Uganda will soon be exporting oil: an energy economist outlines 3 keys to success

Micah Lucy Abigaba, Makerere University

Uganda entered into agreements in 2012 with two foreign oil entities to exploit its oil resources. Total Energies holds 56.67% of the joint venture partnership and China National Oil Offshore Company (CNOOC) has 28.33%. Through Uganda National Oil Company, the government owns the remaining 15%.

Production is due to start in 2025. As part of the production sharing agreement, the production licences are valid for 25 years upon extracting the first oil.

To secure the best possible outcome for Uganda, the government needs to focus on three issues: the production sharing agreement, completion of the development stage, and export timing. My co-authors and I identified these areas of crucial concern in a paper based on my PhD thesis: Four essays on oil price uncertainty, optimal investment strategies and cost transmission of an oil price shock.

The context

Uganda joined the list of prospective oil-producing countries in 2006, with six billion barrels of proven oil reserves in the Albertine Graben, part of the western arm of the east African rift valley. Out of this discovery, 1.4 billion barrels are economically viable for extraction. The peak production is projected to be between 200,000 and 250,000 barrels of oil per day, and the extraction is expected to last 25 years.

The cost of extracting oil over this period will amount to about US$19 billion in capital expenditures and operating expenses. Before this production stage, the development of infrastructure, operation facilities, and production wells will cost around US$12.5 billion to US$15 billion.

The annual revenues from oil production are expected to be US$1.5 billion to US$2 billion. The oil revenues have the potential to stimulate Uganda’s economic growth and real household incomes.

But, like many resource-rich sub-Saharan countries, Uganda has limited capacity to solely finance and operate immense complex oil projects. Hence the current production-sharing agreement.

Production sharing agreement

The interests and strategic investment decisions of foreign companies are bound to be in conflict with Uganda’s. That’s why they need an effective agreement.

Uganda’s final investment decision was initially expected in 2015, but was delayed for another seven years. The reasons included tax disputes, negotiations among contract partners, the compensation and relocation of communities affected by the oil project, and oil price volatility.

An effective production sharing agreement is one that maximises returns for both the government and the companies. In my PhD thesis, I examined the implications of the agreement, given the risk factors that influence the project.

The agreement sets out how the government and the foreign companies will share risks and revenues throughout the project’s lifespan.

• The foreign companies carry the cost of exploration, development of the oil fields and crude oil pipeline, and oil production.

• The government supplies other infrastructure for the oil project, including roads and the Hoima International Airport.

• The foreign companies are allowed to claim up to 60% of their net field revenues as cost. Whatever remains after royalties and cost recovery is the “profit oil” shared between the foreign companies and the government.

• The foreign companies pay royalties to the government based on the daily production. They also pay corporate income tax on their share of the profit oil. So Uganda earns revenues from royalties, profit oil and income tax.

The roadmap to the first oil production

Being a landlocked country, Uganda has to get its crude oil to a regional seaport. It needs a pipeline through Tanzania or Kenya.

In February 2022, Total Energies and CNOOC signed the decision to develop the oil fields and construct the East Africa crude oil export pipeline. The pipeline, costing an estimated US$3.5 billion to US$5 billion, is scheduled to be completed in time for oil production in 2025. It will take the oil to the port of Tanga in Tanzania.

A pipeline company with shareholding from the Uganda National Oil Company (15%), the Tanzania Petroleum Development Corporation (15%), Total Energies (62%) and CNOOC (8%) operates the East African pipeline project.

Exports timing

It is important that Uganda’s oil gets to the global market at profitable terms. The slump in oil prices between 2014 and 2016 resulted in the foreign companies drastically trimming their local workforce and cutting their investment budgets by 20% to 30%. The drop in oil prices due to the COVID-19 pandemic and the ensuing lock-downs in Uganda also created uncertainty about when the oil would be ready to sell.

The uncertainties about the completion of the development stage and crude oil price volatility still prevail. This has raised concerns about whether the project can generate returns for the government and foreign companies.

In my PhD thesis, I focused on estimating the influence of these uncertainties on the value of Uganda’s oil project, taking into account the design of the production sharing agreement. I found that:

• For the development stage to start, the global crude oil price must be equal to or higher than US$63 a barrel. The crude prices, which fell below US$25 per barrel in 2020, have recovered to sell above US$80 now.

• The required prices to start oil production differed among the parties. It was US$18 for the government and US$42 for the foreign companies. This suggests conflicting interests. I further found that when crude oil prices are highly volatile, the government prefers to delay production. The foreign companies prefer the opposite.

• I found that as the oil price rises and the project becomes profitable, the government’s revenue share rises faster than that of the foreign companies. But the oil price volatility exposes the government to revenue losses when the prices fall.

What next

The development of the oil fields and pipeline has resumed in Uganda after the COVID period lull. The government needs to design production sharing agreements to allow for options that encourage investments by foreign companies while stabilising government revenues from the oil sector. One option could be delaying investment until oil prices are favourable.

My results indicate that the government’s revenue share is more sensitive to oil price shocks than the foreign companies’ share. These shocks may translate into fluctuations in government oil revenues and, ultimately, macroeconomic instability. The government must consider these shocks when designing and negotiating oil agreements.

Uganda also needs to manage its petroleum fund effectively. It could learn a lesson from how Norway manages its oil fund. Some share of its oil revenues should be put aside for the period when oil earnings begin to decline. This would counteract the macroeconomic instability arising from sudden government oil revenue changes.

Micah Lucy Abigaba, Energy Economics Lecturer, Makerere University

This article is republished from The Conversation under a Creative Commons license. 

What do universities owe their big donors? Less than you might think, explain 2 nonprofit law experts

Billionaire investor and Harvard alum Bill Ackman has voiced his objections to the school’s current president. AP Photo/Andrew Harnik

Ellen P. Aprill, Loyola Law School Los Angeles and Jill Horwitz, University of California, Los Angeles

Exchanging gifts with family and friends can become fraught with contradictory emotions. Instead of gratitude, the recipients of expensive gifts may wind up feeling indebted to the givers. And the givers can have regrets too.

