Tuesday, September 27, 2011

Clean energy: A faded shade of green

The NZ herald has an article looking at the forces both pushing the adoption of renewable energy forward and those retarding it - Clean energy: A faded shade of green.
For clean technology fans, the dawn of the 21st century appeared to be the best of times. As the world confronted the growing scientific consensus that rising greenhouse gases were driving climate change, a move from fossil fuels to renewables seemed irresistible. Clean technology looked a hot prospect.

Now that vision seems more muddied. Renewables are on the rise, but fossil fuels are fighting back. Coal mining has soared to feed China's energy appetite.

Oil exploration is expanding in the Arctic - where ice covers an estimated 160 billion barrels of oil, five years' supply at today's consumption rates, plus unknown amounts of natural gas - in New Zealand, and elsewhere.

Despite BP's catastrophic Deepwater Horizon oil spill in the Gulf of Mexico, drilling is poised to resume at depths of up to 3300m. Regulation remains lax. Three years after President Obama talked up clean tech, it is business as usual at the White House.

Outside its front gate, hundreds of protesters have been arrested demonstrating against plans to build a 2597km pipeline to ship crude oil strip-mined from Canadian tar sands - estimated to contain 175 billion barrels, the world's third-largest reserve after Saudi Arabia and Venezuela - from Alberta to refineries in Texas. Another Canadian pipeline is envisaged to carry oil to the Pacific.

Critics fear spills and say carbon emissions from refining the tar sands will "turbocharge global warming". Nine Nobel Laureates, including Archbishop Desmond Tutu and the Dalai Lama, have weighed in, saying the pipeline will fuel climate change and "endanger the entire planet".

Elsewhere, Obama is accused of reaching into George W. Bush's pro-polluter playbook as he gives Shell tentative approval to drill off the coast of the Arctic National Wildlife Refuge - a goal denied Bush - and of siding with the American Petroleum Institute, calculating that renewed exploitation of fossil fuels will increase jobs and relax the foreign stranglehold on America's energy supply (in this calculation at least, Canada doesn't count as foreign).

In the green camp, there is a despairing sense of clean tech opportunities missed.

"When Obama won the White House the oil business saw a threat and they rearmed," says Kert Davies, research director with Greenpeace USA. "And they sent hordes of lobbyists to Washington, and doubled down on ... campaigns to keep things the way they are. The President said some harsh things about the industry after the Deepwater oil spill.

"But in the end all US policy has bent to the oil industry. And we don't see any change."

Economic woes have also stalled investment in renewable energy alternatives.

But while frontier oil exploration and record coal sales remain the in-your-face energy reality, three inexorable, linked factors are driving deeper change.

The first is the huge energy demand caused by runaway population growth - by 2050, humankind is expected to number 9 billion, compared with 1.6 billion in 1900 - and the rise of industrial titans such as India, China and Brazil.

The second is "peak oil" - the moment when oil production reaches its highest point, then starts to decline. Whether this has occurred is contentious. It is hard to know the world's fossil fuel reserves, but they are finite.

Last year's annual report from the International Energy Agency (IEA) forecast global oil production would reach 96 million barrels per day (mb/d) in 2035 (in June it was 88.7 mb/d), driven by natural gas and "unconventional oil" such as tar sands, as conventional crude levels out.

Extracting oil would become more expensive and leave a bigger legacy of polluting carbon. And energy demand would soar 36 per cent by 2035, with most of that extra demand coming from non-OECD nations, led by China.

Oil drives transport, but electricity generation is the key to record coal consumption. Nuclear power, meanwhile, faces an uncertain future after the meltdown at Fukushima: Germany will close its reactors by 2022 and this month's explosion at a French nuclear waste site fuelled fears about safety, radioactive waste and CO2 emissions from uranium processing.

Meanwhile, infinitely sustainable renewables - solar, wind, hydro, geothermal, biofuel and ocean power - produced 16 per cent of world energy last year. The IEA forecasts that renewable use will triple between 2008 and 2035.

The third factor is climate change. When the OECD announced five "global shocks" likely to destabilise the world economy, climate change wasn't mentioned.

But money men at the sharp end, such as those in the reinsurance business, routinely factor in findings agreed by the United Nations Intergovernmental Panel on Climate Change.

However, if the past is any clue, switching energy sources will be a protracted, stop-start affair during which competing realities co-exist.

Sail didn't give way to steam overnight, just as steam didn't surrender to oil in an instant. Big Oil and renewables may co-exist for decades, given the complex challenge of rejigging vital infrastructure - transport, power generation and the like - in developed societies addicted to the old fossil fuel order.

But while making the transition is expensive, delaying may be more so. Studies suggest that choosing renewables increases jobs and wealth by more than expanding sunset industries. At the same time, clean energy costs are coming down, as oil costs climb.

Wednesday, September 21, 2011

The NZ ETS Review 2011: Clear signals for business as usual

Robin Johnson's Economics Web Page cross-posts on the recent Review of the New Zealand Emissions Trading Scheme.

