FT Energy Source

It has been a particularly busy beginning of the week, so instead of my usual fare I thought I'd draw your attention to another blog offering really great coverage of the energy/commodities markets.

I recently discovered FT Energy Source, and it is already one of my regular reads. It brings together all the best energy coverage from around the web and the newspaper itself, while also providing terrific original analysis and behind-the-headlines insight. Its coverage this weekend of the OPEC meeting perfectly illustrates the access and insight it offers.

If you are looking to build on the energy/commodities coverage of zzzeitgeist, I recommend checking out FT Energy Source. After us, of course.

Double, double oil and trouble

Little publicized fact: the $787 billion stimulus bill that Obama signed last week contains $16.6 billion for the Energy Efficiency and Renewable Energy (EERE) Office of the Dept of Energy. This increases the EERE’s budget tenfold, and it’s yet another signal that Obama is serious about alternative energy. That’s good.

Also this week, crude oil dipped below $40 for the first time in 2009, which has caused a stall in new energy projects. That’s bad. Oil prices are low because the economy is in terrible shape, which stifles demand. But the longer prices stay low, the harder it will be to commercialize advanced biofuels, which by one estimate will need an oil price of $80-$120 in order to be competitive in a reasonable timeframe.

This is a paradox worth watching as it plays out over the next 25 years. Ideally, you want clean and cheap energy. But that's still a ways off, and for now it seems like you can mainly have one or the other. Which is more important? How do you balance the two demands?

(photo from ifijay's photostream)

I Drink Your Milkshake!

Venezuela, an archetypal petro-state, was bound to suffer when the price of oil collapsed late last year, but the situation has worsened rapidly, I think even faster than most expected. The government looks to be scaling back its ideologically-motivated ambitions to divert exports from the US to China. They can't find state-owned oil companies willing or able to carry out new developments, so are turning to the same private foreign firms they spurned in recent nationalizations. PDVSA, the massive national oil company, and big private service companies, are rumored to be cutting thousands of jobs to save money and deal with OPEC output reductions. Production is slowing as the government is falling behind in its billion dollar plus debts to oil service firms.

These signals are especially surprising given that oil prices are still relatively high, between $35-$40 a barrel for Venezuela's unusually heavy crude, compared to about $7 when President Hugo Chávez came to power in 1998. And the country should have a bigger cushion after a year of $100+ prices. Also, the government may be holding more bad economic and employment news until after Chávez's February 15 referendum on eliminating presidential and other term limits.

So what does it all mean? Chávez's second decade in power (which begins today after a hastily-called national holiday) may be much rougher than his first. He no longer has his handy foil, and efforts to stir things up with Obama don't seem to be catching on, for now. Without the slush fund from off-budget oil profits, Chávez is hard-pressed to fulfill his generous foreign aid commitments, and he may start to get the cold shoulder from fair-weather international friends. At home, Chávez is prioritizing social programs over oil production or investment, but he can't continue that downward spiral for too long and any reduction in benefits will erode his somewhat fickle power base. It's no surprise Venezuela relies on oil, but under Chávez the dependence has reached the point that it accounts for over 90 percent of export revenue and a huge chunk of the budget. Now it appears that well is running dry.

(photo from rhaaga's photostream)

Baby, it's cold outside...

Let's hope Mr. Barroso's "warning" to Russia is more convincing than Mr. Blix... 

Come on Russia, play nice... the rest of the world doesn't have your vodka supply to get through the winter.

Fool me once?

I must admit to being a somewhat lukewarm Obama supporter. I voted for the man based on my belief that his Presidency would represent a return to a thoughtful administration, open to debate among passionate and intelligent academics with equal weight given to voices, despite their ideological leanings.

When assembled, the formidable economic team validated my hopes for open and honest debate in a time when it's most certainly required. Hillary tempered my support just a little. And now this.

