Corn-based ethanol's a flawed concept

Corn-based ethanol's a flawed concept
February 16, 2007 -- By Myra P. Saefong, MarketWatch

Ethanol as an alternative energy source is a flawed concept -- at least when corn is used to produce it.

And the consequences of using corn to create ethanol are far-ranging - they even impact consumers and the price they pay for meat.

So is it worth it? It depends who you ask.

"There have been numerous studies completed regarding the energy efficiency of ethanol vs. its production," said John Eichberger, vice president of government relations for the National Association of Convenience Stores.

"These range from a positive net energy return in excess of 30% to a negative net energy return of more than 30%," he said. "Researchers on both sides of the issue argue that the other research is significantly flawed."

Even so, policymakers insist that ethanol is a "positive replacement product for crude-oil based fuels and have proceeded down a path to subsidize and mandate its use," said Eichberger, whose trade organization represents the convenience and petroleum-retailing industry.

There's no doubt that renewable fuels are a good idea, said Darin Newsom, a senior analyst at Omaha, Nebraska-based DTN. "That means putting more research into more efficient ways" of making them.

That said, "corn is a short-term end to the means."

Invest energy to get energy

"Some of the warts associated with ethanol production are [real] -- it does use a lot of water, electricity and natural gas," said Newsom.

So "the problem with corn-based ethanol is that, at best, you don't get more energy out of it than it costs to grow and make it," said Sean Brodrick, a contributing editor at MoneyandMarkets.com.

"At worst, you lose energy."

A math and science lesson is in order.

An easy-to-read measure of whether ethanol's economically viable can be derived from taking a look at its "energy return on energy invested," or EROI, according to Brodrick.

"It is at the crux of why corn-based ethanol is a boondoggle," he said.

EROI can be expressed as "net energy," he explains. The EROI for corn-based ethanol is 1.2:1, so the net energy is 0.2, he said.

That means you put in 1 British thermal unit to get 1.2 BTUs from it, he said.

"At EROI of 1.2 to 1, the 3.9 billion gallons that the U.S. produced in 2005 required 3.29 billion gallons of BTU energy input, resulting in a 'net energy' of 610 million gallons," he said.

And that's being generous, he said. "There are some computations that show corn-based ethanol has a net energy of zero. Others show it as a net energy loser."

So it all depends on how you look at it.

A "break even" with the cost of production would be largely based on the cost of crude oil and the cost of corn, said Rick Kment, an analyst at DTN.

For example, if crude-oil prices are at $70 to $100 per barrel, very high corn prices can be paid and ethanol can still economically work in the system, he said.

But with $30 crude and $4 corn, "it becomes unprofitable," he said.

At current price levels, DTN estimates a net profit -- after depreciation and all other factors -- to be near 5 cents per gallon of ethanol produced, he said.

That's down from a 50-cent per gallon net profit at the first of the year, and down from $2.50 a gallon in June 2006, Kment said.

March crude-oil futures closed Thursday at $57.99 a barrel on the New York Mercantile Exchange, while March corn futures were trading around a 10-year high above $4 a bushel on the Chicago Board of Trade. And March ethanol stood at $2.08 a gallon on the CBOT.

'Dead argument'

Still, there are many more experts who say there's really no question as to whether corn-based ethanol puts out more than it uses up.

"The argument over the energy balance of ethanol is really a dead argument," said Matt Hartwig, a spokesman for the Renewable Fuels Association, the national trade group for the ethanol industry. "Study after study has proven them [the critics] to be flat out wrong," he said.

Hartwig called attention to the Web site for the biomass conversion research laboratory at Michigan State University.

A Feb. 5 note on the site prepared by Bruce Dale, professor of chemical engineering at the university, said the net energy analysis is "simple and has great intuitive appeal," with net energy defined as ethanol's heating value minus the fossil energy inputs required to produce the ethanol.

But "it is also dead wrong and dangerously misleading."

Tadeusz Patzek, professor of civil & environmental engineering at the University of California at Berkeley, said in a report last year that the "energy cost of producing and refining carbon fuels in real time, e.g., corn and ethanol, is high relative to that of fossil fuels deposited and concentrated over geological time."

"We do not value energy per se, but rather the services or 'qualities' that the energy provides," argued Dale.

"We need to carefully choose our metric of comparison," he said.