The same kinds of complicated motivations and expectations can sour relations between big donors and the institutions they support.

This dynamic has been playing out in a very public fashion lately with some high-profile donors to prestigious U.S. universities. At issue for these donors is the schools’ response to debates and demonstrations on their campuses after Hamas’ terrorist attacks on Israel and the Israeli government’s military campaign in Gaza that followed.

Disappointed donors

Notably, hedge fund manager Bill Ackman has complained that Harvard University officials, including President Claudine Gay, have not “heeded his advice on a variety of topics,” including Harvard’s handling of antisemitism and how it should invest his donations.

Ross Stevens, another financier, threatened on Dec. 7, 2023, to take back the US$100 million he gave the University of Pennsylvania through a complex transaction in 2017 “absent a change in leadership and values at Penn.”

In a letter Stevens released to the media, he alleged that Liz Magill, who was serving as the university’s president, had “enabled and encouraged antisemitism and a climate of fear and harassment at Penn.”

Magill, also on Dec. 7, defended herself from those accusations and related criticism from members of Congress, saying: “A call for genocide of Jewish people is … evil, plain and simple.” She resigned on Dec. 9.

Other high-profile donors who have also voiced their dissatisfaction regarding Penn include Jon Huntsman Jr., a former U.S. ambassador to China and Utah governor, and cosmetics tycoon Ronald S. Lauder.

As scholars of how the law governs nonprofits, we think these developments suggest that now is a good time to review what donors do and don’t have a right to demand.

What restrictions apply

All donations to a charity must support its overall purposes. That is, a hospital can’t take the money it receives from donors and give it to, say, an animal shelter operating 500 miles away.

Donors may request specific restrictions on the use of their charitable gifts in an agreement negotiated before the donation is made. And when gifts are solicited through a specific fundraising campaign, such as a bid to raise money for a new building or for scholarships, that money must be spent accordingly.

State attorneys general and, ultimately, the courts have the power to regulate charities. But donors have some tools to police adherence to the restriction they placed on their gifts.

One way they can do this is by threatening to withhold gifts that they had planned to make unless the charity they have been funding changes course. Depending on the state laws that apply to charities, donors may be able to sue for enforcement or reserve the right to do so in gift agreements.

Some donors include in their gift agreements a “gift-over.” This kind of provision redirects the gift to another charity of the donor’s choice if the original recipient violates specified terms.

Promises of future donations from past donors have always allowed donors to informally exercise some degree of influence.

But in the current wrangling between donors and universities over claims of antisemitism on campus, threats to forgo future donations have been explicitly tied to all sorts of university actions, such as the statements universities either make or do not make regarding international relations.

The threats have become angrier and more public than in the past. Some of the regret and dissatisfaction is being expressed via op-eds and open letters. And the lengths donors have taken to assert leverage have grown more extreme.

Harvard President Claudine Gay, left, testified alongside Penn President Liz Magill before a House committee on Dec. 5, 2023, regarding antisemitism on college campuses. Magill resigned four days later. Kevin Dietsch/Getty Images

What charities can do

Charities can take some solace in the law.

When donors make charitable gifts, they must irrevocably transfer that property to the charity receiving it. Except in very rare exceptions, disappointed donors can’t get their assets back.

In 1995, for example, Yale returned a $20 million gift to Lee Bass, an heir to a Texas oil fortune. Bass objected to the way the university was using that donation, which was supposed to support the study of Western civilization. He reached an impasse with Yale after surprising the school’s leaders with a demand they refused to accommodate: that he would personally get to approve four new professors.

And if a donor attaches too many strings to a gift, that can render it ineligible for the charitable deduction, missing out on a tax break. Just as with personal gifts, gifts with too many strings aren’t really gifts at all.

Although donors who have negotiated special conditions in a gift agreement may assert their rights to sue over a charity’s broken promises, that can take a lot of time and energy, while squandering money on legal costs. This process can also anger other donors, causing the benefactor to ultimately lose influence with the charity.

A few tips

In the University of Pennsylvania case, about two months after the donors began their public pressure campaign, Penn’s president and the chair of its board of trustees had stepped down. They resigned in the wake of a contentious congressional hearing.

In this case, some of the disappointed donors got their wish – with an assist from conservative lawmakers. Congress doesn’t usually get involved in these disputes, and with good reason. Nonprofits are private institutions using private assets, even if the assets are meant to advance purposes that are, ultimately, in the public interest.

So here is our practical advice for donors and the institutions that rely on them.

Donors shouldn’t try to control a charity through their gifts after the fact. The time to establish limits is before you’ve signed off on those gifts.

Charities should reject gifts that are offered with strings attached that they aren’t happy about. If gifts have restrictions, charities should be aware of that and adhere to them.

We fear that the failure on either side in the controversy now affecting several prestigious schools to abide by this basic guidance can potentially harm not only the freedom and academic integrity of a university, as many observers have noted, but also the freedom and integrity of the entire nonprofit sector.

The best charitable gifts, like the best personal gifts, are not meant as a means to control the recipients.

Ellen P. Aprill, Professor of Tax Law Emerita, Loyola Law School Los Angeles and Jill Horwitz, Professor of Law and Medicine, University of California, Los Angeles

This article is republished from The Conversation under a Creative Commons license. 

How Red Sea attacks on cargo ships could disrupt deliveries and push up prices – a logistics expert explains

The Suez Canal is a busy shipping lane but companies are diverting ships to other routes following attacks on vessels. Mariusz Bugno/Shutterstock

Gokcay Balci, University of Bradford

Attacks on international cargo ships in the Red Sea from Houthi-controlled Yemen have seen several cargo vessels hit by missiles and drones in recent days.

In response, global shipping companies and cargo owners – including some of the world’s largest container lines such as Maersk, as well as energy giant BP – have diverted ships from the Red Sea. So far, more than 40 container ships have been diverted, with many rerouted to less direct channels than the Suez Canal – an artificial waterway in Egypt that connects the Mediterranean Sea to the Red Sea.