New Zealand Minister for Climate Change Issues Nick Smith has finally released the delayed report of the NZ Emissions Trading Scheme Review 2011. The 98-page report is titled Doing New Zealand’s Fair Share, The Emissions Trading Scheme Review 2011.

The review panel chaired by former Rogernome David Caygill gave their report to Smith on 30 June 2011. Two and half months later and one week into the Rugby World Cup, Smith has let the report out into the world.

From the title of his press release, Slowing of ETS recommended by Review Panel, I think Smith is pretty happy with the report. It also uses some of Smith's favourite phrases; such as "Doing our fair share" and balancing the environment and the economy.

"The Panel acknowledges there needs to be an appropriate balance between managing these short-term costs and providing a clear long-term direction. Given the current international uncertainty and the challenging state of the economy, this means there should be measures in place which ensure the increase in the costs of the ETS occurs at an appropriate pace."

If you don't want to scroll through another 98 pages of blue-green flannel just like that, the best short sweet on-line summary to read is this Reuters factbox.

For me, these recommendations are the guts of the ETS Review report (as numbered in that report).

Agriculture's planned 2015 entry to the NZ ETS should not be delayed (4.1). At least they didn't cave in to Federated Farmers. But there is a big but to this.

The important issue of the lack of a real cap on emissions is just kicked for touch and left for future reviews (3.15)

The issue of high volumes of subsidised allocation of free emissions units to industry is just kicked for touch (3.9).

Remember that the NZ ETS includes a $25 fixed price option for buying emissions units until 2012? This is limited to energy, transport and industry. This option would have acted as a maximum limit on unit prices, except for the fact that NZU prices were never more than $25 in 2010.

The report recommends keeping the fixed price option/price limit out to 2017 and increasing it by $5 each year (2013; $30, 2014; $35, 2015; $40, 2016; $45, 2017; $50).

I am very skeptical that actual NZ units prices will reach these levels. The Euro-zone debt crisis has just contributed to the recent collapse of the international carbon price. The international carbon price is the dominant driver of NZ unit prices. It is pure speculation that actual NZ prices will be any where near the proposed price ceiling.

Remember Nick Smith's two for one deal for 2010 to 2012? Where emitters can can emit two tonnes of greenhouse gases and surrender one emission unit? In other words it halved the emitters obligations to surrender units. The report recommends extending this to out to 2015. So 2013 would be the "three for two" deal, 2014 would be the "five for four" deal, before finally going to one tonne to one unit deal in 2015. So in carbon pricing we look to simplistic sales slogans. Only in New Zealand.

And I said there was a 'but' for agriculture. On entry in 2015, the report recommends that agriculture should be eligible for the two for one deal until 2016. Then three for two deal, the five for four deal, before finally going to one tonne to one unit in 2019. Oh I forgot to mention that from 2019 there would still be 90% allocation of free units declining at a linear rate of 1.3% each year.


I must admit I am completely underwhelmed by the report, its analysis and it's recommendations. I didn't think it was possible to further dilute the carbon price signal in the NZ ETS with more exemptions. I didn't think it was possible to make the NZ ETS sound even more like a bad used car parts advertisement. But I am wrong on both counts.

Thursday, September 15, 2011

Australia to host geoengineering conference

The Brisbane Times reports that a geoengineering conference will be held in Canberra later this month - Australia to broach radical global warming solutions.
Clouds could be made more reflective and oceans fertilised to increase carbon dioxide absorption under ideas to be discussed at Australia's first high-level climate engineering conference later this month. International interest in climate engineering – also known as geoengineering – is increasing as efforts to curb the world’s emissions of greenhouse gases continue to falter.

Scientists said the event was an important step for Australia into the controversial geoengineering debate but expressed grave concerns some proposed technologies could have dangerous and far-reaching side effects.

The two-day science symposium, starting in Canberra on September 26, is being hosted by the Australian Academy of Science and the Australian Academy of Technological Sciences and Engineering. Among the more controversial ideas being discussed is the injection of sulphur particles into the stratosphere to reflect sunlight and slow global warming.

Other technologies include fertilising oceans to increase uptake of carbon dioxide and spraying aerosols into the atmosphere to increase the reflectiveness of clouds. But the meeting will also cover relatively benign ways to pull greenhouse gases from the atmosphere, including planting more trees and using climate-friendly agricultural techniques.

Cross-posted from Peak Energy.

Tuesday, September 13, 2011

Sydney's New 1 Bligh St Skyscraper is Australia's Greenest Office Tower

Inhabitat has a post on a new green building in Sydney - Sydney's New 1 Bligh St Skyscraper is Australia's Greenest Office Tower. I haven't had a close look at it but the lobby certainly looks impressive...
Ingenhoven Architects + Architectus recently unveiled a brand new glass high-rise in downtown Sydney that has earned the highest score in Australia’s Green Star standard. Inaugurated by Australian Prime Minister Julia Gillard and commissioned by the Dexus Property Group, the 1 Bligh office tower glows from within with 28 story-high atrium that stretches from the building's lobby to a massive skylight up top.

