2014 – The Year Ahead

First, let me wish all my loyal followers a very happy and healthy new year!  So what exactly does 2014 have in store for us on the energy and environment front?  Below is a list of things that I am watching, please comment and bring any topics of interest to my attention.

  • Keystone XL Pipeline – Just today the State Department announced in their report that the Keystone XL Pipeline would have a minimal impact on the environment.  This report was greeted with calls for Obama to approve the project by Republicans and even some Democratic lawmakers much to the chagrin of environmentalists.  Critics of the report said it did not pay enough attention to the harmful practice of extracting the oil from the tar sands in the first place.  The proposed $7B project would carry 830,000 bpd of crude oil from the Western Canadian Sedimentary Basin and the Bakken Shale formation to Steele City, NE before moving on to refineries on the Gulf Coast.  Issuance of this report now begins a 30-day comment period for the public and a 90-day comment period for government agencies, as well as puts the heat on President Obama to take action.  As recently as June 2013 Obama stated, “Our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution.  The net effects of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward.”  Environmentalists have called approval of the pipeline “game over” for the planet.
  • California Drought – 9% of California is now in a state of “exceptional drought”.  While this might not sound like news to anyone who has seen the images of the forest fires in the Bear Republic, this is an extremely concerning issue.  In fact, “Thanks to the magic of science (and tree rings), we can now safely say that California hasn’t been this dry since around the time of Columbus, more than 500 years ago. What’s more, much of the state’s development over the last 150 years came during an abnormally wet era, which scientists say could come to a quick end with the help of human-induced climate change.”  Lack of rain combined with abnormally low snowpack could leave much of the state virtually dry within 60 – 120 days.  If you think this is just a left coast problem, think again – California is responsible for almost 12% of the country’s agriculture.
  • Emerging markets – If you have been watching the markets lately you have seen a dramatic reaction to perceived threats from emerging markets.  I’ll make it quick: Fed removes the free money punchbowl from the party; possible slowdown in China; currency trouble from Brazil, Turkey, South Africa and Argentina.  So what does this all mean?  Stay tuned and I will keep you posted.

Plus we have Super Bowl XLVIII, the winter Olympics and the World Cup all coming up.  What a great year this is going to be.

Welcome back Greenbacker’s!  It’s on!

Stay Classy,

Mr. Greenbacks.

Mr. Greenbacks Goes to Costa Rica!

La Fortuna, CRIt has been much too long since my last post, but I think this one is worth the wait.  Back in February Mrs. Greenbacks and myself were invited to a wedding in Costa Rica and we gladly attended!  Special shout out to Connie and Dave – Congratulations Again!

Aside from the beautiful ceremony and spectacular reception, we got to enjoy much of what Costa Rica had to offer – beaches, rainforest and volcano.

Costa Rica is at the forefront of promoting sustainable practices in their everyday life and as Mrs. Greenbacks pointed out, one of the 5 “Blue Zones” of the world where people regularly live to be over 100 and generally enjoy better health and less incidence of disease than the rest of the world.

Just a few of the common practices that we saw in Costa Rica was composting of all organic materials, low flow faucets and showers as well as automatic shut off switches on the room lights after the key has been removed.  A heavy public awareness campaign also goes a long way toward making guest appreciate the natural beauty of the land.

ImageOn our hanging bridges canopy tour, our guide explained that Costa Rica was well on its way toward meeting its power needs using renewable sources such as hydro, wind, and geothermal.  Almost 95% of CR’s power is produced from renewable sources with hydro accounting for a full 75% of the total.  Geothermal ranks second due to the areas 5 active volcanos and wind installations have been steadily increasing in recent years.  Distributed solar would make a great addition to CR’s renewable energy portfolio and would help to power regions where grid transmission is simply too costly.

