Archive for Global Warming

Making Carbon Pricing Work Better

When it comes to the most economically efficient way to reduce Greenhouse Gas Emissions(GHG), the economic consensus is that a carbon tax, or, failing that, a carbon trading scheme is the best way to go. The idea is that a price for carbon will raise the cost of carbon-producing activities, nudging people and companies towards less harmful behavior.

I have a problem with this line of reasoning, since it rests on the false assumption that price signals are the most effective way to change behavior. That’s true is an economist’s ideal efficient market, but a moment’s reflection shows that the markets we want to affect are far from efficient.

Electric utilities are regulated entities, and hence insulated from market forces. Consumers don’t respond well to price signals either, because most don’t understand where they are wasting energy. If they did, there would be a run on caulk to air seal homes, since the payback from air-sealing can be a matter of weeks. If a 1000% annual return from air sealing is not enough to get people to spend a little time with a caulk gun, is increasing the return to 1200% with a carbon tax really going to make a difference?

Compact fluorescent bulbs are another excellent example of how the energy market often fails to be efficient. The payback on CFLs is usually on the order of months, but uptake was very slow until recently, now that higher wattage incandescent bulbs are being phased out. By regulation.

The adoption of CFLs is a concrete example where the most economically efficient outcome is being achieved by regulation, after years of failure by market forces.

I had just finished making the above case to an economist at a mixer at The Cary Institute in Millbrook, NY when I was asked to write for a public radio program sponsored by the Institute.  Earth Wise logo I had been talking to the Institute’s volunteer coordinator about opportunities that make use of my skills, and she hit on helping them write some segments for Earth Wise, a daily 2 minute radio program on WAMC.

So I went home and wrote up my ideas, outlined above, on carbon pricing.  The first draft did not work for them, since they had aired a program in favor of a carbon tax, so I re-wrote it with a focus on making carbon pricing more effective by making the energy market more efficient.   The result aired on July 3rd, and you can listen to it or read it here: http://wamcradio.org/EarthWise/?p=2668.

With only two minutes, it’s an interesting exercise of packing my ideas into just 280 words, especially considering that for me, 600 words is what I consider a short peice, and it’s not unusual for me to write several thousand.

For future episodes, I plan to tackle less complex subjects.

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Pink Slime is Green

I’m getting tired of the knee-jerk reactions to all the pink slime controversy from the environmental establishment. Like this one, which spured this article.

I totally agree that pink slime is gross, but so is digging through your trash for recyclables, toilet-to-tap water recycling. But both are very green.

Likewise, industrial processes like CAFOs and pink slime are not all bad- the good and the bad have to be carefully weighed… we should not dismiss one side just because it is gross.

Grass-fed cows produce more methane per pound of beef than CAFO cattle (because the latter gain weight faster.)

And “pink slime” is a way to use parts of the cow which would otherwise be thrown away. If we use 15% pink slime as a filler in our hamburger, we reduce the environmental impact of that hamburger by approximately 15% (as something which would otherwise be waste, pink slime has no negative environmental impact, except for that caused by processing it, and has some positive impact because it’s not rotting and producing methane in a landfill somewhere.

Pink slime is an environmental innovation. It only started being gross when we started talking about it. So do the planet a favor, and stop worrying about what’s in your burger.

Unless you’re ready to give up the burger altogether.

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Risk Aversion and Pricing Climate Risk

I felt the “Editor’s Corner” article in the most recent Financial Analysts Journal (Sept/Oct 2011) “Pricing Climate Change Risk Appropriately” does an excellent job explaining why the possibility of extreme climate scenarios justifies a considerably higher price for carbon than would be warranted under the most likely or average scenario: Humans are risk averse.

Equities… have low prices (and high expected returns) because their cash flows are discounted by society at high rates. The reason has to do with the anti-insurance aspect of equities: Their cash flows are highest in good states of nature whereby the value placed on the cash flows is low. In contrast, efforts to mitigate climate change by pricing carbon emissions will be most valuable to society if climate change turns out to have catastrophic consequences for society’s well-being. Because of this insurance aspect, society should be willing to pay higher prices for climate change mitigation.

FAJ Executive Editor Robert Litterman goes on to explain the mechanics behind carbon pricing models and their flaws, as well as why equity analysts are uniquely qualified to do these assessments.

I’ve long thought that financial market theory is uniquely applicable to understanding climate and the measures needed to mitigate climate change. what I don’t understand is why I hear so few analysts talking about it, so it was very refreshing to come across this article applying a deep understanding of economic pricing theory to what the greatest challenge the world will confront in the 21st century.

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Chaos Theory, Financial Markets, and Global Weirding

In my bio,
I usually state

My study of chaos theory led to my conviction that knowing the limits of our ability to predict is much more important than the predictions themselves, a lesson I apply to both climate science and the financial markets.

Despite having written about financial markets and clean energy stocks regularly since 2006, I have never before explained in print what I meant by that.  This summer’s heat wave and stock market turbulence illustrate how my intuition about chaos theory informs both my understanding of the climate and the stock market.

Chaotic Systems and Feedback

Poisson Saturne AttractorThe definition of a chaotic system I use is any system in which a tiny change in initial conditions can lead to a large change in results. 
Most chaotic systems are chaotic because they contain positive feedback.  Positive feedback tends to amplify trends over time, while negative feedback tends to reduce trends over time.  Complex systems such as climate and the financial markets have both positive and negative feedback. 

