Comment on the "phosphate dilemma"

My comment on Parke Wilde's post at U.S. Food Policy on phosphate fertilizer production and its environmental impact.
Agree that the environmental footprint of phosphate mining is terrible, and the existing legacy in the U.S. is terrible whether or not current production is expanded (or even continued at current levels).

On the price side, phosphate fertilizer prices have fallen back to 2006 levels (see Figure 3):

Higher prices (past and future) will likely spur incremental supply coming from other parts of the world with lower cash costs of production and environmental restrictions (e.g. North Africa). Overall, the FAO predicts phosphate fertilizers will have surplus capacity by 2011/2012 (see first link and p15, 17 of second link):

Unfortunately, the environmental problems from new mines will likely be similar, but receive even less attention than they would here in the U.S. Outsourcing our environmental footprint is obviously not a good solution at a planetary level.

Parke, I agree that using fewer environmental resources per person is critical; I think the key practical question here is how to incentivize that in the specific case of the global fertilizer market.
Thanks, R, for the better data and the thoughtful comments. I've added another update to the original post, acknowledging the recent price data. Despite the embarrassment of encumbering the post with three updates (argh), perhaps the revised post shows off the efficiently collaborative nature of web-based writing.
That's the beauty of blogging - no shame in updating!

Development Posse should "Lighten Up"

So says innovative E+Co co-founder Philip LaRocco in an open letter at The letter is enjoyable, punchy, and short enough to reprint here in full.
An Open Letter to the "Development Posse" (of which I am admittedly a member):

The Development Posse needs to lighten up. Stop being so serious and sincere. It makes you-all (we-all?)ineffective. Being serious makes us focus on what's the right thing to do rather than the practical things that need to be managed to make real change. Things such as vested interests, career ambitions, empire building and the regular need for certain people to attain rock star status regardless of the validity of what they preach.

Stop being so damned serious. Laugh at and openly discuss the silliness that pervades so much of development. It will make the conversation so much more interesting. Share your latest "you cannot make this sh*t up" example. I'm listening.

While you are at it, stop being so sincere. Repeat after me: nothing works as planned. Thinking it should (work as planned) leads to whining, drama and trying to make water run uphill. When stuff inevitably happens, folks, make the course correction and acknowledge it. Don't paper it with nonsense such as "market circumstances reduced the demand for the fund-project-programme's carefully designed products-services-intervention" - when the truth is that the investors and donors got cold feet and backed out.

The people we purport to serve - the unserved (without whom most of us would be tending bar) - really don't want our pithy explanations. Actually they don't even want our projects or programmes. What they want, folks, is choice. That's job one. Not inputs, outputs, outcomes, measures, strategy, tactics or cost-benefits. Our job is to be less sincere, less certain, more agnostic and do those few things that eliminate barriers to choice. We should be avoiding the cliches (Does it scale? Hell, let's first ask: does it work?). Let's share stories of what works at creating choice for the poor who employ us. I'm listening.

Capital controls are coming

... says Simon Johnson, who lays out his case and prediction for capital controls at the Baseline Scenario. I don't have a strong personal view either way but I think recent events make the Chicago/Larry Summers view that capital controls are categorically bad increasingly untenable.

Dani Rodrik is another longtime supporter of considerable academic heft.

History repeats

In view of our diminishing returns of coal and petroleum, the utilization of wind-power deserves careful attention. The available water power in this country is very limited, and the development of it generally requires so great a capital outlay that the standing charges more than equal the cost of the coal required to produce the same results by means of gas or steam.
Sounds like a well-informed commentator on modern energy and environmental issues, right? Well, it was... in 1909.

P.S. The astute commentator even nails the intermittency/storage issue:
It is only when windmills become are used for providing a constant supply of electric current that storage becomes costly and troublesome, and conditions must be favourable to enable wind to compete successfully with other sources of power in this case.

Meta-study finds organic food not healthier

A new study by the London School of Hygiene & Tropical Medicine surveyed 162 scientific papers from the last 50 years and found no systematic evidence that organic food is healthier than ordinary food.
"A small number of differences in nutrient content were found to exist between organically and conventionally produced foodstuffs, but these are unlikely to be of any public health relevance," said Alan Dangour, one of the report's authors.

"Our review indicates that there is currently no evidence to support the selection of organically over conventionally produced foods on the basis of nutritional superiority."
This will likely produce a fair amount of noise back and forth - views on either side of the organic food debate are seldom lightly held - and I suspect it will not be the last word. Nutrition aside, though, it is worth remembering that organic food production is generally better for the environment (although not always; I've heard for example that using copper as a "natural" pesticide in Switzerland has led to heavy-metal contamination of the soil). So even if organic food is no healthier, it may be "cheaper" than ordinary food if the long-run negative externalities of industrial agricultural production were priced in. Michael Pollan certainly thinks so.

Update: The critical responses begin to roll in... here's Parke Wilde at U.S. Food Policy:
It seems to me the new UK literature review was not sufficiently powered to detect the small advantages of organic that one might realistically expect. For example, unless there is an error (in tabulation or in my reading), it shows a 10% advantage of organic over conventional in zinc, but the result was not statistically significant (for example, because the sample size was not large enough). The authors say this shows organic is no better than conventional. But, nobody ever expected a greater than 10% advantage for organic anyway. Really, the new results are essentially consistent with the older research.
Nevertheless, he agrees that the environmental differences are larger than the nutritional ones, and concludes:
I leave this fuss in the same place I started. There are probably modest nutrient advantages from organic production.

Sequestering carbon... in the atmosphere

What happens when you build a coal carbon capture and storage (CCS) and then can't get a permit to store the carbon? You pump that carbon into the atmosphere, of course.

The roots of India's emissions skepticism

George Monbiot defends India's continued refusal to agree to GHG emissions reduction targets:
... it has almost been a point of pride in India not to respond to the requests of richer nations to limit its emissions.

I think there are several reasons for this, not all of them discreditable. The first is that Indian people and governments have rightly perceived that when it comes to acting on climate change, most developed countries are all leaf and no plums. They make grand statements (remember the G8 meeting) about the need to cut emissions, but in most cases they haven't been translating them into domestic policy (the UK is now an exception). With some justice, India has suspected that it is being urged to implement global policies that the rich nations have no intention of honouring.

Indians are also painfully aware that the rich nations in the past deliberately prevented their nation from developing. England, for example, banned the import of calico (cotton cloth) from India, in order to protect its own textile industries. It went on to smash Indian looms and cut off the thumbs of Indian weavers in order prevent them from making their superior products. As Ha Joon Chang shows in his book Kicking Away the Ladder, England's industrial revolution was made possible by preventing India's. Many people there suspect that attempts to limit India's future greenhouse gas emissions have the same purpose.
India has every right to be skeptical. On the other hand, it will be very hard to foster a global consensus on emissions reductions if key nations - maybe even just one, like India - insist on "taking care of themselves". What a game-theoretic conundrum.

McKinsey report: Energy Efficiency is Big

McKinsey has just released a report on "Unlocking energy efficiency in the U.S. economy". The central conclusion:
Energy efficiency offers a vast, low-cost energy resource for the U.S. economy – but only if the nation can craft a comprehensive and innovative approach to unlock it. Significant and persistent barriers will need to be addressed at multiple levels to stimulate demand for energy efficiency and manage its delivery across more than 100 million buildings and literally billions of devices. If executed at scale, a holistic approach would yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed through 2020 for upfront investment in efficiency measures (not including program costs). Such a program is estimated to reduce end-use energy consumption in 2020 by 9.1 quadrillion BTUs, roughly 23 percent of projected demand, potentially abating up to 1.1 gigatons of greenhouse gases annually.
Meeting 2020 emissions targets at a net savings of $700 billion is pretty incredible - Joe Romm is understandably excited.

