Archive for Peak Oil

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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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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Social ETFs and Clean Energy ETFs

Forbes ETFZone had an article today by Wil McClachy about socially conscious ETFs, with some comparison between iShare’s two social index ETFs, KLD and DSI, contrasted with PowerShares Cleantech and Clean Energy ETFs, PZD, and PBW.   This ties in well with my entry Green ETFs- How to Choose from last month by expanding the field to consider general social investing as well as just clean/alternative energy.  

I also discuss the new Clean Energy Index fund, CELS, in that blog entry; it is scheduled to launch next month.

Holding a broad portfolio is well worth doing, because the basic principle of diversification implies that most investors would be crazy to focus the entire stock portion of their portfolio into such a volatile sector as energy, let alone clean energy.  Even though I’m a strong believer in peak oil, and I feel that the peak may even have already passed, and economic recession in any large part of the world could lead to a fall in oil prices, which would hurt the biofuels sector.  In addition, there is a lot more to energy than just oil prices, and while peak gas and peak uranium may be near at hand, I don’t think anyone is arguing that we’re going to see peak coal soon. 

I agree with McClachy’s point that the extra expense of the Social index ETFs may not justify the additional expense (0.5% vs 0.1% for SPY)… the extra .4% might be better used (and better targeted) by a donation to your favorite charitable cause, but for many investors, it is deeply troubling to own firms that treat the environment, society, or their workers badly, and a donation to charity does not serve as sufficient absolution.  When working with clients, I try to find out the approach that suits them best; it is often a little of both.   Even though choosing SPY and a donation to charity might be the best financial move, it’s more important to do what makes you able to sleep at night, especially when we are talking about fractions of one percent. 

On the other hand, fractions of a percent should not be minimized.  If you had $100,000 to invest in either SPY or KLD, and choose to put the money in SPY, while keeping half of the savings in your account, and to donate the other half to a charity every year, and SPY were to increase 8% every year for 30 years, you would have donated over $25 thousand to charity in the interim, while and end up with over $57 thousand extra in your account after that time.

This is the real advantage of investments in alternative energy: the chance to have your cake and eat it, too.  Both rising energy prices due to peak oil/gas/uranium and the actions our governments take to combat global warming should increase the returns for alternative energy.  To some extent, this is already recognized by the investment community, and already priced in.  However, I feel that the effects of both have been grossly underestimated by most market participants, despite the recent surge of interest.  Over the long term, the seriousness of the situation we are in will become clear, and that will allow ethical investors in alternative to also be successful investors.  When it comes to social investing, I feel there is often a trade-off between loss of diversification and increased cost.  With investment in alternative energy, the trade-off is between increased risk and increased returns.   The increased risks of alternative energy arise from the small size and speculative nature of many (although not all) of the companies involved, and the concentration of ones’ assets in a sector.  But managing risk is what portfolio theory and asset selection are about; as is making wise trade-offs between risk and return.  To me, the case for alternative energy is compelling, the only real question is how much exposure (and volatility) the particular investor is prepared for, emotionally and financially.

 Another Social/Clean Energy ETF article: ETF Guide.

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The Danger of Impatience

This week’s Peak Oil Review has an excellent commentary by Debbie Cook, Mayor ProTem of the City of Huntington Beach.  She uses her impatience with an unripe avocado as a metaphor for her (and our) impatience waiting for the signs of peak oil to become clear to the world as a whole.

I like her metaphor because it is also a good way to think about the stock market.  John Maynard Keynes once commented, “Markets can remain irrational longer than you can remain solvent.”  As Robert Shiller points out in his excellent book, Irrational Exuberence, part of the reason that the late ’90s dot-com bubble got so high was that many people who had initially been skeptical were worn down by the continued rise of the market.  Emotionally, it is extremely difficult to go on, day after day, year after year, remembering that valuations are based on so much hype and hot air, when everyone around you is making money hand over fist from that very same hype and hot air.

I started managing money in 1999, and so I only had to endure that emotional strain of being out of sync with the world for about a year before the market peaked, and the reality of the market began to confirm my convictions.  However, I became skeptical about the housing market in 2001, and actively bearish in 2003.  Because of this, when I moved to Tucson in 2003, I chose to rent a house rather than buy one,  and I continued to rent when I moved to Denver in the spring of 2005. 

Renting is a lot less fun than buying, and when house prices are going up 15% a year, the gains you might have made by owning add to the emotional burden.  In retrospect, while I was right not to buy dot-coms in 1999, I was “wrong” to choose to rent in Tucson from 2003 to 2005.  The Tucson market rose considerably during that period, and while the rent I was paying was considerably less than I was earning with the investments I would have had to sell to buy and maintain a house (no, I would not have used a mortgage), the capital gains on the house would have been a nice windfall.

