Occassional Dimes

The Farm Bill: Science Friday has a round table with Michael Pollan, Marion Nestle, and Sandor Katz.

DH Love Life: I really like Daryl Hannah's environmental videos. They are short, informative and entertaining.

Clean Tech Economics: A recent hour-long discussion on KQED's Forum.

Water Diaries: Award-winning radio program Living on Earth, compares water usage in the US and India.

The Devil Came On Horseback: A disturbing and deeply moving documentary about the catastrophe in Darfur.

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The Devil Came On Horseback

There is finally a documentary that I hope will generate the momentum needed to put a halt to the crisis in Darfur. The Devil Came On Horseback follows one person's journey from the Marine Corps to full time activist and speaker. What makes the film so powerful is the graphic footage, photos and testimony that puts to rest any doubts about whether genocide is taking place. As the film documents, the Sudanese government and the Janjaweed are quite precise in their actions: villages are first bombed from the air, villagers brutally murdered, and huts are methodically and individually set on fire.

While the Sudanese government and the Janjaweed are to blame for this unfolding catastrophe, pressure should be applied to

• The Chinese government who manage/control 80% of the oil resources in Sudan.
• The US government for declaring that a genocide is taking place, but failing to lobby hard for UN intervention. The Bush administration allegedly regards the Sudanese government as an important source of information about Al Qaeda, and is therefore reluctant to act aggressively. Please send a hand written note to your members of congress ASAP.
  
• The Arab and Islamic countries, for not vigorously condemning and isolating the Sundanese government. Al Jazeera should be all over this issue with the same intensity that it covers events in the Middle East.
  

The UN refuses to send peace keeping troops unless the Sudanese governments invites them in. Unfortunately, such an invite won't be sent anytime soon. The UN needs to send peace keepers now!

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Credit Ratings, Mark-To-Market, and Quants

Sorry for posting off-topic these days. The financial turmoil engulfing the markets is bringing back a lot of memories. I do think that folks interested in Green Biz need to have some understanding of what is roiling the markets. After all, a recession will hurt all of us.

Back in the late 1990's I was the lead Quant for a small hedge fund, and was around for the 1998 financial crisis. I'm of course referring to the months in 1998 when LTCM caused a fair bit of panic in the markets. I have to say, that qualitatively speaking, what we are seeing is a lot more spooky that what we lived through back then.

First off, in 1998 there was panic followed by the requisite "flight to quality", much like what we are seeing today. However, things seemed calm after a few weeks. Most of the damage was confined to LTCM (and some lesser known cohorts) who placed yield-arb trades involving illiquid foreign bonds. In fact, my memories of that period is filled with jokes and comments about how LTCM had it coming. The pent up resentment against LTCM's perceived arrogance was surprising. For the most part calm was restored in a matter of weeks. In the current crisis, Quants and other Wall St. professionals seem lost -- you get the sense that this will play out over months, and those months will be plagued by volatility and much nervousness.

How did we get to this point? There are several excellent bloggers and columnists who have posted on this topic ( see [1], [2], [3]), and I recommend you read the links I just cited. In this post I'll attempt to list some of the issues I feel are worth emphasizing.

The CDO's are a product of complex financial engineering, and by their very nature are quite opaque. They are structured credit products, broken up into tranches each of which is rated by a credit rating agency. But hasn't the securitization of loans been a standard practice for years? You take a hot potato (those risky loans), and pass it on to the next person in line. The answer of course is yes, but, the whole industry depends on the credit rating companies actually getting things right, or at least close to right:

Here's the recipe for a CDO: you package a bunch of low-rated debt like subprime mortgages and then break the package into pieces, called tranches. Then, you pay to play. Some of the pieces are the first in line to get hit by any defaults, so they offer relatively high yields; others are last to get hit, with correspondingly lower yields. The alchemy begins when rating agencies such as Standard & Poor's and Fitch Ratings wave their magic wand over these top tranches and declare them to be a golden AAA rated. Top shelf. If you want to own AAA debt, CDOs have been about the only place to go; hardly any corporation can muster the credit worthiness to garner an AAA rating anymore. Here's where the potion gets its poison potential. Some individual parts of CDOs are about as base as bonds can be — some are not even investment grade. The assumption has been that even if the toxic waste bonds really stink, the quality tranches can keep the CDO above water. And life goes on.

Imagine needing a loan for a house, and in particular needing a home appraiser to come up with a value for the house you are wanting to buy. Chances are your Realtor already knows an appraiser who probably will come through and appraise the house accordingly. If the appraiser doesn't come up with the right number, well, let's just say the Realtor won't be working with that appraiser much in the future. Unfortunately, the credit rating agencies are the home appraisers of the bond market. Either they come through with the desired rating (AAA baby!), or you just shop that CDO around to another agency.

So while default risk is of minimal concern, the unraveling can be traced to the fact that these CDO's are being marked-to-market. Before the Bear Stearns hedge fund collapsed, the CDO's just sat in the books of all these funds. The collapse of the Bear Stearns fund forced people to grapple with mark-to-market values en masse.

Because the CDO's raised questions about the credit quality of securities in general, the bond market has pretty much shut down. Loans are harder to come by, and the commercial paper market, which is an important financing channel for companies has dried up. Its hard to blame investors though. Even Hedge funds were raising commercial paper to finance currency carry trades and other leveraged positions. Understandably, in times of uncertainty, investors do not want their fortunes tied up in complex financial instruments..