Of course, "significant and persistent barriers" are not to be overlooked - implementing energy efficiency opportunities invariably runs in to agency problems, market failures, and a host of other challenges - but overall this sounds like great news and a strong argument for pounding the drum on energy efficiency.

Update: Matthew Kahn at Environmental and Urban Economics is not convinced and doubts whether McKinsey would put its money where its mouth is. A few choice quotes:
So, my point is that if McKinsey is so confident about the rate of return they are predicting --- shouldn't they stop giving advice and actually open a business and start selling their product?
Talk is cheap, let's see some new innovative contracts from the smart guys at McKinsey!

Potatoes caused urbanization

I've been meaning to link to this Chris Blattman post on a new paper:
... Old World regions that were suitable for potato cultivation experienced disproportionately faster population and urbanization growth after the introduction of potatoes.

... our baseline estimates suggest that the potato accounts for 12% of the increase in population, 22% of the increase in population growth, 47% of the increase in urbanization, and 50% of the increase in urbanization growth.
My impression was that potatoes were the highest-efficiency crop in terms of food energy (i.e. calories), but not particularly nutritious. But I was wrong:
Humans can subsist healthily on a diet of potatoes, supplemented with only milk or butter, which contain the two vitamins not provided for by potatoes, vitamins A and D. …This, in fact, was the typical Irish diet, which although monotonous, was able to provide sufficient amounts of all vitamins and nutrients.
I guess what I was remembering (I think from Jared Diamond's Guns, Germs and Steel) was that potatoes are low in protein (despite their micronutritional excellence). Still, I will think more positively of potatoes from now on.

The Oil Drum

Faithful reader and lonely commenter Ryan asks:
Would love your comment on the Oil Drum. I have an uncle who's obsessed with it whom I argue with all the time.

Most things I've seen on the site are alarmist, don't understand economic adjustment paths, and don't cite reputable people.
My headline answer is that it is a great aggregator of information, but doesn't add a lot of value as a filter and the quality of its commentary can vary widely. I recently re-added it to my RSS feed, although it's lower on my resources reading priority list (the WSJ's Environmental Capital is on top). Among the positives are nuggets of wit and the most comprehensive daily round-up of energy news I know of.

It's almost never concise.

It is very concerned with Peak Oil, often putting out alarmist scenarios and disdaining commenters who dare to dissent (a bit like Paul Krugman). In general its commenters are have pretty deep industry knowledge, so its current market intelligence is pretty good, but then you get future forecasts like this ("Linear extrapolations of historic EROI trends") which just make you roll your eyes:

So there is a fair amount of interesting content, but posters are fallible and sometimes have their own agendas so it should not be taken for the Gospel. I'm not saying that Peak Oil is necessarily wrong, but it's not a certainty either (except in the most tautological sense) and The Oil Drum, while it has its place in a portfolio of sources, is not the best place to find a balanced conversation.

Creating markets is hard

William Easterly's Aid Watch blog cites an interesting project in Ethiopia as an example of the impossibility of assessing development projects on a binary scale:
This month, while the G8 continued their vague pledges of billions in food aid, Eleni Gabre-Madhin was busy bringing a market-based solution to the problem of food security in Ethiopia, as the CEO of the Ethiopia Commodities Exchange (ECX). After years of studying Ethiopia’s agricultural markets, Gabre-Madhin hit upon a central commodities market as a way to end the country’s deadly boom and bust cycle, which has seen overproduction and low food prices one year and famine the next.

The ECX has been running for a little over a year now, and lists five commodities traded on its website—coffee, sesame, beans, maize and wheat. With a central trading pit in Addis Ababa, eight warehouses throughout the country, and market data being transmitted through a network of electronic display tickers, text messages, TV, internet and radio, the ECX is designed to reduce the burden of high transaction costs and excessive risk on farmers and traders, and increase access to information for small-scale farmers in remote areas.

In 2008 when the ECX was launched, the Economist called it a “bold experiment to improve the efficiency of agricultural marketing,” and Eleni Gabre-Madhin herself has been lauded as a visionary and a pioneer.
Sounds great, right? There is certainly much to be said for transparency and liquidity in agricultural markets. But interference by the corrupt and untrusted government has apparently damaged ECX's credibility, highlighting the challenge of building markets in countries with weaker legal and institutional frameworks than we're used to here in the developed world.

Carbon leakage is bad, a trade war would be worse

Environmental Economics articulates the best argument I've heard for carbon tariffs:
The economics here are simple: If the U.S. prices carbon domestically (through Cap and Trade), then imports have to be priced accordingly, or the world price for similar products will be lower than the domestic price. The result will be more domestic purchases of foreign produced carbon intensive products and potentially leakage of U.S. industry to non-carbon pricing nations who potentially produce similar products with lower carbon efficiency than domestic manufacturers currently use. This has been the U.S.'s stance in international carbon negotiations all along and the primary reason the U.S. never signed onto Kyoto. Now, domestic carbon policy without border price adjustments puts domestic producers at a competitive disadvantage and will likely result in more imports of carbon intesive products and potentially higher carbon emissions globally.
All true... but it doesn't change that a global trade war would be disastrous. I continue to believe our best hope is the quaint idea that American "leadership" can inspire other countries to follow with their own climate change policies. The stick of carbon tariffs is too dangerous.

NIMBY, or anywhere else

Britain and its manufacturing workers are dismayed that energy giants like BP and Vestas are giving up on wind power in the U.K. and moving on to bigger and better places like the U.S. and China. David Mackay shines light on why with two strikingly similar maps. One shows areas within 2k of human habitation, which are of course too close for wind farm development. The other shows areas with high wildlife sensitivity, which are or course also not suitable for wind farm development. As he says, "Wind farm development is to be encouraged in all other areas on the map."

And what about offshore?
For Tony Hayward, CEO of BP PLC, the company’s preference for onshore wind is just a question of logistics. An onshore wind farmer can drive up in his 4×4 to fix his turbine if it conks out; if it’s in the middle of the North Sea he’ll need a big boat and crew. And he’ll struggle to find one suitable. “There’s no supply chain to service offshore wind farms,” he told reporters Tuesday.

He also doubts the technology exists to build a wind turbine that would survive for 20 years in the extreme conditions north of the Shetland Isles, Britain’s remotest point. That coming from a company that operates drilling platforms in some of the world’s deepest waters and stormiest seas is a pretty bleak assessment.

Algae roundup

There's been a flurry of news around algae since Exxon announced its $600m investment in Synthetic Genomics two weeks ago.

About that $600m... I recently learned from an industry source that the investment is conditional on multiple technological breakthroughs which are considered to be quite far-fetched. Turns out the most important words in the press release were "if research and development milestones are successfully met," which should temper excitement about "Exxon's big bet."

More companies are popping out of the woodwork - the latest, OriginOil, promises higher yields through "live lipid extraction."

Just in time, it looks like the EPA will count algae as an advanced biofuel under the RFS mandates - kudos to Jeff Bingaman for standing up against picking winners.

Finally, Geoff Styles, who can be counted on for deeper reflection and analysis than the average commentator, thinks through the implications of Exxon's investment. He concludes that Exxon was unlikely to make the move for PR purposes alone and must like the potential for scale (based on much higher per-acre yields). He also cautions:
If Exxon has concluded correctly that algae--which faces many serious hurdles of its own--is the best bet, then the entire US alternative fuels strategy could be in trouble.
I somewhat agree, but given what I recently learned about the conditionality and hence risk profile of the investment, I don't take it as a particularly strong signal of Exxon's belief in algae.

