China’s Economic Slide And Its Political Repercussions

WASHINGTON – The big 7% Shanghai stock market loss right at the start of the new year is surprising. It should not have happened. Indeed, we know that last year the Chinese government spent a small fortune (about $ 138 billion) in a major and highly publicized effort aimed at propping up share prices.

Major intervention 

After a mid summer major sell-off, Chinese brokerage houses were forced by Beijing to buy and hold stocks. Short selling was stopped. Other market-supporting measures were taken. And, sure enough, thanks to this massive state-sponsored intervention, the Shanghai stock market stabilized and regained some altitude.

Of course, this “recovery” is preposterous, for it has nothing to do with market fundamentals. But, after these well publicized large interventions, at least some investors kept their stocks with the confidence that the government somehow would keep prices stable. (And we call this a market economy?)

Why the sell off? 

Well, given all that, then why the New Year’s 7% sell off? With all the protections and props put in place last year, this was not supposed to happen.

Well, chances are that many in China are beginning to understand that the national economy, while not in crisis, is probably in far worse shape than advertised.

Chinese officials talk confidently of a progressive, smooth transformation from capital investments and exports to services and stronger domestic consumption. They tell China and the world that they are expertly leading this transition that will result in a better economy, with stronger foundations.

Manufacturing slow down, or crisis? 

Well, it appears instead that the manufacturing sector is not just being “reorganized’. It is in fact in truly bad shape. There is massive, in fact colossal over capacity in almost all industries that was created by the stimulus launched to fend off the impact of the 2008 global financial crisis. In a real capitalistic economy, over capacity would be eliminated by painful but necessary plant closings, and massive lay-offs.

But this is China. Closing thousands of factories would be an admission of real problems, perhaps failure. Not to mention the social unrest that could be created by massive unemployment. Therefore, it cannot be done.

Money losing (many of them state-owned) industries will keep going. But this means extending cheap credit to them via state-owned banks. And this means a lot of bad debt piling up, while the state-owned enterprises keep losing money without any prospects of any turn around.

Decline, not a crisis

It is hard to gauge the depth of this industrial decline. But it is serious. On the plus side, we know that China has trillions of dollars in reserves. Therefore there will be no “China collapse”. Holes, even big ones, will be plugged.

But it looks as if China has lost altitude, probably for good. This means that the actual rate of GDP growth is closer to 5% or less, rather than 6.9% that the government claims.

Just an ordinary rate of growth 

This means that after its incredible thirty year ride, China’s rejoins the ranks of middle of the road, middle-income countries. True, hundreds of millions are now out of poverty. And this is a real achievement.

However, it came at a very heavy price, as the positively toxic air in many large northern Chinese cities demonstrates. The environmental damage caused by unchecked development is colossal. The negative public health implications enormous.

Political impact? 

But there is more. If China’s economic performance, once phenomenal, goes down to average, what does all this mean for the prestige of its leaders? The Chinese Communist Party claims to have the right to lead because it can deliver high rates of growth. Well, when growth becomes unremarkable, and most people begin to understand that this is the new trend, what happens to this leadership claim?

Restless middle class 

Is it possible that the newly minted Chinese middle class will become restless? We already see tens of thousands of unauthorized public demonstration in China, mostly focusing on environmental crises affecting local communities.

A new era? 

Here is the question. Can these local protests morph into something bigger? Well, not now. Indeed, any thought of an organized Chinese political opposition is just a fantasy, at this stage. But later on? Who knows?

Much depends on the economy. If the slide is bigger than anybody imagined, we may enter a new era in Chinese domestic politics.

Stay tuned.

 




Keystone Pipeline Is Dead – The Triumph Of Politics

WASHINGTON – Now it is official. President Obama announced that he is against the proposed Keystone pipeline that would have allowed Canada to ship oil directly from the Province of Alberta to the Texas refineries. The project has been officially killed.

A symbol 

It is no secret that this pipeline had become a target for all the US environmentalists who believe that fossil fuels are bad, if not evil. The argument against this particular project is that it would have delivered an even more potent poison. You see, Canadian oil is extracted from oil sands. The process is messy, and dirty. And it generates more emissions.

Therefore, preventing this pipeline from being built became a crusade.

And now Obama has finally taken a position. It is no wonder that in the end he had to agree with the various environmentalist groups. They are mostly Democrats. Hard to think that he would done anything that would alienate them.

Theological argument 

And what about his argument? Well, his argument is based neither on economics nor on any practical energy policy. In fact, it is akin to a theological argument. America is leading the world in the battle against emissions and climate change, Obama said. By approving a project that increases reliance on a particularly dirty form of fossil energy, America would have tarnished its own credentials.

