Oil & Water

This talk surprised me in the sense that Matt Simmons used to be very focused on energy. He comes from the oil investment world. He has now expanded the discussion to include other resources - mostly water. He sees ocean energy as the way forward. I often find Matt Simmons to be ahead of curve - not that he needs my endorsement.

I am seeing more references everday to the interplay between energy and water. Jeremy Rifkin mentioned in a recent talk that during the heatwave in Europe that killed 10K people, one of the reasons France's nuclear power plants could not generate more energy to drive the air conditioners and mitigate the problem is that the power plants were constrained by their water availability. Here Matt Simmons suggests that USA's power generation uses 40% of the fresh water. Arnold Schwarzenegger, Governor of California, in a talk claimed that 20% of the energy generated in the state of California is used for pumping water around.

Twin Threats to Resource Scarcity: Oil & Water Marsh’s National Oil Companies’ Conference 2010, February 24, 2010

Simmons marsh-talk

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Vacation

I will be away for a month (traveling abroad) but will be back to continue chronicling the journey.

Some observations so far:

1. I am seeing greater amount of involvement every single day from the financial industry (pension funds, insurance, banks, exchanges). I blogged extensively about this. I believe that they already changing the dynamics.

2. The progress on the technology front is a lot more diffused and unclear. In particular, I am beginning to have doubts about EVs primarily due to extremely limited availability of cruicial raw materials (Li). You cant build a trillion dollar industry around rare earths metals.

3. A big chunk of the low carbon economy will be regulation driven (cap-n-trade, EU ETS etc). Looks like the financial crisis has postponed cap-n-trade bill in the US by a year or two but local initiatives at state and city-level are proceeding at full steam.

4. The news on the climate change gets worse by the day. Even sticking to 450PPM of CO2 may not be enough to prevent 3+ centigrade rise in global temperature. We may be looking at a violent 21st century.

Ceres Roadmap for The 21st Century Corporation

CERES ups the ante with a new report detailing the roles and responsibilities of corporate stake holders in the low carbon economy. Given the backers of CERES including major institutional investors such as CalPERS, I would expect this document to have some impact.

A couple of words from the very first line caught my eye - 'win' and 'resource-constrained'. These words are meaningful to investors and management. They indicate what the risk (of being left behind, hit by consequences) and opportunity (what is source of new value) are about.

Reuters has an article (Time for next stage of sustainable business) talking about the ceres report.

The 21st Century Corporation: The Ceres Roadmap for Sustainability

Companies must make immediate and meaningful social and environmental improvements if they are to win in the resource-constrained 21st century.

That’s the message of a new Ceres report outlining the urgency, vision and competitive advantages for companies that fully embrace sustainability in their business as energy prices rise, water supplies are increasingly contested and the world’s population grows.

"Sustainability performance is fundamental for business success in the 21st century,” said Mindy S. Lubber, president of the investor coalition Ceres, which published the report, The 21st Century Corporation: The Ceres Roadmap for Sustainability. “If businesses deepen their efforts to solve social and environmental threats, it will position them to innovate and compete in the fast-changing, resource-constrained global economy. It is no longer enough for companies to have special projects or initiatives. Comprehensive sustainability strategies are expected.”
...
Anne Stausboll, chief executive officer of the California Public Employees Retirement System, voiced strong support for the report's key findings.

"We expect our portfolio companies to do what is necessary to position themselves for a sustainable economy," said Stausboll, whose office oversees more than $200 billion in assets. "Environmental and social issues are core to business performance in the 21st century. We are looking for companies that are managing these risks and developing opportunities.

China and India Join Copenhagen Accord

This is a step in the right direction.

Climate Goal Is Supported by China and India

China and India join more than 100 countries that have signed up under the accord, which calls for limiting the rise in global temperatures to no more than 2 degrees Celsius, or 3.6 degrees Fahrenheit, beyond pre-industrial levels.