Ethanol as kryptonite

From Chris Clayton:
Thomas Shannon, who Reuters described as a "career diplomat," has learned the perils of being nominated to an administration post. Shannon, nominee to be ambassador to Brazil, slipped in his nomination hearing back on July 8 and stated that it would be "beneficial" if the 54-cent tariff on foreign ethanol were removed.

Well, Thomas Shannon, career foreign relations guy, meet the domestic ethanol industry and the senators who love it! You almost wonder how a career diplomat could so easily walk into his own little hornet's nest like that.

Sen. Charles Grassley, R-Iowa, told Iowa agricultural reporters on Tuesday that he had put a hold on Shannon's nomination vote until Shannon clarified his comments.
The power of the farm lobby is old news, but continues to impress in new ways.

Environmental Capital asks a probing question:
But the spat over ethanol tariffs revives an old question—what’s the priority behind U.S. energy policy, if there is one?

For Mr. Grassley, protecting U.S. biofuels producers means more energy security and fewer imports. For many environmentalists, Brazilian ethanol is preferable: It is made from sugarcane and according to most scientific studies has a more benign environmental footprint than U.S. ethanol. And for most U.S. drivers, the main concern is simply keeping pump prices in check.

The administration’s response might shed light on just where its priorities lie.
My own hunch is that Obama would be open to doing away with corn ethanol subsidies if it carried no negative implications for his broader agenda, but it would, so he won't.

Map of the Day 2: China's Oil Footprint

Via FP Passport, which points out:
Notably absent from this map is Sudan, where CNPC has extensive and very controversial holdings.
Notably absent too is the U.S., although not for lack of trying.

Map of the Day 1: Desertec

Via Environmental Capital, a great map of the Desertec project:

Myth-busting: How much oil does the US really import from the Persian Gulf?

I'm reading Michael Pollan's The Omnivore's Dilemma (long overdue, and overall a great book, even though I don't agree with everything). One common meme he perpetuates that I find very irritating, though, is the one that says the U.S. gets all of its oil from the Persian Gulf. Here are the real numbers. For most of the last two decades, the Persian Gulf as a whole has supplied <20% of total U.S. imports, and Canada has been the single largest source (~16%). Saudi Arabia and Venezuela are tied for second at ~13.5%, with Mexico (12.2%) and Nigeria (7.4%) not far behind.

Not to mention that in declaring that chicken feed is Joel Salatin's only outside input, he conveniently ignores electricity and fuel. But I'm sure once I've finished the book I'll have a much longer set of gripes, so until then...

Update: To give the complete picture, imports accounted for 59% of total U.S. petroleum consumption in 2007. This means the Persian Gulf and Saudi Arabia were responsible for 9.5% and 6.5% of total U.S. oil consumption in 2007, respectively.

Two new IFPRI briefs on ag and climate change

Via Blog World Hunger, IFPRI has just released two new policy papers on adapting to climate change in Africa. Here are the headline conclusions:

"Economywide Impacts of Climate Change on Agriculture in Sub-Saharan Africa":
The paper uses two scenarios: the first doubles the irrigated area in Sub-Saharan Africa by 2050 but keeps total crop area constant; and the second scenario increases both rainfed and irrigated crop yields by 25 percent for all Sub-Saharan African countries. Due to the limited initial irrigated area in the region, an increase in agricultural productivity achieves better outcomes than an expansion of irrigated area. Both scenarios help lower world food prices, stimulating national and international food markets.

"Soil and Water Conservation Technologies: A Buffer against Production Risk in the Face of Climate Change?":
Results show that soil and water conservation technologies have significant impacts on reducing production risk in Ethiopia and could be part of the country’s climate-proofing strategy. However, results also show that one-size-fits-all recommendations are not appropriate given the differences in agro-ecology and other confounding factors.

IFPRI does great work, and these sound like solid contributions; nevertheless, adaptation to climate change (particularly in Africa and South Asia) has a looooong road ahead.

Disappointing rhetoric, but Yucca Mountain review proceeds

Green Sheet takes a negative spin by citing the worst part of a recent interview by the head of the Nuclear Regulatory Commission:
Finding a permanent site for spent nuclear fuel in the U.S. isn’t “an urgent problem,” the head of the Nuclear Regulatory Commission said.

Gregory Jaczko, who took over as chairman of the agency in May, said in an interview that the material can continue to be stored safely for the time being at nuclear power plants.

“Certainly, in the short term it’s not an urgent problem,” Jaczko, 38, said in the interview yesterday at the agency’s headquarters in Rockville, Maryland. “It is an issue we need to be aware of and be diligent about, but it’s not a crisis by any means.”
I find it extremely disappointing that the Obama administration has seen fit to take the easy way out of the nuclear waste issue by kicking it down the road. Whether or not nuclear is part of the new energy solution, the existing waste requires long-term storage, which is a tremendous challenge both technically and politically. The most charitable explanation of such a decision would be that the administration calculated that its finite political capital would best be put to use elsewhere (like health care and energy/climate legislation).

On the other hand, the news is not all bad:
The Nuclear Regulatory Commission will press ahead with its review of a license for a nuclear waste dump in Nevada, even as the Obama administration has made clear it is abandoning the project, the commission's chairman said Tuesday.
Jaczko says they are taking it "one year at a time", so I hold out hope that Yucca Mountain is not as dead as Obama claims and Harry Reid (the Nevadan Senate Majority Leader) hopes.

New technology turns sunlight into fuel!!!

Joule Biotechnologies has announced the next silver bullet in alternative energy:
Joule Biotechnologies, Inc. unveiled July 27 its Helioculture™ technology—a revolutionary process that harnesses sunlight to directly convert carbon dioxide (CO2) into SolarFuel™ liquid energy. This eco-friendly, direct-to-fuel conversion requires no agricultural land or fresh water, and leverages a highly scalable system capable of producing more than 20,000 gallons of renewable ethanol or hydrocarbons per acre annually—far eclipsing productivity levels of current alternatives while rivaling the costs of fossil fuels.
Well, pretty much all biofuels turn sunlight into fuel - even petroleum does, albeit with a time lag of millennia. The claimed per-acre yield is impressive, but Environmental Capital picks out a number of red flags - lack of all but vague details on technology, yield of ~10x algae and ~100x corn ethanol, hyper-aggressive timeline (pilot plant next year and commercial-scale plant by 2012). File this under I'll believe it when I see it.

Biofuels nuances

I agree with the overall thrust of George Monbiot’s piece "US car manufacturers plough a lonely furrow on biofuels" - first-generation biofuels are a terrible way to try to reduce GHG emissions - but there are a few instances where I think he is too simplistic.

First, while biofuel demand for food crops surely contributed to the rise in food prices, there were also other factors at work on both the demand side and the supply side. Estimates vary but in my mind the most credible right now is IFPRI’s using its IMPACT model, which puts biofuels’ share of grain price increases in 2007/8 at around 30%.

Second, while he’s correct in condemning grain and oil crops as biofuels feedstock, he leaves out the best of the first generation – sugarcane. Sugarcane has emissions savings of 60-90%, comparable to the second-generation cellulosic ethanol, and is successfully supplying an increasing share of Brazil’s considerable fuel demand. If the U.S. were to remove its ethanol subsidies and tariffs, Brazilian imports would immediately become competitive. And Amyris is pioneering an attempt to convert sugarcane – which has the highest photosynthetic rate of any food crop – to biodiesel.

Finally, the corn ethanol mandate tops out at about 15 billion gallons, with the rest of the 36 billion gallons in 2022 coming from second-generation ethanol from switchgrass, algae, etc. Who knows whether the technology will be ready by then, but if it is, again, the GHG savings from second-gen ethanol will be considerable

In conclusion, while I agree that the U.S. biofuels program as currently conceived is a boon to farmers and a bane to the rest of the country and the planet, we should not rule out biofuels completely without understanding the many nuances and keeping an open mind as to what future developments may bring.