It would have set a bad example, right before the United Nations Conference on Climate Change to be held in Paris on November 30. This will be a major international event in which all countries are supposed to prove how serious they are on combating climate change. Approving a fossil fuels project right before a global forum in which America will encourage others to commit to reducing oil related emissions would have looked bad.

Therefore, this is not about getting more Canadian oil. This is all about politics, ideology and symbolism.

Negligible impact 

Let’s make it clear. Whether you are for or against the pipeline, at the end of the day, when it comes to global warming this is a non issue. The fact is that having or not having this pipeline does not move the needle in any special way.

Enhanced energy security 

However, it would have been better to approve it for different reasons. The pipeline would have contributed to enhanced US energy security. Indeed, the Keystone pipeline should have been allowed because getting more oil from Canada (as opposed to importing it from OPEC countries in the Persian Gulf) would have added to American energy security. Getting about 800,000 barrel a day from Canada would not have been a revolutionary change. But it would have been a positive incremental step.

And here is why. Notwithstanding the huge increase in US domestic production that took place in the last 5 or 6 years, the US still imports almost 50% of all the oil it consumes. That’s about 9 million barrels a day. This being the case, it would be wise to get more of the oil we absolutely need (until something else will replace it) from Canada, a friendly neighbor, as opposed to importing it from the perennially turbulent Middle East. It is as simple as that.

The Middle East is a mess that we cannot control. Something really bad may happen there; and a major crisis may affect oil flows from the region. Therefore, if we had a choice –and now we do–  let’s further reduce our reliance on oil imported from the Gulf region and let’s get more oil from Canada, a friend and an ally.

Is this really so difficult to understand?

No impact on the environment 

As for the alleged negative environmental impact, the Obama State Department, technically in charge of all reviews regarding the proposed pipeline, stated that building Keystone would not alter US total emissions in any appreciable way.

Therefore, all considered Obama should have allowed this project to move forward. He did not do this for political reasons. Nothing to do with the merit of the case.

Does it make economic sense? 

Now, from a different perspective, one could argue about the wisdom of constructing this new Canada to USA pipeline right at a time in which there is a global oil glut, and oil prices are half what they used to be when people started planning for the Keystone pipeline.

May be it no longer makes economic sense to build it. Fair enough. But this is a business decisions to be made by TransCanada and its partners. It is not up to the President of the United States to decide if a project makes economic sense or not. This project would have been built by a private company, and not by the US Government.

Oil transported by rail 

And one more thing. The green movement applauded Obama’s decision as a good way to preserve the environment, while sending a strong message to the fossil fuels lobby: Watch out. We are going to get you”.

But here is the irony. Without the pipeline, substantial amounts of Canadian oil are and will be imported into the United States. This Canadian oil is loaded on trucks or freight trains.

Now, any energy logistics expert would tell you that these modes of transportation are much more dangerous than a modern, state of the art pipeline. As several train wrecks with explosions and fires caused by the oil loaded on rail cars have demonstrated, transporting oil by train can be a real hazard.

The issue was the pipeline 

But I guess that trains loaded with oil, occasionally derailing and exploding here and there, are not an issue for the environmentalists.

The issue was the pipeline. And now it has been killed. Victory.




China’s Plans To Improve Air Quality Fall Short

WASHINGTON – After decades of denials, at least the Chinese authorities now recognize that they have a huge environmental problem that in some regions and large cities has reached catastrophic proportions. 30 years of wild industrial growth, with practically zero environmental safeguards, have created a nightmare. No doubt the Chinese economy has grown, incredibly so.

No safeguards

But the rapid rate of growth was at least in part accelerated by no spending on pollution control. The outcome of this unchecked race to increase output is a semi-devastated country. Chinese cities, especially in the North East, have extremely poor air quality. The amounts of pollutants in the air routinely exceed  what the World Health Organization considers to be the maximum allowable.

Well, at last the Chinese Government has taken notice. And it has launched programs aimed at curbing emissions. This is good. However, according to Chinese experts, the publicly announced goals cannot be met within the time frame announced by the government. Translation: “This is a much bigger problem than we want to acknowledge.”

Here is how the Chinese publication Caixin describes the issue in a piece titled “Researchers Cast Doubt on State Council Goals to Cut Air Pollution”, published on October 21, 2014:

“(Beijing) – Just after China celebrated its week-long National Day holiday at the start of October, heavy haze again hit the capital. City authorities released the yellow warning after smog shrouded the capital city starting on October 8. The next day, the alarm was raised to orange, the second most serious warning.

Heavy haze covered the city for at least 75 hours, official figures show, the most serious air pollution in the second half this year so far.