In the weather, we can see positive feedback when a series of hot, sunny days create a static high pressure system which keeps storms from moving in to cool things off.  When a storm does move in, you can get positive feedbacks cooling things off.  National Weather Service forecaster Daryl Williams said the following about a storm which broke the summer heat wave in Oklahoma: “It’s kind of feeding on itself, cloud cover and rainfall cools the air and the ground.” (italics mine.)

In stock markets, financial bubbles grow with the help of several types of positive feedback.  One such is “The specious association of money with intelligence,” as John Kenneth Galbraith described it in his short and very readable book on bubbles, A Short History of Financial Euphoria: Financial Genius is Before the Fall.  When we see others make money in a stock market rise, we tend to think they must have been smart to have known when to get in.  If we made money recently by buying stocks, we tend to think we are smart for having done so.  In both cases, we’re more likely to think that buying stocks is a smart thing to do, even if the profits were just dumb luck.  Collectively, this leads to more buying, which further raises prices.  Even if those price rises are justified in the beginning, the positive feedback can carry them up far beyond any level justifiable by the value of the underlying companies.  Many other positive feedbacks such as the wealth effect, relative valuation methods, and the increased ability to borrow against inflated asset prices operate in financial bubbles and bull markets.  In contrast, fundamental and value investors produce negative feedbacks by buying when prices have fallen and selling when prices have risen.

As with weather, external shocks to the system can reverse even these self-reinforcing trends, as we recently saw when the US’s political paralysis around the debt ceiling debate and Europe’s inability to effectively deal with their debt crisis recently ended the two year bull market in July.

Lorenz attractor 


Strange Attractors and Regime Change

Highly complex systems which have both positive and negative feedbacks tend not to be chaotic all the time, but rather exhibit chaotic behavior only some of the time.  The system will behave quite predictably in a deceptively regular fashion for a while, but then shift with little warning into another mode of behavior that is
also regular and predictable, but seems to follow a different set of rules.

Such behavior can be mapped with simple chaotic systems and often exhibits a pattern called a Strange Attractor, two of which are pictured with this article. 
As the system moves through such a strange attractor, it will often stay in one set of the rings curves shown for an extended period, before jumping to another set after an unpredictable period.

In the weather, we see this sort of behavior with extended heat waves, cold spells, or periods when it is hot in the morning followed by an afternoon thunderstorm.  Such patterns persist for days or weeks, but then quickly end to be replaced by a new pattern or a period of less predictable weather.

In the stock market, we have bull and bear markets.  In bull markets, good news is greeted with euphoria and strong stock buying, while bad news is discounted or ignored.  In bear markets, the opposite is true: good news is often ignored, while bad news leads to repeated bouts of selling.  In his excellent but somewhat
inaccessible book, The Alchemy of Finance, George Soros describes how he tries to spot such tipping points or regime changes as they happen.  Much theoretical work has been done to understand and model such changes, but the lesson I draw from chaos theory is that recognizing such changes in hindsight may be simple, but predicting them in advance is and will continue to be extremely difficult.  That’s probably why Soros did a much better job describing market regimes than explaining how to spot them. 

Nassim Taleb also addresses regime change in chaotic systems in his book The
Black Swan
http://www.assoc-amazon.com/e/ir?t=&l=as2&o=1&a=081297381X&camp=217145&creative=399369″ alt=”” style=”border:none!important;margin:0!important;” border=”0″ height=”1″ width=”1″>.  His Black Swans are events which cannot be predicted solely by studying the past.  Such events occur, he says, because the rules we infer from the observation of events never contain the full range of possibilities.  He applies this lesson to societal events, personal experiences, and financial markets– all of which are chaotic systems.  There are also climatic Black Swans.

Global Weirding

If you accept that the world’s climate is a chaotic system
characterized by a strange attractor and a large number of climate regimes such as ice ages and warm periods, you should also accept that the relatively small changes we are making to the atmosphere have the potential to shift the world’s climate into a new regime where the weather patterns humanity is familiar with are replaced with a new set of patterns that we’ve never seen before in human
history. 

We are already aware of a few positive feedback mechanisms with the potential to amplify the effects of climate change, such as the ability of a release of methane from arctic permafrost and clathrates to rapidly accelerate global warming, or the disruption of the North Atlantic current due to melting polar glaciers.  Such scenarios are chilling enough, but the knowledge that climate and weather are a chaotic system raises the possibility of yet unknown mechanisms that might create rapid climactic shifts.  In a chaotic system, the past is not always a reliable guide to the future.  Climactic past performance is
no guarantee of future climactic results.

“Global Warming” can sound somewhat comforting.  “Climate Change” can sound clinical and distant.  A better description is “Global Weirding:” the climate is not becoming a warmer version of what we’re used to, it’s becoming an entirely new system, with a new set of patterns that will surprise anyone expecting a version of the old climate regime.

Conclusion

There is only one climate, while there are hundreds if not thousands of financial markets operating at any one time.  Financial markets also operate on a much more compressed time scale, with bubbles and busts compressed into a few short years or decades.  Ice Ages, on the other hand, last tens of millions of years. 

This difference financial markets and climate in number and scale means that we know much more about the chaos of financial markets than the chaos of climate.  We’ve probably already seen most possible financial market regimes in at least one of the thousands of financial markets, from tulip bulbs to CDOs, that have operated
over the course of human history.  Although the rules of markets change with new technology and communication, the basic rules of human psychology which govern these regimes have not.  To paraphrase Mark Twain, financial history may not repeat itself, but it does rhyme. 

Climactic history may also rhyme, but we’ve not yet read a full line of the poem: We don’t know what it will rhyme with.  Ice ages and warm periods often last tens of millions of years.  Given the infrequency of shifts between one climactic regime and another, it’s quite likely that the new climactic regime we are heading into will be unlike anything that has prevailed during human history, and possibly unlike anything in the geologic record.