President-elect Barack Obama is expected to create what is sometimes called an “energy czar” to coordinate energy and environmental policy among the myriad federal agencies and lead a new National Energy Council...Browner, who’s heading the transition team’s environmental division, has likely landed the job.

I'm starting to fear that instead of real policy decisions, we will have a tepid and limp administration hampered by so many different new agencies, councils and czars that the executive branch will take longer to act than our current Congress. Maybe such a fear is irrational; granted, the man can't really do anything until January 20th, but if this is what he meant by job creation than America just got hoodwinked.

The Great Resource Guessing Game

Petroleum Intelligence Weekly has published its influential annual ranking of the world's top oil companies. The most notable and widely reported aspect of the report is the global power shift from the traditional private oil majors to national oil companies. 27 of the top 50 oil companies are now majority state-owned. China's CNPC leads the surge, having surpassed both BP and Shell according to the report's metrics. Exxon Mobile is the only majority privately owned company remaining in the top 5.

The impact of a global oil market dominated by state-owned firms on both international growth and security is immense. The recent Global Trends 2025 report published by the US National Intelligence Council, and Patrick's farming piece below, highlight the high probability of future inter-state conflicts over increasingly scarce resources like oil. Energy security has risen to the top of both national and international agendas, and the threat of countries using the "energy weapon" for geopolitical leverage has lead many Western states to move in the direction of resource nationalism.

Beyond military and economic conflict, market uncertainty is the biggest effect of greater state control of natural resources. Reserve and refining capacity statistics are classified as state secrets in many countries with nationalized energy sectors. As Western majors are kicked out, and given the press restrictions in countries such as Russia and Iran, it will be increasingly difficult to obtain an accurate measurement of global supply and capacity (you can find my take on Russia's energy industry here). The hysteria surrounding "peak oil" (due in part to the realization of "known unknowns") last year probably contributed to the record run up in oil prices. The inability of traders to estimate and match long term supply and demand will drive up the speculative risk premium in oil prices, particularly if over-the-counter markets remain unregulated (an issue that has dropped off the political radar since the commodity bubble burst). This will only exacerbate inflationary pressures, political instability, and resource competition similar to what we witnessed over the past few years.

Information, transparency, property rights, and security are all central elements of an efficiently functioning oil market. Greater resource nationalization compromises all of these, and increases the probability of resource-driven political and economic conflict. As long as the trends outlined by Petroleum Intelligence Weekly continue, energy security will remain one of the defining issues of the 21st century.

(Photo: ifijay)

Is the EU finally serious about its energy future?

On November 13, the European Commission proposed the EU Energy Security and Solidarity Action Plan as part of its Second Strategic Energy Review. Three new proposals that stand out: 1) the construction of a European supergrid, connecting power from the wind farms of the North Sea all the way to the Baltics, 2) the construction of two new gas pipelines, connecting Caspian and African gas to the bloc (Nabucco included), and 3) a "Community Gas Ring", which would essentially allow for the pooling of European gas supplies in the event of supply disruptions (here's looking at you Russia). These measures would directly address import diversification (particularly in natural gas, and specifically away from Russia), security of supply issues, and fragmented national power grids.

Despite recycling a lot of old ideas, the new proposals make this a highly ambitious plan, and in my opinion, one that has absolutely no chance of being carried out in its entirety.

The first rule of European energy is that the national always trumps the regional interest. National regulatory and interest-group challenges to EU-wide liberalization in the energy sector are formidable, and to date have blocked any substantive effort towards a single European energy market. With energy prices falling, and the commercial ties between some of the EU's most powerful members (Germany, France) and Gazprom still deep, there is little chance that this strategic plan will be successful. The European Commission has valiantly fought to create a liberal, single European energy market for 30 years, but the European Council always waters down the compromise enough to preserve the status quo in certain national markets. (Germany, France) Thus, fragmentation persists.

