The Big Deal about Keystone XL? Moral, Economic, and Technical Leadership

Leaders from across the entire spectrum are screaming alarm about global warming.  Leaders in the scientific community (teams from NASA, NOAA, Academics), leaders in actuarial science (unparalleled outreach from the reinsurance industry), leaders in economics (Nicholas Stern, and the Economist Magazine), and leaders in morality (Jeffrey Black from United Church of Christ, Katherine Jefferts Schori from the Episcopal Church) are screaming alarm.  Now it is time for citizens and political leaders to take action.  The United States now needs leadership from President Obama, Secretary of State Kerry, and Members of Congress. The citizens of the United States need to support those politicians in their leadership. 

Although we didn’t really understand it for most of the 20^th century, use of fossil fuels for energy is morally wrong.  It’s wrong because it harms the earth and depletes the requirements for life.  It’s wrong because its benefits go to a privileged few while its detrimental consequences effect the poorest and weakest.  It’s wrong because fossil fuels represent a finite resource.  It’s wrong because its enticing benefits have lulled people around the world to lose sight of the strength we have to live without dependence on fossil fuels.  The decision on Keystone XL is a chance to do the right thing.

Although the short-term economic benefits of fossil fuels are tempting, those short-term benefits are far outweighed by the long-term costs.  The use of fossil fuels to date and the failure to take into account the externalities associated with fossil fuels has created an enormous economic liability.  The service on that liability is reflected in the current and future costs of extreme weather, resiliency investments, diminished crop yields, water management, population displacement, military conflict over scarce resources, and more.  The economic liability already created is overwhelming.  Adding the weight of Keystone XL and increased use of tar sands fuel to that liability would increase the severity of what is already greatest economic failure in history.  

Although Thomas Edison viewed large scale use of solar energy as a great technological goal, with the exception of Germany, the world has been slow to achieve it.  Solar power offers far more energy than the human population of the planet needs.  Wind power also offers far more energy than the human population of the planet needs.  Solar, wind, tidal, hydro, and geothermal offer an abundant energy mix without the dire effects of fossil fuels. They are waiting to be harvested.  Companies with capital to invest should be managed so that they gain their returns developing these energy technologies of the future, not flogging the fossil fuel energy technologies of the past.

The special interests and financial power of the fossil fuel industry have biased The United States political system.  As a result The United States has become a laggard and its policies are shaped to benefit the narrow interests of the fossil fuel industry.  The bias has made The Unites States and all of its citizens servants of the fossil fuel industry.  It’s time to overthrow that tyranny.  It’s time for the United States to once again contribute to the world’s moral, economic, and technical leadership. 

Daily, and in the mainstream, we are called to reform immoral, economically-irrational, and technically-backward dependency on fossil fuels.  The decision on Keystone XL is an opportunity to heed the call.  The decision on Keystone XL is a test of our ability to respond to the dire threats of global warming, and an opportunity to begin setting new moral, economic, and technical norms, both for policy and for individuals. We need to think boldly, not about what can be done according to political convenience, but what needs to be done.  The Keystone XL is a potential turning point in a critical journey.  For moral, economic, and technical reasons, it’s time to say no to fossil fuel.

A Perspective on the 26 January 2013 Tar Sands Pipelpine Protest in Portland, Maine

Yesterday I was in Portland ME at a rally to oppose proposed transport of tar sands oil products via pipeline from Alberta to Portland. Portland police estimated 1,400 to 1,500 participants, and there are other details in today's Boston Globe among other news outlets.

All of those people turning out in Portland to protect the planet was deeply inspiring. I was especially moved by the Native American Pow Wow drumming, music, and dance. A rotating team of people beat the drum steadily throughout the day. The artwork on the ~4 foot diameter skin of the drum, included the words, "One heartbeat. One earth. One people".  This morning I woke up thinking about those words and the sound of the drum.

In this morning's Boston Globe article, a fossil fuel industry spokesperson complained that people in the rally are opposed to all petroleum products. Yes. So, it seems the rally did help get the message across.