The floor-to-ceiling atrium also acts as a natural cooling system, siphoning hot air and funneling it out the top of the building. Office balconies line the interior of the atrium, benefitting from the breeze and natural light.

The shape and design of the building is based on solar orientation – the layout creates advantageous shady and sunny areas. Employees can enjoy harbor views from any height through the clear glass façade. An outdoor patio on floor 15 offers a place to have lunch with a view. The entire roof is a green planted terrace accessible from the 28th floor that offers superior harbor and city views, fresh air, and greenery. The roof deck is also partially covered so employees can still enjoy it in rain. The soil and greenery on the roof cuts down on the building’s solar gain.

The double skinned façade glitters in Sydney’s skyline, while cooling the inside. The building is partially powered by a vacuum tube solar collector. Sydney frequently experiences water issues, so the building has an on-site wastewater recycling system that is so prolific it recycles some public sewage system water as well. On-site bicycle parking encourages employees to take green transportation to work.

Thursday, September 8, 2011

The thin ice of modern life

(pinched from Peak Energy)

Scientific American has a post on the decline of arctic sea ice - Total Arctic sea ice at record low in 2010: study.
The minimum summertime volume of Arctic sea ice fell to a record low last year, researchers said in a study to be published shortly, suggesting that thinning of the ice had outweighed a recovery in area The study estimated that last year broke the previous, 2007 record for the minimum volume of ice, which is calculated from a combination of sea ice area and thickness.

The research adds to a picture of rapid climate change at the top of the world that could see the Arctic Ocean ice-free within decades, spurring new oil exploration opportunities but possibly also disrupted weather patterns far afield and a faster rise in sea levels.

The authors developed a model predicting thickness across the Arctic Ocean based on actual observations of winds, air and ocean temperatures. "The real worrisome fact is downward trend over the last 32 years," said Axel Schweiger, lead author of the paper, referring to a satellite record of changes in the Arctic.

"The real worrisome fact is downward trend over the last 32 years," said Axel Schweiger, lead author of the paper, referring to a satellite record of changes in the Arctic. 
The researchers at the University of Washington in Seattle checked the model results against real readings of ice thickness using limited submarine and satellite data.
The approach has some detractors because it is focused is on modeling rather than direct observations of thickness, and therefore contains some uncertainty.

Sea ice area is easier to measure by satellite than ice thickness, and so has not needed a modeling approach.

The figure above is from the Arctic Sea Ice Blog and shows [modelled] sea ice volume. The figure below (from The Cryosphere Today) shows the sea ice extent in millions of square kilometers.

The anomaly for this time of year is a loss of about 1.8 million square kilometers. What does that mean?

The maximum total sea ice area in winter is about 13 - 14 million square kilometers (also falling) or about 2 Australias. So the deficit in area at the end of the summer melt compared to the long term average is equivalent to 1 Queensland, 2 NSWs, 7 New Zealands or 20 Tasmanias.

Tassie often goes missing in stylised maps of Australia, but I think people might notice if Queensland did.

Tuesday, September 6, 2011

Will NSW renewables be blown off course by Victoria’s winds of change ?

The Conversation has an article on the ever shifting sands of state renewable energy policy and the boom-bust cycles the shifts create in industry - Will NSW renewables be blown off course by Victoria’s winds of change?.
Not so long ago, Victoria was the poster child for renewable energy policy in Australia.

It had a Climate Change Act put in place to reduce greenhouse gas emissions by 20% between 2000 and 2020. It had a government-supported plan to get 5% of its power from the sun by 2020.
Victorian households were being paid 60 cents per kilowatt hour for solar power they pumped back into the grid. And wind farm proponents were queueing up to take advantage of the state’s excellent wind resources.

Then there was an election, and the wind changed in Victoria.

Could the wind power industry now turn to NSW for further development? Or will a Coalition-controlled NSW also prove to be hostile territory for wind power?

First, let’s consider the effects a change of government had in Victoria.

Ted Baillieu’s Coalition has backed away from its previous support for the Climate Change Act, describing its legislated targets – such as a 20% reduction in CO₂ – as “aspirational".
Then, in a horror week for renewable energy, the Victorian Government slashed its support for rooftop solar power and introduced restrictive new planning requirements for wind farms.

The planning changes mean wind farms can’t be built within two kilometres of a home without the written consent of the home owner. The ban also applies within five kilometres of 21 regional cities. Scenic locations, such as the Great Ocean Road and Dandenong Ranges, are also off-limits.

Unless you have an entire community on-side, the new planning regulations don’t leave many places to build.

Last year, the National Health and Medical Research Council found no published scientific evidence to link wind turbines with adverse health effects. Yet the Victorian decision allows a single opponent to veto a wind farm development even if the rest of the community wants it.
Is this how planning decisions should work? What happened to weighing up community opinion and making a decision in the public interest? Residents have no such right of veto over coal-fired power stations, new roads or mansions that block their view.

