The labor market is fine, but there are some concerns (and opportunities). Listen to the podcast of a conversation with Bloomberg’s Kathleen Hays and Vonnie Quinn of “The Hays Advantage” on Bloomberg Radio from April 10, 2012. These two posts and a link will also provide some background: http://bit.ly/wfpykq , bit.ly/zAEswR , bit.ly/H9EBHo .
Byron Wien, the Election, the Economy, Immigration, China, India, South America, Education–surprises!
Byron Wien does the most thorough job of putting together thoughtful, provocative and useful ideas on possible surprises for each year. I have been fortunate enough to know Byron and to participate in the Third Thursday group on which he draws, in part, to test both conventional wisdom and real surprises. I could not attend the December lunch this year as I was in India. Below is the email I sent Byron in late November. I will use that as the start of my thoughts on surprising things that could happen in 2012 and will then toss out a few additional ideas. Here we go:
“Byron, Am heading to India on Friday. Sorry I will miss your pre-surprise lunch. Am attaching copies of the text and slides I will be using in India. I don’t think they say anything you don’t know, but you might find something in there…My big surprise is that Joe Biden will not be the VP candidate in the coming election. Second surprise would be that the US does better than expected in 2012 given the debacle in Europe. Neither China nor India do as well as currently expected and China steps up to do something in Europe–maybe buy a Greek Island? They need Europe. Brazil starts to look a bit like Argentina–I think they are way understating their inflation rate. Capital flows our way and the RU dips into the 7′s before the election. If so, Obama wins in a walk. The really big surprise would be Huntsman as the Republican candidate–or maybe Obama’s VP candidate? What a ticket that would make. Jack”
The idea of surprises is to get people thinking away from trendlines. I use Byron’s definition, which is a personal belief that there is greater than a 50% chance of something happening where conventional wisdom is less than that. Let’s continue:
1) It is hard to see us getting through the year without an energy crisis of some type where demand significantly exceeds supply and oil prices spike once again. This could stem from trouble in the Middle East, Africa or Asia. It could be brought about by some covert action by the US that has been in the works for some time and comes to fruition within the next 10 months. There are too many possibilities for this not to have greater than a 50% chance of occurring within this calendar year. The combination of a hydrocarbon energy crisis combined with a major climate disaster somewhere in the world will lead to policy actions on the part of the US to accelerate both natural gas development and alternative energy development as well. Energy efficiency finally begins having its day. Talk of a carbon tax grows particularly as other countries implement implicit and explicit carbon pricing.
2) Contrary to a normally quiet year during a transition of leadership, to some extent forced by an “Asian Spring” throughout the region, China takes several bold steps in response to a more activist populace upset with corruption, the environment, and some areas of economic stress, combined with a desire by Hu and Wen to put more of their stamp on the future. This includes major acquisitions in the developed countries as well as the opening of manufacturing and service facilities. At home, R&D is accelerated particularly in alternative energy, space and IT processing. Subsidies for hydrocarbons are reduced or eliminated and an explicit carbon tax is put in place. Following Australia’s lead and China’s moves, several Asian countries put in place mechanisms to reduce their use of conventional hydrocarbons for energy–although everyone finds that they have 200 million year-old hydrocarbons in shale formations and begins using the immature production technologies developed in the US, creating even more environmental disasters.
3) As the US economy grows, corporations find qualified hires difficult to come by. Enlightened corporations, led by GE, become educational institutions to provide skills and basic knowledge to a work force that has been idle and undereducated by the public systems which were supposed to do the job. Corporations become much more vocal about bringing illegal immigrants into the US system, expanding visa programs and finding other mechanisms to add talented labor to the pool domestically. It becomes clear that a controlled amnesty program for current illegals in the US will add significantly to GDP and to government revenues. The tide begins to shift on immigration issues.
4) The US labor situation is aggravated in the short term by decisions on the part of several US corporations to bring manufacturing operations back into the States. Labor costs are rising elsewhere and the elements of control, rule of law, productivity and relative safety lead to better economics manufacturing locally. Caterpillar’s actions with its Canadian operations start the ball rolling. As stated above, US corporations take on a significant role in training and general education to meet their labor needs.