One gallon of ethanol contains 84,000 BTUs, which is about 2/3 that of gasoline, according to Neil Koehler, chief executive of Pacific Ethanol Inc.

"Since ethanol burns more completely (and cleanly) than gasoline, this lower energy density can be completely offset by increased efficiency," he said.

It's eating at corn

But ethanol's impact on the corn market has been "dramatic," said DTN's Newsom.

"If ethanol demand increases to projected levels, corn supplies will be incredibly low at the end of the 2006-2007 marketing year in August 2007," he said.

The U.S. produced an estimated 4.9 billion gallons of ethanol last year and used more than 5.5 billion, according to the Renewable Fuel Association's Hartwig. Ethanol is blended in more than 46% of the nation's gasoline, he said.

"It would seem that the corn market is poised for a long-term rally in price," said Newsom. He predicts that the high of $5.54 a bushel from 1996 seems like a "reasonable price target."

Meanwhile, limitation in the corn market itself should be considered.

"Corn-based ethanol will be of limited supply," said Charles Perry, chairman of energy-consulting firm Perry Management. The U.S has a limited amount of productive land so we "can spare only a limited amount of our corn crop for ethanol."

At the same time, this corn use for ethanol has been "hampering feeding, with some talk in the livestock industry of herd reduction due to higher feed costs," said Newsom.

"Our food prices will go through the roof -- $4-$5 corn makes for very expensive beef, pork and chicken," said Bernie Feshbach, president of investment firm Feshbach & Sons.

Also, "the use of corn makes ethanol a regional (Midwest) issue as the U.S. lacks the infrastructure to move the product around to meet demand," said Newsom.

But the logistics involved with ethanol production could be irrelevant.

"More attention needs to be paid to the personal economics of ethanol since many consumers are more concerned with cost, than with how a fuel is derived," said Geoff Sundstrom, a spokesman for motorist group AAA.

The industry will get a chance to discuss all of these things soon. The Renewable Fuels Association's 12th annual National Ethanol Conference is next week from Feb. 19-21 in Tucson, Ariz.

The group's Web site says registration for the conference is closed because it's reached its capacity. Interested parties are being placed on a waiting list.

Corporations Agree To Cut Emissions

Corporations Agree To Cut Emissions
February 20, 2007 -- Reuters via CNN

More than 100 corporate heads, international organizations and experts set out a plan on Tuesday to cut greenhouse gas emissions, calling on governments to act urgently against global warming.

"Failing to act now would lead to far higher economic and environmental costs and greater risk of irreversible impacts," the Global Roundtable on Climate Change warned in a statement, announcing their first major agreement since they began talks in 2004.

The group, which includes executives from a range of industries including air transport, energy, and technology, called on governments to set targets for greenhouse gases and carbon dioxide (CO2) emissions.

The agreement urged governments to place a price on the carbon emissions released by power plants, factories and other sectors to discourage emissions.

"Of course, addressing climate change involves risks and costs. But much greater is the risk of failing to act," said Alain Belda, chairman and CEO of the world's top aluminum producer Alcoa, who signed the pact.

The group includes General Electric, Ford Motor Co., Toyota Motor North America, investment bank Goldman Sachs, and Wal-Mart among its major corporations.

President George W. Bush's administration has rejected mandatory caps on emissions of carbon dioxide and other gases in the United States that contribute to a documented rise in world temperatures -- which is linked to more severe storms, worse droughts, rising seas and other ills.

But the White House has recently been on the defensive, especially since the February 2 release of a report by the Intergovernmental Panel on Climate Change, which called global warming "unequivocal" and said with 90 percent probability that human activities help cause it. (Full story)

The atmospheric concentration of carbon dioxide is about 30 percent higher than in 1900 and nearly half of this increase has occurred since 1980.

Given fast-rising emissions from developing nations, the group estimated that a "business-as-usual" path could put the planet at three times the carbon dioxide levels seen before 1900.

The largest carbon-emitting sector is power generation, responsible for more than 40 percent of global energy-related emissions.

Industry accounts for more than 18 percent of emissions, transport contributes another 20 percent, and the residential and services sector roughly 13 percent.

The group estimates that technology to head off mounting carbon dioxide concentrations would cost about 1 percent of global gross domestic product. Costs would fall as technologies become more established, it predicted.

"If we delay too long in beginning the changeover to increasingly de-carbonized energy systems, the eventual costs will only rise and the impact of climate change will only become more severe," the group wrote in its agreement, warning that poorer nations would see the worst impact from climate change.