It has been more than a year since the State Council, the country’s cabinet, approved a plan to fight air pollution in September last year. The plan, which contains measures in 10 major areas, was seen as the country’s strongest-ever effort to fight air pollution. It set targets to improve air quality in major regions around the country within five years.

The plan says that by 2017, the overall level of PM2.5, small particles in the air that can cause lung disease, should be cut by 10 percent. In the Beijing, Tianjin and Hebei Province region that is hit the hardest by pollution, the level should fall by 25 percent. The annual PM2.5 density in Beijing is to be under 60 micrograms per cubic meter.

Official figures show that the capital’s average PM2.5 density in 2013 was 89.5 micrograms per cubic meter.

The 2013 plan declared an ambitious war against the country’s worsening air quality. However, recent research says that China is likely to fail to meet most of its targets by 2017.”

Goals Unmet

“On September 25, Tsinghua University and the Clean Air Alliance of China, an air quality research group, published an evaluation of the policies proposed in the 2013 plan.

He Kebin, the director of the School of Environment at Tsinghua University and the leader of the research, said that “if the measures are fully implemented, it would effectively improve the air quality in the Beijing, Tianjin and Hebei region.”

But He and his team concluded that even if all the measures are put into practice, PM2.5 levels would fall by 25.6 percent in Beijing, 18.7 percent in Tianjin and 14.7 percent in Hebei by 2017. That means that both the province surrounding Beijing and the eastern port city will fall short of the government’s targets. [bold added]

Even in Beijing, which is expected to meet its target, the annual average PM2.5 density will only decrease to 65.8 micrograms per cubic meter.

He said his team is confident in their conclusions. According to He, the research used a methodology called community multi-scale air quality that was developed by the U.S. Environmental Protection Agency. The methodology focuses on studies on the troposphere, the Earth’s lowest level of atmosphere; acid levels; visibility; particulate matter; and other pollutants.

To test the accuracy of the method, He’s team calculated the air quality data for 2013 based on the model and the results were very close to the actual figures for that year”.

Local Enthusiasm

“The researchers suggested ways to improve air pollution reduction efforts. The report stated that current policies have effectively controlled emission of sulfur dioxide, but have ignored the pollution from nitrogen oxides, volatile organic compounds (VOCs) and ammonia.

To meet the 2017 targets, the region of Beijing, Tianjin and Hebei should pay more attention to controlling nitrogen oxides and VOCs in order to prevent the formation of particulate matter such as PM2.5, the report said.

He’s team proposed 10 measures to reduce coal use in various industries and cut chemical industry emissions and pollution from the agricultural industry.

Earlier this year, He and his team released preliminary research results and got the attention of many local officials. According to He, some local officials who are eagerly to meet the central government’s order on pollution cuts have resorted to stricter measures to improve air quality.

Provincial officials from Hebei visited the research team at Tsinghua University to get advice on pollution control, He said.

They wanted) to make sure that they can meet the 2017 targets,” said He, adding the officials asked for help to work out a more effective pollution plan.

But He’s measures could pose implementation challenges for local authorities.

For instance, VOCs are a major source of secondary aerosols that create particulate matter, and their control is an important part of cutting air pollution. Strict policies to restrict emissions from the coking industry, coating material production and other areas would see VOC emissions fall by as much as 40 percent in Tianjin and Hebei.

However, the current industry policies will only see levels reduced by about 5 percent.

Meanwhile, the widespread use of fertilizer in agriculture and the growing livestock breeding industry are the main sources of ammonia pollution around Chinese cities. The colorless gas with a pungent smell comes from poultry waste and auto engines, and is an important factor for forming the particulate matter.

Despite government orders to curb dangerous emissions from coal-burning power plants, steel factories, construction-site dust, cars and other well-known sources of air pollution, ammonia has been left off the official list of targeted pollutants, even though it is an increasingly serious component of smog.

China has been spewing more ammonia than any other country for the past two decades, but studies on output of the chemical have been inadequate. Researchers believe most of the country’s ammonia pollution comes from farms where nitrogen fertilizer is spread on fields, or from the animal waste that piles up at poultry and livestock facilities. [bold added]

He’s team called for increasing the concentration of the livestock breeding industry in order to better control ammonia emissions, but in reality that will be hard to achieve, He said”.




“Reef Balls” Help Rehabilitate Marine Habitat

WASHINGTON – We humans are unfortunately very good at damaging or destroying the world in which we live. Delicate and complex ecosystem that nature built over millennia can be compromised in almost no time by careless human activities.

Recreating coral reefs

Coral reefs are among the victims. However, here human ingenuity may help repair the damages caused by human carelessness or utter stupidity.

As we know, there have been many attempts to create a habitat for coral and other marine life, mostly by throwing into the oceans all sorts of discarded man-made objects.

