Monday, January 05, 2004

Energy Blog Manifesto

What you’ll find in this blog is an insider’s perspective on the changing world of energy. There has been a lot of breathless reporting lately about new fuels or energy devices and how rapidly they will transform our lives and clean up the planet. At the same time, many industry experts seem reluctant to question that the status quo can continue indefinitely, or that it should. I hope to provide a useful, if eclectic, guide to navigating the gulf between these viewpoints, based on my experience of over 20 years in the energy business and on scenario-based possibility thinking.

For those with an interest in energy, and particularly those facing decisions about investments in energy-intensive equipment or purchases of long-term supplies of fuel or electricity, the world must seem fairly confusing at the moment. Some key questions you should consider include:
· Does the US have an energy security problem, or not?
· How much oil is left, and will its price remain stable over the next decade?
· Are we on the verge of an energy technology breakthrough?
· Is the hydrogen economy inevitable, and how long would the transition take?
· Has the Enron scandal permanently damaged the credibility of energy trading?
· How does renewable energy really compare to more traditional sources?

I’ll be covering these and a variety of other topics in the weeks ahead, in the form of articles, opinion pieces, and with your help, some energetic discussion. After all, a blog should be a two-way street if it’s going to stay relevant.

Finally, here are a few thoughts to stir the pot a bit and give you a better sense of my perspective:

Is Climate Change For Real?
The notion that the science of climate change is still uncertain and that action now would be premature looks more and more curmudgeonly with each new year.

Although I retain a healthy skepticism that the scientific community can truly be 100% impartial and objective in its “overwhelming consensus” when dealing with something that has become such a large and lucrative source of funding for research—or that consensus is even the right standard—I believe there is ample evidence that something odd is going on with the climate.

This is bigger than a few years of strange weather and could affect us all in unpredictable ways in the future. Smart people are starting to talk about “Global Weirding” instead of “Global Warming”, and that strikes me as more realistic and likelier: in effect, a decade’s worth of bizarre weather events every year around the globe.

Cause and effect is harder to pin down. Emissions of carbon dioxide and other “greenhouse gases” are accumulating in the atmosphere in lock step with the historical rise in temperature that we can observe. But did the former cause the latter? This may sound like the tobacco company defense of “but we don’t know that cigarettes caused this particular person’s cancer.” In fact, it may never be provable that the extensive use of hydrocarbons—coal, oil, and natural gas—over the last century or so has altered the climate. But even if the evidence is only circumstantial and correlative, the potential consequences of ignoring this issue loom too large simply to plead for more time for study before acting.

The grabber for business is that the response to climate change will alter a basic economic assumption that you have never had to think about before. When you start up your car or your blast furnace, you’ve always been able to do so without being charged for the right to let carbon dioxide go out the tailpipe or up the stack. Within our lifetimes, and probably within the next decade, the price of such carbon emissions will become greater than zero.

This is fundamentally different from current restrictions on traditional air and water pollutants, because CO2 is not a pollutant, but rather the main byproduct of the combustion of hydrocarbons, which supply over 80% of all our energy needs.

The exciting part of this problem is that the solutions could create a lot of attractive business opportunities. For example, one of the best ways to reduce greenhouse gas emissions is through trading. In essence, someone whose emissions would be very expensive to reduce pays someone else to make these cuts for him, at a lower cost. The result is good for both the climate and the economy. This kind of trading would work even better than the market for sulfur pollution credits, to which it is often compared, because it truly doesn’t matter where in the world you reduce greenhouse gas emissions. A ton of CO2 saved in Brazil is exactly the same in its impact as a ton reduced in Boston.

A small but growing number of companies has already agreed to this kind of scheme, some through one-on-one transactions, others by participating in mechanisms such as the Chicago Climate Exchange. There are still a lot of uncertainties here, but we’re talking about a new financial market that’s just getting started, and the price of reductions is very low. And this is starting to happen without a US signature on to the Kyoto Protocol. Just look at what Europe is up to!

This issue won’t go away, and it’s likely to become much more significant for American businesses the next time there’s a Democrat in the White House, whenever that might be.

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