Water…Energy Cost Factor

I’ve had the good fortune to occasionally talk with Dr. Jim Fenton, Professor of Engineering at UCF and Director of the Florida Solar Energy Center. He has been a longtime and increasingly optimistic advocate for solar energy, particularly photovoltaic electricity generation. He’s also been presenting the economic argument for accelerated deployment of this technology to high-level and increasingly larger audiences in Florida. I’ve developed the same basic idea in a manuscript I hope to publish in the near future.

In a nutshell solar electricity is now the lowest cost. We have the numbers to prove it.

As has been the case with every conversation I have with Dr. Fenton, the most recent suggested a new detail for the big picture/narrative of my book. Water.

Water plays a key role in so much of the process of extracting and delivering conventional energy that its near-term shortage, and some predict prevalent long term shortages, will likely impact energy cost. Solar electricity doesn’t require water. In contrast, “thermoelectricity,” the stuff made in conventional power plants (nuclear, coal, natural gas) use on average almost a half gallon of water (national average) for every kilowatt-hour delivered to your house.

The amount of fresh water used isn’t quite as much here in Florida. And we’re still getting rain. But think about the implications for the drought stricken Southwest. In addition to the other expense and environmental issues with the fossil fuel power plant, the household using 1000 kWh a month is also responsible for 500 gallons of water being diverted and thrown up into the air where it just drifts away.

Interestingly, agriculture and power generation are responsible for about 80% of total fresh water withdrawals. In the West particularly there’s already a scramble to possess what seems to be a shrinking supply. It’s a good bet water availability will become a bigger factor in the discussion of our energy future.

For some time there’s been evidence that we are in the “end game” for fossil fuel energy. Cost factors like water supply limitations that were ignored for so long are now making themselves visible. They raise the ultimate price of the status quo model. Meanwhile, solar prices keep coming down.

The drought is without question hard on those sitting in the middle of it. For everybody else though, this is a revelation that’s very beneficial long term. Just keeping on burning becomes less appealing because we understand more clearly it is expensive. Thanks in part to the drought, the switch to lower cost renewable energy will accelerate.

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Free Money…Invest now

In his New York Times article, July 27, 2012 July 27, 2012 Paul Krugman discusses current interest rates, policy, and the economy in general. While the economy struggles and unemployment remains stubbornly high, interest rates are at historical lows. The government is issuing inflation protected bonds at a negative .6% interest rate. People are actually paying the Federal Government to hold their money.

This is clearly a goofy picture. It probably persists because of a combination of ignorance on the part of policy makers and plain old maneuvering for political gain. Or perhaps other strange forces are at work. We won’t try to unravel the mystery here. Let’s just say “wow what a puzzle,” and then move back a few steps for another look.

What we see is a fabulous opportunity. This is weird, just like hitting the lottery would be weird. Dropped in front of us is a pot of money, almost free money. We have a place for it, our energy infrastructure.

We desperately need to accelerate the transition to a more economical, low carbon energy production and use model. The switch is capital intensive, that is, it requires investment in new equipment that will eliminate the continued expense of extracting, processing and transporting fossil fuel. There’s need to substitute non-consuming equipment in place of fuel. We’re near the end game for dependence on chemical energy released from messing with Mother Nature’s arrangement for carbon. Like it or not this is coming.

The question is whether to invest or spend, now. Investment decisions are a two part process. It’s a pretty routine two part test. First, will there be a return of the original investment. Secondly, is the return fast enough?

The first part is simple. Just add up all the benefits you’ll get, and if they’re greater than what you put in, it’s a go. Will the return be fast enough is the trickier question. It hinges on interest rates. Will the return be greater than what is needed to pay back the principal and pay the interest? For big ticket items, like a house or car or a highway bridge, this cost of money is a big deal. Do the math on a 30 year mortgage if you have doubts. Interest can be half or more of the total cost.

Right now the cost of money is essentially zero. And the Federal Reserve indicates it will keep interest rates low for some time to come. So, for long-life investments half the cost that must be considered in more normal times doesn’t factor into the cost:benefit calculation. Infrastructure investment is on sale at half off.

To the question: Should we invest or spend now? We have to spend. We still use a huge amount of fuel. In Florida it costs us about $100 Million a day. We’re stuck with that spending until we have a lower cost alternative. Should we invest? You bet!….every dollar we can get our hands on.