Its interesting to see European and other foreign banks get entangled in the US bond markets. In recent years, Foreign investors starved for extra yield started buying the same products (CDO's and other complex securities) as their US counterparts. The stuff was AAA after all, right? I have to give a shout out to bond salespeople on Wall Street. They are the best salespeople in the world, bar none. Seriously, these guys are paid to sell beaten down, toxic bonds for a living :-) Set them loose on a bunch of yield-starved foreign investors with AAA stuff to sell? Game over, deal closed.

During the LTCM crisis, there was a lot of talk about how Quants were to blame for the mess. It turns out the bond arbitrage trades (based on yield spreads) that LTCM put in place, worked out quite well. IF you had the pockets to ride out the margin calls and the period when the correlations went to 1, you would have done fine. LTCM did not have the resources to see their trades through, but the folks who did, profited. I suspect that there will be quant traders in the same boat during the next several months.

Quants in the credit rating agencies probably need to do some soul-searching. Either get the math right and don't succumb to external pressure, or get out of the ratings game.

Let's get one thing straight: Quants are here to stay. If you need to hedge risk of any kind, chances are you'll need some serious quantitative firepower. My experience included work in designing quantitative trading strategies, valuation of structured notes, portfolio management, and risk management. In each of those areas, I believe extensive probability/stats/math background really comes in handy.

Finally, a word about hedge funds. There are too many of them, and at their core, a lot of the newer ones seem to really have only one or two trading ideas to work with. There will be a cleansing period, and a lot of hedgies will fold. I remember taking solace in the fact that not only did we have several quantitative strategies to trade with, we had tons of markets to play in (commodities, equity indices, bonds, currencies, etc.). Diversification does not necessarily protect you in times of panic, like what we have now, but you feel better knowing you have several ideas at work increasing your chances at recovery.

So what is an individual investor to do now. A few days ago I was quite gloomy, and I have to admit my outlook hasn't changed much. In a recent conversation with a friend who is the lead fixed-income quant for a major US bank, he seemed quite worried about the UK housing market. Investors in the UK are just as spooked:

The most serious situation is in the UK, where the 3mths – repo rate spread has widened by 50bps to 100bps in the current environment practically equivalent to two BoE 25bps rate hikes in terms of market squeeze. In 1998, the same spread remained in the 15/35bps area during the crisis (was negative after the CBs interventions).

When in doubt, and especially when the professional investors seem lost, Cash Is King!

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Quote for the Day

From Bloomberg:

``I've never seen it like this before,'' said Jim Galluzzo, who began trading short-maturity Treasuries 20 years ago and now trades bills at RBS Greenwich Capital in Greenwich, Connecticut. ``Bills right now are trading like dot-coms.''

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US Mortgage Market

The current volatility in the World's equity markets is making a lot of folks nervous in the U.S. Most pundits believe that the Fed should ease rates because the main problem facing the economy is lack of liquidity, and that the crisis is due to the difficulty of hedging liquidity risk.

I am a bit more pessimistic. I tend to subscribe to the school of thought that what we really have is a looming insolvency problem. I have been talking to mortgage quants and the report I consistently get is that we are about see a wave of mortgage rate resets in the last quarter of 2007, with the peak hitting in Q1-2008. These resets will lead to a lot of foreclosures as a record number of people will be unable to pay their readjusted monthly mortgage. The people who know mortgage data well have insolvency on their minds -- and they are paid to look at mortgage data very closely.

Sure we have a liquidity problem, but I think that the credit rating agencies fell asleep at the wheel, and that led to too many easy loans. A quick examination of historical mortgage rates shows that we aren't exactly in a high interest rate environment:



Note that the Fed's cutting of the discount rates has already resulted in drops at the end of above charts. More importantly, the spread between conventional 30 Year Fixed mortgages, and 1 Year ARM's is still quite narrow.

So while I agree that we are facing a mini liquidity crisis, it is a reaction to the loose credit standards that were in place in the previous 2-3 years. I am a huge fan of Bill Gross, but I think prudent investors do know how to hedge liquidity risks.

If you are a Green Industry entrepreneur, be prepared to face a weakened economy over the next several months. My overseas friends be warned: this is not going to be confined to the US. Corporate credit markets are feeling the heat, currency carry trades are being unwound, ...

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Bicycle Musical Festival

I had the pleasure of pedaling away for about an hour, to help power a concert put together by the Bicycle Music Festival. As we were finishing up our weekly trip to the Alemany Farmer's Market, we walked by just when they were setting up. It was fun alternating between two bikes and I am inspired to have a bike-powered power rig at home. At least so I can charge our cell phones on them.

One of the bikes I rode was a cruiser straight out of Burning Man. It will be featured in an upcoming issue of MAKE magazine.

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Occasional Dimes

micro-wind technology in San Francisco:

" ... the 34-year-old engineer has pioneered the city's first permitted micro–wind project, a six-foot-tall cylindrical turbine that currently sits on his roof and sends juice into the energy grid ... (it) generate(s) between 300 and 600 kilowatt hours of energy per year, or about 10 percent of a typical home's energy needs. ... A one-turbine system will cost around $5,000, though Pelman estimates that rebates will reduce the price by $1,500."

Coal In China: An audio slide show from NPR.

Health Care in the U.S.: Yet another great episode on Fresh Air. I was surprised to hear that Australia and Germany have Health Care systems that are similar to the U.S., and according to Jonathan Oberlander, both systems contain practices that could be replicated here.