The Clean Energy Council claims the decision could cost Victoria $3 billion in wind farm investment. Some wind farm developers have already announced plans to look elsewhere.
So, will the wind power industry shift its focus to NSW for future developments? Not if NSW Premier Barry O'Farrell has his way.

O’Farrell recently expressed his personal preference for no more wind farms in NSW. While he later stressed his commitment to the NSW target of 20% renewable energy by 2020, investors would be worried.

Under the previous Labor government in NSW, most wind farm decisions were made by Minister for Planning, Tony Kelly, instead of local councils. This meant local concerns about wind farms could easily be overlooked.

The O'Farrell-led Coalition government is considering new planning guidelines for wind farms which are likely to give local communities more say in decisions regarding nearby wind farms. But there are indications the guidelines will be more flexible than those in Victoria.

Despite these indications, it is impossible to predict whether NSW will go down a similar path to Victoria, making renewable energy generation increasingly arduous. In fact, predicting future renewable energy policy anywhere in Australia is a challenge.

That is precisely the problem – renewable energy in Australia has been on a rollercoaster of boom and bust, driven by frequent policy changes.

Consider two examples.

In 2001, the Howard Government’s Mandatory Renewable Energy Target (MRET) led to a boom in wind power. The policy mandated that, by 2010, 2% of Australia’s electricity generation would be sourced by renewables.

When the target percentage was not increased in the years following the policy announcement, the wind power boom faded away. Wind companies that had set up manufacturing facilities in Australia pulled out, and have not returned since.

More recently, the NSW Government offered a generous premium tariff for households to install solar panels, only to slash the scheme when it became too popular.

Given these developments – and the policy decisions mentioned above – it’s a wonder that Australia has any renewable energy installed at all.

For investors and small businesses, the constant chopping and changing makes renewable energy a risky venture. The Gillard Government’s carbon price will deliver greater consistency for investors but it, too, is vulnerable to a change in government.

Australia has enough renewable energy resources to become a renewable energy superpower. To realise this potential, renewable energy needs consistent long-term policy to support its steady development as a response to climate change.

Unfortunately, climate change has become an ideological battle ground where consistency is hard to find.

Fortunately, we do have a consistent national mechanism to support renewable energy – Australia’s Renewable Energy Target, which requires 20% of our electricity to come from renewable energy by 2020.

Now we just need a consistent national planning approach to back it up.

CSIRO Solar field construction timelapse video

The CSIRO has some video of the construction of a solar thermal power R&D facility - Solar field construction timelapse.
For your viewing pleasure: the construction of CSIRO Solar Field 2, in just over a minute.

Monday, September 5, 2011

How wind is cutting energy costs

Giles Parkinson at The Climate Spectator has some more real world validation of Jerome a Paris’ frequently made argument that wind power lowers power prices - Why wind is cutting energy costs.
The most common critique of wind energy, and renewables in general, in the mainstream media and anywhere the issue is discussed is that it is expensive.
The problem is, this is only half true. Or at least, it only tells half the story. While the levelised cost of energy from wind farms is higher than that of baseload coal and gas, the deployment of wind energy here and overseas is having a surprising impact on energy market prices: it is causing them to fall.

And it’s not the only myth that a new analysis of the South Australian market has busted: wind is succeeding in displacing coal, it is also having a dramatic impact on the state’s energy emissions, and it doesn’t need anywhere near as much back-up generation as some like to claim.

The International Energy Agency wrote on the price impact earlier this year – and we reported on it – when it cited the case of Ireland, where wind energy is causing wholesale prices to fall by around €74 million; the same as the cost of feed-in tariffs to support the financing of wind power and the associated balancing costs.

Now Windlab Systems, the CSIRO spin-off that has developed the world’s leading wind mapping technology and is now in the business of developing wind farms – including some in places in inland Australia where you wouldn’t expect them – has produced a similar assessment of how its proposed 700MW Kennedy wind farm in north Queensland would impact pool prices in the state. But it says the cost benefits could be even greater.

According to modeling presented at a seminar in Sydney last week, a 700MW wind farm – which would be the largest in the country – would cost consumers $120 million a year from 2013/14 from the amount of renewable energy certificates that are used to subsidise green energy under the renewable energy target. (That figure is based on a REC price of $55/MWh, compared to around $40 now).

But the modeling also suggests that the amount of electricity generated by the wind farm would cause pool prices to fall by up to 9 per cent, reducing the average price in 2013/14 from around $67/MWh (a carbon price would be included by then) to around $61/MWh. The savings in costs to consumers would be $330 million, nearly three times the cost of the subsidy. There is a further cost benefit from a reduction in transmission losses, because the wind farm would be situated far closer to customers than current generators. Windlab estimates these savings to be around 5 per cent from the cost of energy.

So how does “expensive" wind deliver cheaper energy prices? By a mechanism known as the merit order effect, which has successfully delivered cheap electricity prices to Australia (and other countries) by allowing those generators with the lowest variable marginal cost (mostly, the cost of fuel) to get priority. The final price is set by the last generator needed to meet demand – the higher the demand, the higher the price paid by all.

