Tuesday, March 06, 2007

FT.com / Business Life - Book review: Take a strategic risk but hedge your bets

FT.com / Business Life - Book review: Take a strategic risk but hedge your bets

In the world of finance, all players hedge their bets. But very often in the world of strategy, we fail to do that. We commit to a strategy based on certain assumptions and devote all our resources towards the execution of that strategy. But what happens if the assumptions turn out to be wrong? What happens if the future external events invalidate our assumptions and make our strategy irrelevant? Is it possible for a company to change its strategy after devoting all its resources towards a failed strategy? Do most of the companies have this luxury? Why don't people hedge their bets in the world of strategy as they do in finance? Why not prepare for the failure also?

Wednesday, February 07, 2007

Primary Sources

Primary Sources: "Reverse Psychology

Does antismoking advertising work? Not if it’s funded by tobacco companies, argues a new study that examines three such ad campaigns. The authors found that, on average, each additional youth-targeted prevention ad that a young person saw was associated with a 3 percent stronger intention to smoke at some point in the future. Exposure to prevention ads targeted at parents, meanwhile—like the Philip Morris campaign urging parents to “Talk. They’ll Listen.”—made older teens less likely to perceive smoking as harmful, more likely to approve of smoking, and more likely to plan to smoke in the future. In these ads, the authors note, “no reason beyond simply being a teenager is offered” to explain why kids shouldn’t smoke, which dovetails with Philip Morris’s stated aim of delaying smoking, not preventing it."

Primary Sources

Primary Sources: "The Bovine Menace

Forget SUVs and tractor-trailers—the world’s livestock play a larger role in global warming than all of our planes, trains, and automobiles combined, according to a report from the Livestock, Environment and Development Initiative (LEAD), an organization that promotes “ecologically sustainable livestock production systems.” Between the deforestation that’s necessary to create grazing lands, the fossil fuels required to manufacture fertilizer for the crops that feed the world’s growing livestock population, and the gases released by animal manure, livestock are responsible for 18 percent of greenhouse-gas emissions worldwide. The good news: There are ways to reduce these emissions, including more efficient feed production, improved soil conservation, and a better diet for all those gassy cows. Given that the global production of meat and milk is on track to double by 2050, livestock’s current environmental impact would need to be cut in half just to stay within the present level of damage to the global ecosystem."

The Ten-Cent Solution

The Ten-Cent Solution by Clive Crook
How private schools are providing much better education than government run schools to poor kids at lower cost.

Excerpts :
In Hyderabad, a city of more than 6 million people, Tooley and his team—confining their search to poor areas lacking amenities such as running water, electricity, and paved roads—counted 918 schools. Only about 40 percent were run or financed by the government; 60 percent were private. Of those, some were “recognized” by the government, but most were officially unknown to the authorities. These black-market private schools were smaller on average than the other kinds—but they still accounted for about a quarter of all the children in any sort of school. Remarkably, some of the slots in these private slum schools were offered free or at reduced rates: The parents of full-fee students, desperately poor themselves, willingly subsidized those in direst need.

This flourishing educational enterprise is all the more surprising once you understand that India has deliberately discriminated against private education—forbidding for-profit schools, for instance, and requiring schools to be run as trusts rather than proprietorships, and limiting their ability to borrow. Despite these handicaps, private education for the very poor has evidently thrived.

After comparing test scores for literacy and basic math, Tooley has shown that pupils in private schools do better than their state-school equivalents—at between a half and a quarter of the per-pupil teacher cost.

Tuesday, February 06, 2007

FT.com / Columnists / John Kay - Why poker can beat investment management hands down

FT.com / MARKETS / Commodities - Carbon trading clean up promised by EU

FT.com / Comment & analysis / Columnists - In spite of sceptics, it is worth reducing climate risk

Sunday, February 04, 2007

Once a Dream Fuel, Palm Oil May Be an Eco-Nightmare - New York Times

Saturday, February 03, 2007

Someone May Be Gaining on Us - Barron's Online

Someone May Be Gaining on Us - Barron's Online By HAROLD L. SIRKIN

Highlights :

All together in 2004, the 100 companies from rapidly developing economies (RDE) accounted for $715 billion in revenue (the total should hit $1 trillion this year) and $145 billion in operating profit. That produced a 20% profit margin, compared with 16% for companies in the Standard & Poor's 500, 10% for those in Japan's Nikkei and 9% for those in Germany's DAX.

Some 28% of the RDE 100's revenue, about $200 billion in 2004, came from international sales. The companies grew 24% a year from 2000 through 2004, which is 10 times faster than the U.S. gross domestic product, 24 times Japan's rate of growth and 34 times Germany's.

The challengers know how to market and sell profitably to low-income customers. They know how to deal with immature logistics and distribution networks. They know how to navigate ambiguous legal environments. They know how to manage successfully, despite shortages of management talent. And, in most cases, they have developed the ability to innovate quickly and make very rapid decisions. These qualities -- as much as the well-documented advantages they enjoy as a result of significantly lower labor, capital and raw-material costs -- will serve them well as they look beyond their home markets and prepare to go head- to-head with current leaders.

Cycling Into a Big Year for Tech Stocks - Barron's Online

Cycling Into a Big Year for Tech Stocks - Barron's Online
An interview with Michael Cahill. He launched a global technology, telecommunications and media fund for $4.5 billion Manhattan-based Chilton Investment in 2000, he's delivered returns of 119% net of fees, compared with a loss of 45% in the Nasdaq in the same span. Last year, his smart stock picking led to gains of 22.65% after fees. He accomplished that feat with a risk-averse 55% exposure to the market.