5) In spite of the demand for its natural resources, South America finds itself in much more turmoil politically and economically than one might expect. Natural disasters from climate change and it’s young mountain ranges compound economic issues from changes in export markets and a continuing misallocation of financial resources. Led, once again, by problems in Argentina, some degree of turmoil ripples north through the continent into Central America and requires more of the attention of the US than we have been willing to give thus far. Immigration to the US, both legal and illegal, accelerates as the US economy picks up steam.
6) India becomes a focal point. With an economy not growing adequately to provide jobs, upward mobility and political stability, India looks for diversions. Troops move north to “prepare” for confrontation with China, and west to confront Pakistan. Some elements internally are confronted as well. While the numbers show growth, the quality is somewhat problematic. Energy shortages push India toward even more aggressive alternative energy policies.
These aren’t all of the surprises we will find in 2012. I must say I continue to be optimistic about the US in spite of the crazies in Washington and the anger, bigotry and fear manifesting itself during the Republican primary battles. All of those who were planning on moving out of the country if Obama was re-elected–the ABO crowd– or any of the Republican choices–the ABAR crowd, might want to reconsider.
The New York Department of Environmental Conservation has put out a 46 megabyte document with proposed regulations on horizontal drilling and hydraulic fracturing of the Marcellus Shale formation in the state. The regs together with existing regs cover almost every known possibility of risk with some ways to mitigate the risk. The DEC has asked for comments. I just posted one which you will see below. I don’t understand why these massive game-changing formations, the Marcellus, the Bakken and others, should not be treated the same as the Prudhoe Basin for the benefit of those states under which the formations exist. These are depleting assets–and they produce GHG emissions. Why not create Permanent Funds designed to create something lasting beyond the lives of these assets. And why not create some mechanisms to deal with possible unintended consequences from the exploitation of these resources? These formations and the technology to exploit them are game changers. They have certainly quieted the dialogue on Climate Change as we focus on Energy Independence and that natural gas takes us part way to reduced emissions relative to other fossil fuels. Let’s not forget: it is still a fossil fuel. I can’t solve everything in this post, but take a look at the suggestions for how to deal with the Marcellus. The submitted DEC comments begin below:
The SGEIS of September 7, 2011 provides a very comprehensive review of the risks associated with Horizontal Drilling and High-Volume Hydraulic Fracturing and provides mitigation against many of the known risks either through regulation, approvals or restrictions on where drilling can take place. However, in its work, the DEC with the assistance of Alpha Environmental does recognize that there are substantial risks and actual likelihood of occurrences of damage as indicated by the restrictions on where drilling can take place as well as the substantial amount of requirements necessary to be allowed to drill, to handle the materials and back-flow from the processes, to reduce the GHG emissions and to transport materials and the ultimate hydrocarbons resulting from the drilling. The Marcellus and the Utica formations as well as others that may be exploited represent a significant economic opportunity for New York and other states as well as the United States in general. There will be much comment on the proposals put forth in this document. No doubt, the Oil and Gas Industry will have comments on the costs of the proposals as well as whether the risks highlighted are significant enough to warrant all the proposals for mitigation. Economics will be a key factor. These formations, the Marcellus in particular, represent a low cost source of domestic energy, in some ways not too dissimilar from the Prudhoe basin, which has been a major economic boon for Alaska and the US. I would like to suggest that, in addition to the proposals in the SGEIS, that the state of New York, in conjunction with the other states that exist over these formations, consider the following:
1) Much as the state of Alaska created a Permanent Fund for collection of royalties on the production from the Prudhoe basin and other Oil and Gas activities, there should be a similar Permanent Fund developed for the states where hydraulic fracturing and any other approaches are used to exploit these enormous and game-changing formations. An appropriate royalty (Alaska takes 33%) should be determined. While a small portion of the royalties could go toward the various state operating budgets, the majority would be available for the creation of alternative energy or energy efficiency opportunities to ultimately replace or supplement the production from the formations, as they are depleted. It could also be used for training of local residents in the technical skills required to participate in the manpower requirements for the industry. The royalties could also be used to support the inspection efforts and other mitigating elements in order to support the O&G industry in its exploitation of the formations. The DEC has indicated that drilling approvals will be slow as there are not sufficient resources to meet the likely demand.