“Reef Balls”

But now we have something better. Not long ago, I watched an interesting TV program illustrating the activities of the Reef Ball Foundation, located in Athens, Georgia, (www.reefball.org). As the name indicates, their work is all about man-made “balls” to be deployed on the sea floor, so that they will help nature in recreating a normal reef. These “balls”, (in fact, half balls), are simple and yet very ingenious objects that provide a modular solution to the problem of dead or severely damaged reefs.

Someone came up with an easy to make, extremely durable concrete structure –guaranteed to last 500 years– that looks indeed like a hollow ball, except that it is more like a half ball, so that its large base will allow it to rest on the sea floor. The clever feature is that this structure has several large holes, so that water, nutrients and fish can flow through it, while coral and plants little by little will cling on its corrugated, uneven surface.

A new reef in just 3 to 5 years

Well, the evidence shows that coral can easily attach itself to this man-made structure. Amazingly, in just a few years (3 to 5) an almost complete replica of a natural reef is created. You can place as many “reef balls” as you want on the sea floor. Soon enough they will “come to life”, playing host to coral, algae and fish.

The added bonus is that these reef ball are easy to make. The molds can be shipped close to the deployment area, near the water. Making the reef balls “on site” is a good way to reduce all the complex logistics of making the balls in one place, shipping them probably far away, and all the associated transportation costs.

Easy to deploy

Once the balls are ready, inflatable balloons are placed inside the hollow structures so that they can easily float until they reach the designated deployment area. At that point, with the help of divers, the balls are guided down, as the balloons are deflated.

Once the reef balls reach the bottom, that’s it. They are designed to stay there. They are heavy and stable, and so they will not be moved by currents or other forces. The holes will allow water to go through them. Their hollow interior will become a habitat for fish and other creatures.

A new reef

Over a relatively short period of time, the reef balls will become the home of new coral and plant life. This almost natural habitat will allow the replenishment of various species, contributing to the healing of many parts of our damaged Oceans.

This may not be perfect. Nothing beats mother nature’s physiological ways to create and self-perpetuate its own eco-systems. But, as far as man-made remedies go, this is pretty good.

More than 62 countries have reef balls

Reef balls have already been placed in more than 62 countries. Let’s hope that more and more people and organizations around the world will become aware of this ingenious way to recreate reefs.

Reef balls are cost-effective and easily deployable. And, just as intended, they create a new habitat for marine life.

 




Floating Homes Will Neutralize Rising Sea Levels

WASHINGTON – Those who warn us about the worst possible consequences of global warming predict that coastal areas around the world will disappear because of rising sea levels caused by  melting polar caps.

Rising sea levels

Yes, the image of coastal communities and even large cities under water is scary. But it is clear that not much will be done, at least in the near future, to stop or even cut down the use of carbon-based energy  –the main cause of global warming.

And this is simply because at the moment there are no good alternatives to coal, gas or oil, especially in emerging countries that desperately need energy in order to promote economic development. Which is to say that global warming is here to stay.

Floating homes?

However, this is not a hopeless situation. And this is because adaptation is possible. And here is a clever idea. Instead of relocating farther inland millions of people who may be threatened by rising sea levels, we can build entire communities on safe and cost-effective floating structures.

And this is exactly what Dutch architect Koen Olthuis of Waterstudio.nl has been doing –quite successfully– in the Netherlands and elsewhere. His motive is not necessarily to find a way to fight the impact of global warming. His main point is that building on water is a way to acquire new space for human usage, this way revolutionizing the way we think of cities surrounded by water. The added bonus is that, should sea levels rise at some point in the future, floating structures will not be threatened. They would simply adjust accordingly.

New cities built on water

According to Olthius, building on water is doable. There are no real disadvantages. In congested coastal communities, building floating homes and other structures that sit on water allows expansion, without giving up all the comforts and amenities that we associate with living in “regular buildings”.

Look, at some point we may indeed find a good alternative to carbon-based energy  –according to most the main cause of global warming. But, until we do, it seems that we can find ways to adapt to at least some of the consequences of rising temperatures.

Creative adaptation

Relocating millions of people into floating homes sounds expensive and complicated; but it is probably a lot easier than convincing 1. 3 billion Chinese and 1.1 billion Indians to give up coal generated electricity.

For the time being, the Indians and the Chinese really have no practical power generation alternatives. Whereas floating homes will allow people all over the world to adjust to a new environment.

 




Historic US-China Deal To Fight Global Warming?

WASHINGTON – President Obama went to Beijing and –surprise, surprise– he pulled a huge rabbit out of a hat in the form of a “historic” agreement with China committing the latter to the reduction of its own green house gases…after 2030.