The benefit of the slow pace of climactic history is that we do have a few years or decades during which we will be able to influence the path of global weirding. 

In a chaotic system, a tiny change today can lead to a large change in future outcomes. 

What tiny change are you making?

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Wind Power: Cool Breeze or Hot Sirocco?

Jamie Bull brought to my attention a paper saying that land based wind turbines are likely to create a small degree of earth surface warming.

Jamie was concerned that there might not be a net surface cooling, even once the effects of reduced greenhouse gas emissions were taken into account. He did some calculations, and showed that the net effect of wind power on surface temperatures was still strongly negative.

He need not have worried. An understanding of the mechanism of this surface heating, and the conservation of energy make it clear that the surface heating effect of wind is smaller than the surface heating effect of thermal electricity generation such as coal, gas, nuclear, and Concentrating Solar Power (CSP) on a per kWh basis.

Conservation of energy tells us that all the energy in wind is eventually dissipated by friction, creating heat. The effect of wind turbines is to take some of this energy that might have become heat in the atmosphere, and create electricity, which will eventually become heat on the earth’s surface, and some will become heat in the turbine itself.

The net heat added to the Earth by wind turbines is zero: heat that would have been created in the atmosphere is now created on the surface instead, and the net effect is zero.

Now consider thermal electricity generation. When a fossil fuel is burned, or when a nuclear power plant or CSP plant makes steam, heat is either created from a fuel or captured from the sun, reducing the amount that would reflect back into space. All this heat is dissipated at some point near the earth’s surface, creating more surface warming than wind power, and also creating net warming where wind power creates none.

The direct surface heating effect from wind is likely to be only a fraction of the direct surface heating effect of thermal electricity, even before the effects of greenhouse gasses are accounted for.

Solar PV and Solar CSP capture heat from the sun that might otherwise reflected into the atmosphere, so more precise calculations are probably needed to determine if their net effect is negative before the effects of greenhouse gasses, but wind is clearly cool by any thermometer.

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Shale Gas: Not Clean, Either?

Not only are there serious questions about just how abundant natural gas from shale plays is, it now turns out that this “Cheap, Clean, Abundant, and Domestic” resource may turn out to only be domestic.

In a draft paper, Cornell researcher Robert Howarth calculates that, when methane leakage from hydraulic fracturing is included, along with secondary contributions from forest clearance and water transport are included, the carbon footprint of shale gas is slightly worse than coal’s.

Source: Robert W Howarth, Preliminary Assessment of the Greenhouse Gas Emissions from Natural Gas obtained by Hydraulic Fracturing

via Peak Oil Review

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Climate Denial: Past Peak

RealClimate has an article outing "The 2008 International Conference on Climate Change" as a publicity event to generate reports in the press of a lack of consensus in the scientific community about anthropogenic Climate Change.

I was struck by this quote:

they are offering $1,000 to those willing to give a talk. This reminds us of the American Enterprise Institute last year offering
a honorarium of $10,000
for articles by scientists disputing anthropogenic climate change. So this appear to be the current market prices for calling global warming into question: $1000 for a lecture and $10,000 for a written paper.

That’s a high price, since serious scientists usually happy to deliver lectures on their scientific work for free.  I can only conclude that we have passed "Peak Climate Denial" and that, because demand for "scientific" papers continues to be funded by industry lobbies such as the Heartland Institute and the American Enterprise Institute, the price has had to rise in the face of diminishing supply (i.e. scientists willing to destroy their reputations for money.)

Unfortunately, accurate data on the Climate Denial Reserves and Prices are scarce, but these prices make me think we’re well past peak (or at least on an undulating plateau.)   Fortunately, society will continue to function (and most likely run better) when Denial Depletion reduces Denial Reserves to a few crazy bloggers in dark corners of the Internet.

 

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Off topic: How Do the Candidates Stack up on Clean Energy?

A trip down to the local national party offices to participate in a press conference asking the presidential candidates to pledge their support for clean energy legislation got me thinking about the candidates… I wasn’t sure which candidate has the best clean energy platfom. So I spent a day reading thorough thier platforms, and came to a surprising (to me answer).2008 Election

You can read how I think the candidates’ platforms compare on clean energy here.

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July 20th–Denver–The Science of Climate Change

Please Join Us on July 20th-9-4 at the Adams Mark Hotel, Denver—Colorful Poster
Attached—Please Post—Thanks!

Take Advantage of Colorado’s Amazing Experts
on Climate Change Science!

 

If we
are going to address the problem of climate change we have to be clear on what
the scientists are telling us—and there is much more to the story than the
media have told us. Please join us on July 20th for a day long
workshop of essential information delivered by some of the world’s top
climate change scientists. Poster and Agenda attached and Agenda copied below.
Please join us—and pass the word!  

 

 

 

 

 

 

 

 

Citizens Working to Bring Clean Energy Solutions
to
Colorado

www.cleanenergyaction.org

 

The Science of Climate Change and
Leadership in

the Greenhouse Century

 

Friday July 20, 2007,
9am-4pmAdams
Mark Hotel,
Denver, Colorado

How Urgent is the Problem? How Long Do We
Have to Make the Needed Changes?

These World Class Scientists Will Bring Us
the Latest Information

Confirmed Speakers in Bold

 

 8:15- 8:45   
          Registration

 9:00 -9:15   
          Welcome and
Introductions

 9:15-10:00  
          “Leadership in the Greenhouse
Century: A Citizen’s Perspective”

                            
                  
Leslie
Glustrom, Clean Energy Action

10:00-10:15 
          Break

10:15-11:00 
          “CO2—Where Does it Go
and How Long Does It Stay There?”