2) While the DEC has proposed many mitigations to avoid problems, specifically with water contamination, there is no certainty that problems, anticipated or unanticipated, will not occur. The O&G industry is certainly of the view that there are no serious problems that could affect the various water supplies in the state or water that either contains animal life or is important to land-based animals’ survival. It would make sense for the industry to put up a sizable bond to deal with any problems that do arise, requiring treatment plants or other means to correct any such problems. If as the industry states, the occurrence of such problems is remote, such a bond would bear a reasonable price, and could be targeted to specific elements. For example, while the NYC watershed has been excluded from drilling specifically, drilling will be allowed to take place not far from the borders of the watershed area. NYC consumes about 1 billion gallons per day of unfiltered water for which it collects about $1 billion a year. To construct treatment plants and maintain them could cost as much as $30 billion and add about a billion dollars per year to operating costs. In the event that the unforeseen happens or appears to be happening, it would be good to know that funds are available to insure that sufficient potable water continues to exist.
3) The DEC has also proposed rules to mitigate GHG emissions, which could be high in the early stages of the process if methane releases are not contained. It is understood that under steady state conditions natural gas produces fewer GHG emissions than coal or oil, but there are still emissions. And such emissions can exceed those of other hydrocarbons if there are methane releases during the early hydrofracturing activity. A CO2 or CO2e charge per ton above a certain level of emissions would provide an economic incentive for the industry to keep emissions levels in the drilling, production and transportation activity to a minimum. Such a charge could revert to the Permanent Fund.
I leave it to the experts to determine the feasibility of these suggestions and the appropriate economics. Exploitation of the Marcellus and other gas reservoirs in New York and elsewhere in the country can have a major impact on the economics of the United Sates and can serve as a significant interim step toward reduction of GHG emissions if done properly. Much as Alaska, Texas and other states have benefited greatly from the exploitation of resources within the states, New York should as well. I commend the DEC for the thorough review of the risks associated with this method of drilling and production and its proposed rules for mitigation of those risks. I would hope that we use this opportunity to benefit the state and its residents appropriately, and consider the long-term effects of exploiting a depleting hydrocarbon resource.
I am heading out to Chicago for one of the triannual meetings of the Lake Forest Investment Society. We have been meeting three times a year (yes, triannual can mean three times a year) for many years to talk about the economy and the markets, including providing some specific stocks for a “portfolio.” The best performing security for the period between meetings gets its touter a free lunch. The portfolio, an unaudited, equally weighted hodge-podge of names is actually up 427% vs. the S&P at 130% over the 16 years this group has been meeting. The Society originated as a group of ex-Mitchell Hutchins employees and some of their favorite clients who wanted an excuse to share some provocative ideas on stocks, the economy, the world and life, eat high cholesterol meals, and maybe play a little golf. Some of the members and their origins have changed over the years, but the dialogue continues. The following are some thoughts I expect to share at the meeting:
This global deficit crisis won’t really be resolved until China enters the picture. China needs an export market to provide sufficient jobs while it tries to move to a consumer economy. It cannot find itself with a slow-growth economy if it wants to avoid political disruption, particularly at a time of leadership change. The developed world, both the US and Europe, needs to be showing some growth in order to be consumers of Chinese goods. With new leadership coming in 2012 there is an opportunity for China to provide some form of quantitative easing through the purchase of longer-dated securities or other mechanisms. This could be combined with the purchase of real assets and intellectual property as well in both the US and Europe. Until we see some movement by China, the developed world markets will face continued uncertainty, as the resources available to resolve the European crises, specifically, are just not adequate. However, I doubt China will move until both Europe and the US take stronger steps on their own to develop long-term deficit solutions and near-term stimuli.