Opened in 1869, the Suez Canal is one of the busiest canals in the world, carrying around 12% of global trade. In 2022, 23,583 ships used this route. Any disruptions can have severe knock-on effects as these ships deliver goods from one country to another. Ultimately, this can even feed into the prices you pay for certain goods, as well as the time it takes to get things delivered from overseas.

Remember when the container vessel Ever Given got stuck in the Suez Canal for six days in 2021? It affected the shipping lane for weeks, playing havoc with global supply chains and disrupting global trade flow to the tune of billions. Previously, when the Suez Canal closed between 1967 and 1975 due to the six-day war between Israel and a group of Arab states, global trade was also negatively affected. Ships had to sale around South Africa’s Cape of Good Hope instead – a much longer route.

While there is also a Northern Sea route that ships can take, it is not navigable in winter season and not yet commercially viable for many shipping companies. And so, the Suez Canal is the shortest and most suitable sea route between Asia and Europe.

The Suez Canal (solid line) allows ships to make a much shorter journey between Asia and Europe. Otherwise, they are forced to sail around the Cape of Good Hope (dotted line). Dimitrios Karamitros/Shutterstock

Longer journeys will impact global supply chains

The sailing time between eastern Asia and western Europe can increase by about 25-35% when ships use the Cape route. For instance, a vessel travelling at 13.8 knots per hour (the current average speed of global container ships) between Shanghai, China and the Port of Felixstowe in the UK will see its sailing time increase from an average of 31 days to 41 days when sailing around the Cape.

It’s even worse for exporters shipping goods from say Italy to Dubai – the Cape route could take them 160% more time than the Suez route (12 days versus 32 days). These sailing times could be more for container vessels as they stop at other ports along their routes.

When it comes to comparing costs for the two routes though, the figures are not straight forward. Vessels passing through Suez Canal need to pay a toll. This can be as much as US$700,000 (£550,000) for a vessel carrying 20,000 containers (a typical large container vessel commonly used for east to west trades). But the Cape route could still cost 10% more, even with the canal transit fee, according to research published in 2022. The exact cost difference also depends on current fuel prices, as well as size and the type of vessel.

But it will be the reduced shipping capacity due to longer transit times, not the increased operating costs of shipowners, that will really weigh on global supply chains. This is because freight rates (the price companies pay to transport goods) depend on supply and demand.

It was a supply and demand imbalance that caused shipping costs to skyrocket during the COVID pandemic. Shipping supply was reduced because of disruptions, but demand increased because people were spending more on goods than services during lockdown. This time, the magnitude of freight rate increases is unlikely to be as large because there is no indication of a surge in demand for shipping services.

The Ever Given got stuck in the Suez Canal, disrupting global supply chains, in 2021. Corona Borealis Studio/Shutterstock

How shipping disruption affects you

If you live in the UK and have ordered new sofa from a manufacturer in China, you could expect a delay of at least ten days. The prices of certain products could also rise if freight levels increase significantly. An International Monetary Fund forecast shows a doubling of shipping costs could increase consumer price inflation by 0.7% percent.

However, sea freight activity generally has a marginal impact on most consumer prices – it only makes up 0.35% of prices for some types of clothing, for example. On the other hand, oil prices could spike if more energy companies follow BP and stop using Suez Canal, especially if this disruption persists over time. The price of Brent Crude – a global benchmark for oil – has already risen from US$73 on December 12 to about US$78 on December 18 2023.

Although you might not have to pay more for the products you buy, there is another cost of this situation, for people and the planet: increased carbon emissions. More than 3,000 extra nautical miles will be taken by vessels using Cape route, which could generate around 30-35% more carbon emissions than if these ships were sailing the Suez route. The shipping industry already creates 3% of global emissions.

Shipowners will be forced to keep diverting ships from the Red Sea if attacks on vessels continue. Of course, it remains to be seen when and how this problem will be solved. Until it is, uncertainty and change could continue to affect your pocket – and the planet.

Gokcay Balci, Assistant Professor in Logistics and Supply Chain, University of Bradford

This article is republished from The Conversation under a Creative Commons license. 

Big-box retail chains were never a solution for America’s downtowns − and now they’re fleeing back to suburbia

Merchandise is locked in cases to guard against theft in a Target store in New York City on Sept. 23, 2023. Deb Cohn-Orbach/UCG/Universal Images Group via Getty Images

Nicholas Dagen Bloom, Hunter College

Holiday shopping is in full swing, but city dwellers may have fewer options for buying in person than they did a few years ago. That’s because many large chain stores are pulling out of central cities.

This trend has been building for several years. Target made national headlines in 2018 when it closed its store in a predominantly Black Baltimore neighborhood after just 10 years of operation. COVID-19 sped things up by cutting foot traffic in city centers and boosting online commerce.

Target has closed additional stores in Chicago, Milwaukee, New York, San Francisco, Seattle and Portland, Oregon. Walmart, CVS, Rite Aid and Walgreens have also closed many urban stores.

Closures have spread to many suburbs and small towns. Retailers saddled with high debt, overexpansion, shoplifting losses, slumping sales and online competition are shedding stores fast. But this contraction lopsidedly affects city dwellers, who often lack the shopping options and price competition suburbanites enjoy.

Many news reports, particularly from conservative outlets, have blamed lawlessness and weak leadership by progressive city governments. In my view, however, there’s another important factor: flawed corporate strategies.

As big-box chain drugstores close in St. Louis, an independent pharmacy works to fill the gap with more personal service.

The self-service revolution

The concept of letting shoppers serve themselves dates back to 1879, when Frank W. Woolworth opened his first store in Utica, New York. Its successors grew into the F.W. Woolworth chain of “five-and-dime” discount dry goods stores, which became fixtures of hundreds of cities, suburbs and small towns in the early 20th century.

Food stores followed suit in the early 1900s, beginning with the Alpha Beta chain in California in 1914 and Piggly Wiggly in Tennessee in 1916. Instead of having clerks gather customers’ orders from store shelves, these stores let shoppers loose in the aisles, then allowed them to pay at the end of their visit.

