Archive for the ‘Green Energy’ Category

Paul Krugman, who won the Nobel Prize in economics this year, speaks about the state of our economy at the National Press Club.

Here’s the best part of his hour long speech:

Start around the 4 minute mark, and follow through until the end – this is the part of his speech where he breaks away from his notes and speaks about the practicality of a bailout package.

Some fun facts from the speech:

  • The Multiplier Effect of government spending is $1.50 for every dollar of fiscal stimulus; if we had a bailout package of $850 billion, the effect on the real economy would be $1.275 trillion.
  • GDP needs to grow by 2% in order to eliminate 1% of unemployment; the real effect of the stimulus package would be around 9% of our GDP (1.275/14), eliminating 4.5% unemployment…Krugman estimates that unemployment will be around 9-10% by year end. Therefore, on the surface, this stimulus would set the U.S. off into a world of full employment, but we must consider how quickly we can spend the money (which believe it or not, is the hard part).
  • Finally, we’ve  concluded that infrastructure would be one of the best targets of fiscal spending (besides technology). However, estimates show that there are only $150 billion worth of “shovel ready” jobs, or projects which can be started in 6 months (at the earliest). This means we will have to get creative in our methods of spending – green collar jobs, fix bridges, retrofit buildings, upgrade our electrical grid from AC to DC (which would allow our electrical lines to go under water, allowing us to build wind farms in the middle of the Atlantic Ocean).

Hat-tip to Paul for the video.

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Crude Oil = $57

(Click for updated quote)

(Click for updated quote)

For the near term, the positive effects of low oil on the economy cannot be overemphasized; with lower costs of gasoline and heating oil, the American consumer has more money to spend on other things. When looking a little deeper and further out, we may see a slightly different story:

From the Financial Times:

The International Energy Agency, or the developed world’s energy watchdog, warned that cuts and delays in investments prompted by the fall in oil prices and the credit crunch were putting the world ”on a bad path”.

Fatih Birol, the IEA’s chief economist, said: ”We hear almost every day about a project being postponed. This is a major problem.”

The IEA suggested current oil prices are too low to guarantee the necessary investment, noting that the cost of the marginal barrel from Canada’s tar sands was about $80 a barrel, more than $20 higher than today’s oil price.

Basically, there is no incentive for private investment in alternative fuel sources when they would cost $20 more than the “equilibrium” market price of oil. The article goes on to point out that our current oil wells are yielding diminishing returns on output, and the newly discovered fields are very difficult to get to – the Tupi and Jupiter fields outside of Brazil, for example, have been the biggest discoveries in over 40 years. The problem is that they lie 3,000 and 5,000 yards respectively below the surface of the Atlantic Ocean (which as one might imagine, is very costly to drill and retrieve) and will not be economically viable with oil trading at anything below $85-$90 a barrel.

There lies the Catch22; Should this move in oil prices be sustained, can we rely on a new administration, one which used the expansion of alternative energy (one component of “change”) as a key selling point for landing in office, to actually follow through when it won’t make economic sense in the near future? Regardless of the answer, I don’t think it should be a reflection of Obama’s character – A LOT has changed since he started campaigning back in late 2006, and the likelihood of effective legislation comes into greater question when coupled with the fact that the depth and cost of the credit crisis is currently unknown.

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The WSJ has a good article in Monday’s paper talking about the dwindling short term prospects of industries in the renewable energy sector:

“The sudden reversal in crude prices has removed — at least temporarily — a key rationale for investors to pump billions of dollars into alternative fuels, industry analysts say.”

With the demise of Lehman Brothers and AIG, two of the biggest lenders in the renewable energy sector, wind farm developers find themselves short of liquidity.

“The credit crunch deals a negative blow to the whole [wind] sector because it’s heavily dependent on debt financing,”

The extension of tax breaks from the rescue plan (yeah, there were a lot of things in there you probably didn’t know about. Look up the provision about arrow heads) will be beneficial, but it is becoming more clear that private investment may not prop up the future of the industry with tight credit and $70 oil (with energy prices at these levels, alternative energy isn’t cost effective in an immediate time frame). This is why peak oil enthusiasts cringe when oil drops below the $100 mark; the investment in wind and solar energy will likely be deferred to a later time, probably when it is too late. Of course the peak oil quire was more forceful when crude traded at $145 a barrel, but many of these very same members are now the people who buy into the notion of “demand destruction” (This is the Wall Street sheep mentality and its effect on the markets I constantly allude to). We had a pretty rude awakening of what life is like when gas is $4.50 per gallon, and a more pertinent realization about long term sustainability – houses which are 50 miles away from a major city with no rail system are worth much less, meaning less collateral to borrow against to pay for things (at least that’s how it would work if you could still borrow against your house).