Highlights of the interview :
Big themes for the coming years :
1. Vista
2. Videogame Consoles ( Wii, PS3, XBox360)
3. 3G, Wi-Fi 802.11n, WiMAX
4. Video-on-demand over the Internet
5. Increasing Bandwidth demand
6. Solar Industry
7. Anadigics - supplier for Qualcomm 3G phones, Intel for Wi-Fi and WiMAX chip sets, chips for Cisco's Scientific-Atlanta, chips for set-top boxes of Motorola. 45.2 million outstanding shares, trading at $9 a share, $400m market cap, $1 a share of net cash, estimated earnings - 50c in 2007, 90c to $1 a share in 2008, it was break-even in 2006. 60% of all announced 3G phones have Anadigics chips, company will be helped by a move to 802.11n and WiMAX. Expect a new share offering to bolster their balance sheet (customers are asking for it as they need more supply). Expect a top-line growth of 30%. Currently trading at 9 times, earnings are increasing, multiple of 15-20 is possible.
8. EchoStar Communications - trading at 7.7 times 07 EBITDA and 6.7 times 08 EBITDA. Ebitda growth 18% in 07 and 15% in 08. $2.50 free cash flow per share in 07. Current share price $40. 3000,000 new subscribers in Sept compared to 165000 new subscribers for DirectTV. Expect an appreciation of 20% in the stock over the next year. Expect a buyout from AT&T or DirectTV.
9. Cable and Phone companies - Main theme is again broadband.
Cable companies need to upgrade from 750 MHz to 1GHz. AT&T and Verizon - push on fiber-to-the-home. But fiber strategy is slow. Meanwhile cable is cutting into the Telco base. AT&T can solve this problem by buying EchoStar - adding 13 million subscribers. There are some more benefits - this acquisition frees their fiber for internet usage only. They can give better video on internet over this fiber, and TV (including Hi-Def) over satellite. This acquisition will not raise any ire from regulators and it will not dilute AT&T market share value also. DirectTV will have hard time overcoming these issues if it wants to acquire EchoStar.
10. Solar - main problem is shortage of polysilicon. Polysilicon is a critical component in solar cells. MEMC (WFR) is a leading producer of polysilicon. 230m outstanding shares, trading at $52 a share,
$12b market cap, $2.04 earning per share (up from 1.14 in 2005), $2.40 a share in net cash, $600 m in cash, expect earning at $3 a share in 2007, $4 in 2008, stock is at 17 times 07 earnings and 13 times 08 earnings, growth at 45% in 07 and 33% in 08. Share is trading at discount to the semiconductor industry and its growth rate. Historically it has been very volatile. Expect a downturn in the coming months in the industry (semiconductor). But expect MEMC to grow during this downturn. It is a less volatile share now.

Wal-Mart Wants Suppliers, Workers to Join Green Effort - WSJ.com

Wal-Mart Wants Suppliers, Workers to Join Green Effort - WSJ.com
Wal-Mart Stores Inc. Chief Executive Lee Scott called on the retailing giant's suppliers and employees to aid its green campaign, including a request that suppliers eventually eliminate nonrenewable energy from their processes and products.
But Mr. Scott's remarks yesterday in London marked Wal-Mart's first formal call for suppliers to decrease their use of nonrenewable energy such as that generated by burning coal or gas. Wal-Mart pledges to eventually power its operations entirely with renewable energy sources such as wind and solar energy.

Mr. Scott issued the call while introducing a campaign he christened "Sustainability 360." In another aspect of the campaign, Wal-Mart will ask its 1.35 million U.S. employees this year to make commitments of their own, such as biking to work or encouraging friends to buy energy-efficient light bulbs.

Among the initiatives Mr. Scott outlined, prodding suppliers off nonrenewable energy could have the largest commercial ramifications. Wal-Mart, with an estimated $350 billion in sales last year, buys goods from more than 60,000 suppliers globally.

Some suppliers, such as General Electric Co., already are working with Wal-Mart to promote products such as energy-efficient light bulbs. Osram Sylvania, a unit of Siemens AG, produces 30 types of energy-efficient, compact fluorescent light bulbs.

Friday, February 02, 2007

FT.com / Comment & analysis / Editorial comment - We need a clear and predictable price for carbon

FT.com / Comment & analysis / Editorial comment - We need a clear and predictable price for carbon

Excerpts :
Adaptation is going to be part of the response, not least because a substantial rise in temperatures is already on the way: the stock of greenhouse gases in the atmosphere is already 50 per cent above pre-industrial levels. But it is also essential to mitigate growth in the stock, ideally to keep it below 550 parts per million, which would still be double the pre-industrial levels.
On present trends, the atmosphere is likely to reach such a concentration in just three decades. To prevent levels rising further, emissions will need to be reduced to at least 50 per cent below what Sir Nicholas Stern called “business as usual” – that is, the continuation of historic trends – by then.
For this reason, the world – and business, above all – needs a predictable and effective replacement for the Kyoto protocol, which expires in 2012. If this is to happen, negotiations will need to be completed by 2010, so progress this year, particularly in discussions between the leading high-income countries and five significant developing countries (Brazil, China, India, Mexico and South Africa) is essential.
The way forward is a framework that compensates developing countries for the costs they bear, but also encourages the most efficient possible use of energy resources. The buying of rights to emit by high-income countries from developing countries is one way to achieve this result. A common tax regime, with accompanying cross- border transfers, would be another.

The crucial requirements, however, are three: a clear and predictable price for carbon emissions across the world; much increased investment in research and development in renewables, nuclear power and carbon capture and storage; and arrangements for transfer of best technology across the globe.

This is a huge, long-term and global challenge that involves difficult questions of justice both within and across generations. Humanity’s ability to address it is a test of its capacity to manage the consequences of its own actions. So far it has failed. It can afford to do so no longer.