This approach seeded the meteoric rise of “big box” stores like Walmart and Target in the mid-20th century. With their low manufacturing costs, streamlined logistics, minimally staffed stores, national advertising and vast inventories, big-box chains drove many small retailers out of business – and most Woolworth stores, too.

Self-service came to rule the suburbs, where big chains could build mega-stores with plenty of parking. But they were rare in central cities for most of the 20th century, except for a few affluent enclaves, such as West Los Angeles or Chicago’s North Side. Generally, these chains avoided poor neighborhoods and many downtowns altogether.

As shoppers increasingly gravitated to suburban malls, many urban neighborhoods became retail deserts, with few vendors meeting local needs. Those that endured, often run by small-scale entrepreneurs, typically were businesses that offered a single type of product, such as grocery stores, delicatessens or pharmacies.

Chains discover downtowns

Harvard management professor Michael Porter drew attention to the lack of retail services in densely populated urban neighborhoods in a seminal 1995 article, “The Competitive Advantage of the Inner City.” Economic development, Porter argued, was key to revitalizing inner cities – and these zones housed a lot of potential customers.

“Even though average inner city incomes are relatively low, high population density translates into an immense market with substantial purchasing power,” Porter wrote. “Ultimately, what will attract the inner city consumer more than anything else is a new breed of company that is not small and high-cost but a professionally managed major business employing the latest in technology, marketing, and management techniques.”

Chains of many kinds began to rediscover the central city market in the early 2000s. Tax breaks and subsidized redevelopment projects often greased the wheels. Urban gentrifiers were reliably drawn to new urban chain stores like Target, Walmart and Whole Foods.

Many small retail shops now faced a juggernaut of national chains. One example was independent pharmacies: Between 2009 and 2015, 1 in 4 urban pharmacies in low-income neighborhoods closed.

And chain stores often failed to generate major benefits for their new neighborhoods. Employees had few chances for advancement beyond minimum-wage hourly work. Clustering of chain stores in prosperous neighborhoods and business districts failed to address “food deserts” in impoverished areas.

Broken big boxes

Certain qualities that made chains so successful – national sales strategies, self-service stores and brand awareness – are proving to be liabilities in today’s more complicated and divided urban context.

Retail executives and their trade associations have cited excessive shoplifting losses and weak law enforcement as factors in urban store closures, even though they have conspicuously failed to provide shoplifting data by location. There are signs, moreover, that shoplifting is receding, except for in a few large cities like New York.

In my opinion, there are three reasons why city chain stores are closing at such a high rate compared with those in suburbs.

First, despite job recovery in many cities since the pandemic, low-income urban households remain in crisis, with high rents and inflation driving up the cost of essentials. According to the nonprofit Brookings Institution, 9.6% of suburban residents lived in poverty in 2022, compared with about 16.2% in primary cities. Widespread poverty in a city like Baltimore, for instance, is reflected in the concentration of food banks on the west and east sides.

Less disposable income, compounded by shoplifting losses, can lead to store closures – especially since national chains like Target and Walmart expect the dollar value of sales from stores that have been open for more than a year to increase steadily over time.

Second, urban chains clustered too many of their own branches close together or too near other chains – usually in high-income residential or business districts. Manhattan below 96th Street is a clear example of this pattern. With affluent customers shifting to online shopping, and reduced foot traffic overall thanks to remote work, this aggressive strategy has failed.

Third, widely distributed media images of rampant shoplifting send a message at odds with these chains’ powerful brand images of order, safety and standardization. A small but rising share of shoplifting incidents since 2019 have involved assaults or other crimes. These events have the potential to scare executives concerned about employee lawsuits. Chains want urban locations but not “urban” reputations.

Retail flight

Large retail chains have finally figured out that cities aren’t suburbs. Those that remain are adding staff, scaling back self-checkout, checking receipts at exits and locking down higher-priced goods – essentially, abandoning the self-service model. However, these costly measures won’t bring back online-addicted shoppers or daily commuters, nor will they put more money in struggling consumers’ pockets.

Responding to retail association pressure, some city and state governments are imposing stricter punishments for shoplifting and cracking down on black-market vending on sites like Amazon and eBay. However, it isn’t clear that this get-tough approach can or should rescue the big-box model, since these stores failed to create safe, secure shopping environments in the first place.

As I see it, the urban chain store implosion raises questions about whether suburban-style retail really does much for cities. These stores are mediocre job creators, undercut local entrepreneurs, often pay relatively low property taxes and build ugly parking lots. They also don’t provide the kind of “eyes on the street” local security that small-scale shopkeepers do. In fact, their parking lots and open aisles seem to attract disorder.

Shoehorning suburban-style stores into urban neighborhoods now looks like a Band-Aid for much deeper urban problems. In my view, city leaders would do better to focus on building local capacity and protecting smaller stores that usually have greater local wealth-building potential, more reasonable growth expectations and the kind of personal service that naturally deters shoplifting.

Nicholas Dagen Bloom, Professor of Urban Policy and Planning, Hunter College

This article is republished from The Conversation under a Creative Commons license. 

Oh, Christmas tree: The economics of the US holiday tree industry

Peace, joy and profit margins: Retailers sell Christmas trees at a markup of up to 500%. Iuliia Bondar/Getty Images Plus

Jay L. Zagorsky, Boston University and Patrick Abouchalache, Boston University

Christmas today is a big business, and one part of that is the multibillion-dollar business of selling Christmas trees. The U.S. Christmas tree industry is so large, it even has two dueling trade groups: one that supports natural trees and the other, artificial.

We are two business school professors whose students asked us to explain the economic impact of the winter holidays. In the holiday spirit of sharing, we’re giving you some facts to discuss while trimming your tree.

Where to buy a natural Christmas tree – or chop one down yourself

There are three different ways to get a natural Christmas tree.

First, you can go into a national forest and chop down your own. Relatively few Americans do this, even though a permit costs $10 or less, because government rules require that the tree you chop must be more than 200 feet from any road, campground or recreation area. Since dragging a tree destroys its branches and needles, the 200-foot rule means that large, heavy trees have to be carried a fair distance through often snowy woods.