The US’s Role
Contrary to what has been a continual reduction in GDP forecasts and increasing odds of a double dip by the pundits, I think the US could show decent growth in the second half of this year—not enough to create a lot of jobs, but decent. This does assume that the Super Committee or some variation thereof comes out with a long-term deficit reduction program combined with some near-term stimulus, and Congress actually supports this effort. I think the odds are greater than 60% that they will. This doesn’t necessarily provide a boost for the second half of the year, but it clears the air for next year and eliminates some elements of uncertainty in the minds of business and investors. My guess is we could have one more horrendous scare, probably coming out of Europe, before the world comes to its senses and responds to what could be a real crisis otherwise. What needs to happen long term is a whole ‘nother post, but one could read Friedman’ and Mandelbaum’s new book, “That Used to be Us,” to get a sense of some of what has to happen.
What a mess. It does not appear that the mechanisms exist to deal with the Greek deficits without putting the European banking system and maybe some other financial entities at grave capital risk. Whatever does come out of Europe as a solution—and I think it will take the Chinese to at least have the appearance of a solution—growth will be slow, as the European banks will not be in a position to lend for some time. This is an opportunity for the Chinese probably to the detriment of the US, if they choose to pursue it. China bashing in the US will likely drive China closer to Europe. China can also be more specific in its actions by dealing with individual countries and companies as opposed to the Union.
In spite of what most of the Republican primary candidates say—Jon Huntsman excluded–climate change is happening. We have no coherent policies in place and what was previously there is slowly being dismantled in Congress and by the Administration. Fiscally, we don’t seem to believe we have the resources to tackle this issue now, in spite of the long-term job creation possibilities. And, the fascination with “fracking” and what that could do for energy independence is in the forefront with massive resources from the energy industry devoted to selling the story. In the meantime the failure of an over-funded science project, Solyndra, has raised issues about government involvement in clean tech. These are their own topics, which I will deal with separately in other posts. In the meantime, back to the LFIS meeting, I will have a hard time coming up with a good stock idea. My personal portfolio is in cash and private illiquid companies. My compatriots will have some very interesting ideas, particularly at this moment in the market. I am not so sure the public market is as cheap as many opportunities in the private market today, particularly away from some of the frenzy around social media and other Internet related companies. Maybe one more crack in the public markets will get it there if it is combined with some stimulus in response. In the meantime, real private companies are having a hard time finding funds from the traditional venture capital sources. We appear to be going back to the original sources of capital for venture companies, rich families either in the form of family offices or direct. They can name their prices. We are back to the old maxim that one makes the most money on a good price going in vs. the price going out.
So, Germany is shutting down all of its nuclear plants by 2022. At the peak the plants produced 27.5% of Germany’s electricity. Renewable Energy is now up to 17.5%. There is a big gap to fill in a short period of time and it has German industry and the utilities screaming. This is on the path to have 80% of all its electrical energy come from non-carbon sources by 2050 in addition to a 50% reduction in consumption. While one could question eliminating Nuclear from the clean energy picture, what Germany is doing will very likely produce an acceleration in innovation, efficiency and the development of intellectual property that will 1) keep Germany’s energy costs from rising, 2) expand Germany’s trade surplus 3) increase Germany’s share of global Intellectual Property and 4) reduce the world’s CO2 emissions more than would have occurred otherwise. This is a bold, audacious step and does require a leap of faith that the German engineers and scientists will accelerate the pace of economic renewable energy development, and German industry and its people will further increase the efficiency of energy usage. I think they will do it, primarily because they have to and they have the talent to do it. This may be one of the most exciting moves by a government to date in the renewable energy field—and a positive move on emissions.
In the meantime, the US is looking for more carbon in less mature formations to fill its energy needs. We’ve basically found all the pooled oil and gas that took 300 million years or more to produce and are now going after “tight” carbon in shale formations as our solution to meet energy demand and produce energy independence. While the shale gas most likely will produce fewer emissions than coal over the 100 year life of a formation, it is still producing carbon and requiring a fairly aggressive use of other resources, primarily water, and some real brute force in liberating the carbon. This, too, is a bold step with some big environmental risks associated with it. It may prove to be a bold step in the wrong direction. We will take a closer look at this in a future blog. The move by Germany is an exciting one, but it saddens me to see the innovation and the aggressive steps to produce the lower carbon world we need taking place elsewhere.