Stern Report

FT.com / In depth - Senators to host climate change talks

FT.com / In depth - A warmer world is ripe for conflict and danger

FT.com / In depth - A warmer world is ripe for conflict and danger
Excerpts :
“Picture Japan, suffering from flooding along its coastal cities and contamination of its fresh water supply, eyeing Russia’s Sakhalin Island oil and gas reserves as an energy source...Envision Pakistan, India and China – all armed with nuclear weapons – skirmishing at their borders over refugees, access to shared river and arable land.”
t is from a Pentagon memo on the possible consequences of global warming.
Oxfam predicts 30m more people could be at risk of famine as a result of global warming.
The demand for essential resources could exacerbate tensions within countries.
A contributing factor to the conflict in Darfur has been a change in rainfall that pitted nomadic herders against settled farmers.
Creeping environmental deterioration already displaces 10m people a year. This could rise to 50m by 2010. Movements like this will have a huge impact on worldwide immigration patterns.
China’s economy is dependent on Himalayan glaciers to feed its southern rivers. But rising temperatures are now causing these glaciers to melt at an alarming rate.
In America, Hurricane Katrina turned New Orleans from a stable, wealthy and vibrant city into a wasteland in the space of a few days. In the UK, the Thames barrier, designed to be raised once every six years, is now being raised six times a year. Just one big flood would cost £30bn, or 2 per cent of UK gross domestic product.
We need to take action to prevent it, rather than just mitigate its effects. But, at the same time, politicians have a duty to prepare for its consequences in terms of domestic and international security.
Action means the UK needs a climate change bill with annual binding targets for emissions.
Only annual targets will create an economic price for carbon and encourage us to diversify our energy sources.
Using more renewable energy sources will also make our energy supplies more secure. By 2020, 90 per cent of UK energy will be supplied from abroad, leaving us vulnerable to political pressure. Reducing our reliance on oil and gas will help fight climate change and reinforce our security.
Showing leadership domestically also builds the trust necessary to get diplomatic agreement abroad – underpinned by a new global emissions authority. Sceptics who argue that the likes of China and the US would never agree misunderstand how energy security is already influencing their policies.
China, a resource-poor country, recently set a goal of doubling the use of alternative sources of energy. President George W. Bush last year promised a 22 per cent rise in US government clean energy funding to help end what he called the country’s “addiction to oil”.

Preparing for the consequences of climate change means we must re-evaluate our policies. We need a sharper focus on preventing and addressing climate change in the developing world. We must also examine potential areas of conflict caused by climate changes in planning defence policies.

As early as 1971, Richard Falk argued that environmental change was a security issue and outlined his “first law of ecological politics”: the faster the rate of change, the less time to adapt, the more dangerous the impact will be.

FT.com / In depth - American businesses must play leading role

FT.com / In depth - American businesses must play leading role
Excerpts :
Corporate America worries that regulations at the state level – such as those emerging in California and New York amid the policy vacuum in Washington – will create an expensive obstacle course of inconsistent laws. Business executives also fear that, if the Democrats win both the presidency and Congress in 2008, companies will face heavy-handed federal regulation. They want to pre-empt that possibility with their own ideas now or they want to be at the table when the big decisions are made.
The behaviour of big companies in the 1950s could serve as a model. At that time, many corporations such as Eastman Kodak and R.H. Macy banded together in what was called the Committee on Economic Development. They worked with Washington to devise stable monetary and fiscal policies, job creation programmes, educational opportunities and the first foreign aid programmes. It was an unprecedented effort by US business to work with government on pragmatic solutions to massive postwar problems.
US companies could be realising that today’s public policy challenges will overwhelm them if left unaddressed and that business itself can make a major contribution to meeting these challenges.

Finally, chief executives such as GE’s Jeff Immelt, IBM’s Sam Palmisano and many of their colleagues may well represent a new breed of leader. They are riveted on competitive performance and shareholder value, to be sure. However, they are also focused on strengthening the national and global policy frameworks so vital to their success. It was Mr Immelt who cried out for clear environmental regulations two years ago. Mr Palmisano has been vocal about education and innovation.

It is too soon to say that corporate America is embarking on a more assertive and constructive involvement in public policy but, for the first time in many years, the possibility exists

FT.com / In depth - Companies must adapt or die in a changing climate

FT.com / In depth - Companies must adapt or die in a changing climate
Excerpts :
A middle-of-the-road view is that rising temperatures have already started to alter earth’s climate. Effects will depend on the degree and speed of adaptation of countries, economies and people, and differ by region.
Likely effects include: melting of glaciers and ice caps; higher sea levels; more frequent and violent weather events; and degradation of water resources. Sectors likely to be particularly affected include: utilities; integrated oil and gas; mining and metals; insurance; building and construction; and property.
Such developments will probably evolve over decades. In planning, therefore, companies will regard climate change as the same sort of slow-moving but powerful force as globalisation, technical change and population ageing – forces that slowly but inexorably shape the economic environment.
Climate change may cause the economic environment to alter more suddenly, particularly when government policy responds to the perceived threat. A change in greenhouse gas regulations on utilities, fuel economy standards for vehicles, airline taxes or building regulations can immediately affect companies’ profitability and prospects. They will therefore want, at a minimum, insights not only into how climate change will affect business, but also into how policy is likely to affect it. Not surprisingly, some companies will want to shape that policy.
Most economists would wish to see the price system – the principal mechanism by which resources are allocated in a market economy – at the centre of emissions reduction policy, whether through taxation of carbon or the selling of emission permits. But there is a place for regulations and standards policies also, provided that the resulting implicit cost of abatement is reasonably uniform across sectors and economies and acceptably close to the value of the damage avoided.
We see a greater than 50 per cent likelihood that some sort of global emissions trading system, covering many of the most important sectors, will be in place in five years’ time. But a somewhat motley mixture of policies is likely to continue also.

FT.com / In depth - Sydney heat deaths to soar by 2050

FT.com / In depth - Sydney heat deaths to soar by 2050
Excerpts :
Climate change and the soaring temperatures it is expected to bring to Sydney will cause a considerable rise in heat-related deaths among the elderly, according to a report released on Wednesday.
The report forecasts that maximum temperatures in the city would rise as much as 1.6C by 2030 and 4.8ºC by 2070. In comparison, average temperatures in Australia climbed just 0.9ºC between 1910 and 2004, according to the CSIRO. Expectation of 40 percent drop in rainfall and rise in bushfires.
Large cities needed to implement more efficient early warning mechanisms and emergency response systems to deal with the increasing probability of heatwaves and help protect vulnerable citizens, in particular the elderly.