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Living Dangerously….Ignoring Climate Risk

Living Dangerously….Ignoring Climate Risk
Death and taxes, the only sure things. Everything else, you take your chances. It’s all about probabilities. We calculate continuously. It starts first thing in the morning, with something along the lines of “what is the probability that when I get out of bed, I’ll fall, hit my head and die from a concussion?” Pretty low percentage, so I get up. I estimate too there’s a pretty good chance I’ll be lying in a puddle of pee if I wait too long, so there’s actually two probability calculations at work.

Figuring the odds more consciously is part of everyday life. Everything from guessing when a coveted (and expensive) pair of shoes….or power tool, will go on sale to picking an investment return number for the retirement account is a probability calculation.

Insurance is all about probability. Do I buy insurance? How much? What are my odds?

Most of us ultimately decide (correctly) that there’s some chance we’ll be hit by a bus, or lightning will strike our house, or we’ll just get sick and need some expensive medicine. We buy insurance, even though we’re pretty sure there’s only a 5% or 20% chance we’ll ever make a claim. We invest a little bit of money now, the insurance premium, to make sure a future problem doesn’t turn into a future disaster.

The same mindset ought to obtain in dealing with environmental issues, especially carbon in the atmosphere. Exactly how much global warming is going to occur and what the damage will be is a guess. The range of possibility goes from zero (nobody rates that as even remotely likely) to total disaster, destruction of the earth as we know it and total elimination of the human species. Anyone who’s at all attuned to the natural world would place their bets away from the zero damage extreme. Most too think we can and should do what’s necessary to avoid going off the cliff at the other end.

So there is recognition of risk. Everybody knows there’s some probability that the future could get really nasty. Now the hard part, putting a number on it.

There are literally thousands or perhaps tens of thousands of researchers at work gathering data on the carbon record and experimenting to gain understanding of the basic physics and chemistry involved. All this effort is aimed at one goal, refinement of the probability calculation that predicts what the future holds for the biosphere we live in.

All that data and knowledge is gathered and consolidated and made publicly available by The United Nations Intergovernmental Panel on Climate Change. The IPCC is essentially a clearinghouse (warehouse) for all this information, the database for the entire scientific community’s work toward the best educated guess as to what we should expect.

IPCC’s report? (AR4, released in 2007) Bad news. Warm spells/heat waves with reduced crop yields, increased wildfire danger and increased health risk, very likely….90% probability. Heavy precipitation events with commerce disruptions, flooding and property damage, very likely….90% probability. Increased tropical cyclone activity, likely….66%. Increased incidence of extreme high sea level with seawater intrusion into fresh water supplies and coastal flooding, likely….66%.

These are the consensus numbers that fall out of a very rigorous scientific vetting process. It is the highest quality information available.

Wow, 66% probability, 90% probability! We usually buy insurance if there’s even a 5% chance of disaster. Ignoring climate change risk (not investing in some insurance) is an extraordinary display of contrary thinking or just plain stupidity.

The IPCC full report is available for download.
http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synthesis_report.htm

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Natural gas prices 2010-2011…an interesting chart

The price of gasoline at the pump has come down a bit. Since we all know it follows the price of crude oil, more or less, it’s a good bet the average man or woman on the street would venture that the price of oil is a bit off its peak as well. Most folks too have probably heard that natural gas has become plentiful and cheap.

It’s doubtful though, many have a clue about how much prices have changed or how much out of line they seemed to be a couple of months ago. The U.S. Energy Dept. Energy Information Administration just released this graph that shows the picture for 2010 and the first quarter of 2011 pretty clearly. Looks like a situation for somebody to make (or lose) a lot of money. These price relationships can’t be long-lasting.

http://www.eia.gov/naturalgas/importsexports/annual/

graph of Annual U.S. natural gas, crude oil, and NGL production, 2000-2011, as described in the article text

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A Win in Court….CO2 will be regulated.

The path to regulation of greenhouse gas emissions has been tortured, to put it mildly. No wonder. There’s big money involved. Those most concerned with climate change and those of us invested in commerce to bring about the needed CO2 reductions can take heart in a very recent court decision. A major roadblock has been cleared.

Carbon dioxide will be regulated!

Some background:

In April 2007 the U.S. Supreme Court decided in favor of Massachusetts and others in its complaint against the Environmental Protection Agency. The case determined that EPA is required under the Clean Air Act to regulate carbon dioxide emissions. EPA and a lower court had disagreed with the Massachusetts assertion.