The agreement also calls for spending as much as $100 billion a year to help emerging countries adapt to climate change and develop low-carbon energy systems, to bring energy technology more quickly to the developing world and to take steps to protect tropical forests from destruction. ...
China has said it will try to voluntarily reduce its emissions of carbon dioxide per unit of economic growth — a measure known as “carbon intensity” — by 40 to 45 percent by 2020, compared with 2005 levels. India set a domestic emissions intensity reduction target of 20 to 25 percent by 2020, compared with 2005 levels, excluding its agricultural sector.

Carbon Caps Through the Backdoor

WSJ discusses the role of NAIC (National Association of Insurance Commissioners) - insurance regulators from 50 states - in development and enforcement of climate change-related disclosure norms. It is somewhat ideological in its take. The states have legitimate interest in climate change impacts and its cost (often paid through insurance companies). It is not very different from actions by any number of interest groups - many of them much more odious than this.

Carbon Caps Through the Backdoor

Since the beginning of the climate debate, environmental lobbies such as Ceres (a coalition of activists and investors that pressures companies to go green) have expressed particular interest in insurers. Rather than nitpick every company to adopt climate-change policies, these organizations realized it would be more efficient to target a gatekeeper. Everybody needs insurance. If insurers could be bludgeoned into requiring policyholders adopt carbon-mitigation practices as a requirement for insurance, the activists would have imposed their will widely and quickly.

Links for March 4, 2010

Why the “Petro Metro” wants electric cars

“Houston’s not a natural market for electric cars,” Crane admitted, when we met the other day. “But electric cars are good for our business in all kinds of ways,” he added. So NRG and Reliant is working with officials Houston, America’s 4th largest city, to persuade Nissan to make Houston one of the leading launch markets for the Nissan Leaf, the all electric vehicle that the Japanese automaker plans to start selling later this year.

“We are the Petro Metro, but we are also a car city,” said Houston’s newly-elected mayor, Annise Parker, at an event earlier this month to welcome Nissan to the city. Certainly there’s a sizable market awaiting Nissan in the city. Houston is home to 4.5 million vehicles that travel 86 million miles a day, according to Reuters.

Corporate Fleets Expected Early Adopters of Electric Vehicles

U.S. corporate fleets purchase about 300,000 vehicles a year, and they are expected to be among the steadiest customers of electric vehicles, including cargo vans, as they come to market.

Commercial trucks account for about 12 percent of miles driven but produce about 25 percent of all emissions, Scott Harrison, CEO of Azure Dynamics told the New York Times.

How Climate will Change Transportation: Part 2

What I thought was more interesting were her findings on climate change and its effects on DOTs. The Three-Part Challenge to State DOTs

1. Reduce transportation GHG’s: by as much as 60-80% by 2050
2. Adapt transportation infrastructure: most importantly to severe storms, but also rising sea levels, high temperatures and flooding
3. Find a new revenue stream: one based on low carbon fuels

In the US highway vehicles = 82% of Transportation CO2 emissions, 23% of total US CO2 emission

Carbon traders foresee lacklustre market in 2010

Panellists speaking at the Point Carbon conference in Amsterdam this week believe the floor for CERs will be around the €8 level, which is generally regarded as cheap. Currently the December 2010 EUA contract is around €13 per ton of carbon dioxide equivalent (/t CO2e) and the same contract for CERs is around €11/t CO2e in the over-the-counter market, according to Point Carbon.

Shareholders target climate laggards in proxy season

A record 95 shareholder resolutions related to climate change were filed with 82 US and Canadian companies, representing a 40% increase from the 2009 proxy season, according to Boston-based Ceres, a coalition of investors and environmental groups.

The effort is expected to intensify now that the US Securities & Exchange Commission (SEC) has issued guidance clarifying what publicly traded companies need to disclose about the material effects that climate change has on their business.

EU LP Group Asks PE To “Step Up Its Attitude To Climate Change”

In the guidelines, Institutional Investors Group on Climate Change (IIGCC), an organization whose more than 50 members manage some EUR4 trillion ($5.4 trillion) in assets, outline specific questions limited partners and general partners can ask to assess the potential impact of climate change on their portfolios.

