Commission about a drop in the electricity price and the considerable reduction of the fuel price in the last days are news that we celebrate as Guatemalans. Although it’s true that certain economic phenomenons are mostly influenced by political factors (regrettably), it is also important to notice that underlie are technological factors of great transcendence.
It happens that supply and demand are phenomenons that mark the international price fixing: an increase in demand lowers the price of the good. Lately the supply of oil has been affected, among other reasons, by an increase of oil and natural gas production in the USA. From 2007 to 2012 this country has increase their oil reserves 43% and their natural gas reserves 30%, due to the new applications in the extracting of these resources.
Fracking is a technological innovation that, although it’s been used since 1940, with the help of more specialized applications has allowed in recent years the release of big contents of oil and natural gas. Although fracking is thought of as just the drilling of wells, the actual innovative process starts after the initial drilling. Through and injection of sand, chemicals and water, the fractures stay open for longer periods, allowing a greater efficiency in the extraction. Some ecological organizations have argued that the chemicals have contaminated underground water sources but nothing has been proved.
The United States is one of the few countries, if not the only one, whose subsoil is considered private, it belongs to the land owner, not to the State. Private properties on minerals are defined based on the rule of capture: the one that extracts the resource and brings it to the surface is the legitimate owner. In the little town of Pavillion, Wyoming, with just 225 residents, there are 125 wells in an area no bigger than 10 square miles. Subsoil private property and the respect of economic institutions like the rule of capture have been enough incentives to generate an energy boom in the USA and consequently, a good part of the good news to us in Guatemala.
Regrettably, in Guatemala we still considered the subsoil as State property and we continue to apply a perverse legislation to the exploitation of our natural mineral resources. It is true that the energy legal framework generates some competition and that the national energy matrix has diversify, so that today the “renewable” energy is an important source. But it is timely to warn that the institutions that have encouraged this development are more politic than economic. The Incentives for Developing Renewable Energy Projects Law, the municipalities’ discretional nature regarding the price fixing of the street lighting and the Social Rate Law contribute artificially in the drop of energy price. These laws and mechanisms represent more bureaucracy, privileges and distortions of the price system, leaving the outline in the hands of the executive power, whose interest are political.
If we generate a framework of conditions in which innovation and entrepreneurship could converge, these news would probably be more frequent and stable, not by chance and uncertain. “If innovators could continue to create things more rapidly than the regulators could destroy them, our future would be, without doubt, of good news everyday”… that’s how John Stossel thinks and I want to believe it.
Jorge David Chapas is a Guatemalan entrepreneur, founder and CEO of Rana.