While important, this issue is not one which takes precedence; our human capital is put to much better use in diagnosing our financial crisis. Why, might you ask, can we disregard the proper planning? Because the security of alternative energy’s future is pretty simply dealt with; Unlike the credit crisis, it’s clear what  will happen when you throw money at the problem – how do you think oil companies got so big? Should Obama land in office, we would likely see an increase in spending on governmental programs, like we do with most democrats, and much like we saw under FDR. If this doesn’t happen, we’ll likely have a lost decade in terms of developing technology for alternative energy. We witnessed this at the end of the United States’ stagflationary period in the early 80’s, when all of the energy conservation tactics were almost instantaneously scrapped. But I’m not worried – I don’t think that we’re stupid enough to do that again.

***Something very relevant: read this article about the relationship between low oil prices and deflation.***

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I already talked about the ambiguity surrounding the Chevy Volt, but I saw something interesting in CNN Money today, concerning T. Boon Pickens’ ideals of a wind powered nation. In case you’re unfamiliar with the framework of his plan, here is a very brief synopsis, via CNN’s summary:

T. Boone Pickens, the billionaire oilman, has been hitting the airwaves, pitching a plan to use wind to replace all the natural gas that’s used to produce electricity, then using that saved natural gas to fuel cars.

While that’s interesting, it isn’t what caught my eye:

While automakers are betting on electric cars as the vehicle of the future, those electric cars will still need backup engines to recharge the battery on long trips, at least for the foreseeable future.

Those backup engines could run on natural gas, said Julius Pretterebner, a vehicles and alternative-fuels expert at Cambridge Energy Research Associates.

Pretterebner also pointed to a host of other reasons why natural gas in cars is a good idea: It’s about half as expensive as gasoline and 30% cleaner; the infrastructure to get it to service stations already exists; it’s relatively cheap to convert existing cars ($500 to $2,000 per car, he said); and natural gas can be carbon neutral, if it’s made from plants, a process he said requires no new technology.

That sounds pretty cool to me…the only problem I have is one which stems from lack of understanding (I’m not exactly a bio-chemistry whiz, so I’ll have to leave the dynamics of this study to the engineers back at Lehigh to explain to me). His thoughts are clear, but I find it peculiar that we haven’t heard this concession before…Did this guy just figure out that the infrastructure for natural gas has been available for use to the general public throughout oil’s 70% ascent year to date?

Other than that, the article highlights the short-term difficulty of converting to wind power, because the applicable tax credits expire every 2 years.

Regardless of the oil industry’s apologetic laws, like this tax credit policy, I think that with the right government, these issues get straightened out. Look at what was accomplished when our backs were against the wall under this regime of bad government? Hank Paulson pulled that bail out plan together pretty fast…

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There has been quite a bit of press lately about electric cars. The Personal Journal (yes, the same section of the WSJ I made fun of the other day) has an installment which features GM’s former CEO Robert Stempel, who had spent much of his career around this technology, and is coincidentally the same guy who approved GM’s famous EV1, the car which prompted the documentary “Who killed the electric car?”….he offers, as the article puts it, “some sobering words” which were not captured in this documentary.

“The business side of the case wasn’t there. The EV1 was too expensive…We were way off the cost target,”

Well that wasn’t clear to the users at the time, but in hindsight the cars were offered through a leasing program, where GM clearly didn’t recoup the cost of the car through the monthly lease payments. Honda is doing something very similar with their fuel cell vehicle.

Stempel also discusses how the commodity boom has negatively affected the pricing of the raw materials needed to make these contraptions work. Unfortunately, it looks like he is on the mark…

The GM Volt plug-in hybrid was supposed to hit showrooms in 2010 for $30,000. Well, apparently it’s not that easy to redesign wipers, stereos and other electrical accessories so they drain as little juice as possible from the battery. GM has announced that the first generation Volt will be “closer to $35,000”. The good news is that the late 2010 deadline hasn’t been officially pushed back, though GM says that if it can’t make it, the car might be delayed until the Spring of 2011.


Well, that kind of sucks. I hope $35,000 is still cost effective for a plug-in hybrid. I am, however, curious to see what GM’s estimates are for the actual fuel economy of the Volt (once you use the 40 miles worth of electricity).

Luckily for us, GM is one of the worst run companies ever. They haven’t been profitable since 2004, and if it weren’t for continual government support, they’d be gone by now. That should offer a sigh of relief, since Honda and Toyota haven’t rushed their electric cars into production, and have enough of a life line to get this thing right…with time.

In last week’s edition of The Economist, they had an article about the future of SUVs. I saw a staggering statistic about how both the car dealer and manufacturer make better margins on the sale of 1 SUV than they do on the sale of nearly 10 compact cars (this was by no means a scientific study, it was coming from a car salesman). Still, if that number resembles anything close to reality, I think that is a pretty good reason why we see so many SUVs on the road; the sales people have monetary incentive (the best kind) to sell SUVs. Predatory salesmanship, anyone?

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