Big Coal: Renewable energy supporters need to understand how the coal and oil industry work. Big Coal and Oil on the Brain are well-written guides to these incumbent energy sectors.

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Externalities: Coal and Wind Energy

In a recent post, I highlighted mining and extraction costs ("externalities") associated with coal mining. In most countries coal is the dominant source of electricity. To effectively compete with the de facto source of electricity, supporters of renewable energy need to understand some of the externalities that are usually omitted when calculating the average cost of electricity from coal.


"Clean coal" initiatives do address emissions, but as I argued in my earlier post, mining and extraction have not been accounted for in a systematic manner.

On the emissions side, the most famous study on particulates was the decade-long EU study, ExternE ("the external costs of energy"):

Human activities like electricity generation or transport cause substantial environmental and human health damages, which vary widely depending on how and where electricity was generated. The damages caused are for the most part not integrated into the pricing system. Borrowing a concept adopted from welfare economics, environmental policy calls these damage costs externalities or external costs. By societal welfare principles, policy should aim to ensure that prices reflect total costs of an activity, incorporating the cost of damages caused by employing taxes, subsidies, or other economic instruments. This internalisation of external costs is intended as a strategy to rebalance the social and environmental dimension with the purely economic one, accordingly leading to greater environmental sustainability.

Thanks to the EU! Given the current level of influence of energy industry lobbyists in Washington, it is hard to imagine an equivalent Federal study being funded in the US. Nevertheless, US scientists have used the results of ExternE to estimate additional costs in the US.

Coal and Air Pollution
In what follows, we examine the costs due to particulates and air pollution ONLY: we do not include Mining (Environmental) and CO2 (Global Warming) costs. First an overview of the public health problems associated with particulates and air pollution (Williams, 2004):

... In recent years health damages, especially from chronic exposure to small particle air pollutants has been a focal concern about air pollution. Recent epidemiological research indicates major mortality impacts from long-term, low-level exposure to particulates — both particles emitted directly in combustion and sulfate and nitrate particles formed in the atmosphere from gaseous precursor emissions of SO2 and NOx. Lippman and Schlesinger (2000) survey the recent literature, concluding that the correlation of ambient particulate exposure levels commonly found in U.S. cities with increased human mortality and morbidity remains robust to all attempts to identify possible confounding variables.

... It is estimated that those in the US who have died from exposure to PM2.5 air pollution particles had their lives shortened, on average, by 14 years. ... the EPA projects that the Clean Air Act Amendments of 1990 will reduce the US death rate in 2010 by 23,000/y (EPA, 1999). But even with these laws in place, the premature death rate associated with residual small particle air pollution is significant. For example, Abt (2002) projects 6,000 premature deaths from emissions from 80 U.S. coal-fired power plants in the year 2007 (even accounting for new control technologies mandated by that year). These recent findings translate into much higher costs for air pollution damages than was the case for studies before chronic mortality impacts were taken into account.

Williams takes the ExternE results, and adapts them to regions in the US. In the graph below, he compares different typed of coal generation plants to Natural Gas Combined Cycle (NGCC) plants:


What the graphs says is that a clean coal plant is 50% more expensive than a comparable NGCC plant: for an NGCC plant the approximate cost for these externalities are about 40 cents/MWH. For the average coal plant, the externalities were 84 times more than an NGCC plant. Assuming coal is here to stay, at least for a long while, the public health implications of not switching to cleaner plants are immense! If the market were to price in the cost of these externalities, these older coal plants would be so much more expensive than renewables, they would have to be shut down.

In the US, the reality is sadly as follows: The older coal plants were built years ago so their construction costs are fully paid for. Utilities who own these plants know that newer, cleaner plants would be much more expensive to build. Similarly, retrofitting older plants would cost serious money. A few million dollars spent on lobbying against clean air standards is peanuts, so the industry seems intent on devoting more resources to lobbying.

ExternE and Wind Energy
How does wind energy score on the ExternE study?


Wind was the cheapest on both greenhouse gas and air pollution costs. Deployed clean coal technologies are still costly when it comes to greenhouse gas impacts. How does this translate into the cost (per KWH) of electricity?


Graphing the results for the UK and for Denmark:




reveals a different economic picture from what I portrayed in a previous post. In a future post, I will readjust those earlier cost graphs.

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Single-Payer Systems

Sicko may be Michael Moore's best film yet, but I do not agree with him that a single-payer system is the way to go. Both the UK and France have a mix of public and private healthcare providers, while Canada is the poster child of a single-payer system. Interestingly short films to counter Sicko are starting to appear on YouTube, and organizations like Timely Medical Alternatives are being cited by opponents of a single-payer system.

Moore cites the postal service and the school system as examples of where the government plays a large role, and concludes that the medical system is too important to leave to private entities. While I use the US Postal Service 90% of the time, I do like having the choice of using UPS or FedEx when I want to really track my packages (the US Postal Service tracking pales in comparison). Similarly, some parents prefer sending their kids to private educational institutions. Politically speaking, it is easier to sell a system that gives people choices.

Ideally we make Medicare available to anyone who wants it, and let the HMO's compete with Medicare. The competition will make both systems more "customer friendly" and we all benefit from having a responsive system. I think most people will opt to use the Medicare system for all but a few of their needs, while some people will opt to go with HMO's completely.