Joint US-China commitment

To be precise, China pledged “to intend to achieve the peaking of CO2 emissions around 2030”.

As this is a bilateral committment, President Obama promised that the US by 2025 will reduce its own emissions by as much as 28% below 2005 levels.

We shall do something, after 2030

Got that? America pledges –now– to achieve further green house emissions reductions by 2025, in exchange for the vague promise that China, after peaking in 2030, will start reducing its own emissions after that date.

And, by the way, this is only a “declaration”. An interesting development, in as much as it seems to commit China to doing something about reducing emissions. But this is not a treaty. It is a non binding document. There are no penalties for non compliance. Which is to say that it is not enforceable.

And again, we are talking the vague “promise ” –today– to do something meaningful after 2030, long after Obama and most likely Xi Jinping will be out of the picture.

I am not impressed.

Little substance

There is very little substance here. And yet many commentators talked about this “deal” as a (needed) major breakthrough in the fight against global warming. You see, China at last set some clear emissions reduction goals and timetables, finally recognizing its responsibilities as the top world polluter, along with America.

All in all, we are told by “the experts” that out of this announcement we get that the two countries that produce the largest amount of harmful emissions are finally setting a good example.

We are also told that, after this Beijing China-US deal, in the future no country within the developed world will be able to hide behind the (lame) excuse that, until China is on board with concrete commitments to cut its own emissions, it makes no sense to take steps aimed at reducing greenhouse gases. Now China is “on board”, so everybody else should join in and do its part.

A new milestone?

Really? I find it bizarre that analysts and even serious media are willing to make so much out of so little.

Sure, I can recognize that this Xi-Obama deal may have some symbolic meaning. Who knows, may be China really means this. But we are talking about a promise today (2014) to do certain unspecified things many, many years later (2030).

In the meantime, in order to honor its side of the agreement, America would have to curb its own emissions at a faster pace, starting now.

So, US unilateral sacrifices beginning now, in exchange for the promise of Chinese action after 2030.

And this is a historic breakthrough based on shared principles, spelling out coordinated US-China actions to fight climate change?

To me, all this looks most unserious.

 




Man Made Global Warming? Not So Sure Anymore

WASHINGTON – Until a few years ago there was a semi-universal consensus on “global warming”. It was settled that the earth’s temperature is rising. It was settled that human activity, that is burning large amounts of fossil fuels, was the main cause. It was also settled that all countries, especially big ones that use most of the fossil fuels, would agree to drastically cut their consumption of coal, oil and gas, in order to stabilize the earth’s temperature. This change would be made possible by shifting to abundant, inexpensive and environmentally benign renewable energy.

Nothing is settled

Well, as the world leaders gather in New York to look again at this scenario, it appears that nothing is settled.

First of all, while emissions have been rising during the past 10 to 15 years, temperatures have not. This should be impossible. All models indicated that more emissions must result in higher temperatures.

Of course, climate scientists who support the “man-made global warming” theory have tried to come up with explanations. And, who knows, may be there is a plausible reason why there has been a lull in rising temperatures, despite higher emissions. May be we are experiencing just a short pause within a long-term trend indicating higher and higher temperatures caused by fossil fuels consumption.

Man made global warming?

Still, this so far unexplained glitch may raise some doubts. What if the supposedly established cause and effect relationship between higher emissions and higher temperatures is just not there? In that case, the basic rationale for mandating or even suggesting the whole –immensely complex– energy policy shift would disappear. In that case, we would go back to normal. Energy choices will be determined by cost effectiveness, and not by the desire to avoid unproven global warming effects of fossil fuels.

US should change its energy policies

Still, even assuming the validity of the “man-made global warming” theory, what should the United States do? Well, according to those who believe in the official global warming orthodoxy, it is clear that America, as the country with the highest per capita energy consumption and emissions, should be leading the anti-carbon battle.

Really? Well, the facts do not support this. The fact is that, while America is a major contributor to global emissions, (number 2 in the world), taken in isolation its efforts would have almost no impact. Indeed, according to the US Environmental Protection Agency, the very federal institution that has just come with a major plan aimed at moving America away from fossil fuels, the net outcome of this costly shift from fossil fuels to renewables would be a 0.18% reduction in global emissions.

Policy changes would have no impact

Got that? As a result of major and costly investments in new energy, while closing down coal-burning power plants, we would get 0.18% reduction in global emissions. That’s it.

And this is because all the other major offenders, including China, India, Russia are not on board. Ditto for other emerging countries.  Whatever they may think or believe about man-made global warming, they want to pursue economic development. And this requires affordable energy: coal, gas, and heating oil. Simply stated, from their perspective, renewable energy is still way too expensive, and therefore unaffordable.