Investments in World Bank Green Bonds Surpass USD 1 billion

“Investing in the World Bank's top-rated green bonds is a great way to promote smart and clean economic development in our planet's emerging economies while delivering dependable returns for the New York State Common Retirement Fund and its more than one million members. Investing in these bonds helps New York join the effort to curb harmful climate change while delivering bottom-line returns,” commented Thomas P. DiNapoli, New York State Comptroller, an investor in USD-denominated World Bank Green Bonds.

Hopes for USD 2 trillion global carbon market fade

The absence of legally binding global climate deal and a federal emissions trading scheme in the United States are standing in the way of the market in global emissions trading growing to achieve yearly turnover of USD 2 trillion by 2020.

"There will only be a USD 2 trillion market if the US gets on board," Trevor Sikorski, head of carbon research at Barclays Capital, told Reuters at a carbon conference in Amsterdam.

U.S. Postal Service to test a repurposed electric vehicle fleet

Starting this summer, the Postal Service, which operates the world's largest civilian vehicle fleet, will begin a year-long pilot program of electric mail trucks in the Washington area, using vehicles converted by five manufacturers.

"We have been integral to transportation since Day One," said Postal Service spokeswoman Sue Brennan, "so we consider this a role for us."

The experiment is the first field-testing of electric-powered long-life vehicles, a staple of postal delivery for decades. There are 142,000 delivery trucks still on the road. The small mail trucks are on their way to delivering their last packages -- most are between 20 and 25 years old. Last year, the Postal Service announced it would extend the lifespan of the vehicles to 30 years, buying the agency more time to make a decision about the future of its fleet while it wrestles with how to pay for replacements.

World's cheapest EV: Tata Nano electrifies Geneva show

The world's cheapest car, transformed into the world's cheapest electric car, went on display at the Geneva Motor Show.

India's Tata Nano EV seats four, has a predicted range of about 80 miles and will go from zero to about 35 miles per hour in a blistering 10 seconds. The car has super-polymer lithium-ion batteries, which Tata says provide superior energy retention.

Changing Attitudes towards EVs

The desire for EVs is growing. Will the system deliver (cars, charging stations, finance etc.)?
A huge unknown is the price of gas at the pump. The price is too low (3$+) right now. There could be a blowback if the savings are not appropriate for the price and convenience premium that is paid.

Are US drivers beginning to get switched on to electric cars?

# Roughly 10% of the survey participants said they would consider a plug-in hybrid and electric vehicle purchase.
# 34% of survey participants said they would subsidize local charging stations.
# Public awareness of emerging powertrain technologies remains weak across the US.
# Not many consumers are willing to embrace the new technology prior to it being well-established in the market.
# No other plug-in hybrid and electric vehicle incentive or benefit is considered nearly as important as saving money on fuel.
# Among several considerations, access to charging stations, battery driving range and vehicle cost are by far the three most significant consumer concerns.

A skeptical take from LA Times:

Do consumers want alternative fuel vehicles? Maybe not, new study says

"If government and manufacturers go down the path they’re on now, we’re not going to get alternative-fuel vehicles into the marketplace for quite some time," said Rosanna Garcia, an associate professor of marketing at Northeastern University who surveyed more than 7,500 car enthusiasts to gauge their interest in hybrid, plug-in hybrid, electric and diesel cars.

Garcia cited a lack of cost effectiveness, uncertainty about fuel availability, uncertainty about the cost of the vehicle and replacement parts and a lack of understanding about how the technologies work as obstacles to greater adoption of alternative-fuel vehicles, which currently account for less than 4% of registered vehicles in the U.S.
...
The main barriers to entry? For electric vehicles, it was price, coupled with insufficient range. Garcia’s study found that consumers were willing to pay as much as $70,000 for an EV, but they wanted a minimum of 110 miles per charge.

For consumers considering a gas-electric hybrid, fuel efficiency was most important. Cost was secondary. For such a hybrid, consumers were, on average, only willing to pay up to $30,000, as long as they got about 40 miles per gallon.