Why GM seed companies need IP protection and high margins (a.k.a. crop biotech is like pharma)

GM seed companies (particularly Monsanto) are favorite villains of critics of Big Ag. While I’m not an unapologetic defender, I think this post from the Center for a Livable Future exemplifies some of the unfairness in this view. It begins with a single instance of seed failure (280 South African corn farmers used Monsanto seeds and their resulting crops were damaged; Monsanto agreed to pay compensation) and springboards to a broad range of accusations:
The problem is that Monsanto is a monopoly in global GM seed production and sales… And that is what it comes down to, Monsanto is a company and its goal is ultimately profit, not the welfare of the people who rely on them.

This is only one instance of reckless business moves. In India there has been a recent wave of suicides due to the shackles placed on the individual farmer by Monsanto. As showcased in the recent documentary Food Inc. Monsanto holds farmers to unrealistically high and unprecedented standards. The goals of our society have always revolved around progress and science, but here we see one company placing a stopper on that goal by coercing farmers to use their product.
Well, Monsanto isn’t technically a monopoly (Syngenta, DuPont and Novartis BASF also have major GM seed sales) but since the industry is an oligopoly we can let that pass. And I am not and expert on crop seeds, but as far as I know Monsanto does nothing to prevent farmers from using the non-GM seeds they have used for decades, and the farmers generally choose to pay more for GM seeds because they enable much higher yields (concrete examples to the contrary are welcome).

More pernicious, though, are the ideas underlying the condemnation of seeking profit, “high standards” and stopping “progress and science.” The latter makes no sense – clearly without Monsanto there wouldn’t have been as much advancement in GM seed science and technology. I think what is meant is that Monsanto develops these new technologies and then, meanly and immorally, does not share them with everyone who could benefit.

Students of business will notice a structural similarity to another highly profitable and highly criticized industry – pharmaceuticals. Developing drugs (like GM crop seeds) requires literally billions of dollars of R&D, and this investment doesn’t happen unless the product’s economics reward blockbuster discoveries with high profits to remunerate the prior investment and high levels of risk and failure in the process. Unfortunately, from a societal point of view, once a useful new drug or seed has been developed, the R&D investment is a sunk cost and the populist argument that everyone should benefit – regardless of ability to pay – is easy to make. And its easy to ignore in the short term that if IP rights get trampled on to the extent that businesses are not confident that they’ll earn an attractive risk-adjusted return on their investments, those investments will dry up and that precious flow of new technologies will cease down the road.

To summarize more concisely, 1) GM seeds enable higher agricultural production and more efficient use of scarce resources like land and water, and 2), high profit margins and IP protection are necessary if we wish to incentivize continued innovation in this area. Genuine GM food safety issues would be a sign that something in the model is broken from a social perspective, but profits and enforcement of intellectual property rights do not.

Oil is dirty, from oil sands or otherwise

Environmental Capital reacts with skepticism to two new reports (funded by the Alberta Energy Research Institute, not a disinterested party given that Alberta is the epicenter of oil sands production) that say that petroleum from oil sands only emits about 10% more greenhouse gases than other sources:
That’s not because the much-maligned oil sands are getting cleaner (though there’s plenty of scope for just that, the reports say). Rather, it’s because newer studies scrutinize more closely the environmental footprint of crude production everywhere else, from Nigeria to Venezuela, which is more energy-intensive than the easy-to-extract oil in Saudi Arabia.

In other words, everything’s getting dirtier — so Canada’s oil sands don’t look so bad in comparison. The clean-energy think tank Pembina Institute responded: “Rather than lowering the bar by comparing oil sands to other pollution-intensive sources of oil, we should be assessing how the oil sands compare with technologies like advanced biofuels and electric vehicles.”
Sounds nefarious, but I actually come down on the side of the reports here, because I have seen the same results elsewhere. The key simple truth is that most petroleum emissions come from the combustion of the refined product (gasoline, diesel, jet fuel, fuel oil, etc.). If we say combustion emissions are 100%, oil sands production adds about 15% on top of that, whereas more traditional production methods average out to about 5% extra. So the difference is 115% vs. 105%, or about 10%.

Pembina’s recommendation should be broadened – we should compare ALL oil (not just oil sands) to other energy technologies. But we should 1), be objective in how we assess the results (for example, if land use change is taken into account, corn ethanol may emit as much as oil sands); 2), keep in mind that many of these technologies are not yet deployable at commercial scale; and 3), recognize that, carbon price adjustments like cap-and-trade aside, energy consumption decisions will be driven overwhelmingly by the raw economics, not environmental considerations.

Downwind Faster Than The Wind

The speed of wind seems like a plausible upper bound on the speed of a vehicle powered by that wind, and David Mackay thought so even though he knew of wind-powered vessels which can sail directly upwind. But he is delighted to discover that he is wrong (here is proof and explanation).

His reaction and reflection on his mental processes is interesting:
What intrigues me philosophically about the wind-powered-travel expositions is that it reveals how fragile and weak "understanding" can be: I thought I understood wind-powered travel, and I already knew about wind-powered vessels that can sail directly upwind (eg, Revelation II, pictured). But I got the answer to the question "is DWFTTW possible?" wrong! - even though the principle by which upwind travel works is just the same as the principle of DWFTTW travel. So it seems that when I "understood" upwind travel, what I really did was append to my stack of physics heuristics another heuristic, permitting upwind travel; I didn't add a piece of knowledge that was capable of working in new situations.
I find this encouraging not because the specific discovery is cool (although it is), but rather because seeing “obvious” truths overturned bodes well for the prospect of technological energy advances that we have not imagined today. A lot of economic analyses of renewable energy potential work from back-of-the-envelope uppers bounds on the resources available given “reasonable” tech advancement; while they conclude, I think rightly given that starting point, that renewables won’t make up a major part of energy production for decades, this gives reason to believe that “unreasonable” tech advances could help us get closer.

Now, I wonder if we could solve the intermittency problem with wind power by engineering the equivalent of a wind turbine atop a giant treadmill?

"Viable business?": Ag logistics in Brazil

AWB Limited (formerly the Australian Wheat Board, which was privatized in 1999 and featured prominently in the Iraq Oil-for-Food scandal) announced last week it would shut down its Brazil operations after sustaining losses:
AWB said the board reached its decision based on continuing credit issues, resulting from deteriorating market conditions in Brazil, which had required increased provisioning. Other factors included reduced trading margins, ongoing interest and overhead costs, and poor commercial decisions made locally. The company replaced local management earlier in the year.
This earned AWB a negative credit watch from S&P.

AWB's Brazilian business was primarily ag logistics:
The main Brazil operations, a $US200 million investment, are buying soybeans from upcountry farmers, transporting them to the port and selling them to global traders. Corn, oilseed and meal were added two years ago.
The most optimistic way to read this would be that the local managers were incompetent. But there are at least two more pessimistic potential takeaways. One is short-term: that Brazilian farmers are still severely credit-constrained from the financial crisis, impairing their ability to buy important inputs like fertilizer up front and thus hurting their eventual output (making the short-term outlook for the transportation and logistics business poor). The other is longer-term: that for whatever reason (poor infrastructure likely being one), agricultural transportation and logistics in Brazil is still structurally a crappy business. This would challenge for the view that the inland Brazilian cerrado can become the world's new breadbasket for the 21st century. And it drives home the importance of infrastructure for agriculture, however it gets built.

Update: A Brazilian colleague of mine suggested another explanation - maybe ag logistics is not a bad business in Brazil, but the ABCD players (ADM, Bunge, Cargill, Dreyfus) are too dominant for a new player to gain a strong foothold.