Canada’s House Backs Steep Emission Cuts

Canada’s House Backs Steep Emission Cuts
February 14, 2007 -- Reuters via The New York Times

The House of Commons passed a bill Wednesday intended to force the Conservative government of Prime Minister Stephen Harper to achieve the steep cuts in greenhouse gas emissions required by the Kyoto Protocol on climate change.

The vote was 161 to 113, with all three opposition parties supporting the Liberal Party bill. It still has to go to the Senate, where a Liberal majority should ensure its passage.

The bill would require the government within 60 days to detail the measures Canada would take to meet its Kyoto obligations to reduce greenhouse gases to 6 percent below 1990 levels by 2012.

Canada’s emissions are 27 percent above 1990 levels, and the government has said it would be impossible to meet the targets without doing great damage to the economy.

Labor Minister Jean-Pierre Blackburn said the Liberals were simply trying to embarrass the government by trying to force draconian steps that would paralyze Canada.

“If we took drastic measures to the point that companies had to close, that would not be right,” he told reporters.

The Sum of All Ears: Corn Ethanol to Replace Gasoline, A Bad Idea

Excerpts from:
The Sum of All Ears
January 29, 2007 -- By Paul Krugman, The New York Times via Economist's View

Corn Cop-Out, Commentary, NY Times: For those hoping for real action on global warming and energy policy, the State of the Union address was a downer. There had been hints and hopes that the speech would be a Nixon-goes-to-China moment, with President Bush turning conservationist. But it ended up being more of a Nixon-bombs-Cambodia moment.

Too bad... The only real substance was Mr. Bush’s call for ... ethanol to replace gasoline. Unfortunately, that’s a really bad idea. There is a place for ethanol in the world’s energy future — but that place is in the tropics. Brazil has managed to replace a lot of its gasoline consumption with ethanol. But Brazil’s ethanol comes from sugar cane.

In the United States, ethanol comes overwhelmingly from corn, a much less suitable raw material. In fact, ... researchers ... estimate that converting the entire U.S. corn crop — the sum of all our ears — into ethanol would replace only 12 percent of our gasoline consumption.

Still, doesn’t every little bit help? Well, this little bit would come at a very high price compared with ... conservation. The Congressional Budget Office estimates that reducing gasoline consumption 10 percent through ... fuel economy standards would cost ... about $3.6 billion a year. Achieving the same result by expanding ethanol production would cost taxpayers at least $10 billion a year...

What’s more, ethanol production has hidden costs. ...[T]he Department of Energy ... says that the net energy savings from replacing a gallon of gasoline with ethanol are only ... about a quarter of a gallon, because of the energy used to grow corn, transport it, run ethanol plants, and so on. And these energy inputs come almost entirely from fossil fuels, so it’s not clear ... ethanol does anything to reduce carbon dioxide emissions.

So why is ethanol, not conservation, the centerpiece of the administration’s energy policy? Actually, it’s not entirely Mr. Bush’s fault.

To be sure, ... Mr. Bush’s people seem less concerned with devising good policy than with finding something, anything, for the president to talk about that doesn’t end with the letter “q.” And the malign influence of Dick “Sign of Personal Virtue” Cheney, who no doubt still sneers at conservation, continues to hang over everything.

But even after the Bushies are gone, bad energy policy ideas will have powerful constituencies... Subsidizing ethanol benefits two well-organized groups: corn growers and ethanol producers (especially the corporate giant Archer Daniels Midland). As a result, it’s bad policy with bipartisan support. For example, earlier this month legislation calling for a huge increase in ethanol use was introduced by five senators, of whom four, including ... Barack Obama and Joseph Biden, were Democrats. In a recent town meeting in Iowa, Hillary Clinton managed to mention ethanol twice...

Meanwhile, conservation doesn’t have anything like the same natural political mojo. Where’s the organized, powerful constituency for tougher fuel economy standards, a higher gasoline tax, or a cap-and-trade system on carbon dioxide emissions?

Can anything be done to promote good energy policy? Public education is a necessary first step, which is why Al Gore deserves all the praise he’s getting. It would also help to have a president who gets scientific advice from scientists, not oil company executives and novelists.

But there’s still a huge gap between what obviously should be done and what seems politically possible. And I don’t know how to close that gap.