Southern California lashed once more by rain, slides
The tail end of a storm that dumped rain on Southern California for nearly a week gave the region one final lashing on Wednesday, burying houses and cars in mud, washing hillsides onto highways, flooding urban streets, threatening dozens of canyon homes and spreading filthy water that prompted the closure of 12 miles of beaches. – Los Angeles Times, December 2010.
“The weather in California has been ‘abnormal’ for most of this century. It will begin returning to the ‘normal’ weather of the 19th century. You can expect colder and wetter winters and hotter and dryer summers.” — Iben Browning, c. 1975.
In the early days of my analytical career in the ‘70’s, I was fortunate to be a part of Mitchell Hutchins, a research boutique that ultimately was merged into PaineWebber. Among the many assets of Mitchell Hutchins was its consulting program with the likes of Otto Eckstein, Bill Moyers, Henry Kissinger, David Broder and others spending time internally with us and with our clients. One of those “others” was Iben Browning, who originally was hired by our food analyst, Roger Spencer, to do short term and seasonal weather forecasting, in order to help us predict soft commodity prices. While Iben’s work turned out to be quite useful on the short-term weather front, he was a man of many talents. His PhD was in zoology. He wrote several books, had over 60 patents, was a test pilot, spent some time with the DOD on geopolitical strategy related to weather patterns and the ability to influence same, and developed a keen interest in long term weather forecasting and climate change. He was an engaging speaker and quickly became a regular with our investing clients as much in demand as some of those with significantly higher profiles. He ultimately developed some fame as a forecaster of earthquakes and volcanic activity based on changing gravitational pulls on the earth from the alignment of other celestial bodies. Unfortunately, a rather precise but unfulfilled prediction of a quake in the Mississippi Valley in late 1990, which generated enormous media attention, turned fame to infamy. He died of a heart attack 7 months later in his home in Tijera, New Mexico; a home rumored to be a house trailer (safer than a real house, in his view, when an earthquake hits) on rather barren land that he ultimately expected to become arable and fertile as weather patterns shifted over the next century. As with many involved in forecasting, one is only as good as one’s last prediction. Iben does not get much credit for a long history of fairly accurate forecasts done with flair and more data than “An Inconvenient Truth.” He is remembered for the “New Madrid” quake prediction which even became a country and western song. You can view several renditions on You Tube, if you choose: http://www.youtube.com/watch?v=C5QCeSS03RE&feature=related.
Iben used to start every presentation with a standard punch line: “The next Ice Age will occur in about 10,000 years. Those people who say it begins in 2000 years are just trying to scare you.” His other perennial statement was the one that started this post and to me of most interest. At the time I did not totally understand his logic. It consisted of looking at historical weather patterns as reflected in tree rings and other data points, an expected reversal of the pattern of emissions–particularly in Southern California, sunspots and a warming of the east-west currents in the Pacific. In retrospect, the changing weather patterns in California may reflect a combination of increased CO2 emissions globally, producing generally more extreme weather patterns, combined with a more localized moderation in emissions which has eliminated some of the heat trap effects as California has benefited from national improvements in emission controls combined with even more stringent efforts within the state. In other words, the combination of the effect of global emissions on weather patterns with relative improvements locally may be returning California weather to its 19th century patterns with more seasonal extremes from today’s changes in climate: colder and wetter winters and hotter and dryer summers. At the moment, Browning’s predictions seem to be on point. It’s all relative, though. I am not suggesting that coastal Californians need to move—yet. Nor should they reverse their efforts to slow emissions. It may just be another interesting phenomenon of the Climate Change we are experiencing, or another Iben Browning prediction that will ultimately prove to be wrong. I would bet on the former.