M&A round-up

I've been out of the office for a week so am reviewing the news. There are three resources M&A stories I found particularly noteworthy:

Sinochem approaches Australian agro-chemical producer Nufarm: With all sorts of M&A and other goings-on around China's quest to secure resources, this multi-billion dollar deal will be worth watching. A joint bid by ChemChina and Blackstone for Nufarm didn't pan out in 2007 - I'd be curious to know why, and if it sheds any light on how this attempt will pan out.

Exelon drops its bid for NRG: This was a long-running saga; Exelon does the right thing by not upping its bid further into value-destroying ranges, but now it may miss even more the federal loan guarantees for new nuclear plants that NRG got and it didn't.

The Suncor/Petro-Canada merger receives anti-trust approval: The way is cleared for the new Canadian national champion in petroleum, and probably not the last consolidating move we'll see in the sector.

The part of the Efficient Market Hypothesis left standing

I'm currently at a corporate finance training, and hence have finance topics on the mind and little time, so pardon my posting wholesale this post from James Kwak at The Baseline Scenario, with which I agree:
Brad DeLong cites Underbelly citing The Economist quoting Richard Thaler:
The [Efficient Capital Markets] hypothesis has two parts, he says: the “no-free-lunch part and the price-is-right part, and if anything the first part has been strengthened as we have learned that some investment strategies are riskier than they look and it really is difficult to beat the market.” The idea that the market price is the right price, however, has been badly dented.
I think this is exactly right. Ever since graduate school I have said that I believe in efficient markets, by which I mean the “no-free-lunch part.” The idea that some people might think that “no free lunch” implied that “prices are right” didn’t even occur to me at the time. My thinking was basically like this: yes there are bubbles, but it’s hard to tell if you are in one, and even if you can tell, you can’t tell how long it will last so you can lose a lot of money betting against it, and even if you have a very long time horizon, who’s to say you won’t be in another bubble when you finally want to sell? Put another way, you may be “right” about an asset price, but if the market is composed of lots and lots of people who are “wrong,” and those people are never going away, what does that get you?
Unfortunately, a fair amount of traditional corporate finance theory relies heavily on "the price is right." The exciting part, of course, is that the new theory is up for grabs!

China's big iron ore discovery (announcement)

Somehow this got somewhat buried in the Western press at the time (or at least I don't remember having seen it), but apparently China hit it big in iron ore:
Asia’s biggest iron ore deposit, with reserves of more than 3 billion metric tons, was found in China’s northern province of Liaoning, according to a local government.

The Dataigou deposit, located near Benxi city, has material with iron content of between 25 percent and 62 percent, the Benxi government said in an e-mailed statement, confirming a China News Agency report.
How is the cost?
“Production costs for this mine could be high because the deposit is very deep,” said Hu Kai, an analyst at Umetal Research Institute. “It can’t compete with Australian imports, which are cheaper because they have higher grades and are above ground.”
And the quality?
Chinese underground deposits are typically between 500 meters and 600 meters deep, consultant Zou said. Mines in China have iron content of 20 percent to 40 percent, compared with over 60 percent for production by Vale, Rio Tinto and BHP Billiton at their projects in Brazil and Australia.

The cited iron content figures for the deposit suggest it’s “a high grade discovery for China,” Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd., said in Melbourne.
If true, this would have a major impact on the world iron ore markets. The current industry structure is a semi-monopsony (with China buying something like 40-50% of world production) and a triopoly (BHP, Rio Tinto, and Vale control something like 70% of world supply), which generates possibly the most contentious and high-stakes price negotiation on the planet once a year. So a huge domestic source for China would be a game-changer - but given other recent Chinese shenanigans, I will remain skeptical of this announcement until further evidence surfaces.

Natural gas is not cheaper than coal (in the long term)

Via Green Sheet, Robert F. Kennedy is the latest to call for replacing coal with natural gas in the U.S. power generation mix, because gas is "cheaper and cleaner." Cleaner, yes, but as I've mentioned before, natural gas is only temporarily cheap. There is a supply glut now, but nothing the market can't sort out given a few years, and, as Econbrowser shows, in the long run natural gas and oil tend to converge to similar prices on an intrinsic energy basis. So unless you believe oil is destined to be cheap forever, gas will not be either. It may take 1 year, or 2, or 5, but you can count on gas prices coming back, at which point the economic advantage of coal (any government-imposed price of carbon notwithstanding).

I find it kind of irritating when big names with (apparently) zero understanding of commodity economics sound off on important issues like this - it certainly doesn't help the public debate.

Debunking wind energy twaddle

No one does it better than David Mackay:
The Torygraph has actually published this "startling" (and false) meme a second time, this time in an "Analysis" piece authored by "Dave Andrews, head of the Claverton Group", published on 16th July 2009. He writes of onshore wind that "it needs an area of only 70 square miles to generate Britain's total power requirements". Crikey. Did the copy-editor do this to make the Claverton Group look like a bunch of fools? Apparently so - The Claverton site says the article as submitted said "a 70-mile by 70-mile square". Yes, that would be 70 times more accurate! For the record, (see my survey of UK wind farms if you want, where I show that UK wind farms, whether onshore or offshore, generate roughly 2.5 watts per square metre, on average), 4900 square miles of windfarms would generate about 32 GW on average, which is close to Britain's average electricity consumption (it's about 42 GW). If you want to produce "all Britain's energy consumption today" (ie transport and heating too) then you need about nine times the area, since Britain's primary energy consumption is about 300 GW.

The bottom line - the Daily Mail article is off by a factor of 825, and the Telegraph's rendition of Clavertonism is off by a factor of 70 or 630, depending on whether you allow energy to be confused with electricity.
His Sustainable Energy Without the Hot Air is required reading for anyone interested in alternative energy. I only wish that 1), he would do this more often (perhaps he is too busy teaching Britain's "best and brightest"), and 2), we had someone like this in the U.S. to lay down some factual outer bounds - to renew-o-philes and enviro-skeptics alike - on how much of American electricity demand alternative energy could potentially satisfy. The public debate would benefit from understanding and agreeing that the answer is somewhere in the range of "some, but not most."

India tells Clinton 'no' on climate

Remember when India refused to reduce its greenhouse gas emissions at all?

Well, they haven't backed down yet.

"Good is the enemy of great" - but which do we want?

"Good is the enemy of great" has the ring if a great philosophical truth, but in writing my last post, I thought, "Wait - which of the two should we be aiming for?"

Some quick research revealed that the quote is generally attributed to Voltaire; the original French is "Le mieux est l'ennemi du bien", which has the connotation of:
"Leave well enough alone," that is, don't waste time looking for a perfect solution when there are countless good-enough solutions.
Later, the meaning began being flipped, notably by Jim Collins in Good to Great, to mean that those who settle for "good" will never become "great.

So which should it be? Obviously it depends a lot on context. In sports, for example, it seems that aspiring for greatness and not settling is generally what an elite athlete should be doing. In the realm of politics, on the other hand, aspirations for perfection are generally a bad thing - see Nader/Gore in the 2000 U.S. presidential election, or the (hopefully positive) example of the Waxman-Markey bill that passed the House. But in business, I see no way to draw a hard and fast rule - either way is too easy to refute with real-life counterexamples. So perhaps the only absolute truth in business is that the two are in tension, and part of what business leaders must do is make the judgment of when to pursue good and when to pursue great. Perhaps it is by those decisions that their own greatness should be judged.

Schelling interview, Part III: Waxman-Markey is a hodge-podge

In Part II of my discussion of Conor Clarke's Thomas Schelling interview, I mentioned how Schelling is concerned about the specifics of international commitment and thinks America needs to bring a specific bill to Copenhagen if anything meaningful is to be achieved there. Unfortunately, he is not a fan of Waxman-Markey:
TS: And so I think what is needed -- if we had a good bill, and I don' think the Waxman-Markey bill is anything to be proud of -- is to take a good bill and display it to other large countries, and say, "This is what we plan to do. What do you plan to do?" And then hash it out over the next year.