Logistics of Installing Solar Panels

Game Theory: Climate Change Game

Game Theory
February 8, 2007 -- BBC News Science & Nature via Sierra Club Compass

The BBC challenges visitors to play its climate change game, wherein, as president of the EU, "You must tackle climate change and stay popular enough with the voters to remain in office."

Note: The game designers admit they had to strike a compromise between strict science and playability, but the assumptions, research and compromises that went into making the game are all well explicated here.

The Daily Show's Response to IPCC Report

Senators Boxer & Inhofe Discuss Climate Change On Larry King

Interesting debate between two very different people.

Sens. Barbara Boxer and James Inhofe, chairwoman and ranking minority member of the Environment & Public Works Committee respectively, discuss climate change on Larry King Live.

Related Posts: James Inhofe, Senator Chafee Debate

The Advantages of Pay-As-You-Drive Insurance

Excerpts from:
If Voters Won't Go for Taxing Oil to Conserve Energy, How Do We Do It?
November, 2006 -- By Aaron S. Edlin, Economist's Voice via Economist's View

...Lowering our dependence on oil would give the United States considerably more flexibility in Middle East policy. It would also help us to fight global climate change. Yet precious little has been done. The obvious solution of European-size taxes on gasoline and other uses of oil is just too unpopular in the United States to become law. ...

What can be done to decrease America’s energy dependence, given the public’s apparently well entrenched fear of increases in the cost of driving? One way forward may be a simple reform to auto insurance: Pay as You Drive.

Pay-as-you drive-insurance: how it would work

Currently, auto insurance is largely, but not entirely, independent of the amount of driving a person does. If an individual drives 5,000 miles per year, instead of 25,000, then her insurance rate is reduced only slightly: often, by 15% or less. ...

Suppose that, instead, ... that auto insurers were required to quote premiums on a per-mile driven basis instead of a per-year basis.

Consider a given class of drivers ... whom insurance companies currently charge $1000 per year, and who currently drive 10,000 miles per year on average. Instead of charging these drivers $1000 per year, insurers might charge 10 cents per mile driven.

The average driver ... would continue to pay the same amount—$1000 per year— assuming no change in driving behavior. However, suppose this driver chooses to cut her driving in half, to 5,000 miles per year... Then she would save $500/year, much more than under the current pricing system. Moreover, if the same driver were to double her driving, she would double her insurance cost... Such a pricing system would give her a significant incentive to reduce her driving. Elsewhere, I have estimated that such pay-as-you-drive insurance could reduce driving and gasoline consumption by 10–15%.

The political advantage of pay-as-you-drive insurance over a gas tax is that it doesn’t increase the total cost of driving, at least on average. ... Prices at the pump, of course, stay the same—making the measure much more palatable... And rather than voters simply fearing negative consequences, they can enjoy some positive ones: lowered insurance prices as a reward for changes in behavior. ...

The change won’t be painless for everyone, of course. Those who drive twice the average will pay twice as much. But that’s only fair: They also cause more accidents, and burden the environment, and worsen our dependence issue, twice as much. And charging high mileage drivers more is exactly what will give people an incentive to drive less.

The peculiar all-you-can-drive way that auto insurance is currently priced

The late Nobel Laureate William Vickrey wrote almost forty years ago that “the manner in which [auto insurance] premiums are computed and paid fails miserably to bring home to the automobile user the costs he imposes in a manner that will appropriately influence his decisions.”

The costs to which Vickrey referred were accident costs, not terrorism, climate, and national security costs. The great thing, though, is that by switching our insurance system to pay-as-you-drive insurance, we can reduce accident costs with more efficient accident pricing, and reduce these other costs as a bonus. ...

Vickrey’s point is that with each mile we drive, there is a cost in the form of accident risk. When we don’t pay the costs we impose, the incentives are obvious: we drive more than is economically efficient, causing accidents as we go. If we paid as we drove, and were charged a per-mile premium we would choose to drive less and there would be fewer accidents. And that would be fair: we would simply be forced to pay for the externalities of our conduct. ...

If Americans are successfully incentivized to drive less by pay-as-you-drive insurance, [accident] costs will fall appreciably... Several insurance carriers have begun to experiment with pay as you drive insurance, but they have not rushed to charge per-mile premiums on their own. Too many of the gains would not be captured by the company changing the policies. They need some encouragement.