This also brings us somewhat full circle to the value of understanding weather as a part of one’s investment decisions. As we have become a more global economy where supply of soft commodities, or lack thereof, in one part of the world affects worldwide prices, the ability to predict positive or negative weather patterns can be quite important to investment and business decisions. I think this is being magnified by the more extreme variations in weather patterns that can come out of these early stages of Climate Change. I would only expect these patterns to become even more extreme as temperatures continue to rise. Corporations involved in the agricultural industries have always paid attention to the weather. Investors, as evidenced by Iben Browning’s popularity, have as well. Today, those making the most use of weather forecasting would appear to be a number of hedge funds with the ability to place bets using a wide variety of instruments, where value is affected by a change in the monsoon season in India or extended drought in the Sacramento Valley. As these extreme weather events become more frequent the Iben Brownings of today’s world may become more prominent features in both the investment community and the media. Climate Change will continue to produce a new class of celebrities some of whom will stay with us for a long while.
2011 is shaping up to be an interesting year for the global and the US economies, and it could be an interesting year on the climate change front as well. In mid-December, 2010, it is the normal time for prognostications on the next calendar year by those who actually do the work and may know what they are talking about and those of us who read the work and make our less data-driven forecasts. Indulge me while I put some of my thoughts about next year in print. I think this is an important exercise for anyone to do. It establishes a base line from which to look for and measure deviations from expectations. And it puts in place a discipline that I always suggested to analysts who worked with me: once one has developed a point of view, spend the time looking for disconfirming information. At the same time, one needs to step away from the data and do a little speculation, particularly when in the early stages of a change in direction and a possible change in the second derivative of an established trend. So here we go:
The Economy. I think next year could be surprisingly good in the US with the likelihood of us printing a 5% GDP quarter at some time during the year. The truth is the economy has been clicking along reasonably well in most areas excluding the construction industry. That industry, which at its peak can employ 10 million people, has always produced the amplitude on the downside and upside to our statistics on employment and overall GDP. Without much lift there we are still starting to see employment numbers improve. The trade numbers, aided by a weaker dollar over the last year working its way into purchase decisions, will also add to GDP, even if the dollar does better than many expect over the next year. At the same time, we have just passed a very stimulative tax package, which puts money in wage earners’ pockets as well as corporate America, while quantitative easing continues. QE2 and the tax package probably represent the last of the stimulus efforts, which almost always are lagging indicators of economy. We do have some issues around several state budgets, but the responses by the new crop of governors could be surprising, maybe because they have to be. One can almost sense a palpable shift now toward addressing the federal deficit with the Budget Commission’s recommendations producing some fundamental change. It may not all happen next year, but I suspect that before we are done, we will see some major changes in the tax law. I am looking forward to a 28% top rate on income and I will accept the other changes that get us there. Lots of details to observe along the way including what’s happening in the rest of the world, but if the US surprises, that may be enough.
The Climate. In spite of the cold December in populous areas of the Northern Hemisphere, 2010 may end up being the second or third warmest year globally since measurements began in 1880. There are some indications that the changing weather patterns are themselves a product of long term anthropomorphic-driven climate change. Based on what took place in Copenhagen at the end of last year and what was just concluded in Cancun, there will be no concerted world-wide effort to do anything other than recognize that there is a problem requiring some movement away from a carbon-based global economy or simply adaptation to a warmer world. On the other hand I continue to be amazed at the innovation that is taking place globally to produce non-carbon or low carbon solutions to energy needs either through greater efficiency or truly new economic approaches. These include the transportation sector in most countries where mileage standards are much higher than in the US. These changes are driven by a desire for energy independence, economic innovation, or a response to the will of the people, even in China. It is sad to see the limited response by the US which will ultimately result in much of the new technology being owned and controlled elsewhere. We should not be buying 9 million barrels of oil a day from other countries for many reasons well beyond the effect on the atmosphere. And we don’t need to take on the cost and risk of additional carbon production domestically as a way to eliminate our trade imbalance, although natural gas is an interim step in the right direction. We do need to support the technology and innovation that can occur domestically to move us away from carbon and affect our trade balances as we export these solutions to others.