CC: I can of see why saying "we're going to reduce the total amount of emissions in the world by X percent" might be kind of a vague, aspirational goal for a global climate conference. But for a nation, why can't it be very concrete? Why can't we say, We want this level of emissions, and we're going to introduce a price mechanism -- a tax or a cap and trade system -- and we're going to let the private sector sort out the rest?

TS: Well, my only objection to Waxman-Markey is that it's such a hodgepodge, with all kinds of escape valves. And I don't think it's specific enough on what the cap will be from year to year to year. And also, it's 1,200 pages. And 1,200 pages implies that it's an awfully complicated hodgepodge.

... my actual feeling is that the best you can hope for with this Waxman-Markey bill is that it'll take a few years to discover that it's a huge nuisance of the problem, and they ought to find a way to simplify it. And the way to simplify it is to put the cap on the fossil fuels, not on different industries.
I think here Schelling falls into the trap many economists do with climate policy, opining on the "best" or "simplest" mechanisms without acknowledging (understanding?) the operative political constraints in a representative democracy. Robert Stavins of Harvard's Kennedy School is an exception here. Sadly, in the end, the best American climate bill is the strongest one that can gather at least 218 votes in the House and 60 in the Senate, which is assuredly far from the "best" or the strongest in absolute terms. Classic "great is the enemy of good" (in the original Voltaire interpretation, not the Jim Collins reversal).

Schelling interview, Part II: The importance of specificity in international commitments

One interesting part of Conor Clarke's Thomas Schelling interview was Schelling's take on the nature of international cooperation on climate change. The man won the Nobel Prize for game theory, so it's worth paying attention:
CC: What do you think of Waxman-Markey bill, the American Clean Energy and Security Act? It sets a cap on emissions, but as I understand it the real value is in the effect it might have at Copenhagen.

TS: Well let me first respond about Copenhagen. I don't think anything's going to be accomplished at Copenhagen. But they might agree that they will cap the global temperature increases at 2 degrees Celsius -- that's one of these useless things that people love to talk about. Or they might come up with an agreement that the amount of CO2 in the atmosphere should not exceed 450 parts per million. Again, that's no commitment because it's just setting a goal that's supposed to be aspirational.

CC: And you say that because there's no enforcement mechanism?

TS: Not just because there's no enforcement mechanism. I don't worry much about enforcement. I think that if the major countries reach an agreement they'll do their best to do what they said they would do. But if you say what you're going to do is get emissions down by 15% in 20 years, none of them knows what that means. That's not a commitment to something they're going to do; that's a commitment to some vague aspirational goal or something.
Schelling is very emphatic on the importance of committing to specific, measurable actions, and cites NATO as a successful example:
TS: [In NATO], their commitments were not, "How much will we reduce the likelihood of a Soviet attack?" or, "How much will we slow down a soviet attack?" The commitments were about how many young men they would draft into their armed forces. About how much they would spend on guns and ammunition and vehicles. How much real estate they would provide for military housing and pipelines and military maneuvers. They were all commitments to things they could do. So you could look and see that the French were doing what they said they would do. And the French themselves would know if they were dong what they said they would do.
So in Schelling's view, the importance of having American climate legislation in place by Copenhagen is less in showing global leadership (something at best neutral and at worst detrimental in a standard game theory framework) and more in having something concrete around which to negotiate, rather than meaningless emissions targets. This differs from (and I believe complements well) the standard argument for urgency on the Senate climate bill.

Schelling interview, Part I: How much will climate change affect the U.S.?

Conor Clarke at the Atlantic conducted a rich interview with Thomas Schelling, who won the 2005 Nobel Prize in Economics for his work on game theory, on the topic of climate change (part 1, part 2). It is worth reading in full and I hope to blog on various specific parts at some point.

As Conor says in his intro:
CC: Climate change presents the world with an incredibly complicated bargaining arrangement. The big costs will be born by future generations, and born more heavily by countries other than the United States. The responsiblity for those costs is also distributed unevenly around the world, and there is no enforcement mechanism for a global agreement. And underscoring all of this is a great deal of uncertainty about what will happen 50, 100, or 500 years in the future.

I was hoping Schelling could help me make sense of this.
Schelling completely agrees with the challenge of selling climate change in the U.S.:
TS: I do think that one of the difficulties is that most of the beneficiaries [of minimizing climate change] aren't yet born. More than that: Most of the beneficiaries will be born in what we now call the developing world. By 2080 or 2100 five-sixths of the population, at least, will be in places like China, India, Indonesia, Africa and so forth. And what I don't know is whether Americans are really willing to understand that and do anything for the benefit of the unborn Chinese.
And later he is more explicit that he believes the chances of a catastrophic effect on the U.S. are low, and American prosperity will allow the U.S. to largely adapt to any changes:
TS: If I were to come clean to the American public I would say that, except for a very low probability of a very bad result -- which is the disintegration of the West Antarctic ice sheet, which would put Washington DC under water -- we are probably going to outgrow any vulnerability we have to climate change. And in case we'll be able to afford to buy food or import it is necessary. You know, very little of the US economy is susceptible to climate. All of agriculture is less than 3% of our gross product. Forestry may be endangered. Fisheries may be endangered. But recreation might actually benefit!

So if we can double our GDP in the next 70 or 80 years, even if we lose some of our GDP from climate change -- even if we lose 10% of our GDP from climate change -- we're still ahead so much that the effect of climate change wouldn't be noticed. But it would be pretty disastrous in a lot of the less developed parts of the world.
This is the sort of argument that environmental purists and pragmatic climate bill advocates alike despise (although Freeman Dyson might applaud Schelling's hard-headedness). And Schelling himself acknowledges they will make it much harder to sell climate policy domestically:
TS: It's a tough sell. And probably you have to find ways to exaggerate the threat.

CC: And when you say, "exaggerate the costs" do you mean, American politicians should exaggerate the costs to the American public, to get American support for a bill that will overwhelmingly benefit the developing world?

TS: [Laughs] It's very hard to get honest people.
As Conor says, "weighing the costs and benefits of climate change is both morally fraught and empirically uncertain," and he lists seven reasons why "climate change change questions aren't just math puzzles." I'll add another question we need a moral framework for, which has bothered me for a while - to what extent is it permissible to "exaggerate" the immediacy of climate change to convince American voters to support climate change legislation that, due to behavioral discounting of the distant future, isn't in their "pseudo-rational" best interest? Schelling himself is clearly ambivalent:
TS: But I tend to be rather pessimistic. I sometimes wish that we could have, over the next five or ten years, a lot of horrid things happening -- you know, like tornadoes in the Midwest and so forth -- that would get people very concerned about climate change. But I don't think that's going to happen.
Should we be rooting for another Katrina now, to save the earth for the children of our human brethren in the developing world?

Nuclear sticker shock

I've previously mentioned my optimism about nuclear power, but I'm unpleasantly surprised (as were Joe Romm and the state of Ontario, I'm sure) by this:
The Ontario government put its nuclear power plans on hold last month because the bid from Atomic Energy of Canada Ltd., the only “compliant” one received, was more than three times higher than what the province expected to pay, the Star has learned.

Sources close to the bidding, one involved directly in one of the bids, said that adding two next-generation Candu reactors at Darlington generating station would have cost around $26 billion.
The vaunted French were similarly exhorbitant:
The bid from France’s Areva NP also blew past expectations, sources said. Areva’s bid came in at $23.6 billion, with two 1,600-megawatt reactors costing $7.8 billion and the rest of the plant costing $15.8 billion. It works out to $7,375 per kilowatt, and was based on a similar cost estimate Areva had submitted for a plant proposed in Maryland...
The Areva bid was ultimately deemed "non-compliant", perhaps because (according to Tyler Hamilton) because they insisted the government bear part of the cost escalation risk.