Is this a good foundation for public policy?

So, here we are. We are confronted with an issue –global warming– whose causes are not quite understood. That said, even if we wanted to believe that rising temperatures are the direct result of higher emissions due to fossil fuels consumption, it is clear that forcing 300 million Americans to shift to still expensive renewable energy would not make any difference on global emissions.

And yet the President, the EPA and eminent scientists strongly believe that we should change our energy policies so that we can stop and reverse global warming.

Let me say this again. According to our national leadership, we should adopt a brand new energy policy in order to counter the effects of a problem we are not totally sure exists, while we know that this far reaching and expensive US effort would make no difference.

This does not make any sense.

 

 




Fighting Climate Change Is Useless – Invest In Adaptation

WASHINGTON – If you want a cogent and well explained argument about the complete uselessness of US carbon restriction laws and regulations aimed at combating climate change, please read the WSJ op-ed piece by economist Edward Lazear, (The Climate Change Agenda Needs to Adapt to Reality, September 3, 2014).

Policies will have no effect

Using very simple language, and with the support of a lot of data, Lazear shows how any US attempt to limit emissions via expensive domestic regulations will have no impact whatsoever on global emissions, simply because China, India –real giants when it comes to emissions– and other emerging countries are not on board.

Even with major national efforts, we shall reduce global emissions only a little, while China and India will keep adding a lot, therefore nullifying the impact of our –expensive– new policies.

No real difference

Indeed, if our goal is to really reduce global emissions, even though America is the second largest contributor, and by far the biggest in terms of per capita emissions, the fact is that forcing 300 million Americans to change behavior (at a high cost) will not stabilize or reverse total greenhouse emissions.

This being the case, it is really insane to insist on this policy course, when we know in advance that the policy objectives will not be achieved.

Invest in adaptation

Lazear argues that it would be a lot smarter to invest in measures focusing on “adaptation”. As temperatures are going to rise anyway, let’s protect ourselves as best we can.

In his WSJ piece he lists the most obvious: dykes to prevent higher water levels from flooding low-lying areas, and planting heat tolerant crops and trees. Indeed, it is a lot smarter to invest limited resources in technologies that will help us adjust to higher temperatures than trying to stop or reverse global warming through imposed restrictions that will not make a dent, simply because the real super emission producers are not on board.

Common sense

Now, this is common sense. But the climate change lobby is driven mostly by ideology dressed up as “science”, not by common sense.

Carbon is “evil”, green is “good”. Therefore, we have to pursue the “good”, no matter how useless this is, and no matter how much it costs.

 




Germany’s Green Energy Revolution Based On Belief, Not Economics

WASHINGTON – An interesting WSJ story, (Germany’s Expensive Energy Gamble, August 27, 2014), provides a good illustration of  top-down economic policies motivated mostly by ideological, as opposed to economic, reasons. The German government, presiding over the world’s fourth largest economy and number one within the European Union, years ago decided that the country had to embrace renewable green energy not because it is cost-effective; but because it is “good” for mankind.

Mandates

In order to achieve this gigantic power generation and distribution shift, the Berlin government imposed mandates on the use of electricity produced from renewable sources, (mostly wind and solar), while subsidizing the cost of green energy production. The goal was and is to discourage the use of fossil fuels. The government also decided to phase out all nuclear power plants.

This was a political move. There is a very well-organized anti-nuclear movement in Germany. The government felt that after the Fukushima nuclear power plant disaster in Japan it had to act in order to prevent additional public demonstrations against nuclear energy. This decision had little or nothing to do with any assessment of the safety of German nuclear power plants.

Overall, the public policy objective is to have soon a truly “Green Germany” that uses zero nuclear power, while relying less and less on fossil fuels. Germany’s energy will be cleaner, and soon enough truly clean. Because of this epochal transformation, Germany will no longer contribute much to global greenhouse gases emissions.

Tech leader?

Beyond the green goals, policy-makers assume that, by virtue of establishing itself as a global renewable energy leader, Germany will ensure that its technologies will be adopted world-wide.

Once it will be clear to all that renewable energy is really the way to go, most countries around the world would turn to Germany, the technology leader.

If successful, this major energy turnaround would prove that you can be green, innovative and profitable.

High cost

All this sounds really good. Except for one fact. For the time being, renewable technologies, while improving all the time, are still rather expensive.

Therefore the German government must subsidize them in order to make them economically viable. The cost of these subsidies is passed on to consumers.

As a result, on average, the Germans pay more than double for electricity than the average US consumer. That is a lot of money.

German energy intensive industries like chemicals, smelters and steel mills have already seen their operating costs rise and their global competitiveness reduced. Some of them are planning relocations and/or expansions in countries where electricity is cheaper, including the US.