More to Come. There is much more to talk about on both the economy and the climate. Stay tuned.
It is worth seeing the commercial version of “Cool It.” Hurry, though, since I don’t think 4 people in an audience at each showing will be commercially viable. Ondi Timoner must have gotten more control over the final product than I thought she would. The commercial version is quite balanced. There are some fairly sharp digs at Al Gore and “An Inconvenient Truth,” but a recognition that Gore brought the topic of Global Warming to the forefront. Let me get some of the critiques out of the way: There’s a little too much of “We’ve only seen a one foot rise in sea levels in the last century,” “… life is good with standards of living having risen substantially,” etc. In other words, “We’ve jumped off the 50-story building and as we pass the 25th floor things actually look okay.” Bjorn Lomborg points out that there is a bell curve of potential global warming outcomes and the alarmists only use the low odds extreme possibilities to make their case for immediate action and large expenditures. However, he turns around and uses the least possible impact of the current actions on temperature change and sea level rise to make his case for diverting resources away from climate change toward other pressing needs. He is right regarding the need to address other issues, poverty, health, housing, etc., but, as Ned Babbitt points out in a comment below, Lomborg doesn’t provide a lot of documentation for the expenditure levels he calls for. Those may exist in his book of the same name. I could go on, but these are all just nits. Go see the movie!
Lomborg goes out of his way to affirm that he is a true believer in global warming, that man is the big contributor to the path we are on, and that we need to do something about it. However, he believes that the solutions being implemented, cap and trade, electric vehicles, windmills, solar PV are just not adequate today to deal with the problem and much of the dollars being invested could be put to better use. I have to agree except in the case of the transportation industry, where I believe the solutions are there—they just haven’t been implemented. Elsewhere, the technologies we are using today are just not adequate to solve the problems in an economic fashion without an explicit price on carbon. The documentary spends a fair amount of time on geo-engineering, which Lomborg thinks may be necessary as stop gaps because we won’t have developed the economic solutions that can move us away from a carbon-based energy system in the right time frame. His call is for spending more of the money on new technologies and innovation and less on today’s implementation, and in the process freeing up capital to deal with the other needs of the global society. The documentary supports the case by taking us on a whirlwind tour of some of the new technologies in the developed world that could get us to the right solutions. Whether it is Nathan Myhrvold’s work on 4th generation nuclear technologies, Stephen Salter’s work on wave energy or cloud whitening, or Hashem Akbari’s work on mitigating the urban heat effect, the journey through the new technologies is exciting and encouraging. The solutions are there, in the lab, in prototypes or in a scientist’s head.
Unfortunately, most of the solutions don’t fit today’s venture capital model of low investment and quick return, which is still available in various aspects of the internet space. The work that is being done is occurring in university labs based on government grants and other non-profit funding with the exception of the Myhrvolds of the world who are recycling the capital from earlier software/internet ventures into this new and exciting field. The other small exception is in those few cases where adaptation, primarily to rising water levels is already a requirement. The Dutch cannot really afford to take the chance that the low end of the distribution curve of climate change will be the end result. I don’t think the rest of the world can either.
We have to create the financing models that allow these innovations to progress to the next levels. Whoever does will own these technologies and the fruits of their implementation for their own geographies and certainly for the benefit of their own economies. Lomborg’s whirlwind tour doesn’t get outside the developed world, but the innovation and implementation are occurring in the developing world at a startling pace as well. Go get excited by the view of what can happen as presented in “Cool It,” and put some thought as to what needs to be done to move these innovations and others toward practical reality.
At the Hamptons International Film Festival, I saw “Cool It,” the new documentary directed by Sundance two-time Grand Jury Prize winner, Ondi Timoner (“Dig!,” “We Live in Public”). It features Bjorn Lomborg, author of “The Skeptical Environmentalist,” and a pariah in many climate change and environmental circles. I thought it would be good to “know one’s enemy,” and went armed with facts and data to refute what I expected to be hyperbole and assertions in the documentary. This was the first US showing of the film. It was very poorly attended as one might expect, given the environmental views of many of the Hamptons’ weekend residents. A mistake.