I guess this means we may really need the next generation of nuclear technology before any sort of nuclear revolution gets underway.

Efficiency is the best transition fuel

Geoff Styles runs the back-of-the-envelope numbers and surprises himself with the conclusion:
To my surprise, it doesn't require very aggressive assumptions concerning improvements in fuel economy, reductions in vehicle miles traveled, and additional oil supplies to cover the needs of a significantly larger number of cars in the world.
The bulk of the improvement appears to come from improved mileage standards (he imagines 40 mpg in 2020) - with an additional boost from reducing vehicle miles traveled to 9,000/year (versus I'm not sure what today).

As he rightly points out, this should not lull us into complacency with regard to developing new technologies:
So while our transportation energy mix in the next couple of decades is still likely to include a much greater variety of fuels and an increasing penetration of electricity, we should not lose sight of the potential for realistically-achievable fuel economy improvements and non-efficiency conservation--driving personal cars less and relying more on mass transit and electronic trip substitution--to be the most important "transition fuel" in our arsenal, as we reduce our present reliance on oil as we tackle energy security and climate change.
I think this conclusion is spot-on, and kudos to Geoff for running the numbers and his even-handed, open-minded reaction to the results.

Books and blogs: complements or substitutes?

Matthew Kahn at Environmental and Urban Economics poses a good question - does blog reading crowd out book reading?

He devises a plausible model of two types of readers, #1 ("Wikipedia Nerds", who enjoy shallow consumption across a wide range of topics) and #2 (who enjoy digging deeply into a small number of topics). His conclusion rings true with me:
It strikes me that for the Set #1 [books and blogs] are substitutes and for set #2 they are complements but given that there are many more Wikipedia Nerds on net they are substitutes.
Personally, I am more in the #2 camp. For example, I read a number of blogs on food and agriculture issues, but none of them can come close to replacing works like Vaclav Smil's Feeding the World (a true masterpiece for anyone interested in truly understanding the world food system in a holistic way).

As someone who recently started blogging, I have another question - does blogging crowd out doing other types of work??

Consumers should share responsibility for emissions

Via Environmental Capital, Commerce Secretary Gary Locke "said something amazing" in China yesterday:
“It’s important that those who consume the products being made all around the world to the benefit of America — and it’s our own consumption activity that’s causing the emission of greenhouse gases, then quite frankly Americans need to pay for that,” Commerce Secretary Gary Locke told the American Chamber of Commerce in Shanghai.
The idea has some philosophical legs, as Lord Nicholas Stern and George Monbiot have discussed. That may not be enough to win over American consumers, particularly those who realize the ubiquity of affordable Chinese products in their lives. And it's not yet clear how this would be implemented, or how it would interact with the dangerous carbon tariffs embedded in the recently passed Waxman-Markey bill, on which, according to Locke, "the president has not taken a position."

Iraqi oil: someone's gotta give

Iraq's recent oil auction was judged a failure because the government's terms were too harsh - the lone winning bid, by BP and CNPC for the giant Rumaila field, offered $2 per barrel of oil produced, was an order of magnitude below some other bids:
A consortium made up of ConocoPhillips, CNOOC and Sinopec was the only bidder for the 2.4bn barrel Bai Hassan field in the Kirkuk region in the north.

But ConocoPhillips, which bid $26.7 per barrel for output over the minimum, refused to match the ministry's estimated per barrel payment of about $4, said Hussain al-Shahristani, Iraq's oil minister.
Now, even the BP deal appears to be too generous for Iraq's oil workers:
The trade union representing workers of Iraq's state-owned Southern Oil Company (SOC) threatened on Thursday to prevent exploitation of one of Iraq's biggest oil fields by energy giants BP and CNPC.

"If those companies try to exploit the field, our first reaction will be to stage a sit-in and to strike," union president Ali Abbas told AFP.

[The union] fears a wave of layoffs, despite government assurances to the contrary.

"The contracts that the ministry (of oil) wants are service contracts which allow only 10 to 15 percent of employees (on the fields) to be foreigners," oil ministry spokesman Assem Jihad told AFP. "The remainder will be Iraqis."
With those assurances and such a stringent contract already in place, it is hard to see Iraq ever reviving its considerable oil potential unless someone, somewhere can bend.

Bad news for jatropha: BP exits

Days after Exxon announced a move into algal biofuels, the latest darling of the biofuels sector, it appears the sun is setting on the last big craze. Jatropha was billed as a miracle solution to the food vs. fuel tension, growing oily seeds on marginal land that doesn't compete with food, but BP is exiting its jatropha JV with D1, which was a milestone for oil major involvement in the biofuels sector when announced in 2007.
BP Plc, Europe's second-largest oil company, will exit its jatropha biofuel project with D1 Oils Plc to focus on production of ethanol in Brazil and the U.S. and advance biobutanol development.

“To ensure the success of these investments, BP is concentrating new business development in these areas and will no longer be directly involved in the jatropha as a biofuel feedstock,” Sheila Williams, a London-based company spokeswoman, said today in an e-mail.
This could be construed as part of BP's broader pullback from renewables under Tony Hayward. That said, with BP's continuing with ethanol and biobutanol, it's hard to construct a story where this is other than a bad sign for jatropha in general. With such a small capital investment at stake, it makes no sense for BP to exit if there is any appreciable upside.

Update, pat on the back: I beat Environmental Capital, one of my top blogs, to this by a few hours. Which is, of course, irrelevant. Plus their post is much better. It adds at least three interesting facts:

1) "D1 Oils will buy out BP’s half of the venture for 500,000 pounds—less than the price of a nice apartment in London—even though the joint venture is apparently worth more than 7 million pounds."

2) "BP and D1 Oils planted more than 200,000 hectares of the stuff—25% of the worldwide jatropha planting."

3) Jatropha is a water hog, using 5x as much water per unit of energy as sugarcane and corn. So much for not competing with food for scarce resources...

Can Wind Farms Change the Weather?

Apparently the answer is yes, in theory, if they are sufficiently massive:
Kirk-Davidoff and his UMD colleague, Daniel Barrie, used a global general circulation model of the atmosphere (similar to the models used to predict climate change) to calculate the effects of blanketing the Midwest with a grid of interconnected wind farms with thousands of wind turbines. On average, the study found that wind speeds were lowered by 5.5-6.7 miles per hour immediately downwind. More significantly, the wind turbines caused large-scale disruptions of air currents, which rippled out like waves that appeared to trigger substantial changes in the development and track of storms over the North Atlantic.
Given that "the areal coverage and density of wind turbines in the study are admittedly unrealistic," I'm going to file this away under problems to deal with once they appear in real life.

Geothermal: Nice power, if you can get it

Via Green Sheet, Greentech Media puts a pretty positive spin on geothermal energy, based on a recent NYU report on "Technology S-curves in renewable energy alternatives":
An NYU Stern study says geothermal energy is the cheapest renewable energy out there, and could compete with coal with about $3.3 billion in government research funding.
This echoes the general sentiment of an earlier MIT report on geothermal, which concluded in particular that enhanced geothermal system (EGS) technology could be developed to tap deeper heat sources in an economically viable and environmentally non-damaging way.

According to a colleague of mine who has some experience in the sector, geothermal assets are great once they're built - clean, cheap, and constant baseload power - but there are a number of drawbacks as well. First, known geothermal resources are quite small, and even with EGS they are unlikely to satisfy more than a small slice of U.S. power demand. Second, these resources don't coincide with population centers and thus have the same transmission issues that plague the wind industry. Finally, geothermal exploration has a risk profile similar to upstream oil (you can get "cool holes" instead of "dry holes"), and combining that with power market type returns doesn't make for a very attractive private investment.