FT.com / In depth - Bangladesh plight serves as warning to world

FT.com / In depth - Bangladesh plight serves as warning to world
Excerpts :
Most parts of Bangladesh are less than 10m above sea level, so rising seas coupled with storm surges could put large parts of the population and agricultural land under threat of severe flooding.
South and east Asia, including Vietnam, Bangladesh, India and parts of China, including Shanghai, will be most vulnerable to climate change because of their large coastal populations in low-lying areas, according to the UK International Institute for Environment and Development.
Poor countries, which consume little energy per capita relative to developed countries, have historically played the smallest role in producing carbon emissions.
The average Briton, for example, produces 48 times more carbon dioxide than someone living in Bangladesh. India’s per capita annual energy consumption was just 594 kWh in 2003 compared with 14,057 kWh in the US.
But India, Bangladesh and other countries in the region, face some of the biggest threats, including melting glaciers and more severe storms, floods and droughts caused by depletion of ­glacier-fed rivers. Rising sea levels and warmer temperatures would also fuel malaria and other diseases.
Melting glaciers would increase flood risk during the wet season and sharply reduce water during the dry season to one-sixth of the world’s population living mainly in the Indian sub-continent, parts of China and the Andes in South America.
The impact on India’s agriculture, which supports 70 per cent of its population and relies on monsoon rains, would be severe. “Clearly this has global implications. Foodstocks worldwide will be under pressure,” said Mr Pachauri.
While India has a natural annual monsoon season, heavy rains in central India between 1981 and 2000 were more intense and frequent than in previous decades. “A substantial increase in hazards related to heavy rain is expected over central India in the future,” wrote a team of scientists led by B.N. Goswami of the Indian Institute of Tropical Meteorology in the December issue of the journal Science.

FT.com / In depth - Climate change will spark extreme weather

FT.com / In depth - Climate change will spark extreme weather
Excerpts :
The world has warmed by about 0.74°C in the last 100 years, and will warm a further 0.2°C per decade for the next two decades.
The IPCC said its “best estimate” was that temperatures would increase by 3°C by the end of the century, if carbon dioxide levels continue to rise as predicted.
Other studies have found that such a temperature rise would result in serious water shortages for billions of people, lower crop yields, the spread of tropical diseases and the mass migration of people, mainly in developing countries, away from the worst affected areas.
Temperatures could rise even higher, by 4°C, if “feedback” effects take place. One such effect would be if thawing Siberian permafrost releases large quantities of methane, a greenhouse gas more potent than carbon dioxide.
Another possibility feared by many scientists is that rising temperatures and drought could cause the Amazon rainforest to die. If that were to happen, the vast forest would turn from absorbing carbon from the atmosphere as it does at present to producing carbon dioxide.
The report noted that “the last time the polar regions were significantly warmer than present for an extended period (about 125,000 years ago), reductions in polar ice volume led to four to six metres of sea level rise.”
However, Peter Stott of the UK’s Met Office said although Arctic ice was disappearing, the melting of the massive Greenland ice sheet could take “thousands of years”. Accordingly, the IPCC estimates a sea level rise of between 18 centimetres and 59 centimetres by 2100, compared with the average between 1980 and 1999. But these estimates do not take account of possible feedback effects.

Intergovernmental Panel on Climate Change

Thursday, February 01, 2007

New UN report on global warming

The assessment states that there is a 90% chance that global warming is caused by humans, according to a person familiar with the document. The new report also says a doubling of greenhouse gases will likely raise the planet's temperature by more than two degrees Centigrade, at a minimum. The assessment states that human activity is leading to warmer oceans, which in turn is likely to give rise to more intense and damaging hurricanes.

Excerpted form wsj.com article : U.N. Report Adds Pressure To Global-Warming Fight

Green in Silicon Valley

From nytimes.com : Sillican Valley Rebounds

Excerpts :
In Silicon Valley, investment in clean technology — from alternative energy products, like solar panels and hybrid cars, to the use of nanotechnology to solve environmental problems — went from $34 million in the first quarter of 2006 to $290 million in the third quarter, according to an annual report released Sunday by Joint Venture: Silicon Valley Network, a research organization in San Jose, Calif.
Clean technology crosses many industries, with nearly a quarter of the venture capital in clean technology going to software companies, followed by 15 percent going to semiconductor companies.

VCs in Washington D.C.

From nytimes.com : Tech Barons Take on New Project

Excerpts :

The venture capitalists say that their research and lobbying helped with the creation and passage of a California bill that Gov. Arnold Schwarzenegger signed into law in September, capping the state’s greenhouse gas emissions at 1990 levels by 2020.

When it comes to supporting alternative energy sources, the venture capitalists are backing up their words with money. In 2006, venture capitalists put $727 million into 39 alternative energy start-ups, compared with $195 million in 18 such firms for 2005, according to the National Venture Capital Association.

More than a third of the 2006 investments went to technologies related to ethanol, a gasoline alternative that is made from corn and other plant material. Mr. Bush has high hopes for ethanol and other alternative fuels, calling for them to take the place of 35 billion gallons of gasoline by 2017.

One venture-backed ethanol start-up is Altra, a 50-employee company based in Los Angeles. It offers a twist on ethanol production by making the fuel from nonedible plant matter, producing what is known as cellulosic ethanol. Kleiner Perkins Caufield and Byers invested an undisclosed amount in Altra as part of a financing round that raised $50 million, Altra said.

Mr. Denniston, a partner at the Silicon Valley investment firm Kleiner Perkins Caufield and Byers, said Altra could benefit from policy changes. For example, the government could require that cars be able to run on either ethanol or gasoline, or it could set up a national carbon trading system that would increase demand for ethanol by forcing companies to find greener alternatives to oil and gas. Such a system would put a limit on the volume of carbon dioxide emissions and then create a trading system where companies could buy credits that would permit them to emit more.

Mr. Denniston also wants to see a change to the so-called blender’s credit, a 51-cents-a-gallon subsidy that goes to the company that mixes gasoline with ethanol, typically one of the major gas companies. He would like that money to go to producers like Altra. And he wants the subsidy to rise when the price of oil falls, or drop when oil prices rise.

Kleiner Perkins has formed the Greentech Innovation Network to bring together entrepreneurs, scientists, academics and policy makers. The National Venture Capital Association has a committee focused on energy policies.

In September Vinod Khosla put together a 19-page paper calling for new energy policies — from mandating that 10 percent of gas stations have at least one ethanol pump to requiring that 70 percent of new cars sold in the United States by 2010 be able to use more than one type of fuel.

Bottom-up green movement in USA

States and cities are taking lead in America in enacting laws to regulate emission and alternative energy usage. A nice overview is in Economist : The Greening Of America.