                            
                  
Dr.
Pieter Tans, NOAA

11:00-11:45           
“Coming Climate:
Thresholds, Feedbacks and Predictable Surprises”

                            
                  
Dr.
James White, CU-Boulder
 

11:45-1:00            
Lunch (On Your Own)

1:00 – 1:45            
“Leadership in the Greenhouse Century”

                            
         
        
Governor Bill Ritter or
His Representative—Invited

1:45  -2:30            
“Leadership in the Greenhouse Century—A Republican Perspective

                            
         
        
Mike Bowman  25 x25

2:30-2:45              
Break

2:45-3:30              
Climate
Impacts and
Colorado: Bringing it All Home”

                            
                  
Dr.
Martin Hoerling, NOAA

3:30:4:00               
Wrap-Up Discussion

                            
                  
Members of Clean Energy
Action

                            

Registration–$30/person–before July 17t;
$50 after July 17th

Call 303-245-8637 or send an e-mail to lglustrom@gmail.com to reserve a seat

Organizational Pass for NonProfits, State Agencies and
Companies with Fewer than 15 Employees–$150

Organizational Pass for Companies with More Than 15 Employees–$300

Organizational Passes Provide Unlimited Attendance for the
Organization; Must be Reserved by
July
17, 2007

 

If you live on this planet you should be
there!

 

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Stocks for High Waters

My AltEnergyStocks column this week is about preparing yourself financially for the possibility of rising sea levels due to global warming.

I’ve been rather gloom-and-doom recently, with this and my article from a fortnight ago about preparing for Peak Coal.

Let’s hope that I’m just moody because of all the studying I’m doing for the second CFA exam (which is why entries here have been short and far between.) I plan to get back in the swing of things in late June, after the exam, the Colorado Renewable Energy Conference (there will be a session on “Investing in Renewable Energy”, led by Yours Truly), and a vacation. My wife and I want to see Glacier National Park before it becomes The National Park Formerly Known as Glacier.

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TXU goes Nuclear- (rant)

A Wall Street Journal article today reports that TXU is planning on using nuclear power to replace the coal plants which they shelved recently.

This drives me batty. I do think that nuclear power is better than coal, and even better than IGCC, but basically substituting nuclear power for coal power is just replacing one nasty externality (CO2 emissions) with another: adding to the risk of nuclear terrorism and waste disposal problems.

When expected costs of CO2 are factored in, the price of nuclear power does looks good. But I ask the same question people are finally asking about global warming: “What’s the business case for destroying the planet?”

Here’s what we should be thinking for our baseload energy needs:

  • Energy Efficiency…. 1-3 cents per kWh
  • Concentrating Solar Power with thermal storage…. 10-15 cents per kWh (and dropping)
  • Wind power, combined with pricing mechanisms to shift demand…. 4-6 cents per kWh
  • And for peaking power:

  • Demand Response
  • Time of Day Pricing
  • Concentrating Solar Power with large scale thermal storage and an oversized turbine
  • Eight steps forward… six steps back. Do we really need to dig up mountains for uranium instead of decapitating them for coal?

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    Colorado News: Doubling of Colorado’s RPS

    Colorado House Bill 1281, which doubles Colorado’s Renewable Portfolio standard (RPS) (as well as the solar set-aside) passed the state Senate on Friday, and is certain to be signed into law by state lawmakers.

    Here’s how the new requirements stack up against the old Amendment 37 requirements (passed by a popular vote in 2004.)

    rps.GIF
    Not exactly a “doubling,” but is there a better way to describe it?

    “A37″ are the old requirements for investor owned utilities (affectionately known as IOUs,) “HB 1281″ are the new requirements for IOUs, and “Co-ops” are the new requirements for Rural Electric Co-ops (which previously had an opt-out, although a few decided not to opt out.)
    The opt-out contained a provision that each Co-op’s members (i.e. customers) vote to opt out, which most of them proceeded to do (one exception is Holy Cross, which chose not to opt out, however, this has led to some contention with Xcel as to whether or not their existing power purchase agreement with Xcel included the renewable energy credits (RECs) associated with Xcel’s generation of electricity from renewables… since both utilities use these RECs to meet their requirements.)

    While the opt-out elections all seem fair and democratic, that is before you realize that all the information most members were getting was coming from their co-op’s management. This is fine with progressive co-ops like Delta-Montrose and Holy Cross, but when it comes to troglodytes such as the management of the Intermountain Rural Electric Association (IREA), it’s a little more Orwellian.

    In the recent House and Senate hearings, IREA was arguing for another opt-out from HB 1281, arguing that IREA’s members had voted against it in the first election, and that it would force IREA to raise rates (despite the fact that the bill specifically states that rural co-ops only have to meet its requirements if they can do so with less than a 1% rate increase (the more stringent requirements for IOUs can be met with an up to 2% rate increase.) In some ways IREA’s failure to get their opt-out into HB 1281 was due to their own maneuverings. In response to IREA’s funding of a global warming skeptic this summer led many of IREA’s members to wonder what else Stan Lewandowski was doing with their money that they did not know about. They founded IREA Voices to try to get a greater say in how their customer-owned utility is run. (If you know anyone who lives in IREA territory (just south of the metro Denver area, make sure they know to vote for the IREA Voices candidate in their district. (Mike Kempe, Mike Daniels, or Jake Meffley, if one appears on the ballot that came with their last IREA bill.) If you don’t live in thier districts, they are funding their campaigns out of their own pocket, plus any donations. Help out if you can!