The documentary actually presents a quite balanced view of climate change. Balanced in the sense of putting Climate Change into perspective along with all the other global problems we face today. Lomborg is actually a strong believer in the likelihood of climate change. He also believes that the polarization on the topic brought about by some of the hyperbole coming from the climate change zealots has been a detriment to progress on solving the problems. I think he does understate the risks in an attempt to present a “balanced” view, using some of the same techniques that he accuses the zealots of using. However, his conclusions are valid—the primary one being that more of the dollars that are going toward today’s solutions would be better spent on research and development at this stage, to come up with true economic innovations that would speed the shift away from carbon based energy. This version of the film doesn’t talk about the need for a higher price on carbon, although it is my understanding that earlier cuts did.
I suspect that by the time this film hits the commercial theaters the final producers’ cut will be more of a polemic against Al Gore and others who have been a big part of raising awareness on this issue. I hope to see it when it becomes commercial, and I would urge others to do the same. I also hope that an earlier cut makes it to the Internet so one can compare the director’s apparent intent with the final product. Timoner’s responses to questions after the screening portrayed an intelligence and understanding that is already not showing up in each cut as it makes its way from the film festivals to the multi-cinemas for mass consumption. Lomborg will likely continue to be viewed as a pariah in certain circles, when his thoughts should be broadly incorporated into our efforts to deal with this and other serious global problems. Read the book. See the movie. And get your hands on a director’s cut, if you can.
India is now in the midst of its annual monsoon season. 80% of India’s rainfall occurs during this season and is critical to its agricultural system. However, in many places it started 3-4 weeks late. Cumulative rainfall appears to be catching up, maybe now only 18-20% below normal in many places, 40% below normal in others. Daily rainfall is now running 50 to 80% above long term averages although June had the lowest cumulative rainfall in more than 80 years. In some spots, Uttar Pradesh (UP) being one, the lower rainfall is being characterized as producing “drought conditions.” In a parochial sense, I care about UP. Our company, DWP, sells solar systems to the farmers there (see on this blog, “600 Million Points of Light…”). A late start to the rain meant easier logistics selling in the area in June. However, if this means lower plantings and shorter harvests—which it does—the farmers won’t have enough income to buy the systems later in the season. And, the price of certain foodstuffs will likely rise, further reducing spendable income. If this occurs countrywide—which is the case—it could mean demand for foodstuffs on the world market will rise as India tries to feed its people.
Maybe this is just one of those statistical events. After all, the last four seasons have produced bumper crops in India. Or maybe, those climate change folks are right. They have been saying that one manifestation of climate change could be changing weather patterns with shorter, but more intense “seasons.” Some of them pointed to Katrina a few years back as an example of what could happen. Of course, that faded when the next year proved to be a mild hurricane season in the Atlantic/Gulf region. I will bet that some of them will point to this year’s monsoon season as supporting their case. In any event, weather/climate will likely force India to add food shortages to its list of problems this year.
India is taking somewhat of a wait and see attitude on Climate Change—as are many people. If nothing else, India believes that the western world should not be asking it to reduce carbon emissions when the developed countries are the ones that have put most of the carbon into the system up to now. On one level India is right. The western world needs to take some very aggressive steps to reduce its use of carbon. On another level, all the evidence says that India will likely suffer the most of any major country if global warming does occur—and there is some evidence that some of the effects of emissions are quite local. In addition, moving countries toward energy independence and fueling (if you will pardon the expression) a new technological wave, it is possible that pro-active steps to reduce carbon emissions may actually save lives and add to economic growth. If I felt there was a significant risk to humanity from the carbon path we are on—and I do—and I could change my position geopolitically—which I also believe—I would be doing everything I possibly could as a country to be a major participant in this carbon reduction cycle. As I said in my first post on this blog, we may be 10 years away from a more universal recognition that we have a problem. We are getting some early signals. How many do we need?