The political salability of mandating pay-as-you-drive

...Per-mile premiums ... could lower the cost of driving for most people because most people drive less than the average. (Because driving quantities follow a skewed distribution, the median is considerably lower than the mean). Moreover, such premiums give drivers additional control over their costs, so they can choose to lower them still further.

There would, of course, be opposition. Although more than 50% of people drive less than the arithmetic average, many obviously drive more ... and would tend to oppose the change, at least if they vote their pocket books. Moreover, oil companies, the highway lobby and gas stations can be expected to oppose any change that leads to less driving. ...

[A] full-scale national shift to pay-as-you-drive insurance is too much to hope for. Still, a shift could be made in stages: if each insurance carrier had to issue 5% of its policies at per-mile rates, no carrier would be at a competitive disadvantage. ...

There are many pieces to a sound national energy policy, but per-mile premiums should be high on the list. What is needed is a jump start.

Food Miles May Be Green, But Are They Fair?

Food Miles May Be Green, But Are They Fair?
February 7, 2007 -- By Kate Kelland, Reuters via ENN

LONDON -- Supermarkets are scrambling to capture the millions of "green" pounds spent by increasingly environmentally aware shoppers.

Farmers' markets across the country are buzzing with conscientious customers buying locally grown knobbly carrots and leeks pulled straight from the soil.

With the threat of climate change racing up the global political agenda, Britons are going green when they shop. And their sights are set on food miles.

"The concept of food miles has absolutely rightly entered into people's consciousness in Britain," says Bill Vorley, head of the sustainable markets group at the British International Institute for Environment and Development (IIED) think-tank.

The idea of reducing food miles seems straightforward -- simply buy produce which has travelled the shortest possible distance from farm to plate.

However, just as British consumers' enthusiasm to cut food miles is growing, some experts are warning that an over-simplistic view of the issue risks doing more harm than good.

They are urging policymakers not to rush blindly into formulating "buy-local-only" campaigns for consumers which could prove disastrous for many poor African food producers.

"I'm an advocate of local food, and I do think we need to re-localise our food procurement rather than hauling it up and down the motorways," says Vorley.

"But we are warning against allowing environmental arguments to trump the case for development -- especially when it guides decisions by policymakers or consumers that are going to have very little impact on our overall carbon footprint."

STRAWBERRIES AND SCHOOL RUNS

According to Britain's National Consumer Council (NCC) about 10 percent of the carbon dioxide emissions associated with British food transport come from air-freighted goods.

In a recent paper, the NCC said the carbon damage from air-freighting just one small punnet of New Zealand strawberries to Britain was equivalent to the CO2 emissions from 11 average school runs, made by parents driving their children to school.

The problem, experts say, is that consumers keen to do their bit for the environment but as yet unaware of the complexities of the debate are shopping with a simplistic "local good, foreign bad" attitude.

As long as the apples, carrots, broccoli and leeks are produced in Britain, they can be bought in abundance with a clear conscience, the thinking goes. But if the label says they come from Israel, Kenya or New Zealand, only a carbon criminal would dare take them to the checkout.

However, some argue that fair miles, not food miles, should be the criterion by which consumers judge the contents of their shopping trolleys. Specifically, fresh fruit and vegetables from sub-Saharan Africa, on which Britons spend more than a million pounds a day, should be considered more carefully.

"Many products which come to us from Africa are giving some of the poorest people in some of the poorest countries in the world a chance to earn a decent living," said Harriet Lamb, executive director of the Fairtrade Foundation, an independent certification body that guarantees poor producers in the developing world a fair price for their goods.

"People have to be careful in assessing the carbon footprint of a product, because it may well be that some products (from Africa) may actually have a smaller carbon footprint and a greater social impact than the same product grown in commercial greenhouses in Britain or the Netherlands."

A MILLION LIVELIHOODS

Lamb and Vorley warn consumers against feeling a false sense of environmental virtue if they avoid air-freighted products.

Cutting out products from sub-Saharan Africa would reduce Britain's overall contribution to global carbon dioxide emissions by just 0.1 percent, they say.

"And it's something like a million livelihoods that depend on us (in Britain) enjoying fresh fruit and vegetables from sub-Saharan Africa," says Lamb. "Let's make sure we're not making poor people in poor countries pay the price."

According to Stephen Mbugua, vice-chairman of the Fresh Produce Exporters Association of Kenya, that is not happening yet, but it is a great fear for the future.