What lesson was there to be learned from my Tucson renting experience?  The wrong lesson would be that you should always buy a house.  House prices in Denver have been basically flat since I moved here (data from Zillow), and rental prices are currently about 5% of house prices.   Considering that many money market accounts are now paying over 5%, and taxes, HOA fees, and maintenance costs are added when you own a home, renting is a better financial deal.  In addition, my time renting has given me the opportunity to learn what part of the city I want to live in, and the current glut of inventory means that when I buy, I will be in a much stronger bargaining position than I would have been a year and a half ago.

The right lesson to be learned from my Tucson renting experience is the lesson of the avocado: patience.  Opinion does not change, oil does not peak, and markets don’t move when you want them to… they do it in their own time.  As Richard Russell says, “The market always does what it is supposed to, but never when.”  

Markets are the economic manifestation of investors’ optimism or pessimism.  In the housing market, pessimism is beginning to set in.  In the oil market, we have a way to go.

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Vision of a sustainable energy future

I’ve been meaning to write an article outlining a vision of a sustainable energy future, where biomass is converted into fuel and electricity through pyrolysis and the waste product, carbon is used as a fertilizer a-la terra preta to produce more biomass.  The good news is I don’t have to.  The Engineer Poet did, and it’s just part of a much broader vision you’ll find here.   He also goes into a great discussion of transportation technologies and efficiency which would never have made it into the article I’d write.  I like it when other people crunch numbers, so I don’t have to.

Give yourself a half hour to read the whole article.  It’s worth it.

( Terra Preta: I got a comment from Erich J Knight on terra preta here that went into a lot of depth, but I deleted it by mistake.  Forturnately, he says pretty much the same thing in his blog.  I first heard about terra preta from Ron Larson, chair of the American Solar Energy Society, who is very active in the local (Denver) renewable energy scene.  If you haven’t heard about terra preta, and are concerned about globabl warming or soil fertility without fertilizers from fossil fuels, it’s worth looking into.)

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Hedging Your Peak Oil Risk

In today’s issue of Peak Oil Review, I wrote a commentary on how to use the financial markets to hedge your peak oil risks.  These risks include not only the cost of energy, but possible job or income losses due to a slowing economy.  I  include some discussion of securities which pay dividends based on income from renewable energy, or may do so in the future.

Peak oil is key to my belief that investing in renewable energy and energy efficiency companies is not only the right thing for the planet, but also the right thing for your pocketbook.  Peak Oil Review is an excellent source for staying up with events and commentary related to peak oil.  It’s on my weekly reading list.

You can read my entire commentary  here (pages 4-5.)

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Good Ethanol

I wrote a blog a couple months back talking about how environmentalists should avoid lumping all ethanol together as “bad” renewable energy because the Energy Return on Energy Investment (EROEI) is very low.  First of all, new ethanol plants being built today do have a net energy gain on a well-to-wheels basis (the critics are using decade old data), and so long as the energy inputs come from renewable sources, ethanol looks like a decent way to turn other forms of renewable heat energy into something we can put into our tank and drive around with.

E3 Biofuels is doing just that with a 25 million gallon “closed loop” ethanol plant in Mead Nebraska.  The distiller’s grain byproduct of the ethanol production is fed to cattle at an adjacent feedlot.  This saves energy by avoiding having to dry the grain and transport it to where the cattle are.  The manure from the feedlot is passed into an anaerobic digester which not only produces 100% of the energy necessary for the ethanol distillation process in the form of methane, but it also helps solve the nasty environmental problems caused by the massive supply of manure feedlots produce.  It was runoff from cattle manure that caused the problems with our spinach supply recently.

Other benefits are that by running the manure through the digester, odor is reduced, and methane from the manure decomposition does not escape into the atmosphere.  Methane is a much more potent greenhouse gas than is CO2.

If you believe the promoters that “This plant will make ethanol more than twice as energy-efficient as any other method of producing ethanol or gasoline,” I estimate that the well-to-wheels EROEI is between 2 and 4 (probably closer to 2.)  It’s not the great EROEI’s we get from Wind and geothermal, but it’s a liquid fuel we can use in our existing vehicle fleet (either as E85 in Flex-Fuel vehicles, or as E10 or E20 in standard gasoline engines.)

Without liquid fuel, we’re in great danger of economic disruption due to peak oil, but unless we get that liquid fuel in a manner less carbon intensive than conventional corn ethanol, we’ll be up to our ears in melted icecaps.

Obviously, what we really need is much more energy-efficient cellulosic ethanol which does not compete with our food supply for feedstock, and it will be great if that process is powered by renewable heat (methane form digesters, or solar thermal) but given that we’re unlikely to stop eating beef anytime soon, this is an elegant, closed process.

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