One also has to question the commercial viability of the alternative pipelines proposed by the plan. The Nabucco project has been hopelessly mismanaged. Its commercial viability has been suspect from day one, as the Caspian suppliers it seeks to tap are strongly oriented towards the Russian market, and only Kazakhstan has seriously entertained diversification away from Russia. It is important to note that Gazprom is highly dependent on imported Caspian gas for re-export to the EU, and therefore would not go down without a fight to keep the gas flowing through Russia's borders. I find it difficult to foresee the construction of multiple southern pipelines in the near term.

Finally, the chance of a "communal gas ring" is more reasonable, but no easier politically. Under previous EU energy liberalization directives, member states were required to compel private storage facility operators to open these facilities to universal access. In practice, this occurred less than desired because there is little commercial incentive for the private operators (who by the way, are usually state-owned monopolies like GdF). The chance of one country stretching its own supplies in a time of crisis to assist another member state's shortfall seems unlikely.

Ok, time for the rosier outlook. I was extremely pleased to find a reference to the importance of fostering interdependence between the bloc and its external suppliers (again, that means you Russia). The EU desperately needs to find solutions to its rising import dependence in natural gas. Unfortunately, its own supplies are declining at a rapid pace. This means that the diversification of import sources is the key pillar of the bloc's long term energy security. But in the short to medium term, the EU needs Russia, and Russia needs the EU. A commitment by both parties to fostering a mutually beneficial and secure energy relationship would be a truly powerful development.

The new green economy: what role for government?

The Economist has an interesting leader this week on the perils of government-led investment in solutions to climate change. If I understand the arguments correctly, the thinking goes that there is an upside to climate change; namely, the naissance of a new and profitable green-tech industry to combat it. Millions of new “green collar” jobs will be created as money is funneled into alternative fuel and energy research and implementation. If the government subsidizes this industry, it will lock in those jobs domestically, boost the economy, and achieve policy goals like energy independence and fighting global warming.

Of course, the problem with any government-led subsidy program is the issue of picking winners. Resources are scarce, especially if you’ve seen the federal debt numbers lately. You can’t subsidize everything, and by subsidizing any particular form of alternative energy, the government is expressing its confidence in that fuel’s viability. But the government, a semi-closed organization with limited human capital and a bureaucratic (read: slow) outlook, is almost certain to be less efficient at distributing resources and picking winners than a market. That’s why we live in a market society, and that’s why communism doesn’t work (sorry, Ms Klein.)

None of this is new, but it bears repeating for two reasons. First, Mr. Obama has named energy independence as his top domestic priority behind stabilizing the financial system and the economy. Second, the financial crisis has so badly tarnished the reputation of markets that resistance against government leadership on green investment is unlikely. Thus, we may be on the cusp of a massive government-funded research program for green technology, and so we need to carefully consider the downsides of such a policy prescription. After all, the United States is still happily subsidizing corn-based ethanol, which is a terrible idea.

There is a central role for governments to play in a market society. Moving forward, there will be a leading and constructive role for government to play in the fight against climate change (please can we have a carbon tax?) However, in an ideal situation markets and government complement one another. Each has its own strengths and weaknesses. But above all else, we should strive to avoid a situation where one of these institutions usurps the role best played by the other.

(photo from montanaraven's photostream)

On Mandelson, money, and oil

I apologize for the light blogging as of late. I’m starting a new job next week and moving very soon thereafter, so I’m trying to get about a million things done before then.

Three thoughts. First, you’ve no doubt seen that Gordon Brown, in an attempt to shore up his eroding political position, has asked Peter Mandelson (his once arch-enemy) to join his cabinet. Mr. Mandelson was formerly the EU Commissioner for Trade (rough equivalent to the United States Trade Representative.) His departure is a serious blow to multilateral trade negotiations, and it makes it that much less likely that we’ll see a Doha deal in 2009. In my opinion, he understood how far he could successfully push the EU position to the inch, and he had no problems standing up to some of the more recalcitrant members. His departure also seriously diminishes the institutional memory of the major negotiators, which means quite a bit in trade talks.