"So far so good, we've not had any serious impact from this, (but) if there was a serious campaign, it certainly would affect our sales," he told Reuters in Nairobi.

Lamb quotes John Kanjangaile, export manager of a group in Tanzania called the Kagera Cooperative Union (KCU), speaking at a public meeting in Britain where he was asked about the potential environmental damage caused by his export business.

His reply was unequivocal: "With the deepest respect, the farmers in the villages where I come from don't have televisions, they don't have refrigerators, they don't have even one car, let alone two, they don't have motorbikes, they've never even been to our country's capital let alone flown all over the world on holiday -- so don't ask those farmers to pick up the cost of environmental problems you in the industrialised West have caused."

WTO Says Free Trade Will Stop Overproduction

WTO Says Free Trade Can Help Guard the Environment
February 6, 2007 -- Reuters via ENN

Nairobi -- Proposals in the revived Doha Round of free trade talks could help protect the environment if governments agree to a deal at forthcoming negotiations, the head of the World Trade Organisation (WTO) said on Monday.

Measures to cut farming and fisheries subsidies will stop overproduction while others will lower tariffs on environmentally sound goods and services, Pascal Lamy said on the fringes of a major U.N. environment meeting in Kenya.

"These are not just speeches, they are very concrete proposals to really help," he told Reuters in an interview.

Lamy had earlier told hundreds of delegates the WTO would be at the forefront of encouraging sustainable development, especially in the world's poorest countries.

It was the first time a WTO leader had attended the U.N. Environment Programme's Governing Council meetings, and his attendance was hailed by environmental campaigners.

Lamy said the WTO was now reviewing how it could work best alongside multilateral environmental treaties like the Kyoto Protocol on reducing emissions of greenhouse gases.

"If there is something on the table that can be done to bring environmental benefits, then our position is let's do it. The WTO is very pragmatic on this," Lamy said.

He called on environmental campaigners to back the planned resumption of the Doha Round talks, which he suspended in July amid to deep divisions between the body's 150 states.

The negotiations stalled over the failure by major powers like the United States and European Union to break a long-running deadlock over the politically sensitive issue of farm trade. But recent meetings have seen signs of flexibility.

Experts say the key to a deal lies in getting deeper U.S. cuts in farm subsidies, which poor nations say give farmers there an unfair advantage, and in securing similar reforms from the EU, Japan and other big importers on farm tariffs.

The round was launched in the Qatari capital in 2001 to boost the global economy and lift millions out of poverty.

The Economist Addresses IPCC Report

In this weeks Economist the authors wrote, "Thus the Intergovernmental Panel on Climate Change's (IPCC) range of predictions of the rise in the temperature by 2100 has increased from 1.4-5.8C in the 2001 report to 1.1-6.4C in this report.

That the IPCC should end up with a range that vast is not surprising given the climate’s complexity. But it leaves plenty of scope for argument about whether it’s worth trying to do anything about climate change." This quote reminds me of Malthus stagnation and provides good reason to be skeptical of grand models that explain complex systems. For instance, the data available to Malthus in 1798 provided reason to conclude that economic growth would be stagnant. Of course technological change allowed economies to escape stagnation, but the data available to him provided little reason to believe that this would be the case.

Similarly, the data available to climate scientists may leave "plenty of scope for argument about whether it's worth trying to do anything about climate change" to those willing to accept the risk. However, the evidence continues to support the notion that humans are partly responsible for the current climate change.

There will always be plenty of scope for argument in the field of science and previous data may not coincide with future data. However, when experts are 90% certain that humans are responsible for possible catastrophe, I would suggest that those without expertise should concur with the experts and act now rather than later. Here is the article:

Heating Up
February 2, 2007 -- The Economist

A gloomy UN-backed report is published

The fourth assessment report of the Intergovernmental Panel on Climate Change (IPCC), published in Paris on Friday February 2nd, is important, unsurprising and will probably be uncontroversial. It is important because the IPCC is the body set up under the auspices of the United Nations so that governments should have an agreed view of the science on which to base policy. It is unsurprising because, while some of the figures differ from those in the third assessment report published in 2001, the changes are minimal and its broad conclusion, that something serious is happening and man is in part responsible, remains the same (though the authors now say that man is “very likely” responsible, rather than just “likely”). It will probably be uncontroversial because the few remaining climate-change sceptics prepared to speak out against the consensus argue not so much about the climate science as about its consequences. Those arguments will take place mostly around the IPCC’s two follow-up reports, to be published later this year, on the impact of climate change and on what to do about it.