Besides, as most of the wind energy is produced in the North of the country, Germany now needs to build new and very expensive transmission lines that will carry all this power to the energy hungry industrial South.

Why do all this?

Given all this, here is the question. Why on earth would the government in Berlin impose on the German economy –via expensive mandates and subsidies– the high cost of still immature green energy technologies?

Wouldn’t it be wiser to allow the market place to decide on what are at any given time the most cost-effective electric power generation technologies? Wouldn’t it be better for the government to limit its role to financing more R&D in renewable energy, this way helping its development, without picking winners today? Indeed, what if you pick the wrong winners?

There are other technologies

It fact, there is much progress in other (more conventional) energy technologies. We know from the recent US experience that an unexpected leap forward in new and cost-effective ways to develop immense shale gas reserves (hydraulic fracturing and horizontal drilling) led to large-scale production of really inexpensive natural gas for power generation.

This shale gas revolution completely transformed the entire US domestic energy supply picture in just a few years. Very important to point out that this happened while most of the leading energy experts where looking the other way. Key Washington policy-makers and their advisors did not see any of this coming. And yet it came. The real point here is that the market decided; and not policy wonks who believe they know what works and what does not.

Private sector in the lead 

It is important to stress that the US shale gas development revolution has been entirely a private sector-led effort.

Energy companies did not pursue shale gas development because of tax exemptions, mandates or subsidies. Companies invested in shale gas because they were hoping to make money. And they did.

The net effect of these massive private sector investments is that (thanks to cheap shale gas) millions of Americans now enjoy comparatively lower electricity costs.

“Good” and “bad” energy

Back to Germany, the only explanation for the top-down, forced investments in renewable energy is that this momentous “green choice” is based mostly on politics and ideology, and not on economics.

For a variety of reasons, most Germans now believe that green energy is “good”, while nuclear and fossil energy is “bad”.

Therefore, going green is a moral and ethical choice. It has very little to do with economics.

Ideological argument

Indeed, the basis of this costly energy policy is not cost-effective technology choices, but a mix of arguments grounded on (what most Germans believe are) final and definitive assessments about the damage to the environment and to public health caused by “bad” energy.

And, of course, there is also the argument that all responsible people must act –now– to stop and hopefully reverse the emission of greenhouse gases, the byproduct of burning fossil fuels, responsible (this is the undisputed consensus) for global warming.

Environmental protection is important

Now, having said that, I certainly do not want to dismiss the fact that the unrestricted use of “dirty” fossil fuels does indeed cause environmental and public health damages.

Therefore, all governments have an obligation to regulate any kind of power generation, with the goal of minimizing its environmental and public health impact.

For instance, ancient coal-burning power plants may indeed produce cheap electricity; but their harmful emissions also damage, (in some cases destroy), the health of communities living nearby. Therefore, either the plants can be retrofitted so that their emissions are within safe public health parameters, or they should be closed down.

No reasonable person would argue that, since obtaining cheap energy is our primary goal, we do not really care at all about the way it is produced, or about the consequences.

“Expensive Energy Gamble”

That said, the German government decision to progressively phase out all fossil fuels, while mandating the use of costly and still imperfect green technologies is indeed a very “Expensive Gamble”, as the WSJ story tells us, based on the sweeping assumption that all fossil and nuclear energy is bad.

Of course, we do not know how all this will play out, 10 or 20 years from now.

May be the German government will be praised for its incredible foresight and ability to anticipate future trends. May be the decision to gamble on renewables will turn out to be extremely smart.

What if they are wrong?

But what if things turn out differently? What if still expensive renewable energy will be unable to compete with, for instance, abundant and even cheaper shale gas?

Yes, in case you did not know, beyond the vast reserves we have in the US, there are incredibly vast amounts of shale gas all over the world, in countries such as China, Russia, Argentina, the United Kingdom and more.

If wind and solar became really inexpensive, it would make no sense to invest massive amount of fresh capital to develop non competitive fossil fuels. But if the cost of renewables remains relatively high, while the cost of producing shale gas stays the same or goes down, then fossil fuels will win, at least for a while.

In capitalistic economies, it is not unusual for private sector companies to make huge bets on still unproven products. Sometimes the bet pays off, sometimes it does not. In either case, corporate managers put at risk investors’ money.

The government chooses

But here we have the government of Germany, a large modern country, betting huge amounts (hundreds of billions) of other people’s money on something that it believes to be right not because of persuasive economic reasons; but purely because of beliefs that amount to a “green ideology”.

Is this really a sound foundation for public policy?