Your second option is to buy or chop down a tree at a local Christmas tree farm. Christmas tree farms got a big promotional boost when Taylor Swift revealed she grew up on one, but she’s hardly alone: There are nearly 3,000 Christmas tree farms across the U.S., according to the Department of Agriculture’s most recent figures. These farms sell around 12 million trees a year.

While being a Christmas tree farmer sounds idyllic, it isn’t very profitable, since Christmas trees take over a decade to grow large enough to sell. Long lead times combined with changing and unpredictable weather have pushed many of these farms out of business. Almost 500 U.S. Christmas tree farms shuttered between 2014 and 2019, the USDA found.

The third way to buy a tree is from a local retailer that imports trees. In 2022, the U.S. imported almost 3 million natural Christmas trees, primarily from Canada. Imports have been growing steadily: In 2014, the U.S. imported only half as many trees.

Together, this means that in 2022, roughly 15 million locally grown or imported natural trees were sold in the country.

Some people like to buy their trees from a nonprofit, like the Boy Scouts. These fundraisers are also supplied from local Christmas tree farms or imports.

An artificial tree’s journey from China to your living room

Artificial trees are popular with people who don’t like the mess and fuss of natural trees. Replica trees primarily come from China, and most are made in the Chinese city of Yiwu. The U.S. imported over 20 million artificial trees in 2022 alone.

And they’re becoming increasingly common. In 2014, the U.S. imported 11 million artificial trees and sold almost 22 million natural trees. This means that back in 2014, almost two real trees were purchased for every artificial one. A decade later, natural tree sales had fallen to around 15 million, but over 20 million artificial trees were imported.

One result of the shift to replica trees is a reduction in house fires. Natural trees that aren’t watered dry out and sometimes catch on fire. In 1980, the U.S. saw about 850 Christmas tree fires that caused 80 people to be injured. Four decades later, the number of annual fires fell to 180, with only eight injuries.

Welcome news for shoppers. Patrick Abouchalache

Why Christmas trees are so expensive

Some people get sticker shock when they see how much Christmas trees cost. Those shocking prices don’t come from the wholesale level. Last year, wholesalers importing entire shipping containers paid $22 for each artificial tree, on average, according to U.S. government statistics. Importers of natural trees paid roughly the same price. Together, artificial and natural importers paid over a half billion dollars for trees to sell in 2022.

Unfortunately, there are no official statistics on how much Americans pay for Christmas trees at the retail level. There’s a general consensus that artificial trees cost more than natural trees, but the extra money may be worth it because they last more than one season.

Consumer surveys by the two competing trade groups suggest that people paid in the range of $80 to $100 for their trees in 2022. This means the markup on Christmas trees is around 400% to 500%. That’s about the same as a pair of designer jeans or a drink from a hotel minibar.

Multiplying the $80 to $100 price by the 15 million natural trees and 20 million artificial trees sold in 2022 means Christmas trees are roughly a $3 billion business annually — without including any extra money spent on the decorations.

So, with so many options, how do you settle on which sort of tree to buy? Price, environmental factors, convenience and even allergies are all important factors to consider. There’s no easy answer. One of us can’t decide and has multiple trees, ranging from a 12-inch artificial tree handed down from his grandmother to a 7-foot-tall natural Fraser fir purchased at his local Christmas tree farm.

Whatever you decide – natural, artificial, both or no tree at all – just remember to add a dash of cheer to your winter celebration. After all, the best things about the season are free.

Jay L. Zagorsky, Clinical Associate Professor of Markets, Public Policy and Law, Boston University and Patrick Abouchalache, Lecturer in Strategy and Innovation, Boston University

This article is republished from The Conversation under a Creative Commons license. 

Government and nonprofit workers are getting billions in student loan debt canceled through a public service program

The cost of that diploma could fall, depending on this little piggy’s career path. Rawf8/iStock via Getty Images Plus

William Chittenden, Texas State University

The Public Service Loan Forgiveness program, which the George W. Bush administration created in 2007 to encourage people to work for the government and nonprofits, has grown significantly during Joe Biden’s presidency. The Conversation asked economist William Chittenden to explain what this student loan program is, who is eligible and what has changed lately.

How does the Public Service Loan Forgiveness program work?

To qualify, borrowers must currently work for the government or a nonprofit.

Americans getting this debt relief include many nurses, teachers, first responders, Peace Corps volunteers and social workers.

Once enrolled, borrowers can have their remaining student loan balance forgiven if they remain employed in public service and make 10 years of monthly on-time payments.

The government can cancel only the balance of the direct loans the Department of Education makes through this program. Any student debt that borrowers owe private lenders remains outstanding.

Why are many more loans being forgiven now?

Borrowers began to apply in 2017, after the requisite decade of on-time payments, for their remaining balances to be forgiven. However, nearly all of these applications were rejected – about 98% of them.

The vast majority of these denials were due to technicalities. Many borrowers felt cheated after holding up their end of the deal but still finding themselves burdened with debts they didn’t believe they should have to repay. Some of them filed a class-action lawsuit, which the Biden administration settled in 2021.

Recognizing these concerns, the government streamlined and overhauled the Public Service Loan Forgiveness program.

The Department of Education announced several important changes in 2021. The federal government expanded the types of loans that are eligible for forgiveness and gave borrowers a way to get credit for past payments.

However, most student loan borrowers did not see the impact of this change until October 2023, when student loan payments resumed for other borrowers after being paused starting in March 2020 because of the COVID-19 pandemic.

How much debt has been forgiven so far?

An estimated 750,000 Americans have gotten US$53.5 billion in student debt erased through this program. That’s more than one-third of the roughly $132 billion in student debt relief the Biden administration says it has approved through late 2023 for 3.6 million borrowers, through several programs.

But the deleted debt has chipped less than one-tenth of the total outstanding debt off the government’s ledgers. About 43.6 million Americans owe a total of $1.64 trillion in federal student loan debt. Some of the Biden administration’s efforts to cancel larger chunks of this debt have failed because of legal challenges that went all the way to the Supreme Court.

