Archive for Global Warming

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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Five minutes with Xcel’s Dick Kelley

Richard C. Kelly

Dick Kelley, the President, CEO, and Chairman of the Board of Xcel Energy spoke to the board and invited guests of Western Resource Advocates last Friday.  I was invited as a supporter of WRA.

 

His speech was widely reported in the press because he called for national regulation of greenhouse gas emissions.  The AP story emphasized Kelly’s shift from being an environmental skeptic to calling for national Carbon emissions regulation.  This is a big shift, and a giant step for a utility, but Kelly is not so much of an environmental advocate as he might sound.

 

I had a short conversation with him before dinner.  After we introduced ourselves, I told him I’d been making his life harder recently at the Colorado PUC.  Like anyone who’s been successful in business, he didn’t miss a beat, and told me that it was great, and the more people’s input we had, the better.

 

He said that Xcel had been opposed to Amendment 37 because of the cost of the solar set-aside, a position I’m actually sympathetic with.   After all, is it better to have 1 MW of solar photovoltaics on people’s roofs, or 20 MW of Wind?  When you look at the subsidies needed to get people to install PV (which is an Amendment 37 requirement), we could probably get 20x as much wind energy onto the grid for the same cost.   It’s not that wind cost 1/20 as much as solar, but since the price of electricity from wind is comparable to the price of coal, it does not take much to get a lot of wind, while solar needs to be heavily subsidized.

 

What I really would have liked in A37 was an allocation for Demand Side Management (DSM) and energy efficiency.  If the same incentives could have gotten us 20 MW of wind or 1 MW of solar, it could also have gotten us 40 MW of DSM and energy efficiency.  (none of these numbers are precise… it’s hard to tell what an incentive will accomplish until it is implemented, but we do know that DSM is cheaper than wind is cheaper than solar.)  But energy efficiency was not on the table when A37 was being written… polling data said that adding “energy efficiency” to the bill dropped popular support by so much that we couldn’t have gotten it passed.

 

Dick Kelley also told me that Comanche 3 (a new 750 MW coal plant) would be the last conventional coal plant that Xcel would build.  I told him Comanche 3 would be fine with me, if they’d just shut down Comanche 1 and 2 (a couple old, less efficient plants at the same site.)  That was an option that’s clearly off the table, but he did say Xcel needed to find a way to clean up the emissions of those plants.  I suggested wood chips, like Aquila is doing at their  Clark Generating Station in Canon City.  By co-firing wood and pine needles from necessary forest thinning, Aquila is able to reduce net CO2 emissions, as wel as NOx, SOx, and Mercury.

I mentioned the option of hybridizing concentrating solar thermal power (CSP) with existing coal plants.  He didn’t really understand the concept, and thought I was talking about photovoltaics.  I’m not sure I was able to explain myself well.  Put simply, when heat is available from the sun, it can be used to displace heat from coal (or natural gas) in an existing generator.

Kelly also said he’d like to raise wind to 20-25% of generation, but after that they’d have to see what the effect on reliability of the grid would be.  I brought up the idea of Pumped hydro or CAES.  He didn’t seem familiar with the fact that Colorado’s Big Thompson Project could be adapted for pumped hydro fairly easily.  As he said, new big hydro is not going to happen.  Which is all the more reason for adapting out existing reservoirs for energy storage with pumped hydro.

I was encouraged that he has recognized that Carbon Emissions are a massive problem, and that the utilites, who are the biggest emitters of carbon, are going to have a big part in the solution, but discouraged that he knew so little about several pieces of the solution that have great potential to be quickly viable.

Xcel likes wind, but is not looking at new ways to increase how much they can put on their system… they’ll just go to 20-25% and see what happens.  They’re pursuing IGCC (Internal Gasification Combined Cycle a.ka. “Clean Coal”) with carbon sequestration in a pilot plant, which many environmentalists feel is just a distraction from renewable energy, pointing out that no one has ever done any sort of sequestration on a large scale.  To me, that is an argument for IGCC with Carbon Sequestration, on a small scale: let’s give it a try and see if we can make it work or not.

IGCC is a lot better than one of the other ideas that Kelly brought up in his speech: he thinks that part of the solution will be nuclear power.  Nuclear power is indeed carbon neutral, but it requires diminishing uranium supplies, or the use of breeder reactors which make plutonium, an element which is not only extrememly toxic, but also an excellent material for making nuclear bombs.  We still haven’t figured out what we’re going to do with the waste from our existing reactors… until we do that, I think it’s crazy to look into building more.  And considering the real threat of terrorism, a nuclear reactor or wastepile makes a much better target than a solar array or wind farm.

When it comes to Kelly’s call for national regulation of carbon emissions, it’s a great step in the right direction, but it was a far cry from calling for a carbon tax (which economists think would be the most effective method of carbon regulation.)  Kelly knows global warming is real, and he knows that our politicians are going to do something about it.  By calling for national mandatory regualtion (but not a tax) he’s trying to shape the debate to come out in a way that Xcel will find easier to deal with. 

With a little more education about alternatives such as CSP, and ways to make the grid able to accept more intermentent resources (Time of use pricing, DSM, and energy storage), he may come to realize that Xcel has lots of ways to live in a carbon taxed or carbon limited world.  And he seems willing to listen; so if you get his ear for five minutes, try to make the most of it.

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