The devil is in the details of course. To lower costs, the US system needs to streamline its Information Technology and billing/claims systems, have meaningful TORT reform to lower malpractice insurance, lessen the grip of the AMA and allow foreign trained family doctors an easier path towards practicing in the U.S., allow Medicare to negotiate directly with pharma, etc. These recommendations alone imply going against lobbyists representing lawyers, doctors, and big pharma! Perhaps electoral reform (i.e. public financing of elections, instant runoff, etc.) is the necessary first step to have any meaningful shot at getting things done. Hmmm, electoral reform sounds like the perfect topic for the next Michael Moore film :-)

At the end of the day, any national healthcare system has to scale to 300M people, and still pay for itself. Tax increases may need to be part of the equation. Immigration reform will need to be enacted: the U.S. has legal and illegal immigrants on a scale that other developed nations would have a hard time absorbing.

Most importantly, as Michael Moore points out, there needs to be an adjustment in attitude in the U.S. We need to go " ... from a nation of me's, to a nation of we's".

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Global Exergy and the Asian Economies

At this year's Foo Camp, I went to an interesting discussion on Global Energy led by Saul Griffith and Jim McBride. Using the work of Wes Hermann, they presented a first draft of a pretty compelling slide show, which one member of the audience suggested they call "A Convenient Truth". Wes Hermann has done extensive research on Exergy and how much of it is physically available. Saul and Jim want to make his work more accessible in the hope that it might shape energy policy.

What is Exergy? We refer to the following definition from a paper of Wes Hermann:

Exergy is used as a common currency to assess and compare the reservoirs of theoretically extractable work we call energy resources. Resources consist of matter or energy with properties different from the predominant conditions in the environment. These differences can be classified as physical, chemical, or nuclear exergy. This paper identifies the primary exergy reservoirs that supply exergy to the biosphere and quantifies the intensive and extensive exergy of their derivative secondary reservoirs, or resources.

Wes Hermann not only calculates the available Exergy from most energy sources, he also determines where particular energy resources are most plentiful. ("How much solar energy can one generate if one blanketed the earth's ENTIRE surface with the most efficient solar panels?") In essence, Wes Hermann sets out to calculate the terrestrial potential from all possible energy sources. He concludes that Solar, Wind, and Nuclear (in that order) are the most plentiful. In addition, Hermann locates the best places to harvest each possible energy source. In the sample graph below, we have the Tidal Power available (in watts per sq. meter) across the planet:


Similar maps can be constructed for other energy sources. In an ideal world, precious materials (e.g. silicon for solar panels) would be deployed in areas with the most potential (solar) Exergy.

Starting from the current global Exergy consumption of 18TW, Exergy calculations should inform energy policy. The 18TW is set to grow as the India, China, and the Southeast Asian economies continue to develop. Using the U.S. as an example, economic growth is positively correlated to energy consumption:


India and China's economies are growing at a steady pace, so the 18TW total Exergy consumed is sure to rise sharply:


Just like energy consumption, Ecological footprints rise as countries (see Human Development Index) develop:


The size of the populations of the fast-growing Asian countries means we need to pay attention to Exergy now!


Of course the Indian, Chinese, and ASEAN economies may hit obstacles along the way, but sound energy policy suggests that we assume that they will continue to develop in a modest pace.

Actually in another interesting discussion at FOO camp, Steve Hsu pointed out an interesting fact: historically, China's share of the world's GDP was quite high.



Using PPP (purchasing power parity), China's share of the world's GDP may actually just be reverting to its historical values. Look for China's ecological footprint, and Exegy consumption, to keep rising. Unless we act soon, the current 18 TW global Exegy consumption will surely look small in a few decades.

The True Cost of Coal

As far as electricity generation is concerned, Coal is the benchmark against which all renewable energy sources are compared with. In a previous post, I compared the cost per kilowatt hour (KWH) from a variety of renewables and concluded that coal is still much cheaper. In this post we will evaluate coal using the Triple Bottom Line and conclude that it is clearly a lot more expensive than it seems. It is important to evaluate the cost of coal more realistically before the developing world builds even more coal-powered generation plants.

In thinking about coal, it is useful to separate the problem into two pieces: mining and extraction, and electricity generation. In a previous post, I examined technologies for coal-powered electric plants that use sequestration to ensure that emissions are captured and stored underground. None of the touted "carbon sequestration" or "clean coal" technologies have been deployed in a commercial plant and doing so would naturally add to the cost per KWH.

The cost of mining and extraction is where traditional accounting falls short. First off, how is coal extracted?

... Early coal mining was almost exclusively done in deep shafts that led to thick (5-10 feet) coal seams, which were blasted and picked out and loaded on rail cars to be drawn out of the mine by mules. Miners worked in dark, dusty conditions always at the risk of fatal roof falls and methane gas explosions. Beyond the risk of sudden death or serious injury, miners also faced the prospect of black-lung disease if they spent years in the profession.

Deep mining has indeed come a long way. Today, miners use a technique called long-wall mining, which involves a long (up to a mile) face of an underground coal seam which is dislodged by a saw that runs on tracks along the face. This method is much more efficient at removing thick coal seams than the old blast-and-pick method, and accounts for half to two-thirds of current Appalachian coal production. While some dangers are now less, current underground mining still results in fatal roof fall and explosion accidents.