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China’s Opportunity

This week’s Bloomberg Businessweek had an article titled On China’s Electricity Grid, East Needs West, that explained the mega cities of China’s east coast are consuming resources from the coal rich areas in the country’s far western provinces resulting in lengthy transmission lines and growing instability among the minority ethnic groups there.

coal chinaOne of the biggest problems with having cities so far removed from the natural resources that power those cities is transmission.  In China, freight railroads and river barges are already overloaded and overcrowded.  This led party leaders to push for development of interior regions of the country and build high voltage transmission networks called the West-East Electricity Transfer Project.  By 2020 the total capacity of this project is projected to equal 60 Hoover Dams.

china water scarcityThe second problem with this large-scale coal driven buildup is the lack of water resources available to produce steam in these plants.  Many of these planned coal plants are located in water scarce regions including Xinjiang and Inner Mongolia and has led to tensions with ethic Mongolians and Uighurs who depend on farming and herding for their livelihood.  By tapping already stressed aquifers and wetlands, there could be a larger problem looming.

Coal currently generates 80% of China’s electricity and the country is responsible for half of the annual consumption of coal worldwide.  Following the traditional model of building coal plants located far away from the end users is simply not the answer.  While high-voltage transmission lines are more efficient that shipping coal by rail or barge, much of the electricity produced is still lost in transmission.

solar chinaA better idea would be harness China’s production capacity of solar PV cells and adopt a domestic policy of distributed generation.  DG is sited near the end user of the electricity and therefore less vulnerable to losses during transmission.  PV cells can be placed vertically up the sides of the country’s many skyscrapers eliminating the need to clear land for ground-based systems.  Smart building design is another idea that could drastically reduce demand for electricity and save the country from building expensive, inefficient, centralized power plants.

Distributed generationChina’s massive infrastructure build out has been nothing short of extraordinary.  Now it has the opportunity to leap ahead of other developing nations by committing resources towards building the next generation cities.  Distributed generation, microgrids, and smart integrative building design can all help to make this idea a reality.

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Unlikely Alliance

canada            I read a quick article in Bloomberg Businessweek last week that detailed an unlikely alliance between tar sands producers and environmentalists to put a pollution tax on the dirty, heavy crude coming out of Alberta.  Yes, that is correct.  Tar sands producers are actually lobbying for a carbon tax or cap-and-trade system that would help to clean up their operations. In British Columbia, a province that enacted a carbon tax, families are paying an average annual premium of $376 and have reduced their per capita emissions 10%.  The producer’s biggest fears are to be viewed as “too polluting” by other nations, resulting in no market for their exports.  America’s opposition to the Keystone XL pipeline highlights this fear. Unless the tar sands can change their appearance, it seems that the world would be okay without the product.  An oil industry spokesman even said that “If your country looks at Canada and says your energy exports are too carbon intensive, then it becomes and economic competitiveness issue.”

tarsands            Standing in the way of this unlikely alliance and subsequent carbon pricing is the Prime Minister Stephen Harper.  Harper has traditionally emphasized business and job creation over environmental issues and is responsible for pulling Canada out of the Kyoto Protocol, the only nation to do so.  Failure to embrace cleaner regulations on the tar sands may soon become an environmental and economic problem for The Great White North.

tar sands movers            The winds of change are blowing, and nations are figuring out how to monetize carbon.  If Canada can enact sensible regulation that appeases both oil producers and environmentalists, then it can be a leader in the carbon markets.  If it fights the winds of change, then it risks being left behind by the rest of the world.  The simple answer is to put a price on carbon and use the proceeds to invest in clean technology developments.

All Fracked Up and Nowhere to Go

I read an interesting article in The Economist this week regarding LNG exports in the US. This is a rather interesting article, so please read the full version for yourself.

LNG TankerYears ago, when the US thought they would have to import LNG’s from abroad there was a massive build out of over 24 LNG plants for regassification.  Thanks to horizontal drilling and hydrologic fracturing, the US will not have to worry about LNG imports for the next century at the earliest.  Converting these regassification plants to be export terminals makes economic sense and environmental sense.  With the exception of Sabine Pass in Louisiana who was just recently granted permission to export, all that equipment now sits idle along the gulf coast.

At the heart of the issue is the fact that American gas now sells for $3.40 per MBTU domestically but over $12 in Europe and up to $20 in Asia.  Turning American nat gas to LNG cost about $5 per MBTU, so exports of LNG can be beneficial to the economy.  Furthermore, the glut of natural gas has actually forced producers to stop producing until the supply dwindles or demand picks up.  Tapping the international markets would allow this process to balance out.  Of course, there is steady opposition to LNG exports from uncommon bedfellows of environmentalist and business proponents who respectively oppose fracking on environmental grounds and who want to maintain their access to cheap fuels.