Part of the report’s job is to consider studies of the speed of change so far. Warming seems to be accelerating somewhat. Eleven out of the dozen years from 1995-2006 were among the 12 hottest years since 1850, when temperatures were first widely recorded. So the estimate for the average increase in global temperature for the past century, which the third assessment report put at 0.6C, has now risen to 0.74C.

The sea level, which rose on average by 1.8mm a year in 1961-2003, went up by an average of 3.1mm a year between 1993-2003. The numbers are still small, but the shape of the curve is worrying. And because the deadline for scientific papers to be included in the IPCC’s report was some time ago, its deliberations have excluded some alarming recent studies on the acceleration of glacier melt in Greenland.

Some trends now seem clear. North and South America and northern Europe are getting wetter; the Mediterranean and southern Africa drier. Westerly winds have strengthened since the 1960s. Droughts have got more intense and longer since the 1970s. Heavy rainfall, and thus flooding, has increased. Arctic summertime sea ice is decreasing by just over 7% a decade.

In some areas where change might be expected, however, nothing much seems to be happening. Antarctic sea ice, for instance, does not seem to be shrinking, probably because increased melting is balanced by more snow.

The other part of the report’s job is to make predictions about what will happen to the climate. In this, it illustrates a curious aspect of the science of climate change. Studying the climate reveals new, little-understood, mechanisms: as temperatures warm, they set off feedback effects that may increase, or decrease, warming. So predictions may become less, rather than more, certain. Thus the IPCC’s range of predictions of the rise in the temperature by 2100 has increased from 1.4-5.8C in the 2001 report to 1.1-6.4C in this report.

That the IPCC should end up with a range that vast is not surprising given the climate’s complexity. But it leaves plenty of scope for argument about whether it’s worth trying to do anything about climate change.

The New Lincoln Nickel?

Now That a Penny Isn’t Worth Much, It’s Time to Make It Worth 5 Cents
February 1, 2007 -- By Austan Goolsbee The New York Times

How dumb do you have to be to mint money at a loss? In the latest only-in-Washington episode, we find that the government may have lost as much as $40 million coining pennies and nickels last year.

The metal in them — the zinc, copper and nickel — has soared in value in the last few years, making the coins more valuable as raw materials than they are as currency. The government reaction has been to ban the melting of the coins to get the metal. But there is a good chance that we will find ourselves in an outright coin shortage of a form we have not seen in four decades and one that harks back to the monetary problems of medieval times.

In their landmark book on monetary history, “The Big Problem of Small Change,” two economists, Thomas J. Sargent of New York University and François R. Velde of the Federal Reserve Bank of Chicago, point out that before the 20th century, the value of coins came from the material they contained: silver or gold. In the words of economics, it was “commodity money.”

But as the price of silver or gold increased, people pulled the coins from circulation. These shortages are a basic problem with commodity money and began almost as early as Charlemagne’s minting of the first silver penny around 800 A.D.

But the United States doesn’t have commodity money anymore. Our coins are just tokens now. They are valuable only because the government says they are — because the government is willing to trade them for dollars.

And making tokens that cost more to manufacture than they are worth is monetary insanity. We could make them out of any material we want, so why in the world would we lose money?

To stop this senselessness, we would seem to have only two choices: debase the coins (i.e., make them out of something cheaper) or abolish pennies (and, perhaps, even nickels).

The United States has debased money in the past. In World War II, we made steel pennies to save copper. In the 1960s, the high value of silver caused a run on quarters and dimes and led to a full-blown coin shortage until we substituted copper and nickel. We also took most of the copper out of pennies in 1982 for the same reason.

But debasement only puts off the inevitable for a short time. Because the penny is fixed in value at 1 cent, no matter what the penny is made of, the cost of its material will rise with inflation and eventually be worth more than a cent.

Most economists, then, argue that we should use this opportunity to abolish pennies the way Canada, Britain and the European countries that use the euro abolished their smallest coins. Because of inflation, a penny isn’t half the coin it once was. Indeed, the United States ended the half-cent in 1857 when it was still worth about 8 cents in today’s terms, so we’re probably well overdue to retire some coins.