Surface mining, or strip mining, has become more and more popular in recent decades, especially in removing thinner seams of coal (as little as a foot thick). The most recent innovation in strip mining is known as mountaintop removal. It peels back a mountain, layer by layer, by alternately blasting the thick layers of rock away from the coal seams and then scraping the coal seam out and hauling it away in huge dump trucks. Much of the “overburden” rock (the non-coal layers) is pushed off into adjacent valleys. As much as 500- to 1,000-vertical feet of a mountain may be removed in the process and valleys are filled in to depths of as much as 500 feet by the rubble.

The current approaches involve either removing entire mountain tops or dislodging mile-long underground seams! Unless the mining companies are voluntarily estimating the cost of these forms of environmental degradation, the cost of electricity from coal as quoted in media reports, is not accurate. The list of environmental problems associated with coal mining is depressing. Here is one I ran across from the Union of Concerned Scientists:

MINING
Altered landscapes. Surface mining in Appalachia often removes entire mountaintops and dumps the wastes into valleys and streams; between 1985 and 2001, more than seven percent of the region's forests were cut down and more than 1,200 miles of its streams buried or polluted. In addition, waste materials from underground mining are placed in large piles above ground, which can also scar the landscape and alter stream flow.

Water contamination. Acids and toxic metals can contaminate surface and groundwater, harming aquatic life and rendering water supplies undrinkable.

Safety hazards. Underground mining accidents result in many deaths and injuries, and coal dust inhalation causes chronic health problems. Black lung disease still kills about 1,000 former coal miners in the United States each year.

PREPARATION
Water contamination. Impurities such as acids and heavy metals removed from coal and stored in slurry reservoirs canleach into surface and groundwater.

Safety hazards. Slurry reservoir dams can fail, flooding local waterways and putting both wildlife and downstream communities at risk.

The main problem with both mountain top removal and long-wall mining is that landscapes are permanently altered as a result of coal mining:

... The coal in the Appalachian Mountains is hard to extract because it is buried under layers of shale and sandstone hundreds of feet thick. A few decades ago, strip miners would cut along the edge of a ridge side, then auger into a coal seam. But today, with bigger machines and little moral or regulatory constraint, coal operators simply blast away the entire mountaintop -- its forests, capstones, and topsoil -- so they can scrape out thin seams of low-sulfur coal. Nearly everything else is dumped into the valleys below, often burying pristine headwater streams. The resulting "valley fills" create the largest man-made earthen structures in the country -- huge treeless funnels that let mud and rainwater wash unimpeded through low-lying communities all across central Appalachia. The town of McRoberts, Kentucky, recently endured three "100-year floods" in 10 days. The water filled homes and carried away carports. When TECO Energy of Tampa, Florida, had leveled every peak around the community, it took the coal, took the profits, and left the people of McRoberts with crumbling homes, terrible roads, and a constant fear of being washed away in one’s sleep.

According to the Environmental Protection Agency, in addition to the more than 700 miles of streams buried by valley fills, thousands more miles have been contaminated with sediment, heavy metals, and acid mine drainage, a toxic orange syrup that kills everything in its path. And these are headwaters, so their contamination affects all life downstream. In Letcher County, Kentucky, children suffer extremely high rates of diarrhea, vomiting, nausea, and shortness of breath, all of which can be tied to dissolved minerals in nearby streams. Presumably the Clean Water Act was established to prevent such degradation. But early in the Bush administration, coal lobbyist Steven Griles was named a deputy secretary at the Department of Interior. Officials changed one word of the act -- replacing "waste" with "fill" -- so that toxic mining debris could be dumped into rivers as benign fill material.

There will soon be enough flattened mountaintops in Appalachia -- 1.4 million acres -- to set down the state of Delaware on former summits. Try driving across the 10,000-acre wasteland that surrounds Larry Gibson’s home on Kayford Mountain, West Virginia. Hundreds of people, like the photographer J. Henry Fair, make that trip every year to see, in Gibson’s words, "what hell looks like." Kayford Mountain, more than any place I know, illustrates the power and the willingness of some human beings to convert the natural world into money and "cheap energy" as quickly as possible. If that means the total destruction of an entire region, its people, and its culture, so be it.

And yet the majority of Americans have never heard of mountaintop removal.

One may be able to clean up coal-powered plants, but can one mine for coal without destroying the environment? Coal isn't as cheap as it appears, if anything the true cost of mining it probably makes it one of the most expensive energy sources. Using the Triple Bottom Line (People, Planet, Profits), coal costs a heck of a lot more than renewable energy sources.

Summary
Coal is touted as the cheapest source of (abundant) energy around, and in this post I argue that coal is actually quite expensive. From a power generation and emissions perspective, will "clean coal" and "carbon sequestration" be as cost-effective as current renewable energy sources? No commercial plants have been deployed so cost estimates are mere guesses at this point. Given the growth in coal usage in China and India, developing "clean coal" power plants is extremely important.

More importantly, Coal is cheap because the environmental costs of mining and extraction are more or less ignored. How cheap would coal mining be if it were held to the standard that it should be?

Hopefully the current excitement surrounding renewable energy, plus a heavy dose of energy efficiency and conservation will lead to less coal in the future.

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No Longer A Waste: Energy and Recycling

The Economist had a recent article on municipal curbside recycling which laid to rest the question of whether recycling is good for the environment. Recycling involves trucks, other machinery and energy inputs, so a valid question is whether or not the amount of materials extracted justifies the amount of energy used in the process. Using the results from a recent study sponsored by the UK-based Waste & Resources Action Programme, the answer is recycling DEFINITELY pays off. The study is essentially a meta-analysis of about 55 respected Life Cycle Analyses from several countries.