Tuesday, January 23, 2007

EIA - Energy Basics - Renewable Energy Basics

Energy Information Administration - EIA - Official Energy Statistics from the U.S. Government

DOE Report on Cap n Trade System

Recommendations from us-cap.org

Mirage of Enegy Independence

WSJ.com : Energy Independence

Excerpts :

But what does "energy independence" mean for a $13 trillion economy that uses the equivalent of 50 million barrels of oil every day? Is it realistic and achievable? Or is it rhetorical overreach that will lead, as in the past, to disappointment and cynicism, the kind that drives the cycles of inconsistency in energy policy and leaves the U.S. no less vulnerable? The latter is more likely -- at least without a realistic appraisal of the U.S. position and the country's possibilities. But "energy independence" can provide a constructive framework for policy if it is properly thought through and the realities are recognized.

The idea was introduced by Richard Nixon in November 1973, three weeks after the Arab oil embargo, when he introduced "Project Independence" and pledged that the U.S. would, within seven years, "meet our own energy needs without depending on any foreign energy source." Nixon knew that energy independence was something that Americans would crave after the 1973 oil shock: He deliberately modeled his Project Independence on John F. Kennedy's Apollo goal of getting a man on the moon within a decade.

Back then, the goal may have seemed only somewhat unlikely. After all, when Nixon began his political career after World War II, the country already had a long history of energy independence -- and then some. For it had actually been the world's No. 1 oil exporter; indeed, out of seven billion barrels of oil used by the Allies in World War II, six billion were produced in the U.S. By the late 1940s, the U.S. had become a net importer of oil, although the real surge in imports did not begin until the 1970s.

In the three and a half decades since Nixon, the U.S. has gone from importing a third of its oil to importing 60%, and that share is set to continue rising. The country is on a similar path for natural gas (which is about 25% of our total energy usage).

This means growing imports of liquefied natural gas -- LNG -- rising from 3% of our current demand to more than 25% by 2020.

How dependent is the U.S.? If we look at total energy -- including coal, nuclear and a small but growing share from renewables -- the country is over 70% self-sufficient. Oil -- refined into liquid fuels for transportation -- is where most of the current dependence comes from. The risks do not owe to direct imports from the Middle East, contrary to the widespread belief. Some 81% of oil imports do not come from that region. Thus, only 19% of imports -- and 12% of total petroleum consumption -- originates in the Middle East

Our largest source of oil imports is Canada. Our second largest source is Mexico. The picture becomes more complex when one turns to our third largest source of oil imports, Venezuela.

Yet the source of imports is significant only up to a point. Energy security is a global issue. Although oil around the world varies greatly in terms of physical qualities and transportation costs, there is only one world oil market. So disruptions and loss of supply in one place radiate throughout the global market -- and global politics -- affecting consumers everywhere. Even if the U.S. did not import a drop of oil, it would still be vulnerable to turmoil involving oil outside its borders.

What are the prospects for "energy independence"? Based on where we are today, very small, at least for a couple of decades. only about 8% of the auto fleet turns over every year. So the lead times are long for more efficient vehicles to enter the fleet. Ethanol, derived from corn, is on track to grow to about 10% of our total gasoline pool in a few years. This is certainly not inconsequential; it represents diversification and is equivalent to creating a new Indonesia-level oil-producing country in America's Midwest. But signs are already evident of an upper bound on corn-based ethanol, as the fuel-versus-food trade-off pushes up corn prices, setting off vocal protests from livestock growers and dairy farmers and, in due course, from those who buy breakfast cereals and soft drinks made with high fructose corn syrup.

There is a "great bubbling" all along the innovation frontier of energy, ranging from conventional energy and efficiency to, especially, renewables, alternatives and "clean tech." Activity this wide-ranging has never been witnessed before. The impact could well be considerable, or even transformative. One would be very hard-pressed today, however, to say when and what form this impact will take.

Today, quite simply, cutting ourselves off from global energy markets is not realistic.

But, if the goal of energy independence is understood differently, to mean energy security -- resilience, robustness, reduced vulnerability -- then it is much more useful.

This kind of definition recognizes that trade, in itself, is not bad. At the same time, it emphasizes the central goal of diversification -- encouraging investment and higher levels of research and development in both alternative and conventional energy sources. It means a new push for energy conservation, higher energy efficiency, lower energy intensity.

And it requires an understanding that this kind of energy independence -- as measured in energy security -- actually requires interdependence with other nations, both consumers and producers of energy. Indeed, how we manage our relations with other countries and other regions is a very essential ingredient for our own energy well-being.

US Companies fighting for self-preservation

WSJ.com : In Climate Controversy, Industry Cedes Ground

Excerpts :

The global-warming debate is shifting from science to economics.

A growing number of these companies are pushing for a mandatory emissions limit, or "cap." Some see a lucrative new market in clean-energy technologies. Many figure a regulation is politically inevitable and they want to be in the room when it's negotiated, to minimize the burden that falls on them.

The biggest question going forward no longer is whether fossil-fuel emissions should be curbed. It's who will foot the bill for the cleanup -- and that battle is heating up.

In the center of the regulatory cross hairs are utilities. They're the world's biggest emitters of carbon dioxide, the global-warming gas that's produced whenever fossil fuels are burned. Written one way, a cap would help utilities in the Southeast or the Midwest, which burn lots of coal, a particularly carbon-intensive fuel. Written another way, a rule would help utilities on the West Coast, the Northeast and the Gulf Coast. They use mainly natural gas, which produces lower CO2 emissions than coal, and nuclear energy, which produces essentially no CO2.

The Big Three auto companies are making speeches and running advertisements calling on Big Oil to crank out more low-carbon alternative fuels such as corn-based ethanol. Big Oil, in its own speeches and ads, says the auto makers should build more-efficient cars.

The American Iron and Steel Institute, which opposes any emission cap, this month assigned an executive who had been working broadly on environmental issues to focus specifically on global warming. Some companies that oppose a cap argue it would raise their costs and hurt their competitiveness against rivals in developing countries such as China, where no cap exists.

DuPont Co., the chemical giant, heartily endorses a cap in part because it figures it would help boost demand for energy-efficiency products the company makes.

Entergy Corp., a utility that's also pushing for a cap, would likely benefit from her measure because the company's fuel mix includes a lot of low-carbon fuels.