In Washington D.C. on 2/17, there will be a next rally tooppose the Keystone XL pipeline. That rally will be many times bigger and more impactful than yesterday's rally in Portland. Based on my experience yesterday in Portland, the Washington D.C. rally is going to be very worthwhile.

There are some play-by-play observations in Twitter.  The Boston Globe coverage is in January 27, 2013, page B6.  Many photos, including those taken from helicopter can  be accessed via the 350MA web site.

The New World of Electricity Choices is Here (at Least in the Boston area)

When I learned about NSTAR Green 100%, I signed up right away.  I really liked getting electricity that was certified by a third party, Green-e, as being produced by Maple Ridge Wind Farm in Upstate New York and Kibby Wind Farm in Maine.   I was glad my monthly payments for electricity were no longer being applied to carbon-emitting generation that contributes to global warming.   I felt as if I had just bought organic tomatoes -- even if it cost more, it was a wholesome and worth it.

Today, there are more options for electricity generation available in the Boston area.  In addition to electricity generation options provided by NSTAR and National Grid, residents can now purchase electricity generated by other providers, such as Mass Energy Consumer Alliance and Easy Energy.   For customers who choose one of these new providers, the electricity will come through the same lines, and there will continue to be electricity delivery charges from your current provider.  The generation charges will continue to appear on the bill from your current provider, but the charges will be according to the electricity generation option selected by the resident.

Mass Energy Consumer Alliance is a non-profit organization that organizes green power generation options available via NSTAR and National Grid.  One of their offerings, New England GreenStart, is generated from wind, solar, low-impact hydro, and cow power.   Their New England Wind offering is wind only.  NSTAR customers can also choose NSTAR Green, which is wind-generated electricity, purchased by NSTAR from for-profit wind farms.  Easy Energy is another source of electricity generation available through NSTAR and National Grid.  Easy Energy offers alternative rates and a pricing option that adjusts month to month.  Customers in Massachusetts have the option to generate their own electricity and sell some back to the electric company.  A process called net-metering will measure the amount the resident sells back to the electric company.  Not all options are available in all communities, so check with your electric utility for details.

The Mass Energy Consumer Alliance offerings include electricity generated right in Massachusetts.  If you choose New England Wind to generate your electricity, a portion of your electricity will come from turbines in Scituate.  Plans are in place to include electricity from wind turbines in Gloucester, Ipswich, Wrentham, Plymouth, Lynn, and elsewhere.  If you choose New England GreenStart, a portion of your electricity will be cow power, which is an energy by-product from dairy farming, produced in Rutland, Massachusetts. 

Your decision on electric provider is like a vote that will help determine the way electricity is produced.  There are a few things to think about in deciding on your electricity generator.  Do you want to reduce your environmental impact?  Do you want to buy from a non-profit?   Do you want to have local sources of electricity?  How important is price?  If you don’t choose any other electricity generator, you’ll continue to receive electricity generated by the utility that currently serves you, such as NSTAR or National Grid.  If you decide you’d like something different, there are options out there.  

You’ve been able to choose your telephone service provider, and your network provider.  Now you can choose your provider of electricity generation.   Use your choice to get the electricity that best suits your needs and choose what’s best for the local and global community. 

What Happened at New England Convergence, 16-18 November 2012?

Below is a brief summary of the New England Convergence held at Union United Methodist Church, 485 Columbus Ave, Boston MA from Friday evening 11/16 through this morning 11/18.

OVERVIEW 

• The concept of "convergence" was used to bring expertise, knowledge, experience from across New England, to build relationships, to educate, and to create action plans/campaigns
• Planning, organized by 350MA.org and other 350 state organizations, included preparatory conference calls for weeks prior with finishing touches and facilitator training on Friday night.
• There were 150 participants from across New England, with representation from every state, plus subject matter experts coming from New England, Louisiana, and Upstate New York.