Second, after tonight’s debate, we can probably start talking about the McCain campaign in the past tense. He looked worse than usual tonight: old, irritated and tired. Mr. Obama didn’t have a great night either, but you don’t need to shake things up when you’re in a commanding lead. Tonight was one of Mr. McCain’s last chances to do something, anything, to reverse that. Aside from proposing that the Treasury buy everyone’s mortgage (I’m pretty sure that was new) and simultaneously proposing a government-wide spending freeze, he didn’t do much. I think he’s toast, and I will argue, as I have done repeatedly in the past, that contracts for Mr. Obama winning the presidency are still undervalued on Intrade. Fivethirtyeight’s electoral projections give Mr. Obama a nearly 90% chance of victory, which strikes me as closer to the reality. His Intrade contract is trading for $7.20ish. Do the math. If you buy right now, and he wins on Nov 4th, you’re making a 39% return in less than a month. Did I mention that Intrade trades contracts worth Real Money?!? Now who said there weren’t good investment opportunities in today’s markets? It just depends on which markets you look in.

Finally, great post by my illustrious coauthor yesterday about the “black lining” (catchy!) of the current economic turmoil: oil prices closed below $90/barrel, although I think they went back above that mark today. Either way, they’re down nearly $60/barrel since July. The point is, commodities correlate well with economic growth: you need more oil, copper, and aluminum to make stuff when the economy is good and demand for ‘stuff’ is strong, so the prices of inputs (commodities) rise as well. Problem is, now that everyone thinks the economy is going to hell in a handbasket, commodities prices are tanking. Great if you want to buy into the market, not so great if you like strong economic growth. So while Nick is right that less oil revenue frustrates the plans of nasty petro-crats, I’d qualify this slightly by saying oil prices are low for the wrong reasons. We want prices to be low because a diversified energy portfolio means we’re demanding less oil, not because we simply can’t afford it. The foreign policy implications may actually be more, not less, dire than we imagined.

Lower oil prices make me nervous

I try to avoid making hard predictions on this blog, but regular readers know that I’ve recently made two high profile picks. I’ve argued more than once that political-economic fundamentals suggest that Barack Obama will win the Presidential Election in November handily. Admittedly, that’s looking a bit dicey at the moment, but I’ll still be astonished if Mr. Obama somehow manages to snatch defeat from the jaws of victory in the most favorable electoral climate in almost three decades. I will also petition that the Democratic Party disband and its leaders seek gainful employment in a completely different line of work. Further, I’ve argued that the new baseline for oil prices will be $100/barrel. In recent days, however, oil has crossed the Rubicon and is currently trading around $96. Does that mean I’m wrong?

It’s too early to say definitively, though I don’t think so. But there’s a larger problem: it could very well be a bad thing if oil prices continue to slip.

It is a fact that the global economy runs on oil. It is also true that right now there exists no substitute that could completely replace oil. Therefore, if the global economy continues to grow, which most people agree is a good thing, it also means that oil consumption will continue to grow, which most people agree is a bad thing. But without a substitute, the world will need more oil. 37.5 million extra barrels a day, to be exact, according to the International Energy Agency. That’s on top of about 85 million barrels consumed each day currently.

Without a substitute or sustained economic recession, that oil needs to come from somewhere. The problem, as I’ve mentioned, is that most of the ‘easy’ oil is already being pumped. In a fascinating article today, RI notes that most of the oil majors are pricing new investment projects at a cost of about $70/barrel, which they would like to sell at market for $100/barrel. Simply put, if the price of oil continues to fall, it is likely that they will delay these new investment projects, which could lead to a major supply gap in the future. Rather than a gradual rise in oil prices, we might see a disruptive spike.