The total amount of student debt, including both the federal and private varieties, declined slightly in the second and third quarters of 2023 because the value of the student loans paid off or forgiven exceeded the value of new student loans being issued.

There is currently no expiration date for the Public Service Loan Forgiveness program. However, some borrowers have only until Dec. 31, 2023, to try to consolidate their student loans so they can qualify for this program and some other kinds of student loan forgiveness.

What about people in college now or going soon?

Current and future college students will also be able to apply to the program if they embark on public service careers.

There are also several income-driven repayment plans that student loan borrowers can apply for. The monthly student loan payment under these plans is typically between 5% and 20% of the borrower’s monthly discretionary income, depending on the specific plan.

Any remaining loan balances will be forgiven after 20 to 25 years of on-time monthly payments. People who participate in an income-driven repayment plan can also apply to the Public Service Loan Forgiveness program.

An estimated 855,000 borrowers currently qualify to have $42 billion in loans forgiven based on making their student loan payments for the past 20 years.

What else is going on with student debt forgiveness?

Over the past few decades, many Americans took out student loans to attend a college or technical school that defrauded them. Others took out loans to enroll in schools that went out of business before those borrowers could complete their degrees. The Biden administration has made it easier for these people to have their loans canceled through the borrower defense to repayment program.

And the Biden administration has canceled $11.7 billion in debt owed by almost 513,000 borrowers with a total and permanent disability.

In addition, many borrowers have loan balances that have grown to a sum that exceeds what they originally borrowed. And there are Americans who have been paying on their student loans for at least 25 years. The Department of Education is also considering making these former students eligible for loan forgiveness.

William Chittenden, Associate Professor of Finance, Texas State University

This article is republished from The Conversation under a Creative Commons license. 

If you want to avoid ‘giving away your first born’ make sure you read the terms and conditions before signing contracts

Paul Harrison, Deakin University and Jeff Rotman, Deakin University

In 2019, a travel insurance company held a secret contest in which they included a line in the fine print of their policy promising $10,000 to the first person who spotted it.

Seventy-three policies were bought before the award was finally claimed. But those 73 who had obviously not read the policy, would not have been alone.

It seems most of us don’t read the terms and conditions of some relatively important, legally binding contracts before signing up.

In one study only 8% of people read a bank account contract, 19% a car rental contract and 25% a dry-cleaning contract before committing to a deal. Similarly, more than 80% of participants in a different study reported “not reading at all” or “not really” reading click through agreements.

A good reason to read a contract

Even more confrontingly, 98% of participants in another study effectively agreed to give up their first born child after supposedly having read the fictional terms and conditions of an agreement online.

The number of people who do actually read the terms and conditions may be even lower with another study finding only 0.1% of shoppers accessed the licence agreement and most only read a small portion.

Studies show very few people read contracts, let alone read them in full. Ralf Geithe/Shutterstock

Despite our best intentions, most of us simply sign terms and conditions, rarely read the fine print, and fail to appreciate the consequences.

However, once we are presented with a particular problem arising from or related to the contract, our attitude alters. Studies have shown the number of people who return to their contracts after a problem more than doubles for car rentals, triples for dry-cleaning issues and rises nearly seven times for a bank account.

Unsurprisingly though, most people don’t believe it’s their fault. Rather, they assume it’s to do with something they weren’t made aware of at the time of purchase or they believe it is easily fixed.

So, why don’t we read the fine print?

Like all things in human behavior, it’s complicated.

Some reasons given by consumers include terms and conditions are too long and time-consuming, they are full of legal jargon, they seem all the same, they are irrelevant and they have no choice but to accept them if they want the particular product.

They also believed if there was something wrong with the agreement somebody else would have pointed it out (and fixed it before them) and vendors are usually reputable so they wouldn’t be put at risk.

The last two reasons point to a rational tendency to equate low probability risks with zero probability risks, as well as to use mental shortcuts that simplify decision-making and align with a person’s beliefs. There are also social norms and signals for us not to read the contract, such as the expectation to “sign the form and keep moving”.

Problems arise in markets where it appears easy to switch from one contract to another, but where there are complex agreements, including telecommunications, banking, health insurance and gyms. These sectors might use strong marketing tactics, such as bundling offers, along with apparently easily accessible customer service, which can cause consumers to be overconfident in their dealings with businesses.

Sometimes it is simply the length and complexity of contracts that puts people off reading them. For example, assuming a reading rate of 240 words a minute, Spotify’s terms of service is estimated to take about 36 minutes, while TikTok’s would take 31. Microsoft would take over an hour. For comparison, reading all of Chinese war strategist Sun Tzu’s The Art of War would take only 50 minutes.

These extremely long policies, coupled with the fact individuals feel most information is unimportant, influence willingness to read the fine print. Realistically, failure to read the terms and conditions, particularly because contracts are rarely negotiable, seems like a perfectly rational response. This is made even more likely if we thinks the costs of reviewing a dense document outweighs its benefits.

Agreements are binding (kind of)

Legally, though, terms and conditions are enforceable and allow businesses to reduce costs that might otherwise be associated with bargaining.

Getting us to agree to the terms and conditions upfront also provides an opportunity for businesses to pass on certain risks to the consumer. Clearly this should be a concern for lawmakers. The idea of a well-informed consumer who understands their obligations and the rights under an agreement is a foundation of consumer law.

An unfair contract can be voided under consumer law. McLittle Stock/Shutterstock

The Australian Consumer Law does help reduce some risk by deeming terms of a standard consumer contract unfair if they have been presented unclearly or disadvantage one party, regardless of whether they have been accepted by the consumer.

However, it is unlikely most consumers read consumer law or use it given the complexity of challenging a vendor who is unwilling to abide by them.

Dealing with reality

If we are serious about the concept of the informed consumer, then we have to accept some realities.

We have to acknowledge consumer attention is limited and information overload and assymetry prevents people from comprehending what is and isn’t important.