The UK’s current recycling of those materials saves between 10-15 million tonnes of CO2 equivalents per year compared to applying the current mix of landfill and incineration with energy recovery to the same materials. This is equivalent to about 10% of the annual CO2 emissions from the transport sector, and equates to taking 3.5 million cars off UK roads. ... The message for policy makers and practitioners is unequivocal. Recycling is good for the environment, saves energy, reduces raw material extraction and combats climate change.

The article also includes interesting factoids, along with several graphs and metrics.


The above graph is based on data from the OECD. Recycling Rates are defined to be the total (weight in tons) of all Recycled Municipal Solid Waste (MSW) as a percentage of Total MSW. In recent years, single-stream or co-mingled recycling has been used successfully to boost recycling rates. In single-stream recycling, a single recycling bin is provided and materials are separated by the recycling facilities. With an extremely high recycling rate of 69%, San Francisco is one of the most successful single-stream recyclers around. Through a combination of human and machine-automated separation techniques (Eddy-current separators), SF "... processes an average of 750 tons of paper, plastic, glass and metals a day."

I used the colorfully titled 2006 State of Garbage in America to get a snapshot of the recycling rates by state. As a secondary metric, I will also look at the percentage of total MSW (municipal solid waste) which ends up in landfills. Using this metric, the Rocky Mountain Region performed horribly, with 86% of all MSW ending up in landfills:


In New England, 36% of MSW is converted to energy thus only 35% of total MSW ends up in landfills. After recyclable materials are separated, the remaining suitable MSW are combusted and the heat generated is used to power steam turbines that generate electricity. In a previous post, I compared sources of electricity for a few key countries and noted that Denmark generates 3.6% of its electricity using MSW. These Waste-to-Energy facilities do create emissions, but the EPA considers the emissions from these primarily biomass derived materials, to be part of the "Earth's natural carbon cycle". Because of the variation in Waste-to-Energy facilities, there are possibly other environmental problems that accompany such facilities.

I loaded the data and mapped the results at the State level. For recycling rates, higher rates are desirable. The West Coast states (CA, OR, WA) all recycled at least 40% of their total MSW:



I'm astounded that in the year 2006, there are still states with single-digit recycling rates!

For the percentage of total of MSW which ends up in landfills, lower rates are desirable. The New England States convert a large percentage of their MSW to energy so they have lower percentages ending up in landfills:



CT converted a whopping 65% of its MSW to energy! To the extent that the low Landfill rates are driven by high Waste-to-Energy conversion rates, further studies on the environmental impact of such facilities should be conducted.

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Occasional Dimes

The Strange Rise of Modern India: This is a must-read book on the world's largest democracy, incredibly well-written. Here is a recent interview with the author.

Danish Wind Sector runs into problems: "A conservative government has changed the rules of the game: Subsidies for wind-generated electricity have been reduced and planning rules for new turbines tightened. As a consequence, the flourishing market is stalling. In 2006, Denmark installed only 11 megawatts of new turbines, compared with the 2,200 megawatts installed in its big southern neighbor, Germany."

Large-scale production of Hydrogen using an Aluminum alloy: From Science Friday.

Going Green: A special broadcast from the Peabody award-winning program To The Best of Our Knowledge.

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Clean Technology Venture Capitals

A few months ago I reviewed data on VC and Federal investments in Clean/Renewable energy. Since then I have been on the lookout for similar data by geography. Luckily The Economist just published an article comparing different regions in the U.S. in terms of the amount of Clean Technology VC investments.


Based on my previous post, Clean Energy accounted for about 10% in 2006 VC investments. The U.S. Clean Technology total for 2006 was $2.9B with Silicon Valley garnering the largest share:

If one adds up total investments in the State of California, I suspect that the Golden State took in close to 30% of the total. The regions that attract technology (VC) investments are the leaders in Clean Technology start-ups as well. The combination of entrepreneurs, engineers, great Universities, research labs, and environmentalists will make Silicon Valley hard to dislodge. Surprisingly, Denver which has the National Renewable Energy Laboratory attracted less investments than Texas.

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The Importance of Power Supplies

Reading this recent post about Google's initiative to encourage PC makers to install more efficient power supplies, reminded me of a 2002 study commissioned by NRDC. Back in 2002, about 500M power supplies were sold in the U.S. annually, and about 6% of all electricity consumed in the U.S. flowed through power supplies. I haven't run across updated data and I will assume that the results of the 2002 study are still reasonable.

Energy-efficient power supplies, as we will see later, already exists and can be deployed by electronics manufacturers. Doing so would lead to about 15-20% savings in KWH consumed, or a savings of about 1% (from 6% to 5%) of the total electricity consumed in the U.S.

The 1 percentage point translates to about 24B tons of reduced CO2 emissions! Electronic products usually have three operating modes: active usage, standby, and sleep. The active mode accounts for a vast majority of electricity consumption:

With all the past attention given to standby energy losses ("leaking electricity", "vampires"), the above numbers justify the recent emphasis on power supplies that are efficient in active mode. The graph below illustrates what happens for an average PC, Monitor, and (analog) TV:

Drilling-down further and using numbers for PC's, Monitors, analog TV's, power supplies that are energy-efficient while electronic equipment are in active mode are paticularly attractive. Given that there are about 2 Billion power supplies sold each year, it becomes clear why power supplies are increasingly becoming an important issue among environmentalists. In the U.S. alone, the power supply market is about $4B/year and growing at 10% annually.