 

 

 

 

 




Forget Global Warming – America Should Reduce Carbon Emissions In Order To Improve Public Health

WASHINGTON – Most Americans do not know that much about global warming. Likewise, most Americans do not have clear opinions as to whether global warming is man-made, what problems it has caused and will cause, and what should be done about it.

Regulating carbon

Indeed, several opinion polls reveal that global warming and climate change are way down the list of issues that people in America are concerned about.

In the light of this public opinion context, President Obama’s June 2 policy initiative to cut down CO2 emissions by regulatory fiat, as opposed to introducing legislation aimed at achieving this goal, looks like a daring move.

Coal will be penalized

Without getting into the many technical details, the upshot is quite simple. Whatever the benefits down the line, in the short and medium term, regulations will hurt some energy sector, coal first and foremost. This means that jobs will be lost in the coal mining industry, (very significant in some states such as West Virginia and Montana), the closing down of older, high emissions coal-fired power plants, and a lot more. Do consider that America still gets about 40% of all its electricity from coal.

Higher prices

Apart from the direct hit on the coal sector, it is also obvious that the regulatory obligations to switch to cleaner, (and still more expensive), technologies for electric power generation will translate at least in some regions into higher electricity prices, that will be viewed by most opponents as a “global warming tax”.

Pay more? For what?

And here is the political rub. As indicated, most Americans do not feel strongly about global warming. Therefore the idea that they will have to pay for the cost of stopping it or reversing it may not look very appealing. In fact it will be strongly opposed. We see already the arguments: “Obama’s crazy policies will kill jobs while they will impose an unnecessary economic burden on businesses and consumers”.

No global warming benefits

That said, it gets worse. By its own calculations, the US Environmental Protection Agency, (EPA), the federal body put in charge of regulating emission, has estimated that all these new policies, curbs and de facto taxes on coal, will change almost nothing when it comes to global emissions. Therefore, the impact of this new US policy on the larger goal of stopping global warming is practically zero.

It is indeed clear that, unless China, India and other emerging economies adopt stringent standards, global emissions will continue to grow, and therefore the goal of stopping, let alone reversing, global warming will not be achieved, whatever America decides to do today.

Regulations will be challenged

So, here is the situation. Using unprecedented regulatory prerogatives that –rest assured– will be challenged in courts throughout the 50 states, the Obama administration says it wants to impose costly burdens on several economic sectors, with the goal of stopping global warming. And yet, the EPA, its chief enforcer, admits that the impact of this policy on global warming will be almost zero.

This does not look like a political winner.

Happy environmentalists

Sure enough, Obama’s initiative will please the small but well-organized and well-funded US eco-lobby. There will be millions of Americans who will be enormously pleased. They view carbon based energy as evil. Therefore, anything aimed at reducing its use is most welcome. And it is also true that this minority has the support of the liberal media establishment, most opinion leaders and a slew of experts and academics. And all this matters politically.

And, of course, in combination with other Democrats, these groups create political majorities in traditionally left-leaning states on both coasts: California, Oregon, New York, Massachusetts, etc.

But, even if we grant that in many politically relevant states there is genuine political support for curbing carbon emissions, these new regulations will be strongly opposed in many states.

And this is largely because the administration is unable to make a credible case for what it wants to do. Indeed, as powerful and vocal as the anti-carbon coalitions are in several key states, they do not constitute a national majority. Not even close.

Some opinion leaders have argued that, by enacting CO2 restrictions, America “will set a good example”, that will force China and India to follow suit. Really? And so we create a de facto carbon tax in the hope that this will inspire others? This is silly.

Focus on public health benefits

In my view the only way in which the Obama administration may be able to create a broader coalition of clean energy supporters is by dropping the dubious anti-global warming goal of these regulations, while enhancing the public health benefits.

Yes, noxious emissions may or may not  increase global warming. However they do have a demonstrable and mostly negative impact on the health, well-being, and life expectancy of those who are directly exposed to them.

Emissions make you sick

Here the science and therefore the policy argument in favor of reduction is a lot stronger, and therefore a lot more cogent. Indeed, if we look at China and India, we can see the dreadful impact of unregulated power generation. These countries have horrible rates of respiratory problems affecting mostly children and old people. They have high incidence of asthma and various forms of cancer.

Now, this is an argument that most Americans can understand. “Do you still want cheap power generated by dirty coal, even though this means that you will die younger because of the emissions?”

Higher electricity costs are OK, if this means improved health

Again, I am no expert on how this information can be presented in an accurate and understandable way to the general public. But in my judgement it will be a lot easier to find allies for a lower carbon economy by showing the public health advantages of clean energy.

All considered, higher electrical bills are a small price to pay if the alternative is having lower utility costs but also having your children sick with chronic respiratory diseases –children who may die younger as a result of the noxious emissions generated by coal-fired power plants.