ORGANIZATION/TIMELINE

The event was organized primarily via a set agenda for plenary sessions and breakout modules, with planned "just in time" topic decisions to direct working sessions for Saturday afternoon  Here's a step by step:

I. Saturday AM - panelists provided front-line reports from their fields of action: Somerset MA coal plants (David Dion), Westfield MA Natural Gas Plant (Mary Anne Babinski), Binghamton NY fracking resistance (Issac Silberman), Lafayette LA environmental justice (Cherri Foytlin), East-west corridor Maine resistance (Sydney Mitchell)

II. Saturday AM - the panel topics above, plus "Fee and Dividend", were covered via ~25 person groups and rotating SME speakers that allowed all participants interaction on all topics.  Speakers: Adi Nochur (Shale Gas), David Stember (Tar Sands), Shea Riester (Divestment), Gary Ruzinski (Fee and Dividend), Shanna Cleveland (Coal)

III.  Saturday Mid-day - Planners evaluated morning experience and identified campaign themes for the afternoon

IV. Saturday PM - After briefing on campaign planning, participants self selected into one of these campaign "rough out" groups: No new natural gas infrastructure, Stop tar sands from reaching the Atlantic, Divestment (Colleges/Universities), Divestment (Pensions/Community), Putting a price on carbon, Other via Open Space

V. Saturday PM - Reconvene all participants to share results of afternoon

VI. Sunday AM - Detailed campaign planning

NEXT STEPS

• Continue to work divestment in Pioneer Valley and stretch the TIAA/CREF effort to include/coordinate with others from across the region
• Stand by for communication on detailed campaigns
• Anticipate day of action on Martin Luther King Weekend 1/19-1/21
• Anticipate more pan-New England activity

United States Citizens Need to Drive a Sensible Energy Policy that Takes Externalities into Account

In economics, an externality is a cost or a benefit that accrues to a party who did not participate in a transaction.   The disposal of carbon into the atmosphere when a motorist drives a car is one example of an externality.  The motorist paid the filling station for the gasoline to power the car, but the rest of society bears the cost of the carbon exhausted into the atmosphere.  When coal or other fossil fuel is burned to produce electricity, the electric company and consumers of that electricity are primary participants in the transaction, but those who use a certified green source of electricity or generate their own electricity are burdened with the externality. Consumers who use the fossil-fuel-generated electricity sparingly, are also unfairly burdened with a coal externality.  Many electricity consumers who have no choice also experience the externality of the environmental impacts of fossil-fuel-generated power, which was not a part of their transaction with the electric company.  

On October 8, 2012, the Wall Street Journal reported a forecast that the cost of one mega-watt hour of photovoltaic for new generation capacity in 2017 will be $152.70 (page R2).  At that price, photovoltaic looks ~1.5 times more expensive than coal and ~2.5 times more expensive that natural gas.   But this comparison doesn’t take into account the externality associated with coal and natural gas, which among other things, produce green house gases that pose a dire threat to the planet.  The cost-benefit comparison among energy sources would look different if the externalities were taken into account. 

Externalities are often difficult to quantify, and parties impacted by externalities often don’t have rights to claim compensation for costs they bear.  In the absence of specific laws or regulations, parties impacted by externalities are left with tort to claim compensation for costs they bear as the result of someone else’s transaction or activity.  Tort law is a slow, laborious, and complicated process.   For example imagine how much time and effort will be required for farmers and insurance companies who suffered losses due to human-caused climate change in the draught of 2012 to gain consideration for their losses through the courts. 

There is no scientific doubt that climate change is an externality that is real and is caused by human activity.  Insurance companies now corroborate the scientists (See USA Today 10 October 2012, Page 1, "Weather Disasters Target North America").  Although it threatens the financial interests of fossil fuel companies, energy policy should be informed not only by the transaction costs of fossil fuels, but also by the externalities that have been confirmed by science and the insurance industry.

The energy policy of the United States and many other countries would be different if externalities were accurately accounted for in the planning.  The United States energy policy might look more like that of Germany or China.  Germany produces more solar electricity than any other country, and is capable of producing 30 gigawatts or nearly half of its electricity needs through solar power.  China produces more wind energy than any other country and is capable of producing 63 gigawatts. 