What the MRET and other subsidies do is allow the wind farms to jump to the top of the queue, meaning less of the expensive generators are needed, and so the marginal cost that sets the pool price is cheaper. “It is actually a very efficient mechanism to capture those benefits," says Richard Mackie, Windlab’s general manager in Australia.

(It should be noted that some funny things do happen at night, when demand is low and coal generators, which don’t like to be switched off, bid negative prices. The introduction of large amount of wind in SA has made this a more regular event, and this has added to the lower pool prices. Some wind farms have chosen instead to switch off capacity).

Unsurprisingly, the fossil fuel industry hates this. For decades, they have enjoyed a system where rising demand pushed prices up until a strong enough signal was given for more capacity to be built. Once it was, prices eased back again and so the process renewed itself.

The arrival of wind in the last decade, and the MRET, threw a spanner in these works. Apart from cutting their margins, it also means that significant baseload gas generation is less likely to occur unless coal capacity is removed, which is why some call for the MRET to be scrapped or reduced.

But doesn’t this mean that wind is simply displacing gas, rather than coal, and not achieving so much in the reduction of emissions – two other accusations (other than price) that are often thrown at the wind industry?

Not according to another analysis conduct by Windlab, using data from the Australian Energy Market Operator of the South Australian market, which has the biggest penetration of wind anywhere in the world apart from Denmark.

There are more than 1150MW of wind turbines in SA, accounting for 21 per cent of nameplate capacity. Normally, that might be translated into around 5-10 per cent of overall electricity produced, depending on the wind conditions, because wind doesn’t blow all the time.

But in SA, wind also accounts for 21 per cent of energy production – mostly because it has been displacing brown coal energy that is imported from Victoria. The brown coal generators know this, which is why they fought so hard to water down Victoria’s renewable energy target and to argue against an upgrade for the interconnector linking the two markets – too much wind power is bad for fossil fuel profits.

The increased penetration of wind also helped the state record a dramatic reduction in carbon emissions. In 2005/06, when wind contributed just 5 per cent of the electricity produced, SA’s emissions from electricity were 9.8 million tonnes of co2e. In 2010/11, when wind contributed 21 per cent, the emissions had dropped to 8mt/C02e, even though overall electricity production had increased around 6 per cent over the period. Windlab says most of this reduction, which translates into a 23 per cent cut in emissions intensity from from 0.72 to 0.55 tonnes of CO2e, can be attributed to wind.

But don’t wind farms need massive amounts of back-up power from expensive and comparatively heavy-emitting open cycle gas turbine (OCGT) plants, also known as peakers?

Not in the case of SA. Windlab says 200MW of OCGT has been added to the state’s grid over the last five years, compared to 763MW of wind, but much of that new peaking capacity is designed to cope with rising peak demand – driven by the increased use of air conditioners – which has risen by 370MW, or 23 per cent, over that period.

And here’s another surprising statistic: the amount of electricity produced from peaking plants has actually fallen in the past five years, from 501GWh to 325GWh, despite the increased capacity and the rising peak demand. Not only has wind reduced imports of brown-coal generation from Victoria, it has also, counter-intuitively, reduced the need for peaking plants for much of the year – although not, it should be noted, at times of the highest peaks caused by extreme heat waves, when wind has mostly absented itself.

Wind has not needed anything near like-for-like backup, as some of the more absurd analyses from the anti-wind brigade pretend. Indeed, some of the peaking plants last year were used less than 1 per cent of the time – little changed from before wind’s arrival.

There is no doubt, that a high penetration of wind energy like that which has occurred in SA is challenging to manage. But it can be done. In SA this is helped because there is a large amount of gas, baseload and otherwise, which offers more flexibility; and because there has been accurate wind forecasting (thanks to Windlab), which helps manage wind’s variability. And the wind industry says there are demonstrable benefits: wind energy does reduce emissions, it cuts the pool price (sometimes by more than the cost of the original subsidy), it reduces transmission loss factors, and, of course, it brings in investment and jobs.

EcoImagination: Water Recycling

GE's "Imagination Network" has a new video on water recycling from an Australian viewpoint (following on from their recent Smart grids video) - The Water Recycle".

The video can't be reduced in size and this blogger template isn't really compatible with large width embeds, so you might want to go to the link to watch it...

Saturday, September 3, 2011

Energy and the Economy Part 2.

I am going to engage in some speculation. Let us accept the following assumptions as a premise for this argument,

1. The economy is a chaotic system.
2. Both our markets and our economy are displaying classic chaotic bifurcating behaviour (they are bouncing up and down).

Question: Why the bifurcating behaviour? What is driving the instability?

I am going to argue that the answer is blindingly simple and very obvious when you think about it, but a full understanding requires some background knowledge.

1. Mathematically, what does the economy look like?

To understand the driver of the instability, we need to tackle another issue: Mathematically, what does the economy look like – what drives the economy?