    It’s ironic that co-ops, which supposedly exist to serve the best interests of their members (as opposed to shareholders) are often the laggards (and in IREA’s case, even deniers) of the environmental effects of our reliance on coal for electricity. I believe that Stan Lewandowski believes he is doing the right thing by trying to keep rates down, and damn everything else, but in the end, the farmers he feels he is serving will be the ones who suffer some of the worst effects of global warming.

    Anyway, it looks like momentum is finally on the side of those of us that realize the magnitude of the disaster facing us, but time is also of the essence, and the faster groups like IREA Voices can catalyze change, the better for all of us.

    So let’s cheer Colorado’s doubling of the Renewable Portfolio Standard, but let that one victory inspire us for the struggles ahead. We’re a long way from the time when we can declare victory and go home.

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    MIT Study: IGCC may not be better for Carbon Sequestration

    There’s a new study out from MIT which questions the received wisdom that IGCC or “Clean Coal” plants “will make it easier and cheaper to capture carbon dioxide, compared with collecting it from the smokestacks of conventional power plants.” The study calls for “large-scale demonstration programs that would, for the first time, capture carbon dioxide from coal plants, transport it, and store it at a large scale.”

    While I disagree with the assertion that “coal… will continue to be a major source of electricity,” the reason I think that coal will not make the cut when the true costs of the associated emissions and environmental damage from mining are taken into account, the reason I believe this is that the costs of carbon capture and sequestration are likely to be much higher in reality than they are in theory, especially when we are attempting to sequester a “volume of compressed carbon dioxide … similar in scale to the amount of oil consumed in the United States,” and so we will no longer be able to use it only in places where it is actually useful, such as in enchanced oil recovery.

    For this reason, I totally concur with the conclusion that we need to start doing large scale CO2 sequestration now, so we can decide if there is any hope of it working before we throw tons more money at cola plants (either conventional pulverized or IGCC) in the hope that some time in the future we’ll figure out some economic way to shove the carbon that we should have left underground in the first place back underground.

    On the bright side, it looks like American Electric Power (NYSE: AEP) is trying large scale carbon capture and sequestration (CCS). I hope they can get it to work at reasonable cost… if CCS could be made to work cheaply, we could start capturing CO2 from biomass power plants, and have carbon-negative electricity.

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    How Your Money Made the TXU deal happen

    Most of the readers of this blog are not investors in the Texas Pacific Group or KKR, but you did have a role in making the private equity deal that has everyone in the environmental community (not to mention the private equity world) talking.

    Here’s what you did: You didn’t invest in TXU Corporation (NYSE:TXU). As any regular reader of this blog knows, I’m a big proponent of putting your money where your mouth is, especially when it comes to staying away from companies whose operations would increase the severity of climate change. And, until a couple weeks ago, TXU with their 11 planned pulverized coal plants was public enemy #1 when it came to future carbon emissions.

    My readers, socially responsible mutual funds, other like minded people, and other investors who were worried about carbon risk stayed away from TXU in droves, and because of that, the stock was lower (how much we’ll never know,) which made it easier for Texas Pacific and KKR to offer a 25% premium, which in turn should be enough to entice current TXU investors to give up their stock in the buyout.

    It’s easy to see this deal is a back room affair between a bunch of filthy rich folks, TXU management, and the leaders of a couple national environmental groups, with the little guys (like the New York Times, who originally saw the merger as a private equity endorsement of TXU’s high-carbon generation strategy left in the dark.

    The greatest risk for those of us fighting climate change is despair. Climate change is a giant problem, but we can make big changes if we all pitch in to help. To all of you who did your little part to make the deal happen (even if there are still some doubts as to the final results), I want to say,

    “Thanks, and keep up the good work.”

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    Holistic Approaches to Energy Problems

    H. L. Mencken said, “For every human problem, there is a neat, simple solution; and it is always wrong.”  When it comes to solving the problems of peak oil and global warming, I also think that the loudest barking is up the wrong tree.  We look for the quick fix, trying to find a substitute energy source that allows us to change the way we do things little as possible, when the real problem is actually what we’re doing, not how we’re doing it.   We need holistic solutions, not quick fixes.

    Too abstract?  Here are some concrete examples:

     Problem: Peak Oil

    Quick fixes: Ethanol and slight increases in vehicle efficiency standards.

    Holistic solutions: Change our driving culture and infrastructure, by changing the way car use is priced from fixed charges to a per mile basis (“Pay as you drive”).   Removing subsidies to use cars when other forms of transport are available, and redesigning our cities to make them easier to get around on foot, bike, and public transport.  Like other holistic solution, all these steps increase safety and reduce congestion, reduce obesity and associated health problems, as well as reducing the use of gasoline.

    Problem: Wind and Solar are intermittent resources, but coal produces too much CO2 and natural gas prices are rising rapidly.

    Quick Fixes: Nuclear power and “Clean” Coal.

    Holistic Solutions: Shift our demand for electricity to times when it is available, by using time of use pricing, energy storage and demand alignment, and distributed energy storage such as plug in hybrid vehicles.

    Investing opportunities:On thing that’s striking about these examples is it’s much easier to find investment opportunities in the quick fixes than in the holitistic solutions.  To invest in ethanol, you can just buy ADM or one of the multitude of ethanol stocks that have been going public recently, but I have yet to come up with a satisfactory way to invest in better urban planning (except buy a house in a walkable community, which is something I’m planning on doing this summer.   Stapleton is the community.  I currently live there, but I’ve been renting and waiting for the end of the housing bubble.  I actually don’t think that housing is going to go up again any time soon, but I’m tired of waiting.) 

