Wednesday, March 15, 2006

Global Petroleum Showdown

Since I am clearly an expert on international politics, energy policy, and diplomacy, I thought I would take a few minutes to investigate the impending international conflicts over access to petroleum-based energy.

From today's NYTimes
House Advances Iran Sanctions Bill

Seems that the United States would like to add a potentially severe economic penalty to any country that would dare question our wholehearted desire to promote democracy and freedom in the Middle East. Well, since China and Iran have a mutually beneficial relationship to the tune of $9.5 billion a year (up 23% in 2005) in trade, we'll be annoying our symbiotic partner, China, in the Pacific Ocean Freighter Exchange.

The commentary in the Asia Times from February 10, 2006,
China's energy insecurity and Iran's crisis, indicates that it is more important for China to maintain a friendly relationship with the United States than pursue energy deals with Iran, potentially helping them fuel their nuclear energy aspirations. According to the Energy Information Agency, China's dependence on foreign oil reached 40% in 2004 and their growing economy accounted for about 1/3 of the global demand-increase from 2001-2004. It is clear that a stable Middle East/Persian Gulf is critical to China's continued growth.

Speaking of nuclear energy and economic growth, what about India? Various headlines from The Economist to Pravda have weighed in on President Bush's recent visit to India and subsequent deal with the government of India to share nuclear energy technology.

Dr Strangedeal

George Bush thinks nuclear agreement with India could help lower fuel prices

It will remain to be seen how the decision to share nuclear technology with India, a country sanctioned by the United States in 1998 for their nuclear testing, will affect long-term energy prices and nuclear weapons proliferation. With these mixed signals received by Iran and North Korea, the international negotiations with these countries over the next few years should be interesting.

In the words of Senator Lieberman (D-CT)
We are heading towards two-thirds [reliance of] each country on ... foreign oil. Let's recognize this problem before it becomes an intense competition which can actually lead to military conflict.
Is this the beginning of Senator Barack Obama's 2008 campaign platform?

Monday, March 06, 2006

The Luxury of Travel

"Flying Kills" may be an overstatement, and incomprehensible for some people, like how individually driving large inefficient vehicles can contribute to poor air quality, or how one person's decision to block an intersection contributes to traffic congestion. Of course, it's all the miniscule individual actions that add up to a larger problem, or in some cases, a solution.

Air travel is not something that will just go away. What is the global economic adder attributed to air travel? It must be in the trillions of dollars globally. There are technologies that help reduce the need for travel, like using online presentation services or video-conferencing. What about recreational travel? This is less likely to be curbed by technology, though if we take a page out of the movie Total Recall perhaps we will live the utopian world where memories of vacations are implanted in our brains. It will save us time, money, and help save the planet!

An excerpt from the article, that references the silver bullet of hydrogen fueling the planes, the same technology that many in the transportation sector thinks will save us,
...The airline companies keep talking about hydrogen planes, but if ever the technological problems were overcome, they would be an even bigger disaster than the current models. "Switching from kerosene to hydrogen," the Royal Commission says, "would replace carbon dioxide from aircraft with a three-fold increase in emissions of water vapor." Biofuels for airplanes would need more arable land than the planet possesses. The British government admits that "there is no viable alternative currently visible to kerosene as an aviation fuel."
The quote brings me back to the conversation I had with my friend about alternatives to long-lasting plastics that depended on corn for their raw materials. Eureka! The answer is biofuels! Oops, everyone else wants it too.

An element of the debate about conserving resources is geo-political stability. With emerging economies like India and China looking for sources of energy and striking deals to fuel their growth, the potential for conflict with the existing economic powerhouses of the West increases. In addition, these emerging economies may not be so keen to join others of the "peaceful" world in refusing sanctioned countries' energy sales. The emerging economies need the energy and the sanctioned countries need the money. That sounds like a win-win to me. In the long run, prices will rise, the squeeze on affordable energy and potable water will ensue, and voila! more violent conflicts.

The EU makes the following statement from "A New Energy Policy for Europe":
A number of converging factors support a renewed interest in developing a New Energy Policy (NEP) for Europe, inter alia: the lasting difficult situation on the oil and gas market, in particular the increasing import dependency and the resulting need for diversification, the growing importance of climate change, the need for increased transparency on energy markets and further integration of national energy markets with the energy market liberalisation nearing completion. These challenges are highlighted in a series of Commission Communications relating to several aspects of energy policy (from renewables, the biomass action plan and energy efficiency to competition and the operation of internal market). They are also reflected in the refocusing of the IEA's activities in connection with the 2005 and 2006 G8 focus on Energy, and the intensification of energy dialogues with third countries.
All these comments, quotes, and conjecture presents market opportunities.

Excerpt from the remarks of Sir Nick Stern, Head of the Stern Review on the Economics of Climate Change, at the Oxford Institute of Economic Policy Distinguished Lecture: 'What is the Economics of Climate Change?’ (31 January 2006), are best viewed along with these Powerpoint slides.
But I think nevertheless it's fairly clear that most of the action, or the lion's share of the action, in terms of choosing ways of moving forward, choosing how to save energy, choosing how to reduce carbon and so on, those choices will largely be by the private sector. So there's a very serious question of how does a government set the right kind of incentives for the private sector.

Now the private sector is actually quite specific on this point. They have a slogan which actually makes a lot of sense: the incentive structure should be loud, long and legal. But the loud, long and legal is actually vulgar for clear, long and credible. There's a difference between loud and clear and there's a difference between legal and credible. But if you're thinking about investments in the kinds of infrastructure and durables that we're talking about, it must be the case that the incentive structure is clear, long term and credible. And putting those kinds of incentive structures together is actually quite difficult. You have to try to bind yourself going forward in a way that governments find it quite difficult to do; a problem the economists have studied right across the board in other areas, including monetary policy, competition and so on.