As a first order approximation, the answer is simple and obvious. The economy grows exponentially. The expansion is a requirement of the Fractional Reserve System. To quote Wikipedia : “Fractional reserve banking involves the creation of money by the commercial bank system, increasing the money supply.” The amount of money in circulation (the money supply) each year MUST increase, in order to make the Fractional Reserve system work. This has a tendency to create inflation if it is not balanced by an equal increase in GDP.

In simple, non-maths terms the economy MUST grow by a few percent every year.

The reason for this is simple. If the amount of money in circulation increases, but goods produced do not increase, then you have more money chasing the same quantity of goods, so each “unit” of goods will be “worth” a higher amount of money. Actually it is much more complex than that (look up “Velocity of money” as a starting point) but that is a good first-order explanation.

So. The mathematical description of the economy is very simple – money supply must expand exponentially (driven by the nature of the Fractional Reserve system), and the underlying productivity that the money “maps” to must expand with it.

Failure of expansion in either the money supply or GDP will result in problems.

If money becomes unavailable (as occurred during the depression) then the Fractional Reserve System fails – there is no money available to pay debt so debts are defaulted on. Since money (in our system) is based on debt, the default causes the money to “disappear” (the debt is “written off” by the bank), and this reduces the amount of money in circulation, exacerbating the problem (as occurred in the Great Depression).

John Maynard Keynes  had the insight that this problem can be fixed by central banks – they step in and inject money into the system to “re-inflate the economy”. Once the amount of money in circulation is once again in line with the required growth rate, the normal investments that businesses need to do (in order to grow) can be carried out, and growth returns. (Again, this is a grotesque simplification – but good enough for a first order understanding. For more detail read the Wiki article).

Since the 1980s our economy has been dogged by a series of recessions, which the Central banks have responded to by injecting cash (another simplification, but it will do).

The cash injections worked, but a pattern emerged: as a rough approximation, it is fair to say that each recession required more central banking intervention than the last – culminating in the 2007/2008 GFC, which required unprecedented intervention. The GFC was odd, in that the interventions don’t seem to have worked.

2. On Bubbles.
The injection of money into the economic system is meant to encourage investment in productive businesses and thus re-start growth. However recent decades have seen a different pattern. Injection of money has led to investment in a series of “bubbles” and in intangible “Financial Instruments” rather than investment in productive businesses (i.e. businesses that produce tangible things).

The most recent bubble was the housing bubble. A house has a limited “lifespan”, so the value of a house should depreciate as it ages. However, in recent years the value of a house has gone up, not down.

In common with other bubbles has been a faith in the “Greater Fool” theory: The theory that you can buy an object at an inflated price now and sell to a “Greater Fool” for an even more inflated price later – even though the value of the object should have depreciated.

Why would people invest in a depreciating asset - and thus implicitly trust to the “Greater Fool” theory? The answer is obvious. They do this if there is money to invest and no better investment available.

If you can’t invest in a sound business (a business that produces something new of tangible value) then you invest in a bubble (depend on a Greater Fool).

So a bubble requires two elements:

i)  A supply of cash, looking for investments.
ii) Limited sound business investments.

3. Putting it together.
So suddenly Keynes isn’t working. Why not? The answer is obvious. The Economy has two parts which must “map” to each other:

i)   Money supply
ii) GDP (a proxy for "stuff made" or productivity).

We have just said that it appears that productive investments don’t seem to be available – so any expansion of GDP is due to phantom bubble blowing, not real productivity.

Injecting money only works if it can engender “real” growth. If the production of tangible goods is not an option, the money leads to a bubble, which collapses. A fair description of the last 15 years.

The Dow Jones has collapsed to a level below where it was in 2000 (in real terms). US GDP should probably do the same and if the US dollar continues to decline the value of the US economy (in real terms) probably will drop to pre-2000 levels (it may have already, I haven’t done the maths).

So now we can answer the question: Why is the economy undergoing a chaotic bifurcation?

The Keynes strategy was designed to deal with a contraction in money supply. But money supply maps to underlying productivity. What if the problem is a contraction in the ability to grow? This won't be cured by adding money - the money needs to be invested in growth.

A few simple data points:

i) Growth of economies is correlated with growth of consumption of energy supplies. Recent studies that found a possible weakening in this correlation for developed nations failed to consider the fact that the energy consumption had simply been outsourced to the manufacturing nations. (See the Bundeswehr study referenced in Part 1 for more discussion and references).
ii) Oil production peaked and plateaued in around 2005. (See the Bundeswehr study referenced in Part 1 for more discussion and references).
iii) Energy and mineral resources required to extract energy and minerals is increasing exponentially as the quality of resources decreases (see here and here for discussion.).

Given these trends it is obvious that the quantity of resources available to do useful work for society is going to struggle to keep up with growth. This is reflected in an increase in prices for these resources – making investment in any resource-requiring production (i.e. any production of tangible goods) difficult. This clearly encourages investment in “phantom” productivity – bubbles and intangible “services” or products.

If the growth in money supply over recent years was invested in phantom bubbles, then of course it will collapse until it represents the value of the “real” economy.

This is seemingly well under way.

But there is an underlying issue: The Fractional Reserve System REQUIRES growth. If growth is not possible, then this system is fundamentally unsound.