In the context of electronic equipment, power supplies take electricity (usually 110 Volts, AC) and converts it to a lower DC voltage. Linear power supplies are used mostly for low wattage products (15 watts or less), switching power supplies are more commonly found in higher wattage products like desktop computers, TV's and microwaves.


Energy efficiency of a power supply is measured by taking the ratio of output to input power:

Data from the 2002 NRDC study gives the following "typical" efficiency ranges (low, high) for when devices are operating in active-mode:

The more energy efficient switching power supplies range from 50% to 90% efficiency when devices/products are operating. While the data is about 5 years old, the 2002 NRDC study contains detailed efficiency and consumption numbers for a wide variety of electronic products:

Our measurements of a variety of electronic products yielded a wide range of efficiency levels for external power supplies. Efficiencies were usually higher with the original factory power supply provided with the unit than with after-market, “universal” adapters. It is simply easier to optimize a power supply for energy efficiency when it is intended to operate at a single voltage and relatively high load (see part load efficiency discussion below). Note that standby power consumption varied from a low of (less than) 0.01 watts to a high of nearly 2 watts, while active mode efficiencies ranged from as low as 20% to more than 90%.

PC's and Servers
What Google is proposing is to standardize PC power supplies from the current multiple voltages (+12v, -12v, 5v, and 3.3v) to a single voltage (12v). Google-designed power supplies are reported to achieve active mode efficiencies of 90%. Interestingly, Jeff Atwood graphs the efficiency of two very different power supplies:


and he notes that the more efficient power supply has peak efficiency at around 250 watts. Most home PC's barely consume 200 watts -- under full load! Google's proposal becomes even more interesting if power supplies can achieve 90% operating efficiency for a typical home PC user.

In order to start seeing efficient power supplies in home PC's and laptops leading PC manufacturers need to choose to install them. Google has chosen to bypass the server manufacturers and design their own power supplies. Here lies the quandry: the people who end up paying the electric bill (the consumers) are not the ones deciding what power supply goes into their PC's.


Consumers will start requesting energy-efficient power supplies and the OEM's will eventually relent and start transitioning to more efficient designs. There is already reason to be optimistic. As the NYTimes article notes, there is an initiative underway ("80 plus") which aims to encourage computer makers to start installing more efficient power supplies.

In the Data Center front, changes are coming at a faster rate, and multiple designs (including the use of shipping containers) are being proposed:


With power accounting for 40% of costs in a typical Data Center, energy innovations will emerge quickly. Hopefully some of the ideas will be applicable to the broader consumer market.

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Your State, You, and Kyoto

While the U.S. Goverment has shied away from Renewable Energy mandates, Federalism is alive and well on the energy issue. A recent WSJ article included a "cheatsheet" on the current State-by-State renewable energy targets:


Based on the current level of interest in renewables, I suspect that National legistlation outlining targets for the use of renewables, to be in place by the end of the NEXT administration. Don't be suprised if states like California, continue to move more aggresively and set targets well beyond any Federal mandates. States (and cities) realize that Clean Tech companies are going to generate a lot of high-paying jobs.

Using the table above, I put together a short slideshow to help visualize how the State-by-State targets will spread over time. For a full-screen view, click here:





Finally, check out Personal Kyoto for tips on what you can do to track your personal electricity usage.

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Occasional Dimes: Memorial Day Edition

Amory Lovins (The Future of U.S. Energy): In about an hour, Amory describes his roadmap for getting the U.S. to energy independence using a few simple steps. Business leaders should pay attention to some of his suggestions, there are lots of profits to be made. Includes a cool overview of carbon fiber vehicles.

Oil on the Brain: What a great book. It reminded me of two other books I loved (The Travels of a T-Shirt and How Soccer Explains the World), in that it takes a seemingly mundane topic, but wraps it in amazing prose and as a bonus some pretty good "travel" writing. I loved just about every chapter of Oil on the Brain, but I especially dug the chapters on Refineries, the Strategic Petroleum Reserve, Distribution, and Venezuela. I can't wait to read this book again.

Health Dialogues: Health Care Reform: Click here for the mp3 file.

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Danish-Style Energy Policy

About a month ago, the Wall Street Journal had an article on Denmark's approach to energy. The Danes are rock stars in the world of energy efficiency and conservation, their overall energy consumption is identical to what it was 30 years ago:

While America's energy consumption rose 40% over the same thirty-year period, the U.S. GDP quadrupled. Danish population went up 7% while US population went up 38% over the thirty-year period. U.S. population growth roughly tracked growth in energy consumption, while the Danes have gotten more energy efficient over the last thirty years (7% growth in population, zero growth in energy consumption). The kicker of course is the much faster growth in the U.S. economy.

Besides energy there are other forces at work to explain the much faster GDP growth in the U.S.: at 5.5M, Denmark's population is smaller than the SF Bay Area, and as a state with generous social welfare benefits, taxes are quite a bit higher than the U.S. Show an average American the above graph, they would likely say that for the given the growth in GDP, a 40% rise in energy consumption is acceptable. Denmark's economy has not grown as fast as the U.S., but they have had solid growth, and by European standards fairly low unemployment. With global warming increasingly becoming a problem, and with India and China poised to start consuming a lot more energy, the Danish approach has been attracting a lot of attention from policy makers worldwide.