Fossil fuels provided 80% of global energy in 2004, and they're on track to provide 81% in 2030.

Significantly curbing their emissions would require sweeping technological change, from more-efficient power plants and cars to the potential injection and burial of massive amounts of CO2 underground.

Another possibility would be to reduce the rate of growth in fossil-fuel consumption by supplementing the fuel mix with alternatives, from nuclear power to crops to the wind and the sun.

Outside the U.S., many countries already have modest experience in emissions caps, thanks to the Kyoto Protocol. The treaty, which hasn't been ratified by the U.S., requires ratifying nations collectively to cut their emissions 5% below 1990 levels by 2012.

Several Northeast states and California already have announced plans to impose emission caps of their own. And a handful of proposed federal caps are under consideration in Congress.

The federal proposals differ in the structural details of the "cap and trade" system they would set up to regulate CO2 emissions. Under such a system, the government would set a ceiling on how much CO2 the U.S. economy -- or whichever sectors lawmakers pick -- could emit each year. It would ink a corresponding number of pollution permits, each entitling the bearer to emit one ton of the gas.

Then, based on complex allocation rules it devises, the government would divide up the permits among companies. Those companies could buy and sell permits among themselves on a greenhouse-gas market like a Kyoto-related one already under way outside the U.S. Companies that decide it's too expensive to cut their own emissions enough to comply with their government cap would go to the market and buy extra emission permits from companies that ended up with more than they needed. The theory behind the market is to create an economy of scale that reduces everyone's cost.

Other regulatory structures are possible, including a straight tax on CO2 emissions. Politically, a cap-and-trade system is more popular than a tax. Environmentalists like the severity of an absolute ceiling on the amount of CO2 companies can emit. Industry likes the flexibility of a market in which permits to pollute can be bought and sold.

And cap-and-trade systems already are in use. The U.S. has had one for more than a decade to curb the pollution that causes acid rain, a regulation widely viewed as successful.

Duke Energy Corp., based in Charlotte, is the country's third-largest burner of coal, though it also has significant nuclear assets. It's pushing for permits to be distributed based on the amount of CO2 a utility has emitted in the past -- a system that would protect big coal burners such as itself.

Fighting Duke and other coal-burners are utilities such as Entergy. Based in New Orleans, it uses a lot of natural gas and nuclear fuel. Unlike Duke, Entergy wants permits to be distributed based on a utility's total electricity output -- a system likely to give low-carbon generators such as itself excess permits they could sell.

They already face a kind of carbon limit in the federal government's longstanding fuel-economy standards for cars and trucks, because vehicles that burn less gasoline emit less CO2. Those rules give auto makers extra credit for building versions of their conventional vehicles they've modified to run on either gasoline or ethanol. Very few of those vehicles actually wind up running on anything but gasoline. But the credits let the auto makers build more thirsty sport-utility vehicles and pickup trucks -- the industry's bread and butter, particularly when oil was cheaper.

Auto officials who declined to be named said the industry probably will accept some toughening of the fuel-economy standards. But in return, it may seek bigger credits for selling vehicles that burn less oil, including those that can run on ethanol.

In November, Rex Tillerson, Exxon's chairman and chief executive, called in a speech for "steps now to reduce emissions in effective and meaningful ways." Then he listed two: boosting automotive fuel economy and cutting emissions from coal-fired power plants.

Vinod Khosla : War On Oil

wsj.com : The War on Oil
Excerpts :

Corn ethanol can only supply about 10% of our gasoline needs.

We need cellulosic biofuels to win the war on oil.

My research has convinced me that the benchmark $1.25 per gallon or cheaper cellulosic fuels are less than three years away .

We have seen proposals to make ethanol from corn stalks, switchgrass and other grasses, woodchips, waste carbon monoxide from steel mills, municipal sewage, orange peels and other creative ideas from entrepreneurs.

We must encourage research on biomass feedstocks, tomorrow's "energy crops." Switch grass or miscanthus grass are economic for farmers at the yields of six tons per acre today, but we need even higher yields and "grass cocktails" to avoid the problems of monoculture agriculture. We need significantly more research in agronomy practices focused on energy crops. Miscanthus already yields 15 tons per acre in a wide variety of regions, including the U.K., and in Illinois test plantings.

We have found scientists working on energy breakthroughs at Dartmouth (Mascoma), in pipe-fitting shops in Denver (Kergy), using platforms developed for malaria drugs in Berkeley (Amyris), in other university labs (Gevo and LS9), in India (Praj), in New Zealand and in Brazil.

President Bush must set a very aggressive target for biofuels with an enhanced Renewable Fuel Standard (RFS). My analysis shows 39 billion gallons of biofuels production is possible in the U.S., at reasonable cost, by 2017 on 19 million acres; and 139 billion gallons by 2030 on 49 million acres. Soon we will replace all 150 billion gallons of gasoline that we use on a very small fraction of our agricultural lands while improving the environmental quality of our agriculture (through corn/soy and biomass crop rotation schemes) and improve our rural economy. Consumers can be protected by the RFS if prices get too high by including a price "relief valve" that will also protect livestock producers (who depend on reasonable corn prices).

Such a goal will ensure an attractive market for any company that meets its cost target for biofuels. If all the entrepreneurs fail, the relief valve will protect consumers and related agricultural markets. More importantly, Americans, both Democrats and Republicans, care about energy security. Many of the presidential candidates for 2008 will also support such policies.

Shell CEO on CO2 reducion

FT.com -States should create a climate for change

Excerpts :
Policies need to accelerate society’s search for CO2 solutions and greener fossil fuels.These fall into two broad categories: standards and market mechanisms.

One approach could be to toughen regulations on the energy efficiency of everything from buildings to consumer appliances. This would help to encourage conservation. Japan, which has promoted conservation through a variety of rules since the 1970s energy crisis, provides a good example of how effectively they can influence consumption. Japan used the equivalent of 2.8 tonnes of oil per person in 2004, compared with 5.4 tonnes per person in the US, according to the International Energy Agency.

Carbon trading needs to become global in order to be truly effective.