So here is the issue in a nutshell: The Keynes policy approach addresses an issue with money supply. It would allow money to be invested in growth. But what we have is an issue with growth. The system is much more complex than I have indicated, but this fundamentasl mismatch is (I believe) at the core of the problem.

It is simple, and (when you think about it) obvious.

The bifurcation(s) must drive a decrease in complexity until a stable system evolves. If growth is less possible, a new system must evolve.

Energy and the Economy Part 1.

A complete version of the Bundeswehr (German Army) study is now available. Amazingly, they seem to be interpreting things in quite interesting ways. In many ways it looks spookily familiar – first in their reference to a bifurcating chaotic system, and second in their comment that “All other subsystems have developed hand in hand with the economic system. A disintegration can therefore not be analysed based on today’s system. A completely new system state would materialise.” Excerpts from the Bundeswehr study:
The phenomenon of tipping points in complex systems has been known for a long time and is referred to as “bifurcation” in mathematics. Tipping points are characterised by the fact that when they are reached, a system no longer responds to changes proportionally, but chaotically. Currently, reference is made to potential “tipping processes” most notably in the field of climate research. At such a point, a minor change to one parameter – in the case of the climate, a change in temperature – would have a drastic effect on an ecosystem. At first glance, it seems obvious that a phase of slowly declining oil production quantities would lead to an equally slowly declining economic output. Peak oil would bring about a decline in global prosperity for a certain length of time, during which efforts could be made to develop technological solutions to replace oil. Economies, however, move within a narrow band of relative stability. Within this band, economic fluctuations and other shocks are possible, but the functional principles remain unchanged and provide for new equilibriums within the system. Outside this band, however, this system responds chaotically as well. From the perspective of economics, at least one border of the band can be identified: an economic tipping point exists where, for example as a result of peak oil, the global economy shrinks for an undeterminable period. In this case a chain reaction that would destabilise the global economic system and cause a clear shift in the analytical framework for all other security consequences would be imaginable. The course of this potential scenario could be as follows: [Short Term] 1. Peak oil would occur and it would not be possible, at least in the foreseeable future (153), to entirely compensate for the decline in the production of conventional oil with unconventional oil or other energy and raw material sources. The expression “foreseeable” is very important in this context. Ultimately, it leads to a loss of confidence in markets. In the short term, the global economy would respond proportionally to the decline in oil supply (154).
  1.  Increasing oil prices would reduce consumption and economic output. This would lead to recessions.
  2.  The increase in transportation costs would cause the prices of all traded goods to rise (155). Trade volumes would decrease. For some actors, this would only mean losing sources of income, whereas others would no longer be able to afford essential food products.
  3.  National budgets would be under extreme pressure. Expenditure for securing food supplies (increasing food import costs) or social spending (increasing unemployment rate) would compete with the necessary investments in oil substitutes and green tech.
Revenues would decrease considerably as a result of recession and necessary tax reductions. [Medium Term] In the medium term, the global economic system and all market-oriented economies would collapse.
  1.  Economic entities would realise the prolonged contraction and would have to act on the assumption that the global economy would continue to shrink for a long time (156).
  2.  Tipping point: In an economy shrinking over an indefinite period, savings would not be invested because companies would not be making any profit (157). For an indefinite period, companies would no longer be in a position to pay borrowing costs or to distribute profits to investors. The banking system, stock exchanges and financial markets could collapse altogether (158)
  3.  Financial markets are the backbone of global economy and an integral component of modern societies. All other subsystems have developed hand in hand with the economic system. A disintegration can therefore not be analysed based on today’s system. A completely new system state would materialise.
Nevertheless, for illustration purposes here is an outline of some theoretically plausible consequences:
  •  Banks left with no commercial basis. Banks would not be able to pay interest on deposits as they would not be able to find creditworthy companies, institutions or individuals. As a result, they would lose the basis for their business.
  •  Loss of confidence in currencies. Belief in the value-preserving function of money would dwindle. This would initially result in hyperinflation and black markets, followed by a barter economy at the local level.
  •  Collapse of value chains. The division of labour and its processes are based on the possibility of trade in intermediate products. It would be extremely difficult to conclude the necessary transactions lacking a monetary system.
  •  Collapse of unpegged currency systems. If currencies lose their value in their country of origin, they can no longer be exchanged for foreign currencies. International value-added chains would collapse as well.
Mass unemployment. Modern societies are organised on a division-of labour basis and have become increasingly differentiated in the course of their histories. Many professions are solely concerned with managing this high level of complexity and no longer have anything to do with the immediate production of consumer goods. The reduction in the complexity of economies that is implied here would result in a dramatic increase in unemployment in all modern societies.
  •  National bankruptcies. In the situation described, state revenues would evaporate. (New) debt options would be very limited, and the next step would be national bankruptcies.
  •  Collapse of critical infrastructures. Neither material nor financial resources would suffice to maintain existing infrastructures. Infrastructure interdependences, both internal and external with regard to other subsystems, would worsen the situation.
  •  Famines. Ultimately, production and distribution of food in sufficient quantities would become challenging.
The report runs to 112 pages, a link to it is available from the Energy Bulletin review here.