Conversely, it is clear that in the face of accelerating climate change and higher energy prices, the world needs to develop renewable energy sources. Say what you will about Tom Friedman, he’s an ideas man and his new book looks like it highlights what will be one of the major political economy challenges of the coming era (n.b. I haven’t yet read it). However, as I’ve also mentioned, declining oil prices likely reduce the impetus for investment in alternative energies.

Understandably, oil companies want to keep selling oil for as long as possible. It’s what they know, it’s what they’re good at, and it’s extremely profitable. In Congressional testimony last week, the President of M.I.T. noted that oil companies invest less than 0.25% of their revenue in R&D, compared with 18% for pharmaceutical companies and 16% for semiconductor firms.

But this is ultimately unsustainable. Anyone interested in developing an energy substitute in a timely fashion must first acknowledge that the era of cheap oil is over. In my opinion, any prolonged forays below $100/barrel are just delaying the inevitable hangover, and very likely making it worse.

(Incredible picture by nzdave)

Russia-EU relations: a bang or a whimper?

The Russia-Georgia war continues to have repercussions: EU leaders gathered in Brussels today for an emergency summit on the state of relations with Russia. Last month, I attempted to apply a rudimentary public choice model to the major players in the conflict. At the time, for simplicity’s sake, I treated the EU as a single entity with a unified policy position. In reality this could not be further from the truth. There are hawks, such as the previous Warsaw Pact members and the UK, and there are doves, such as Germany and Italy. In determining a member nation’s stance, it is useful to look at two metrics in particular: history and energy. Specifically, has the country been pushed around by Russia in the past (pretty much all of Eastern Europe)? And how much Russian energy does the country import? Personal relationships also play a role: Vladimir Putin and Italian Prime Minister Silvio Berlusconi are close friends, for example.

Where do the Russians stand? I’m troubled by the implications of their explicit declaration of ‘spheres of interest’. However, I still think it’s possible to at least partly understand Russia’s motives through the looking-glass of its leaders’ personal incentives. This is a view that I first heard espoused by Garry Kasparov in 2007 and again last week by Richard Baldwin. It’s certainly true that Russia’s political elites are making an enormous amount of money off of the country’s economic expansion, and they’re aware that war would disrupt this trend. As a friend of mine once put it, capitalism in Russia is like the Wild West: poorly regulated, corrupt, winner-take-all, and unprotected from government intervention. In such circumstances, powerful political actors are well-positioned to get rich. While stoking the fires of nationalism will help solidify their leadership, outright war is undesirable because Russia might lose and the economy might tank. Thus, I suspect that Russia’s leaders won’t push things too far (I’m being purposefully vague), as doing so would be against their own interests. In any case, Russian stock markets have already been majorly spooked by the war and other recent events.

And where does this leave us? For the time being, I suspect that ‘pragmatism’ on all sides wins the day. The EU stopped short of applying sanctions: the last thing that leaders in flagging economies want is to be on the wrong side of high-stakes energy diplomacy. Still, the rarity of such emergency EU summits signals that they’re taking this seriously. Russia, in turn, is quite reliant on the EU for its export market (which feeds into the reasons mentioned above). Is this the right policy for the EU to be pursuing? It’s doubtful: I think the EU ought to be taking a tougher line, and it still might if it can get its own ducks in a row on the appropriate policy response. This is something to keep watching.

(photo by dbarronoss)

In cahoots? Or, T. Boone Pickens II.

Flying under the media radar (poor pun completely intended) is Mayor Bloomberg's newest authoritarian plan for New York: wait for it...wind power!

Announced yesterday, Mr. Bloomberg's proposed urban makeover would place wind turbines of varying shapes and sizes - and one should assume, efficiency - all over the New York skyline (talking with Pickens much?). No one said the man was not ambitious (remember his congestion tax?!) but this is a plan that deserves support. Though this exact proposal will never come fully into effect it is worth monitoring. Despite the NIMBY sentiments most New Yorkers will loudly and proudly voice, their city presents a perfect laboratory for testing the feasibility of future renewable energy.