Governments can partner with industry on large-scale projects to capture and store CO2 from sources such as power plants. Indeed, power generation offers one of the biggest opportunities for limiting emissions. Generation is now responsible for 41 per cent of global energy-related carbon emissions, according to the IEA. That could rise to 44 per cent by 2030, as electricity takes a bigger share of energy consumption. Unlike vehicles, power plants are stationary, making it easier to capture the carbon they emit.

Under Europe’s current carbon trading scheme, companies that undertake projects to capture and store CO2 receive no credit for the reduction in emissions. That must change.

Biofuels made from plants and organic waste also have the potential to lower transport emissions. Today, however, many are made from food crops such as corn and sugar cane that require lots of energy to produce. Although these fuels can reduce emissions, second-generation biofuels made from non-food sources could offer even greater reductions.

At Shell we focus on second or even third-generation biofuels that squeeze more litres out of fewer acres.

Since 2000, we have invested more than $1bn (£503m) in alternative energy sources such as wind, solar and hydrogen. Our aim is to turn one of them into a substantial business over time.

Wednesday, January 17, 2007

Green energy investment roundup

Booming sales for wind turbines ... Tesco devoting $100m for renewable energy use in its stores ... global investment reaching $70.9b in green energy ... 34% companies of NEX index are not profitable ... NEX index growing at 30 percents over the last 4 years ... EU targets 12 percent renewable energy usage by 2010, double current levels ... Stern report estimates that cost of reducing carbon emission will be 20-24 euros per tonne of CO2 ... Goldman Sachs takes a 10% stake in Climate Exchange, which trades on carbon emissions ... wind has been the best performing sector so far ... expectations that the wind sector will grow 21 per cent next year and the solar power sector by 25 per cent ... more and more companies are becoming profitable ... check www.investability.org and www.eiris.org for information about clean energy funds

Excerpts from : Cleaning up on energy investments

Rising concerns over actual benefits of carbon credits

There are rising concerns over the actual environmental benefits of some of the carbon credits being traded.
Most prominent concerns are :
1. HFC scrubbers (critics are complaining that these should have happened anyway, and should not be used to earn millions in carbon credits as they involve very little effort)
2. Some voluntary market schemes, like tree planting, which are not verifiable and not evaluated in details.

Also read : Concern as carbon traders scoop billions

Chinese way of reducing global warming

Chinese factories and some carbon traders are minting money by installing HFC scrubbers, a cheap but very lucrative area in terms of carbon credit. HFC as a greenhouse gas is much more dangerous than carbon dioxide. European companies are buying these credits to meet their carbon emission target.
Also read : China ‘exploiting Kyoto loophole’


Wal-Mart is planning to use solar panels at many of its stores. In the process, it will generate 150 megawatts of power. Wal-Mart is exploring the options of owning its solar energy systems, leasing them, or simply buying power from Wal-Mart roof panels owned by the solar company. In comparison, Google solar scheme would only generate 1.6 megawatts of power.

Read BusinessWeek for more : Wal-Mart: Let The Sun Shine In?

Green Money

Excerpts from Investing in climate change

The preconditions exist for another alternative-energy boom. Climate change is rarely out of the headlines. Even sceptical governments are interested in the field, if only for the sake of energy security. High oil and gas prices have made alternatives look more economically viable. And the sector is so diverse that even if one technology disappoints, others can take over.

The sector can be divided into six parts : wind power, solar, biofuels, carbon trading, “blue sky” (developing technologies such as fuel cells) and energy efficiency. This latter category can include well-established companies, such as those providing insulation to new buildings.

These various sub-sectors go in and out of fashion. Wind-turbine companies had mini-busts in 2000 and 2004, for example. The Impax index of environmental stocks reached its peak in 2000, and is now trading at around only half that level. Another mini-boom appeared to peter out last May. In 2006 biofuels were briefly hot, thanks to high oil prices, which started to make ethanol look an attractive alternative to petrol. That caused a flurry of investment in ethanol plants and the price of sugar (the basis for Brazil’s ethanol production) soared.

But the ethanol bubble was quickly popped when oil prices came down and investors realised the barriers to entry in the industry were fairly low. Investor interest has been switching to the companies that develop the enzymes which break down plant matter and turn it into fuel. “Novozymes, a Danish company, was considered a boring old speciality chemicals company until the enzymes operation was recognised,” says Ronnie Lim, head of sustainable-investments research at Morley, a fund-management group.

The wind market is probably the most developed. Three of the four largest environmental companies by market value (Suzlon from India, Gamesa from Spain and Vestas from Denmark) are wind groups, according to Impax. Turbine manufacturers should prosper in 2007, says Bruce Jenkyn-Jones, Impax’s director of investments: 28 different countries are growing wind capacity, which means that turbines are sold out to 2008. So manufacturers can push through price increases.

In the solar sector, one problem has been a shortage of silicon, which has made panel production very expensive. Eventually, thin-film technology may prove a cheaper replacement, but that is years away from mass production. However, there may be other solar opportunities. Stephen Mahon of the Low Carbon Initiative, which recently launched a £44.5m ($82.5m) environmental fund, says it is investing in Heliodynamics, a company which uses mirrors to focus the sun’s rays and thus increase the power generated.

Investors’ enthusiasm for “blue sky” projects like fuel cells tends to be limited because products will neither have an immediate environmental impact nor produce instant profits. Although the holy grail of fuel cells for cars may be some way from mass production, they are being used in laptops and fork-lift trucks.

The most controversial area is that of carbon credits, which requires energy producers to buy permits to emit greenhouse gases. In 2006 the European Union’s emissions-trading scheme was crippled by the over-allocation of permits by member countries, prompting the price to plunge by two-thirds. But James Cameron, a founder of Climate Change Capital, is optimistic. He has just raised an $830m fund to invest in carbon trading

Tuesday, January 16, 2007

Exit Ramp From Oil Expressway

How the world will reduce its oil dependency in future? A nice overview is in Getting Off Oil.

Excerpts :

Yet in 2007 20 new hybrid models will enter the American market, and operating efficiency will finally become entrenched as carmakers’ top design priority, locking in oil savings for decades. Biofuels, too, will continue double-digit growth as Brazil’s 2006 oil independence and Sweden’s 2020 off-oil goal spur emulation.