Perhaps government investment can bring the technology along to the point where private sector can run with it, but this quote is telling:
Geothermal energy hasn't gotten a lot of attention from venture capital investors to date, given that it's seen as a limited market with very high entry costs. And geothermal companies have long complained that they don't get the government support they deserve.
Any time VC investors and companies complain they "don't get the government support they deserve," the standalone economics of the business can't be that good.

BCG caused the recession

Oh good, so now we know who to blame.

Update: Of course, we wouldn't want to leave out McKinsey...

Ranchers key to phasing out corn ethanol subsidies?

Most everyone besides corn farmers think corn ethanol subsidies and protective tariffs in the U.S. are a bad idea, but with 21 farm states and 15 of those producing over >200m gallons of ethanol (couldn't find the link, sorry), it is tough to get anything done in the Senate without those farm senators on your side. (Not to mention the House). And with the Iowa primary looming large over any presidential election, it is equally dangerous to the executive branch (although John McCain commendably declared opposition to the subsidies late in his 2008 campaign). So most political observers think doing away with the ethanol subsidies and tariffs is unlikely to happen

Via Chris Clayton, two brave and progressive Congressional Representatives have introduced a bill to do just that. Chris asks a loaded question:
The question, though, is who would gain from such legislation, second-generation ethanol or imported sugar-based ethanol from Brazil?
Well, without U.S. subsidies and tariffs Brazil would become the lowest-cost ethanol provider overnight, so imports would gain (and second-gen ethanol remains a ways out). And corn farmers would obviously receive lower prices due to lower corn demand and a weakening of the food-energy link. What's new to me is the idea that there is another group who would also benefit tremendously:
“After 30 years of support, corn-based ethanol is still reliant on government support to be commercially viable," stated Gary Voogt, president of NCBA and a rancher from Marne, Mich. "It is time to allow it to compete on a level playing field, and to stop propping up one industry at the expense of another.

“Since January of 2008, cattle feeders have lost a record $5.2 billion in equity due to high feed costs and economic factors which have negatively affected beef demand...

“Soaring feed costs and government payments to the ethanol industry are hurting small businesses and family ranches. Cattle producers don’t ask for subsidies, just equal footing.

“The legislation introduced by Representatives Crowley and Mack allows for a market-based approach to our nation’s competing demands for corn, and helps us meet both our food and fuel needs,” NCBA stated.
Could ranchers counterbalance the farmers and underpin the success of this legislation? It seems like a long shot, but the mere idea makes me more optimistic than I have been for a while.

Is Rubin the new McNamara?

Via Felix Salmon, Harold Meyerson has a provocative op ed in the Washington Post where he draws the parallel between the recently passed Robert McNamara and former Treasury Secretary and Citigroup chairman Robert Rubin. He rehashes McNamara's well-known flaws:
McNamara's hubris was that of a hyper-rationalist. He and his whiz kids, his systems analysts and efficiency experts, stormed into an intellectually sleepy capital determined to subject what had been the haphazard realm of policy to scientific measurement.
While some draw parallels between McNamara and the architects of the Iraq War, these are superficial, says Meyerson. Instead:
The real successors to McNamara's whiz kids are the economic geniuses, the "quants," who figured out how to build a tower of investment on a dot of assets, arbitrage everything, and hedge any risk, except, of course, the ones that plunged us into a depression.


If there's an analogous figure to McNamara in this mess, then, it's probably Rubin -- socially liberal, like McNamara; concerned with the world's poor, like McNamara; architect, like McNamara, of a system perfected by the best minds of his time, a system that should have worked but that failed catastrophically.
The parallel is striking - I applaud Meyerson for pointing it out. He also ends on a hopeful note:
Rubin's repentance is a private matter, but the lessons that his protégés Larry Summers and Tim Geithner derive from the failure of deregulated hypercapitalism are of the utmost public concern... If we're lucky, the image of Bob McNamara calculating the war on his slide rule, and spending the subsequent decades trying to understand where he went wrong, may bring them to their senses. It certainly should do that for us.
Let's hope that all of us can learn constructively from the mistakes that have been made, recent or not.

"Land grab" specifics

FP Passport picks up the IFPRI report on “Land Grabbing” by foreign investors in developing countries and asks the right question:
Is the investment good or bad for the recipient countries?
I think the FAO gets it broadly right in their own recent report ("Land Grab or Development Opportunity", published June 2009):
Increased investment may bring macro-level benefits (such as GDP growth and improved government revenues), and may create opportunities for economic development and livelihood improvement in rural areas.

But as governments or markets make land available to prospecting investors, large-scale land acquisitions may result in local people losing access to the resources on which they depend for their food security – particularly as some key recipient countries are themselves faced with food security challenges.
My only push is, can we make this more specific? (They probably do in their report - it is 130 pages long - but I haven't read it yet.)

Off the top of my head, one huge positive outcome would be major investment in transportation infrastructure like roads and rail to remote areas of Africa - transportation is a huge friction in the value chain and takes a big chunk out of the value many rural farmers can realize for their products. Private sector infrastructure investment would be nice, but most of these regions are not seen as stable enough to attract it in the short term; country governments lack the money, political will, and/or capability; and the new international food aid paradigm appears more focused on agricultural productivity and seems unlikely to devote major dollars to infrastructure. So if Saudi Arabia or China can build and pay for roads and rails, it will benefit many.

On the other hand, the food security concern is well-founded, particularly because it will bite at the exact same time the "land grabbers" are most determined to export the production (i.e., a food price crisis and market breakdown like 2007/8). Saudi Arabia did not buy 500,000 hectares in Tanzania for the 95% of the time when the grain they desire is readily available on the world food market; they bought the land for the 5% of the time when prices have spiked and trade barriers have risen. Unfortunately, this will be exactly when Tanzanians themselves have food security issues; in this sense, food security is a zero-sum game and the "land grab" investments are neo-colonial in the sense that they appropriate local resources for rich-country consumption in the circumstances where it matters most.

Killer chart: Goldman VaR

From Felix Salmon, it's pretty clear how Goldman has been making all that money:

Yes, Value at Risk is a limited metric, but this is good fodder for the argument that Goldman is back to business is usual, which is maybe not the best thing for the stability of the financial system.

Quote of the Day: Our Sacred Rights (Rites?)

In modern times, one of our sacred rights (or rites?) is the ability to drive a 1-2 ton vehicle up to a fuel station, fill it up without spending a fortune or more than a few minutes of time, and then drive around at 70 miles per hour without worrying about needing more fuel for awhile.
That's JoulesBurn at The Oil Drum. He is plugging EEStor's EESU (Electrical Energy Storage Unit) for electric vehicles, which appears to be a capacitor instead of a battery and apparently confers some advantages in terms of weight/range/charging speed. I'm not a qualified judge of the science (technical specs and safety), so I'll file away the idea and believe it when I see it hit commercial scale.

$770,000 per worker

According to the NY Times, that will be the average comp at Goldman if it keeps pace with its recent results through December. This may not exceed the record highs of 2006 and 2007, but needless to say politicians and most of the rest of America won't be happy. There are two potential government interventions to look for - 1), a populist crackdown via something like a targeted tax, and 2), a regulatory investigation into whether Goldman's earnings are in part due to taking on tail risk and leaning on the government's cheap financing and implicit backing of too-big-to-fail financial institutions.

I think 1) is unfair and undesirable, 2) is highly desirable, and both are moderately unlikely to happen in the end.

Interestingly, Goldman's blowout $3.4bn earnings announcement barely moved the stock, so the market clearly saw this coming, even if analysts didn't.

Update: Via Felix Salmon, former Secretary of Labor Robert Reich is worried.