Friday, September 2, 2011

PacPyro - A Landfill Listing ?

The Climate Spectator has a report on a company looking to exploit biochar production for carbon credits - Landfill listing.
Landfill energy and biochar specialist Pacific Pyrolysis has decided to push the go button on its backdoor listing on the ASX less than a week after the federal government got its Carbon Farming Initiative through parliament. ...

The company has developed technology that uses a process of slow pyrolysis to convert low value, non-food biomass, such as municipal green waste and industrial sludges into renewable energy and biochar, and says it has an extensive pipeline of projects with major corporations and councils. It has a demonstration plant north of Sydney and expects its business to be able to generate renewable energy certificates and also be included in the CFI, which will allow farmers and others to generate credits for carbon abatement initiatives.

PacPyro hopes to tap into the $10 billion landfill market, exploit rising landfill costs and energy prices to deliver its technology as a cheaper and more profitable option. It expects to deploy its first commercial scale plants from 2012, depending on its ability to strike commercial partnerships, and to potentially tap government funding, as well as its ability to generate renewable energy and carbon credits.

Cross posted from Peak Energy.

New Zealand Officials Muzzled on Peak Oil?

from Denis Tegg at oilshockhorrorprobe 

The government has finally released its Energy Strategy. There are cosmetic changes from the Draft version but it's no surprise that the final Strategy continues to completely ignore the threat of peak oil.  There were many submissions, including my own, which detailed the raft of recent reports from oil and energy experts, think tanks and government institutions which are all pointing to an imminent supply and oil price crunch. And in 2009 government officials themselves gave strong warnings to Ministers. So since 2009, have the officials been muzzled?

Thursday, September 1, 2011

Plane biofuel to be made from eucalypts

The SMH reports that Virgin Blue, looking to escape the squeeze from scarcer fossil fuels, is partnering with a consortium including GE to produce biofuel for aviation from eucalypts - Plane biofuel to be made from eucalypt.
A consortium of companies is taking action by using eucalypt trees to develop a commercial biofuel for the Australian aviation industry.

"Innovation and creativity will play enormous roles as part of the transition to a low carbon future," said Ben Waters, director of ecomagination, GE Australia and New Zealand.

GE on Thursday announced it was joining Virgin Australia and other partners to research and develop the commercial biofuel.

The focus will be on using a thermochemical decomposition of organic material - at elevated temperatures in the absence of oxygen - to covert mallee eucalypt trees to the biofuel.

Mr Waters said a pilot biofuel production unit would be opened in Australia next year. ...

A recent CSIRO report estimated the aviation industry could cut greenhouse gas emissions by 17 per cent, generate more than 12,000 jobs and reduce Australia's reliance on aviation fuel imports by $2 billion per annum over the next 20 years through the adoption of biofuels.

Other members of the consortium include Renewable Oil Corporation, the Future Farm Industries CRC, and Canadian biofuels company, Dynamotive Energy Systems Corporation.

The report mentioned above may be Sustainable Aviation Fuels Road Map: Data assumptions and modelling

Cross posted from Peak Energy.

Conservative Behaviour

Two articles from The Conversation. The first looks at recent trends in Australian power consumption, admittedly from a small sample of years, suggesting that consumers are using less electricity and exploring some of the likely causes.

The second, is a damming dissection of climate change denial in The Australians ongoing campaign against reality.

Powering down – has Australian electricity consumption hit its peak?
A number of recent reports have documented an unprecedented decline in electricity consumption. The Australian Bureau of Agricultural and Research Economics, in its 2011 Energy Update, shows a decline of 5.4% in 2008-09, followed by a 1.2% decline in 2009-10.
Event horizon: the black hole in The Australian’s climate change coverage
The problem is that on one side of the debate you have 97% of the world’s published climate scientists and the world’s major scientific organisations, and on the other side you have fools.

Excuse my bluntness, but it is past time to acknowledge that the science underpinning anthropogenic climate change is rock solid. The sceptics have had the time and opportunity to come with up a convincing case, but their best efforts read like arguments that NASA faked the moon landing.

The Australian’s anti-science campaign takes many forms. One is the inflation of the credentials of their fake experts. For example, OpEd writer and member of the Outdoor Recreation Party Jon Jenkins was referred to as an “Adjunct Professor”. Bond University wrote to The Australian informing them that this was not true.

Howard Brady was called a “climate change researcher from Macquarie University”; in fact, Brady is a 70 year-old retiree who has published just seven scientific papers (on Antarctic sediments, not climate), the most recent one in 1983, following which he worked for 17 years in the oil industry. Macquarie University contacted The Australian to set the record straight.

In neither of these cases did The Australian publish a retraction or clarification.

One feature I really like at The Conversation site is the ability to vote down comments as unconstructive. For some trivial childish reason I take great pleasure in voting obvious stooges down - and take heart that all is not lost when others appear to share this sentiment.