Archive for June 5, 2008
Andrew Leonard at How the World Works – Salon.com
Soros listed four factors as playing a role
* “First, the increasing cost of discovering and developing new reserves, and the accelerating depletion of existing oilfields as they age. This goes under the rather misleading name of peak oil.”
* “Second, there is what may be described as a backwards-sloping supply curve. As the price of oil rises, oil-producing countries have less incentive to convert their oil reserves underground, which are expected to appreciate in value, into dollar reserves above ground, which are losing their value.”
* “Third, the countries with the fastest-growing demand, notably the major oil producers, China and the other Asian exporters, keep domestic energy prices artificially low by providing subsidies, therefore rising prices don’t reduce demand as they would under normal conditions.”
* “Fourth, both trend-following speculation and institutional commodity-index-buying reinforce the output pressure on prices. Commodities have become an asset class for institutional investors and they are increasing allocations to that asset class by following an index-buying strategy. Recently, spot prices have risen far above the marginal cost of production and far out forward contracts have risen much faster than stock spot prices.”
Andrew makes a good point about how it is tough to assign weights to these factors.
Interestingly, the subsidy of the Asian and middle eastern countries will stop providing the right signal to the market to develop renewable energy and in the long run this will hurt these countries more. However, if they risk increasing the price, there is the chance of stagflation.
The Castellas brothers from Cleantech forum have produced a masterpiece in the area of Cleantech. They have created the first Australia Cleantech Map covering 300+ companies in this space in Australia. And it is free!
At the Beyond Carbon 2008 conference, I met Jeffrey Castellas. His speech on the cleantech market in India was one of the most bullish I have every heard in Australia. He sees opportunity where others see problems. And, he understands both Australia and India well. Jeff was kind enough to share a market intelligence report on how to create a clean energy company in India at the evening dinner. One of the best pieces of intelligence you can get in that area.
The entire industry is divided into six main categories of Air, Energy, Non Perishable Materials, Soil, Sustainable Technologies and Water.
Apart from the data, the design and presentation is excellent too.
Go, check it out.
In the Beyond Carbon 2008 dinner, Amanda McKenzie, National Coordinator of the Australia Youth Climate Coalition gave a fantastic speech. In her talk, she asked the audience about the probability of flying on a airplane with a 50% chance of survival but can take us to a nice place like a tropical island. Naturally, nobody was interested. Then, she questioned the chance of climate change happening. Would’nt that be the same thing?
Gene Sperling has more on this at Bloomberg.
Should a policy maker have to know beyond a reasonable doubt that climate change is caused by humans to support policies to address it?
The answer may depend on whether you take an investment or an insurance perspective to the issue of climate change.
From a conservative investment perspective, the prudent person chooses to invest new funds only where he believes it is more likely to get a higher return than leaving the money in low- risk bonds or money markets. From this framework, the skeptic needs a relatively high probability of certainty that climate change can be affected by changes in human activity before he could justify investing resources to address it.
Yet, if this investment perspective was appropriate for all areas of life, no one would ever buy a house or life insurance. After all, there is a very low probability that in any one year, or even over many years, that the purchaser of such insurance will see a return on his investment. Yet, I have still never heard anyone say, “Damn, what a poor investment I made buying fire and life insurance. It is New Year’s and I am still alive, and my house didn’t burn down. What a waste of money!”
People don’t need to know beyond a reasonable doubt, or even with modest certainty, that life or fire insurance will ever provide a positive return. They understand there is value in bearing modest costs to protect against the small chances of catastrophe.
The case for seeing climate change through an insurance lens comes more into focus once any cost-benefit calculation starts to include remote probabilities that the costs of inaction could be extreme.
What is the single most important economic number that can make or break the climate change solution?
According to Vinod Khosla, it is the Chindia price.
SPENCER MICHELS: What do you call it, the Chindia price? China-India?
VINOD KHOSLA: Yes. I say most effective climate change technologies have to be on trajectory, they don’t have to day one be cheap enough, but they have to be on trajectory to meet the Chindia price, the price at which India and China would adapt these technologies for economic reasons. Because without India and China adapting these technologies, there is no cost effect, there’s no real climate change solution.
An extensive interview at PBS. Check it out.