But polls show that a majority of Americans like their pennies, and abolition might lead people in Illinois — the land of Lincoln, where pennies still work at tollbooths — to outright currency rebellion.

On top of that, Raymond Lombra, an economist at Pennsylvania State University, claims that the rounding of prices — a $6.49 bill would cost you $6.50 — might not be evenly distributed and might cost consumers as much as $600 million a year, a cost that would be paid disproportionately by the poor who use cash more often.

Others counter that retail stores could not get away with such shenanigans. But, clearly, the case for abolishing pennies is not universally believed.

So what to do?

Mr. Velde, in a Chicago Fed Letter issued in February, has come up with a solution that would abolish the penny, solve the excess costs of making nickels, help the poor, keep the Lincoln buffs happy and save hundreds of millions of dollars for taxpayers.

As Mr. Velde explained in an interview, “We face a very medieval problem so I took inspiration from the medieval practice of rebasing.”

He would rebase the penny by having the government declare it to be worth 5 cents.

At first that sounds impossible. But our coins are just tokens the government gives a value to. We can say they are worth whatever we like. Indeed, Mr. Velde observes that the United States did something similar in 1834, when it changed the gold-silver ratio and suddenly the half-eagle $5 coin was actually worth $5.625.

Pennies would then cost a little over 1 cent to make and would be worth a nickel, so the government would again be making a profit on money. We would have plenty of new Lincoln nickels so we could stop minting our current nickels at a heavy loss. The Jefferson nickels would stay in circulation, just as the old wheat pennies do now. Because metal in nickels is valuable, though, they would probably be melted down.

Rebasing pennies is printing money. But don’t get too worried about inflation. With about 140 billion pennies in circulation ($1.4 billion) — counting the ones in your couch and your kids’ piggy banks — this rebalance would make them worth $7 billion, adding about $5.6 billion to the money supply. For comparison, at the start of 2007 there was about $1.4 trillion in currency and money available for purchases, to say nothing of credit cards.

Plus, the money would go disproportionately to the poor (and to people getting allowances from their parents), more than offsetting any “rounding tax” from eliminating the penny.

So pull out those sofa cushions, ladies and gentlemen, and start looking for the shiny face of Honest Abe. All that glitters may not be gold, or even nickel, but it may be worth 5 cents.

Related post: Pennies Make No Sense

Make Green Pay, Davos 2007: CNBC video

Make Green Pay is a discussion coordinated by CNBC at this years Davos meetings. The link provided will take you to the video for the entire program. The topics discussed are as follows:

MOTION 1: Nuclear energy and cleaner coal are the only workable alternatives to oil

James Rogers, President and Chief Executive Officer of Duke Energy argues for the motion that nuclear energy and cleaner coal are the only workable alternatives to oil. Today’s needs can only be met with today’s resources he says. Mr Rogers sees emission-free nuclear and advanced-coal technologies as the energy workhorses for the short-to medium term. Vinod Khosla, Founder and Partner of Khosla Ventures argues against the motion puts forward the case against the motion. He focuses on the hidden costs of nuclear and coal – the clean-up costs. Factor those in, he insists, and clean renewables start to look a whole lot more competitive.



MOTION 2: Markets are superior to regulation in leading corporations towards greener operations

In the board rooms and in the corridors of power there is increasing acknowledgement that the way in which we consume energy is damaging the earth. For most corporations though, changing attitudes are yet to translate into radically different practices. Reverend Nicholas Frances, Chief Executive Officer of Easy Being Green, puts forward the case for motion 2; that markets are the most effective influence on company behaviour. He says that a government’s ability to regulate will always lag the entrepreneur’s talent to innovate. Professor Daniel Esty, Hill House Professor at Yale University puts forward an opposing view. Professor Esty argues that business must be motivated to find solutions. Regulation, he points out, gives business the stability required for the risks associated with policy changes.



MOTION 3: A global carbon tax would do more harm than good

Professor Jose Goldemberg of Sao Paulo University reminds us that the developing world is unlikely agree to sacrifice economic development for an environmental agenda. He not only says that a global tax would do more harm than good but that to even aim for one would be unrealistic. Sir Nicholas Stern of the UK treasury and author of the Stern review stands against the motion. According to Sir Nicholas, companies must face with the full social cost of their actions and that, in economic terms, a common global carbon price would be the most efficient way of achieving this.