As reported in the Cornell University Law School Legal Information Institute:

Based on respected scientific opinion that a well-documented rise in global temperatures and attendant climatological and environmental changes have resulted from a significant increase in the atmospheric concentration of “greenhouse gases,” a group of private organizations petitioned the Environmental Protection Agency (EPA) to begin regulating the emissions of four such gases, including carbon dioxide, under §202(a)(1) of the Clean Air Act, which requires that the EPA “shall by regulation prescribe … standards applicable to the emission of any air pollutant from any class … of new motor vehicles … which in [the EPA Administrator’s] judgment cause[s], or contribute[s] to, air pollution … reasonably … anticipated to endanger public health or welfare,” 42 U. S. C. §7521(a)(1).

The Supreme Court rule, in part:

4. EPA’s alternative basis for its decision—that even if it has statutory authority to regulate greenhouse gases, it would be unwise to do so at this time—rests on reasoning divorced from the statutory text. While the statute conditions EPA action on its formation of a “judgment,” that judgment must relate to whether an air pollutant “cause[s], or contribute[s] to, air pollution which may reasonably be anticipated to endanger public health or welfare.” §7601(a)(1). Under the Act’s clear terms, EPA can avoid promulgating regulations only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do. It has refused to do so, offering instead a laundry list of reasons not to regulate, including the existence of voluntary Executive Branch programs providing a response to global warming and impairment of the President’s ability to negotiate with developing nations to reduce emissions. These policy judgments have nothing to do with whether greenhouse gas emissions contribute to climate change and do not amount to a reasoned justification for declining to form a scientific judgment. Nor can EPA avoid its statutory obligation by noting the uncertainty surrounding various features of climate change and concluding that it would therefore be better not to regulate at this time. If the scientific uncertainty is so profound that it precludes EPA from making a reasoned judgment, it must say so. The statutory question is whether sufficient information exists for it to make an endangerment finding. Instead, EPA rejected the rulemaking petition based on impermissible considerations. Its action was therefore “arbitrary, capricious, or otherwise not in accordance with law,” §7607(d)(9). On remand, EPA must ground its reasons for action or inaction in the statute. Pp. 30–32.

This case was in regard to CO2 emissions from vehicles. It established however, the law regarding emissions regulations regardless the source. It immediately made clear an EPA mandate to set rules for other emitters, like power plants. Those rules have been promulgated.

As expected, parties likely to be impacted by efforts to reduce CO2 emissions filed suit to block EPA efforts. In addition to industry interested parties, multiple states, lead by Texas, and including Florida, argued to stop EPA rule promulgation and enforcement. (Texas? Understandable. Florida? Go figure….)

In this latest case, EPA was sued because it is carrying out its responsibilities under the Clean Air Act. The Coalition for Responsible Regulation, Inc. vs. The Environmental Protection Agency was decided unanimously by the three judge United States Court of Appeals for the District of Columbia on June 26th, 2012 in favor of EPA. It unequivocally made it clear that carbon dioxide emissions will be regulated.

The 84 page opinion is available at:

http://www.cadc.uscourts.gov/internet/opinions.nsf/52AC9DC9471D374685257A290052ACF6/$file/09-1322-1380690.pdf

This decision is very good news. It means that there will finally be a price (in some form) on carbon. Exactly how millions of consumers and businesses will respond to a price increment is pure conjecture at this point. Without doubt though, less carbon intensive ways of doing things just got more attractive. Solar electricity to power you car, anyone?

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Fixed income (near) zero….It’s easy to beat the bank.

What do you think of those CD rates? On a five year maybe you can get 1.75%. You won’t be living high on that fixed income. Here’s how you can do way better.

Buy an electric car or a plug-in hybrid.

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Managing wealth….all of it

Hedge funds, private equity, the one percent, Warren Buffet, the oil boom in North Dakota….are all in the news partly because we’re intrigued by wealth. Most of us would like to have more of it. In the news too are stories we’d be happy to not hear so much about, the loss of personal wealth in the recession, home prices…crisis in Greece.

The bigger story, call it economics or capitalism or commerce, is of how we get, move and allocate the stuff and services of life among (mostly) those here now. Usually it’s so routine we don’t give it that much thought. But sometimes the stream of wealth seems to thicken and lump. Market sclerosis perhaps, when some get none and others too much? It may be the case today, and we’re paying closer attention.

The stream is denominated in dollars. Quantifying in dollar terms is convenient, but it leaves out of the accounting some things of value. For example, what is the worth of a little girl’s laugh, or a sunset? You can’t put a dollar value on either. The way we count might play a part in the lumpiness as well. And the accounting is really deficient for considering the flow between those here now and the ones who will follow. For sure our conventional way of thinking about wealth and our methods for measuring it have room for improvement.

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