We also have to accept the type of information and the way it’s presented does have an impact on whether people understand the consequences of signing an agreement.

Critically, most terms and conditions currently seem to be designed to protect the seller more than they are to help the consumer to make an informed choice.

Research does suggest consumers are more inclined to read terms and conditions before committing when the product or service cost is significant, the contract is perceived as short, and there is a belief they will be able to change or influence contract terms.

Indeed, if businesses seriously do want their customers to be informed, shorter, less abstract and more focused terms and conditions that highlight the critical information related to potential harm is one solution. Another might be to quiz participants with a short knowledge test as they sign the document to see if they have actually understood the agreement.

Or perhaps they could hide surprise $10,000 “Easter eggs” in their terms and conditions and create a culture of reward for effort, instead of the current deficit approach.

Paul Harrison, Director, Master of Business Administration Program (MBA); Co-Director, Better Consumption Lab, Deakin University, Deakin University and Jeff Rotman, Senior Lecturer in Marketing and Consumer Psychology & Co-Director of the Better Consumption Lab, Deakin University

This article is republished from The Conversation under a Creative Commons license. 

Building Your Dream Home Anytime, Anywhere

5 tips to create a comfortable forever home

For most homebuyers, their dream homes are not something they’re likely to find already on the market. With a unique vision of your dream home’s look, location and features, building a custom home is generally the easiest way to make that dream a reality.

To keep things moving as smoothly as possible amid what can be a complicated process, consider these tips as you embark on the journey.

Set a Realistic Budget

You’ll need to start by determining how much you can spend on your house. Typically, the cost of building a home is around $100-$200 per square foot, according to research from HomeAdvisor. You’ll also need to account for the lot price as well as design fees, taxes, permits, materials and labor. Materials and labor should make up about 75% of the total amount spent, but it’s wise to build in a buffer for price changes and overages. While building your budget, consider what items and features are “must-haves” and things that should only be included if your budget allows.

Identify the Perfect Location

Think about where you’d like to live and research comparable lots and properties in those areas, which can give you a better idea of costs. Because the features of many dream homes require a wider footprint, you may need to build outside of city limits, which can make natural gas more difficult to access. Consider propane instead, which can do everything natural gas can and go where natural gas cannot or where it is cost prohibitive to run a natural gas line. Propane also reduces dependence on the electrical grid, and a propane standby generator can safeguard your family if there is a power outage.

“As a real estate agent and builder, I have the pleasure of helping families select their dream homes,” said Matt Blashaw, residential contractor, licensed real estate agent and host of HGTV’s “Build it Forward.” “The homes we design and build are frequently in propane country, or off the natural gas grid. Propane makes it possible to build an affordable and comfortable, high-performing indoor living spaces and dynamic outdoor entertaining areas.”

Keep Universal Design Principles in Mind

Many homebuyers want to ensure their space is accessible to family members and guests both now and for decades to come. As the housing market slows and mortgage rates rise, buyers may look to incorporate features that allow them to age in place. Incorporating principles of universal design – the ability of a space to be understood, accessed and used by people regardless of their age or ability – can make it possible to still enjoy your home even if mobility, vision or other challenges arise as you age.

For example, the entryway could have a ramp or sloped concrete walkway leading to a front door wide enough to accommodate a wheelchair with a barrier-free threshold. Inside, wider hallways and doorways, strategic lighting and appliances installed at lower heights are mainstays of universal design. Counters of varying heights, drop-down cabinet racks and roll-under sinks in kitchens and zero-entry showers, slip-resistant flooring and grab bars in bathrooms offer enhanced accessibility.

Consider Alternative Energy Sources

With today’s electric grid, more than two-thirds of the energy is wasted; it never reaches homes. Unlike electricity, propane is stored in a large tank either above or below ground on the property. A 500-gallon tank can hold enough propane to meet the annual energy needs of an average single-family home – enough to power major systems in a home.

Propane pairs well with other energy sources, including grid electricity and on-site solar, which makes it a viable option for dual-energy homes. Like natural gas, propane can power major appliances such as your furnace, water heater, clothes dryer, fireplace, range and standby generator. Often, propane works more efficiently with fewer greenhouse gas emissions than electricity, meaning your home is cleaner for the environment.

Propane can even power a whole-home standby generator, which is often a big selling point. When a homeowner purchases a standby generator, a licensed electrician installs the unit outside the home and wires it to the home’s circuit breaker. When a power outage occurs, the generator automatically senses the disruption of service and starts the generator’s engine, which then delivers power to the home. From the warm, comfortable heat of a propane furnace to the peace of mind offered by a propane standby generator, many homeowners trust propane to provide a safe, efficient, whole-home energy solution.

Build a Team of Experts

Hiring the right people can make the process of turning your dream into reality go much smoother. Start by researching reputable builders, paying special attention to the types of homes they build to find a style that matches what you’re looking for as well as price ranges for past homes they’ve built. Consider how long the builders have been in business and if they’re licensed and insured.

Depending on your builder’s capabilities, you may also need to hire an architect or designer. In addition to your real estate agent to assist with purchasing the lot and selling your previous home, you may need assistance from other professionals, such as a real estate attorney, landscape architect and propane supplier. A local propane supplier can work with the builder to install a properly sized propane storage tank either above or below ground and connect appliances.

Find more ideas for building your dream home at Propane.com.

Propane-Powered Appliances

You may be surprised to learn propane can power major appliances, which can increase the value of a home because of their high performance, efficiency and reduced dependence on the electrical grid.

Furnace
A propane-powered furnace has a 50% longer lifespan than an electric heat pump, reducing its overall lifetime costs. Propane-powered residential furnaces also emit up to 50% fewer greenhouse gas emissions than electric furnaces and 12% fewer greenhouse gas emissions than furnaces running on oil-based fuels.

Boiler
Propane boilers have an expected lifespan of up to 30 years, but many can last longer if serviced and maintained properly. High-efficiency propane boilers offer performance, space savings and versatility as well as a significant reduction in carbon dioxide emissions compared to those fueled by heating oil.