New York is about as urban, regulated, and crowded a city one can find in the West. If Bloomberg can streamline the city's energy systems, legal hurdles, and population into a coherent framework for instituting his idea, the world will be forced to consider such plans much more seriously.

Besides, if he's wrong the city loses nothing and will probably wind up with a more efficient political and regulatory environment. And if Bloomberg's right? Well then the world will be shown that even a city that never rests won't be running on empty anytime soon.

This is your brain on ethanol

As the other half of the Zeitgeist editorial board, I'd like to take this opportunity to strongly endorse my coauthor's denunciation of corn-based ethanol. By this point, I think it's safe to say that the only ones who are really benefitting from our flirtation with domestic ethanol production are the people of Iowa. The rest of us are really getting the short end of the stick. Some thoughts:

The relatively new and historically-unprecedented demand for corn is putting an enormous strain on American farmers' production capacity. Land that could be used to grow other crops is now devoted to corn, which causes the prices of those agricultural products to rise (this is why historically the grain futures markets track each other very closely, and why soybean prices almost mirror corn prices.) Meat is becoming more expensive, because a good deal of livestock feed is corn-based, and it takes about 700 calories of corn to produced about 100 calories of meat. A USDA economist recently estimated that about 3% of corn's price increase could be attributed to ethanol demand. Compare that with the UN Food and Agricultural Organization, which argued that it was almost 30% (did the USDA forget to move a decimal point?), and the World Bank who've put the number as high as 70%.

What to do about all of this? There are a few sensible steps to take. First, stop subsidizing ethanol production. It's an enormous waste of money and it's never going to be anywhere near efficient enough to justify. Another oft-repeated but damning statistic: you could feed a person for an entire year with the amount of grain it would take to fill an SUV's 25-gallon gas tank once.

Second, encourage investment in other energy projects. I'm skeptical that governments have the know-how to pick winners in these situations, so why not let venture capital markets take the lead? Anyways, they more or less already are. Governments might consider helping spur further research with calculated tax breaks/credits for green investment.

Third, import Brazilian sugar-cane based ethanol. In contrast to our ethanol made with corn, sugar-cane is more efficient (hence cheaper) and there's no worry about anyone starving because you use the cane to make ethanol instead of sugar. Besides, Brazil has plenty of land to grow the stuff on, without destroying the Amazon rain forests. They are investing heavily in the industry and already exporting significant amounts.

I might have lost the "energy independence" crowd with that last point. But here's an uncomfortable truth: energy independence is not going to happen anytime soon, if ever. As a country, we just consume far too much energy to realistically produce it all at home. (But why is that such a bad thing? Have we all forgotten about comparative advantage?) Anyways, if you are concerned with security, doesn't it make sense to start buying more fuel from a friendly, stable democratic state and "transfer less wealth" to backwards, authoritarian nations in the Middle East? Think of what that would do for our image in Latin America! Why, you can almost hear Mr. Chavez gnashing his teeth already!

(Picture from Rolling Stone Magazine.)

I see ethanol's underpants

WHY?! It does not surprise as much as disappoint me that the EPA has decided not to ease requirements for ethanol use in gas production. It is no secret that the EPA has been rendered almost irrelevant and powerless under Bush. Unless McCain takes the White House, which seems unlikely given the numerous prediction models my co-author has mentioned, it seems almost impossible that ethanol subsidies will be cut any time soon given the EPA's weakness and the fact that "energy security" is the catchphrase of the moment.

For those of you who may be confused by why we here at Zeitgeist think ethanol is such a bad idea let me offer a few points.

1) Ethanol is not really energy efficient (and we've known for years!). The amount of fossil fuel required to produce ethanol is more than the actual ethanol output. This renders the rest of my points moot, but just in case...