Tripled-efficiency, ultralight petrol-hybrid SUVs were designed in 2000, paying back in one year at European and Japanese fuel prices or two years at America’s much cheaper pump prices. In 2007 the Automotive X Prize will start moving such designs to market.

In 2007, too, Toyota will emerge as the leader in super-efficient plug-in hybrid cars: electric for short commutes, petrol-hybrid for long trips. This could double the already doubled petrol efficiency of a Prius. Next, make that car ultralight and its petrol efficiency redoubles. Biofuel it and you quadruple petrol efficiency again, to 30 times today’s norm.

That transition already shapes competitive strategy. Wal-Mart’s new heavy trucks will be a quarter more efficient in 2007 than in 2006. By 2015 they will be twice as efficient, saving over $300m a year. Next will come trebled efficiency, which yields a 60% internal rate of return.

Alan Mulally, whose efficiency-based Boeing strategy is beating Airbus, will bring to Ford Boeing’s focus on ultralight materials (the 787 is 50% advanced composites), systems integration and breakthrough design.

In Washington, DC, a surprisingly strong voice in 2007 for getting off oil will be the world’s biggest buyer both of oil and of renewable energy—the Pentagon. The risk and cost of vulnerable fuel convoys, easy prey to roadside bombs, will persuade military leaders that only super-efficient platforms dragging dramatically slimmer fuel logistics tails, or none, can fight persistent, dispersed, affordable wars. This strategic shift will not just save hundreds of lives and tens of billions of dollars a year. It will also speed key technologies, like ultralight materials, that can triple the efficiency of civilian cars, trucks and planes—just as military R&D created the internet, GPS, and the jet and chip industries. Thus the Pentagon will start to lead America, and the world, off oil so nobody need fight over it.

China’s 2005 adoption of energy efficiency as a top development priority will start paying off.

Monday, January 15, 2007

Price Surge in Grains

Excessive demand for corn to produce ethanol is fueling its price. Farmers are devoting more land to produce extra corn creating pressure in the soyabeans and wheat market also. Soyabeans are in demand to produce biodiesel. China is expected to become a net importer of corn. It is devoting substantial resources to produce more ethanol from it. It has recently signed a deal to invest $3.83bn in one million hectares of land in the Philippines for higher-yielding corn, rice and sorghum.

Source : FT.com : Grains fuelled by alternative uses

New Carbon Trading Venture from Gazprom

Excerpts from FT.com : Gazprom launches carbon trading venture

1. What is the deal?

The joint venture between Gazprombank, part of the Gazprom Group, and Dresdner Kleinwort will invest in projects generating “carbon credits” under the Kyoto protocol, mainly in Russia and eastern Europe.

Analysts have estimated that companies could generate up to 1bn tonnes worth of credits. At current forward prices for 2008 under the European Union’s emissions trading scheme, that would be worth €15bn.

2. What will be the impact on the carbon market?

The emissions credits from Russia and eastern Europe could represent an additional supply of up to 10 per cent of the EU market, putting downward pressure on the price of carbon in the trading scheme. This would have the effect of making it cheaper for European companies to emit greenhouse gasses.

3. How will Gazprom do it?

Gazprombank had clients in the oil and gas, petrochemicals and metals industry that were interested in carbon trading.

Gazprom can benefit directly, by selling credits it has earned.

Olga Gassan-Zade, head of the Kiev office of carbon analysts Point Carbon, said Gazprom had the potential to reduce its emissions by fixing leaks and overhauling its compressors, which could generate up to €2bn through carbon credits.

4. Who will buy these credits?

Hedge funds and other institutional investors, as well as governments and companies covered by the emissions trading scheme are expected to be among the eventual buyers of the credits.

Gazprom wants to build its London-based trading arm into a full-service energy trader, dealing in oil, power and liquefied natural gas as well as carbon permits and conventional gas.

The Carbon Market

Excerpts from FT.com : Europe hopes to avert a false economy in carbon

1. What is EU Carbon Trading Scheme?

The scheme works by issuing companies in some energy-intensive sectors with tradeable permits for each tonne of carbon dioxide they are allowed to produce. If they want to emit more, they must buy permits from companies with spares.

The EU’s emissions trading scheme is just part of the worldwide trading system envisaged under the Kyoto protocol. The clean development mechanism, a key component of the treaty, encourages the introduction of low-carbon technology in poor countries by allowing rich nations to offset the emissions thus avoided against their own Kyoto targets.

2. How are some companies making money from this scheme?

Enterprising companies are embarking on low-carbon projects in developing countries in the hope of generating credits, which they will then be able to sell to the highest bidder on the international carbon markets. Lafarge, the cement company, for example has built wind turbines on a cement plant in Morocco.

3. Will America go the way of Europe?

Several American states are working on plans to limit their own greenhouse gas emissions and could embrace emissions trading. The appointment of Hank Paulson, who has strong environmentalist credentials, as Treasury secretary has also heartened the treaty’s supporters.

4. What is the future of Carbon Market?

Businesses will have to prepare seriously for the effects of the carbon economy which, trends suggest, will only grow stronger over the next few years. According to a World Bank report, countries traded more than $10bn of the gas with one another last year and there are predictions that carbon worth $25bn-$30bn will be traded this year.

As the 2012 deadline to meet Kyoto targets approaches, more and more countries have a vested interest in entrenching the trading system. If it continues on its current course, it could even offer the best hope the world has of limiting the ravages of climate change.

Wednesday, September 13, 2006

China’s True Growth: No Myth or Miracle -- September 2006

China’s True Growth: No Myth or Miracle -- September 2006

A nice and sensible artice on the Chinese economy. It puts the Chinese expansion in the correct perspective. The growth in the Chinese economy is not unprecedented, it is exactly like the growth in the Japanese economy, or like the growth in the Asian economies of South Korea, Taiwan, Hong Kong, and Singapore. High savings rate leads to high investment, which in turn fuels the growth. The Chinese economy is nothing new even in terms of its size also. The impact of the Chinese growth on the world economy will be exactly like the impact of the Japanese growth or the Asian tigers' growth. Next country to watch is India. Savings rate are on the rise, and it is fueling a China like growth in India. India is now at a stage where China was in the late 80s. Rising wage in China will prove to be a catalyst for the growth in the Indian manufacturing sector.