Standby Generator
Propane standby generators supply supplemental electricity in as little as 10 seconds after an outage. Plus, propane doesn’t degrade over time, unlike diesel or gasoline, making it an ideal standby power fuel.

Clothes Dryer
Propane-powered clothes dryers generate up to 42% fewer greenhouse gas emissions compared to electric dryers. They also dry clothes faster, which can reduce energy use and cost.

Range
With up to 15% fewer greenhouse gas emissions compared to electric ranges, propane-powered ranges also allow for greater control of heat levels. Plus, their instant flame turnoff capabilities help them cool faster.

Tankless Water Heater
Propane tankless water heaters have the lowest annual cost of ownership in mixed and cold United States climates when compared with electric water heaters, heat pump water heaters and oil-fueled water heaters. They also only heat water when it is needed, reducing standby losses that come with storage tank water heaters.

SOURCE:
Propane Education & Research Council

Why inequality is growing in the US and around the world

Elon Musk is the world’s wealthiest person. Dimitrios Kambouris/Getty Images for The Met Museum/Vogue

Fatema Z. Sumar, Harvard Kennedy School

U.S. income inequality grew in 2021 for the first time in a decade, according to data the Census Bureau released in September 2022.

That might sound surprising, since the most accurate measure of the poverty rate declined during the same time span.

But for development experts like me, this apparent contradiction makes perfect sense.

That’s because what’s been driving income inequality in the United States – and around the world for years – is that the very rich are getting even richer, rather than the poor getting poorer.

In every major region of the world outside of Europe, extreme wealth is becoming concentrated in just a handful of people.

Gini index

Economists and other experts track the gap between the rich and the poor with what’s known as the Gini index or coefficient.

This common measure of income inequality is calculated by assessing the relative share of national income received by proportions of the population.

In a society with perfect equality – meaning everyone receives an equal share of the pie – the Gini coefficient would be 0. In the most unequal society conceivably possible, where a single person hoarded every penny of that nation’s wealth, the Gini coefficient would be 1.

The Gini index rose by 1.2% in the U.S. in 2021 to 0.494 from 0.488 a year earlier, the Census found. In many other countries, by contrast, the Gini has been declining even as the COVID-19 pandemic – and the deep recession and weak economic recovery it triggered – worsened global income inequality.

Inequality tends to be greater in developing countries than wealthier ones. The United States is an exception. The U.S. Gini coefficient is much higher than in similar economies, such as Denmark, which had a Gini coefficient of 0.28 in 2019, and France, where it stood at 0.32 in 2018, according to the World Bank.

Wealth inequality

The inequality picture is even bleaker when looking beyond what people earn – their income – to what they own – their assets, investments and other wealth.

In 2021, the richest 1% of Americans owned 34.9% of the country’s wealth, while average Americans in the bottom half had only US$12,065 – less money than their counterparts in other industrial nations. By comparison, the richest 1% in the United Kingdom and Germany owned only 22.6% and 18.6% of their country’s wealth, respectively.

Globally, the richest 10% of people now possess nearly 76% of the world’s wealth. Meanwhile, the bottom 50% own just 2%, according to the 2022 World Inequality Report, which analyzes data and the work of more than 100 researchers and inequality experts.

Drivers of extreme income and wealth

Large increases in executive pay are contributing to higher levels of income inequality.

Take a typical corporate CEO. Back in 1965, he – all CEOs were white men then, and most still are today – earned about 20 times the amount of an average worker at the company he led. In 2018, the typical CEO earned 278 times as much as their typical employees.

But the world’s roughly 2,700 billionaires make most of their money not through wages but through gains in the value of their stocks and other investments.

Their assets grow in large part because of a cascade of corporate and individual tax breaks, rather than salaried wages granted by shareholders. When the wealthy in the United States earn money from capital gains, the highest tax rate they pay is 20%, whereas the highest income earners are on the hook for as much as 37% on every additional dollar they earn.

This calculation does not even count the effects of tax breaks, which often slash the real-world capital gain tax to much lower levels.

Tesla, SpaceX and Twitter CEO Elon Musk is currently the world’s richest man, with a fortune of $240 billion, according to a Bloomberg estimate. The $383 million he made per day in 2020 made it possible for him to buy enough Tesla Model 3 cars to cover almost the whole of Manhattan had he wished to do so.

Musk’s wealth accumulation is extreme. But the founders of several tech companies, including Google, Facebook and Amazon, have all earned many billions of dollars in just a few years. The average person could never make that much money through a salary alone.

Another day, another billionaire

A new billionaire is created every 26 hours, according to Oxfam, an international aid and research group where I used to work.

Globally, inequality is so extreme that the world’s 10 richest men possess more wealth than the 3.1 billion poorest people, Oxfam has calculated.

Economists who study global inequality have found that the rich in large English-speaking countries, along with India and China, have seen a dramatic rise in their earnings since the 1980s. Inequality boomed as deregulation, economic liberalization programs and other policies created opportunities for the rich to get richer.

Why inequality matters

The rich tend to spend less of their money than the poor. As a result, the extreme concentration of wealth can slow the pace of economic growth.

Extreme inequality can also exacerbate political dysfunction and undermine faith in political and economic systems. It can also erode principles of fairness and democratic norms of sharing power and resources.

The richest people have more wealth than entire countries. Such extreme power and influence in the hands of a select few who face little accountability is raising concerns that are part of a robust debate on whether and how to address extreme inequality.

Many proposed solutions call for new taxes, regulations and policies, along with philanthropic strategies like using grants and community-based investments to dismantle inequality.

Voters in some states, like Massachusetts, voted to raise taxes on the income earned by their richest residents in ballot initiatives in November 2022. Proponents of these initiatives claim the revenue raised would boost funding for public services, such as education and infrastructure. President Joe Biden is also proposing to almost double the top capital gains tax for those making over $1 million.

However societies choose to act, I believe change is needed.

Fatema Z. Sumar, Executive Director of the Center for International Development, Harvard Kennedy School

This article is republished from The Conversation under a Creative Commons license.