2) Ethanol production is a huge factor behind the recent rises in global food prices (and we've known this for years too!). The diversion of corn to ethanol production has limited supply at a time when this is certainly not needed, thus driving up the price. The fact that our own protectionist policies contribute to hunger probably did not help our attempts to get China and India to liberalize their trade policies at Doha.

3) It is not sustainable! Corn is an extremely erosive crop. Though already planted on a wide scale, farmers trying to get a piece of the rising food prices and government subsidies have started planting even more. This has a host of environmental ramifications, mainly to do with water scarcity and increasing fertilizer use.

4) The subsidies are wasting valuable time and money for all Americans. Not only has ethanol not lowered prices at the pump, it diverts huge tax sums from "second-gen" biofuels and other renewable energy sources that actually need the investment and offer some glint of hope.

It's no surprise that Obama supports ethanol. He's from Illinois after all. But coupled with his talk on NAFTA his position is not exactly encouraging and almost makes McCain attractive. If only he wasn't so damn old!

Zeitlinks

As I ponder my dissertation's depressing word count, here are some interesting comings and goings in the world of punditry/journalism aside from z'geist:

- The Economist's Free Exchange discusses the results of presidential prediction models, all of which featured so far have Mr. Obama winning with a probability of 50% - 99%. There's still time to take an Obama position in the prediction markets, like I mentioned earlier...

- In Thursday's FT, Warren Maruyama, general counsel to the Office of the US Trade Representative (USTR), says it would be crazy to walk away from the WTO and Doha because there is no alternative. I'm fairly sure that when Bob Zoellick was USTR during this same administration, he couldn't stop gushing about the very glaring alternative: regional trade agreements. There's a valuable lesson to be learned here: the words of officials in controversial public positions (like trade negotiation) aren't even worth the paper the Doha draft agreement was written on

- Commodities are taking a killing, as oil's continued fall has initiated a broad sell off. Soaring commodity prices, particularly those related to food and energy, have been at the center of recent inflation concerns. Related: the top 20 mining stocks are collectively down $667 billion from recent highs; the top 20 oil stocks are down about $943 billion.

- If you've got time, read this analysis of the facts behind some of the energy policy options du jour.

Go fly a kite?

I have to admit I am a sucker for technology, especially with regard to renewable energy. I find the science and creativity that go into such innovation captivating. If you keep up with even just the cable news at the gym, you're probably in the know about wind power, "clean coal", and of course the dreaded biofuels. Even if you're not aware of the policies that are in place or the science behind them, most of us have at least heard politicians rally about them.

At a time when all such proposals seem to be dumb, dumber, and dumbest, I'm happy to see this new technology coming out of the Netherlands (why do they always come up with the cool stuff?). Kites, people. Not only is this amazingly cool (ok I'm a dork) but amazingly simple and practical.

When former oilmen are rallying for taxpayer money that requires huge restructuring of our electricity grid, innovations like this are most welcome. Not only do they require less to implement but the maintenance costs are minimal. I've talked before about the need for renewable energy subsidies and this is the ideal type of technology for government support: it is cheap to install and will pay for itself very quickly without diverting other resources (ahem, ethanol). To tackle climate change and create a sustainable network of renewable energy will require diversification, innovation, and apparently, creative uses for common items.

Trashing gas

I'm done with expensive gasoline, thank you very little. I've sold my car and am now the proud owner of a Genuine scooter. Bad boy gets 80 miles to the gallon: traded the van for it straight up. But I'm still concerned about gas prices: more so given what they reflect about the American economy, climate change, and the status of oil. The New York Times gave me a little hope today by outlining how garbage and waste may be the wave of the future. But please, we've all heard this before...



But seriously. This technology has been around for a while (I'm dubious of the claim that it has existed for decades) but still remains far away from perfection and economic feasibility on a scale of mass production. All the more reason to continue extending subsidies to more and more types of clean technology and renewable energy. Solving this new type of energy crisis requires far more than one "savior" technology (read: ethanol) and it is wise for the government to cover all their bases. The private sector needs to jump in as well and is doing so at a breakneck pace. Perhaps this is one side of the bubble needed to cure Wall Street's hangover.