    The investment landscape is a little better when it comes to energy management.  Itron and Siemens both have divisions that help utilities manage their grids better, and there are many battery and other energy storage companies to choose from.  Still, it’s a lot harder to pick through battery companies than to just buy a nuclear powered utility or uranium miner.

    Holistic solutions, by their nature, have weak boundaries… the benefits tend to be diffuse, and spread over society as a whole, so it is difficult to charge fairly for them.  This, I think, is why there are so few companies pursuing them when they can pursue a quick fix that they can charge for up front.  

    Companies have an obligation to their shareholders to make money.  It’s our job, as human beings, to work towards regulations that make it easier for companies to make money with holistic solutions that actually solve the problem than it is to make money with quick fixes that just cover the problem up.

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    The Economist on America’s Green Shift: The States Lead

    The greening of America

    I’m compelled to share the cover image of this week’s Economist magazine.   The cover story is on the shift of the US’s shift towards greenery.   It’s an overview article, covering many of the recent political developments.  Their main point is that the current greenery is bottom-up, not top-down imposed by the federal government.

    They feel that the drivers of the political shift are:

    1. Voter reaction to increasingly frequent intense weather events, especially hurricane Katrina.  Climate researchers expect violent and erratic weather due to global warming.
    2. Self preservation on the part of Republicans.  The only Republican who weathered the November elections well was the quite green Governator.
    3. Energy security worries (a two edged sword.)
    4. Businesses, who recognize the inevitability of climate controls, and so want to be part of the process of designing them.

    They seem to expect rapid change due to this state-driven momentum.  Here’s hoping. 

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    Win-Win Auto Insurance

    On Thursday, I attended NREL’s Energy Analysis seminar, which this week featured Todd Littmann of Canada’s Victoria Transport Policy Institute, on Win-Win Transportation Solutions.

    As an economist focused on policy, Todd Littman Photo of Todd Littmanhas done a lot fo thinking about what are the costs to society of transport, and what sorts of perverse incentives are there that are making these costs much higher than they would be otherwise.  He has a ton of extremely interesting ideas which will be useful to reduce transportation energy use for little or no cost, by simply removing perverse incentives.  I’m only going to go into a couple that I thought were most surprising or innovative here, so I urge you to read the whole paper on which his talk was based on VTPI.org.

    One surprising result for me was that the greatest costs to from driving may not be the costs of gas, pollution, or global warming, but the cost of accidents, which are infrequent, but can be extremely expensive.  Even before adding in additional costs of congestion, wear on roads, etc., you do not need to be concerned at all about global warming to want to reduce vehicle miles traveled.

     And reducing vehicle miles a is far more effective and quick way of reducing transportation energy use (as well as vehicle accidents) than improving vehicle efficiency.

    He has many ideas on cost neutral ways to reduce vehicle mileage, from broadly discussed ones such as smart growth, price shifting fuel taxes, and road and congestion pricing, and he does analysis on how cost effective all of these are.

    What really got me to sit up and pay attention was an I dea I had heard no where else, which was all the more interesting because he feels it is the most cost effective (in fact, cost-negative: it pays more than it costs) method of reducing vehicle use: Pay-As-You-Drive pricing.  The idea is simple: instead of paying vehicle registration and auto insurance based on how long we have the car, we should pay based on how far we drive it.  

    Since the safest place for out vehicle is in our garage (including theft and hail damage) this makes more economic sense than the current monthly payments for auto insurance, and since the costs we place on the transport system also increase the more we drive, it also makes sense for vehicle registration fees.   Because rich people with fancy cars not only tend to drive more than the poor, but because their registration fees are also already higher than those for inexpensive cars, this may even make the fees more progressive than they currently are, but some fine-tuning may be needed.

    Since this is a purely regulatory reform, costs of implementation are minimal, consisting of only an annual odometer audit after the system is set up; an audit which could easily be combined with other scheduled service to minimize the cost.

    According to his numbers, pay as you drive insurance and registration would average about 21 cents a mile for most people (about twice the cost of gasoline,) which I can easily see as enough to make most people think harder about how to maximize how efficiently they drive, or even consider public transport where it is an option… most public transport would become much more cost effective for people, without adding to their financial burden.

    You might worry that people with long commutes and no public transportation might be unduly burdened by this shift, but we need to remember that they already pay more for auto insurance, because these are questions the auto insurance company asks.  The big difference is that there would be an increased marginal cost of driving, and it is the marginal cost of an activity that has the greatest effect on behavior, not the average or total cost.

    The Vattenfall Institute recently found that the cost of stabilizing the United States’s share of CO2 concentrations at 450 ppm by 2030 would actually be negative, and it’s innovative solutions like those coming out of VTPI that let us get paid to cut emissions.

    What are we waiting for?

    Links: Victoria Transport Planning Institute: www.vtpi.org

    Win-Win Transportation Solutions

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    Trees and Carbon Offsets

    There’s an article in the Christian Science Monitor by  Moises Velasquez-Manoff discussing attempts to standardize the quality of carbon offsets.  Carbon offsets are a big concern to me, especially when a lot of the offsetting is in the future, as is the case with planting trees.  From the box at the end of the article:

    And unless a forest is permanent (and who can guarantee that?), trees only temporarily sequester atmospheric carbon. When they burn or decompose, the carbon they contain is released back into the atmosphere. In tropical countries, where trees are most effective as a cooling agent, they’re often up against poverty and political instability. “Does some guy wake up and say, ‘Now I’m the dictator of the country. I want a golf course?’ ” says Michael Dorsey, a professor of environmental studies at Dartmouth College in Hanover, N.H. “There’s the big issue.”