Germany and China are investing in solar and wind energy even though the direct transaction costs associated with these energy sources are higher than alternatives.  They’re doing it because they understand the externalities (and because, unlike fossil fuels, these sources will produce energy for centuries).  If we in the United States would heed economics as a unified nation, and take into account the externalities associated with energy from fossil fuels, we’d be the leading producers of solar and wind power.

The reason the United States is not the leading producer of solar and wind energy is not because we don’t understand economics – we do.  The reason the United States is not the leading producer of solar and wind energy is not because we don’t have sufficient sun or wind resources – we have superior resources.   The reason the United States is not the leading producer of solar and wind energy is not because we don’t understand the technology – we are the source of key technologies that Germany and China are harnessing. 

The reason the United States is not the leading producer of solar and wind energy is because the fossil fuel industry has, through campaign contributions and lobbying, achieved strategic influence over the government.  It is time for citizens of the United States to regain control, so that we can make the sound economic decisions that Germany and China have made.  It is time for citizens of the United States to regain control, so that we can make the sound energy policy decisions that are right for the nation, not the decisions that are right for the fossil fuel industry but wrong for everyone else.

Fossil-Fuel Crash and Fiduciary Responsibility: Head for the Exit

There was dot-com crash.  Then there was housing crash.  Now we can see fossil-fuel crash on the horizon.  Which investors will suffer biggest losses in the fossil-fuel crash? 

Fossil-fuel crash is the coming correction in valuation of fossil fuel assets.  Fossil fuel assets, held by coal companies, petroleum companies, governments, and their investors are valued based on the assumption that those assets will be sold for consumption to produce energy.  Scientific consensus and casual observation indicates that using those fossil fuels to produce energy as in the past will have dire consequences due to global warming.  Fossil-fuel crash is the result of the realization that curtailing carbon emission to mitigate global warming means fossil fuel assets are currently over-valued.  With the strengthening of forces to curtail carbon emissions, fossil fuel assets are likely grossly overvalued.  

Building on scientific consensus and casual observation about the need to manage climate change, these forces are driving the reduction in carbon emissions:

• Political – Activism on the part of political constituencies working to stop climate change and protect the environment
• Legal – Legal proceedings to collect compensation from the fossil fuel industry for past damages caused by fossil fuels and prevent future damages
• Social – Growing social acceptance and pressure to move to lifestyles with reduced dependence on fossil fuels
• Competition – Improvements in the economic performance of non-fossil-fuel sources of energy
• Conservation – Improved efficiencies and reduced consumption will have a dampening effect on growth in demand for energy

The valuation of fossil fuel assets is based on a revenue stream that stretches from now to the end of the carbon-energy-era.   With the acceleration of measures to curtail carbon emissions, expectations for that revenue stream should be revised in two ways.  First, the revenue stream should be revised downward.  Second, the end of the revenue stream should be revised to occur sooner.  Both of these revisions will have the effect of reducing the value of fossil fuel assets.

Investment boards and investment managers have a responsibility to protect and grow portfolios.  Holdings in those portfolios that are valued based on fossil fuel related revenue are due for a correction.  Those with responsibility to protect investment portfolios have a duty to assess the risk, and manage portfolio strategy accordingly.  

Since fossil fuels are a finite resource, at some point fossil-fuel-based assets will cease to be a part of investment portfolios.  For those with investment responsibility, the question is not whether to exit, but when to exit investments in fossil fuels.  In the past, new fossil fuel discoveries have driven increased valuations, but management of carbon emissions means that more fossil fuel discoveries no longer means a bigger or longer revenue stream.   Rather than being constrained by supply of fossil fuels, revenue will increasingly be constrained by political, legal, social, competitive, and conservation forces driving reduced carbon emissions.  The forces to curtail carbon emissions are gaining momentum, and will gain more momentum as global warming progresses.

 

On the one hand, the forces dragging fossil fuel valuations are growing in strength.  On the other hand, the global reserves of fossil fuel are finite.    It’s unclear which investors will suffer greatest losses in the fossil fuel crash, but the ones to the exit first have least to worry about.