Before we delve deeper into Danish energy policy, let's revisit a few head-to-head comparisons between the U.S. and Denmark. By some estimates Electricity and Heat generation account for about 40% of CO2 emissions in industrialized countries -- representing the largest source of emissions. The graphs below give a breakdown of Electricity and Heat generation for the U.S. and Denmark. Denmark is among the largest Wind Energy producers in the world, and in the graphs below Wind falls under "other" sources. For both Electricity and Heat generation, the combined shares of Biomass, Waste and Wind/Other in Denmark are impressive:



In terms of emissions per capita, Denmark is down 13% over the last 30 years, while the U.S. is producing 7% less emissions per capita over the same time period:


Now we turn to some hallmarks of Danish Energy policy as discussed in the WSJ article.

"But in Denmark, much of the country's energy sector is in the hands of nonprofit cooperatives, with residents as shareholders, which makes it easier for government to direct policy with little opposition from business interests."

Municipalities in California are starting to consider public power as a solution to their energy woes. The combination of rising electricity prices, the state's power crisis from a few years ago, and lower prices in LA, Palo Alto, Sacramento, Santa Clara and other localities with municipal power, have made public power a possibility in other parts of the state. Maybe what social scientists refer to as the external locus of control, is waning!

"'We redesigned the whole manufacturing process to save energy,' says Søren Eriksen, technical director of Danish Crown, a meat company that produces $11 billion of pork and beef annually. 'Everything is reused.' ... Danish companies pay 43% more per megawatt hour of electricity than companies in the U.S., 24% more than in France and 19% more than in England, according to Dansk Industri, an industry trade association."

In recent posts I highlighted the ineffcient use of energy in the U.S. Chemical industry, and energy arguments in favor of Organic agriculture. In Denmark, the high-cost of energy means that industries have no choice but be as energy efficient as possible:


The downside is that the high cost of energy (and labor costs) has made Denmark less-competitive in energy-intensive industries. U.S. industries seem to be trying to get ahead of climate change legislation and the ones who have the foresight will come up with cost-effective, innovative and game-changing technologies that promote energy-efficiency.

"A Dane buying a new car must pay a registration fee of approximately 105% of the car's value, plus additional taxes on fuel. ... Taxes now make up more than half of Danish households' electricity bills; prices at the gas pump doubled once fuel taxes took effect."

The car tax is a non-starter in the U.S.: Americans love their cars and mass transport sucks in most parts of the country. Any politician who even suggests a tax increase of that scale will be vilified. In a related article, the Journal featured Copenhagen and Amsterdam as bicycle nirvanas, places where more than a third of commuters go to work by bike. Copenhagen is launching more initiatives aimed specifically at encouraging even more bikers. Heck the Dutch PM sometimes bikes to work! A quick glance at a list of bike-friendly cities in the U.S. reveals mostly college towns, with a few large cities further down the list. I have to admit being impressed by the fact that Mayor Daley of Chicago bikes to work -- probably not in the winter :-)

"To build on the success of the new heating system, the government introduced a new building code in 1979 that forced people to build their homes with thicker insulation and tighter-sealing windows that would preserve energy. The building code is tightened periodically. It lowered Denmark's heating bill by 20% between 1975 and 2001, even though some 30% more heated floor space in buildings and homes was built during that period, according to the Danish Energy Authority."

Coincidentally, the NYTimes Magazine has an excellent article on this topic. By tightening building codes over the last decade, Green Building and Architecture has become a reality in parts of Western Europe. While U.S. politicians have been talking about ethanol, climate change, and more efficient cars, Green Architecture is an area which is ripe for discussion. In a future post, I will analyze energy use in the construction sector.

While parts of the Danish approach are non-starters in the U.S., its still interesting to see how this relatively small European country has chosen to address its energy challenges. More importantly, Denmark's energy policy has drawn a lot of interest from other countries. From an American perspective, all is not lost. As I pointed out in a previous post, sound energy policy already exists in the U.S.

Consider the case of California:

Power use per person has remained roughly stable in the state since the 1970s, even as it has doubled in the rest of the country (see chart above). As a result, California's greenhouse-gas emissions per person are on a par with those of Denmark. Relative to the size of its economy, they are lower.

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EPA Ranking and Political Contributions

The EPA ranks companies based on the amount of renewable energy they generate or purchase to meet their electricity needs. The ranking is based on data submitted by the companies and submission is on a voluntary basis. Nonetheless, the results were suprising. I was assuming that Silicon Valley companies, given their interest in renewables would be disproportionately represented. Pepsi Cola, Wells Fargo, and HSBC suprised me: Wells and HSBC cited Wind as their main source of renewables, while Pepsi generated 100% of its electricity needs from "various" renewable sources.

I plotted the EPA ranking of the top for-profit organizations, and used the Open Secrets database of PAC contributions for the 2006 election cycle, to highlight the partisan breakdown of the contributions. In the graph below, the length of a bar is the amount of electricity (in thousands of megawatts) purchased as of April 9, 2007, the percentage next to a bar is the proportion of electricity from renewable sources. I highlighted the companies with at least 70% of Total Electricity purchased coming from renewables. The graphs are also color-coded based on the percentage of PAC contributions made to each party:


(To enlarge an image, click on it.) Not suprisingly, the PAC contributions were mostly to Republican candidates, with the exception of Nike (54% Democrats), and to a lesser extent Safeway (45%), Sprint (46%), and Cisco (46%). Significantly, none of the Top 20 PACs, appear in the EPA Top 25 ranking:


CEO's have recently been showing interest in climate change, let's see if the PR events translate to significant commitments in renewables.

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