    Another issue is that trees may e like the old saw about the insurers: someone who lends you an umbrella, but takes it away when it starts to rain.   In the Western US and Canada (as well as many other parts of hte world,) our forests are rapidly dying due to a bark beetle infestation brought on by persistent drought and not enough frost… which makes the ultimate cause of the dieback Global Warming.

    My worry is this: you plant a bunch of trees, that are supposed to suck up CO2 and thus slow global warming.  But not enough people are planting trees, etc., so Global Warming continues and the trees die and catch fire due to temperature rises and persistent drought caused by global warming, realeasing any CO2 they have absorbed back into the atmostphere, and compounding the problem.  By counting on trees, we are unintentionally creating a positive feedback loop that could end up accellerating climate change rather than stopping it.

    This is why, rather than buying carbon offsets, I prefer to give away CFLs, and I only count the energy saved in real time as offsetting my own carbon emissions… I may have already given away enough CFLs to reduce future electricity consumption over the next decade or two by 72 GWh, but the number I focus on (and I encourage others to focus on as well) is how many kWhs or tons of carbon emissions you have prevented today not how much you may be responsible in the future.  I can’t just give away a 25W CFL with a rated life of 12,000 hours and say I’ve reduced total electricity used emissions by 900 kWh.  If the person I give it to uses the bulb for only 15 minutes a day, it’s going to take 134 years for that bulb to prevent the use of that much electricity… and long before then, we should be operating on electricity that’s mostly renewable based anyway.   Not to mention that within 10-20 years, I expect that the incandescent lightbulb will be only available in antique shops, so if the bulb I give away is still in use 20 years from now, it’s probably just replacing another CFL, for no net energy savings.

    In short, carbon credits are a good thing, but an offset that pervents carbon from entering the atmosphere is better than one that takes it out and stores it for some unknown period of time, and it’s much better to prevent carbon today than a year from now.  All in all, buying offsets is a good thing, but we shouldn’t be fooled that it’s nearly as good as reducing our own carbon emissions today.

    Further reading:

    Green Wombat: Buyer Beware

    Celias: Carbon Offset Certification

    AutoBlogGreen: REEEP reduces uncertainty

    IREA Voices on IREA’s green tag program

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    My Thoughts on Analysts: Doug Casey

    I first encountered Doug Casey at the 2004 World Gold, PGM, & Diamond Conference in Vancouver.  Around a year before, I became convinced that we were in the early stages of a Gold bull market, partly based on the arguments of Richard Russell, and partly based on my own conviction that people would come to see the world as an increasingly uncertain place in the years to come (a process which, in my opinion, has much farther to go.)  I was dissatisfied with Russell’s picks (his top pick for a gold mining company was Newmont, based on the fact that it was the largest gold company at the time.  NEM has risen about 20% in the three and a half years since Russell first brought it to my attention, which is an uninspiring performance, considering that gold has risen about 70% over the same period.  As I’ve said before, Russell isn’t much of a stock picker… he just has an incredible feel for market and sector moves.) 

    I also have some serious reservations about Gold mining, because of its serious environmental impacts.  This was before it was possible to buy precious metals in the form of ETFs such as IAU, GLD, or SLV, and so I was looking for an analyst who understood mining companies, and might also be able to point me towards companies that mine precious metals relatively responsibly.  No one at the conference was talking about environmental responsibility, but two of the analysts whose talks I attended stood out as having an understanding of how mining companies and the precious metals industry work.  Those two were Paul van Eeden and Doug Casey.  

    Casey in particular caught my attention because he was a big proponent of a type of company he refers to as “Land Banks:” these are companies which do not have any actual mining operations, but rather buy up mineral rights that have already proven.  They hold these mineral rights, doing only exploratory drilling to further prove out their reserves as a speculation on rising prices.  While the intent is always that they will eventually sell the mineral rights to other mining companies, since they are not engaging in current mining operations, they are less harmful to the environment than companies that actually dig the stuff out of the ground.  Silver Standard, SSRI was the company that invented this model buy buying up cheap rights to silver deposits when the metal was cheap in the late 1980s and 1990s, while Vista Gold, VGZ is following in SSRI’s footsteps by investing in gold deposits.  Robert Quartermain, the president of Silver Standard serves on Vista’s board.  (Note: I and some of my clients hold substantial positions in both stocks.)

    Casey is not interested in the land banks because his is an environmentalist (quite the opposite, see below), but because he recognizes that, if you believe that gold (and silver) are “Going to the moon” as he says, then the built in leverage of owning metal in the ground can make more sense than digging the metal up and selling it while the price is still rising.

    After the conference, I bought a 2 year subscription to Casey’sInternational Speculator newsletter (for $299… I note that the price has since risen along with gold.)   Here are a few of my conclusions:

    • He knows the world of junior mining companies backwards and forwards.   Small start up companies are always the most fertile ground for a company analyst, because less is known about them, and because few investors are paying attention, it is much easier to find information or come to conclusions about a company that are not widely recognized by the investing public.  His picks among the large and medium cap companies don’t seem any better than anyone else’s, but his picks among the small and medium cap miners have been excellent.
    • His 7 P’s framework for evaluating resource stocks is an excellent framework for organizing the relevant information about a company.  I have adopted a modified version which I use to evaluate renewable energy and energy efficiency companies.
    • He takes libertarianism to an extreme.  “Wacko” is a word that comes to mind.  But being crazy and being intelligent are not mutually exclusive; in fact, they often seem to go hand in hand.  In my opinion, that’s the case with Casey. 
    • Enough people follow his newsletter that it often was not a good idea to buy a stock right after he recommended it.  I had my best results by waiting a while and buying them a month or two later, if they had not just kept on rising.  For big spenders who want to seriously speculate in resource stocks, the Casey Investment Alert would likely be worth the money, given that they had a few hundred thousand dollars with which to speculate.  For myself, I’m very tight with my money, and I was more interested in understanding his methods than following his advice.  Of the stocks I did buy on pullbacks after he had recommended them, about half have more than doubled, another third are roughly flat, and the rest are down… which works out to be excellent average returns.
    • The only stock of his (other than Vista and Silver Standard) that I made a large investment in was Nevada Geothermal (which I still own… I even bought some more recently, and have recommended it to clients.)  It’s only up slightly since I first bought it, but since it is a renewable energy company, I’m happy to hold it for the long haul.  I’ve also heard some good things about it from other sources.