I have gone back and forth on the subject of fracking several times now but generally agree with the economic arguments set forth in this article.  While I am not a proponent of fracking, the following issues deserve mention:

  • Nat Gas is priced on a regional market as opposed to a global market.   The lack of export infrastructure acts as a subsidy thereby keeping the price of gas artificially low and promoting inefficient use of the fuel.  Increasing LNG exports will increase the price but will hopefully establish a free and transparent market.  The revenues of the fuel trade should be used in clean technology research and developing next generation technologies.
  • With cheap nat gas prices in the USA, developing nations have been leaning towards coal to fuel their consumption.  Access to natural gas will hopefully reduce the emissions in the developing world more than if the gas were kept in the US.

ny_fracking_rallyThese two points rely on the assumption that fracking remains legal.  As I write this, a moratorium on fracking (bill A.5424-A) was just passed by the Assembly and will go before the NY State Senate and then on to the Governor for signature.

Clean technology has never been more affordable or accessible to the masses.  Policy makers are now realizing the national security and economic concerns of relying on fossil fuels.  Clean, distributed sources of energy combined with sustainable development are our best options for a healthy, prosperous future.

Methane: The Other Greenhouse Gas

I woke up this morning to an interesting article on NBCnews.com that mentioned a new study that shows that the methane hydrates located off the East coast are destabilizing at an alarming rate.  So what does this mean?  Well, basically, it appears that this is caused by a change in the Gulf Stream, or the natural convection cycle where warm waters are transported north and east from Florida towards the Arctic and Europe where the water is cooled and begins its southern journey back down.  However, climate change inspired temperature changes are throwing off the natural cycle and destabilizing the methane hydrates on the sea floor.

Why should we care?  Aside from the fact that the Gulf Stream is responsible for the weather patters on both sides of the Atlantic, as well as the nutrients in the water that sustain our fish, this new discovery represents a something of a turning point in climate change.  Methane, or (CH4) to all my chemistry nerds out there, is a potent greenhouse gas that currently accounts for 16% of GHG emissions.  While less abundant than carbon dioxide, methane is 23x more potent than CO2.  The fear is that we have now reached a tipping point where increased global temps actually bring on unwanted effects of their own.  And believe it or not, we have a lot of methane hidden in a frozen state in the permafrost on our northern locations. 

I mention this study not to be an alarmist (well, maybe), but because I believe that many of us think that climate change will be easy to solve once all parties come together to take action.  This is not true.  It is going to take plenty of work to solve this problem.  There is definitely a tipping point where the Earth enters into a reinforcing cycle of warming – the question is: did we just pass it?  If not, can we take corrective action before we reach that point.

Carbon Emission: Regulatory Controls vs. Market Based Solutions

Many of you have been asking what the difference is between regulatory approaches and market based solutions to carbon emissions.  The answer is fairly simply but depends on what you want the outcome to be.  The whole question can be boiled down to: Tax or Trade?

A carbon tax is a pure price instrument that establishes a certain price on pollution.  While the price is guaranteed, the final emissions reduction is not.  For example, a $5 tax/ ton on CO2 emissions for a firm that pollutes 100 tons of CO2/ year would cost the firm $500.  This policy creates certainty for businesses and governments, but leaves uncertain the amount of emissions reduction. 

On the other hand, a cap-and-trade system (or quantity instrument) determines the final output of allowed emissions, but leaves the price uncertain.  In a certain year where polluters find it hard or costly to reduce emissions, the price of each credit would rise as companies bid up the price of the allowance.  In a different year, the price of the credits might fall as many industries would have a surplus of their pollution credits available on the market.  As companies find it harder to meet the required pollution allowances, the price of each credit would increase with demand.  Every so often credits would be removed from the market in order to achieve the desired level of emissions.

So which one is better?  Depends.  It all depends on what the predicted damage costs are.  If the marginal damage costs are high, then it is better to use a quantity mechanism because you know the level of pollution output.  The market will set the rate.  If the marginal damage costs are low, and policy makers are worried about the high costs of transition to a low-carbon economy, then a price mechanism would be the better option because it would provide more clarity to the business community when making future investment decision.  Hit me back and let me know your thoughts.