How to win the crucial economists' vote

Greg Mankiw, a very well-respected economist and prodigious blogger, had a piece in the New York Times this past weekend about the policies the candidates would adopt if they were courting Economists' votes. I encourage you to read the whole entertaining article, but here's the gist of it:

1. Support free trade
   
2. Oppose farm subsidies
3. Leave oil companies and speculators alone
4. Tax the use of energy
5. Raise the retirement age
6. Invite more skilled immigrants
7. Liberalize drug policy
8. Raise funds for economic research

I'm personally ambivalent/in cautious agreement with number 7, and I imagine number 8 would amount to some heroic pandering to the dismal scientists. That said, I do agree with numbers 1 - 6, and I agree particularly strongly with 1, 2, 4, and 6. There is a lot of material here, but I'll take number 6 right now because it strikes me as the most straightforward case.

Invite more skilled immigrants. Whatever your thoughts on immigration in general, skilled immigrants, particularly younger ones, are a big "get." They generate a lot of economic value. They make a lot of money, a lot of which gets spent in their country of residence, and they pay higher taxes, which go to funding schools, police, Medicare, etc. Like the affluent in general, they are less likely to put a strain on social welfare systems. Finally, there's little worry that they'll take all the jobs away from local workers (don't make me post the South Park clip again.) First, forget the old Lump of Labor Fallacy. Then recall that truly skilled workers tend to be in high demand and have less trouble finding employment. Having more skilled workers in the economy should also increase economic growth, thereby creating more demand for skilled workers overall.

I'll return to some of the other issues in the future, because they're timely and important as the election approaches. Also, I would be interested to see what my esteemed coauthor thinks about some of these issues. And you too, dear reader. Hit up the comments below.

n.b. I do not particularly want to hear from Lou Dobbs, possibly our country's most pompous blowhard. Stick around until about the 2:50 mark, though, because he starts to go on a very angry, hilarious rant: 

Back to the future on uranium

There's a lot of hot air in the news these days about how America is going to solve its energy crisis. Literally. T. Boone Pickens, lifelong oilman, is on TV exhorting his fellow Americans to support massive investments in... wait for it.... wind power. Ba dum bum - I'm here all week, folks.

Anyways, I had a look at the plan and you've got to admire the guy for being proactive, which is all the more impressive seeing that he's an octogenarian billionaire. Wind is a great start to diversifying energy sources, but it's clearly not going to be sufficient alone. Which brings me to another possible solution - more nuclear power.

I know that nuclear power conjures up some bad images, but it has its benefits. First, it's relatively inexpensive once you make the initial investment to construct a plant. According to the Economist, it costs about 6.5 cents to generate a kilowatt hour of electricity with nuclear power, which is almost as cheap as coal (5 cents per kWh). It will almost certainly be cheaper if carbon emissions are taxed in the future, which is likely. Second, modern nuclear plants are generally quite safe, and each plant generates a lot of energy. Third, it is carbon-friendly.

This fact has not gone unnoticed by countries around the world, and recent high energy prices have spurred a lot of talk and some action on building more nuclear plants. This is particularly true in some of the major emerging markets, such as China, India, and Russia, but also Canada and Japan.

The price of uranium has reflected this new attitude toward  nuclear power in recent years. It spiked to record highs of $138/lb in June 2007, before falling drastically off what most investors felt was an unsustainable peak. Still, some recent rumblings suggest that uranium is about to take off again after languishing for at least the first half of 2008.

Finally, as an aside, it's worth noting that the history of uranium production and trade is both fascinating and complicated, and I would be happy to write about it if anyone wants me to. Suffice to say: 60 years ago it was mainly used to produce weapons of imponderable destructive capacity, and today it's more likely to be used to heat our homes.