    I did not renew my Speculator subscription when it lapsed last summer, mainly because I feel that while the precious metals bull market is likely to continue, the risks are much greater than they were when I first started allocating money to the sector.  I am currently slowly reducing my exposure to precious metals, although I still recommend small investments in precious metals (via the GLD, SLV, VGZ, and SSRI) to my less conservative clients.  I also like Rio Tinto for a general exposure to metals, because, in my opinion, RTP the most environmentally responsible miner out there.   I note that the main page of their website says “Rio Tinto supports the main conclusions of the UK’s Stern Review on the economics of climate change.”  (Again, some clients and I have positions in RTP.)

    Back to Casey, after my International Speculator subscription lapsed, I signed up for his free newsletter What We Now Know (WWNK).  Naturally, there aren’t stock tips in WWNK, but I wanted to keep an eye on what Casey thought about the markets and world events in general.  WWNK is a lot more of a political tract than the Speculator (although he often had some rather scathing things to say about the US government, and I could not help but be amused at the way he refers to US citizens as Boobus Americanus.) 

    Casey does not write much of WWNK, but I’m confident that the people who do are on the same wavelength.  The underlying message is that any sort of regulation is evil, an attitude which is unsurprising in an investor in mining companies.  As Jared Diamond outlines in his excellent book Collapse, gold mining companies usually leave environmental problems behind them that are much more costly to clean up than all the profits they ever make from selling their product.  Since Casey primarily analyzes and invests in mining companies, it’s no real surprise that he’s hostile to regulation, since real regulation would bankrupt most of his babies.

    Unlike my previous entries in this series, I was prompted to write this entry in response to an article in WWNKDoug Hornig wrote a diatribe in an attempt to contradict the arguments for global warming.  It’s the usual stuff… “temperatures have not gone up that much”  “there have been previous periods of warming” “evidence for past temperatures is all indirect”… all attempts to muddy the waters, and no mention at all of the massive increase in the main driver of global warming: atmospheric CO2.  I’m not going to bother to deal with all his points… it’s not really a serious fact-based argument, rather a litany of the reasons (some real, some imagined) why there is some doubt about the reality or consequences of global warming, and, as such, just an exercise in obfuscation. 

    It’s unfortunate, but people who want to believe that global warming isn’t happening gravitate towards arguments like these.  It’s not really a logical argument, but rather just people seeking to justify belief in what they want to believe.  I think it’s better perhaps to just make a meta-argument: if global warming is just a figment of liberal’s imaginations, why aren’t there a lot of wackos out there trying to muddy the waters by casting doubt on “the scientific theory of global temperature stability or cooling.”   No one is trying to cast doubt on the theory of “global temperature stability” because there is no such theory… and no evidence that our climate is stable.  It’s getting hotter, and it’s likely to get a lot hotter unless we get serious and do something (actually a lot of somethings) about it. 

    In conclusion, Doug is a great analyst of resource companies, and if you’re interested in investing in those companies, you will do well by giving him a read.  But he also has a political agenda, and his belief that government is always bad is, simply put, wrong.  I wish he and his buddies would stick to their knitting.

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    Wal-Mart pushes CFLs: Update

    A month ago I wrote about Wal-Mart’s plan to sell 100 Million Compact Fluorescent Lightbulbs (CFLs) in 2007.  Yesterday, there was an excellent article in the NYTimes with some updates about their plans and early efforts. 

    My favorite parts:

    • In 2005, Wal-Mart sold 40 Million CFLs.  Sales in August 2006 were 3.94 million in 2006 vs. 1.65 million in 2005, so if the 40 million/ per year grew at the same ratio as August sales, total CFL sales at Wal-Mart in 2006 were 95 million.  I’ll guess that 2006 sales were more likely around 80 million, because the August month was probably chosen for the press because the growth rate was the most impressive.  However, that still makes 2007 sales of 100 million not a stretch, as the article implies.  My prediction: Wal-Mart will sell around 130-150 million CFLs in 2007, and they’ll be able to make another big PR splash by greatly exceeding their goal.  (I didn’t have these numbers when I wrote the other entry)
    • A GE exec was quoted anonymously as having said “Don’t go too fast. We have all these plants that produce traditional bulbs.” (This was in 2005, likely before GE’s touted EcoMaginationpush under Jeffrey Immelt)
    • The GE story also underlines Wal-Mart’s market power… GE will probably go along in the end, or Wal-Mart will just get their CFLs elsewhere, and undermine GEs sales of incandescents anyway.
    • Wal-Mart’s market power is also shown in the fact the Phillips, simply because WM requested it, renamed their line fo CFLs from “Marathon” to “Energy Saver.”  This involves a real sacrifice for Phillips, because they have probably invested millions of dollars in the Marathon brand, as well as having to change their packaging.

    Thanks to Stephen McNally for forwarding me the NYT article.

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