Industrialized countries are falling behind China on clean energy technologies

China has said it plans to invest $738 billion developing clean energy over the next decade, as part of efforts to reduce the nation's heavy reliance on coal and slash carbon emissions. This is 5 times the Obama Administration's "ambitious" 10-year spending plan on clean energy. In addition to leading in photovoltaic (PV) and wind energy, China made tremendous progress in designing and manufacturing state-of-the-art conventional power plants of the highest efficiency and lowest emissions. At a time when electricity demand in OECD countries is down and coal utilization is being reduced to control greenhouse gas emissions, China is taking the lead as the dominant supplier of power generation technologies. Watch out...

Source: http://www.google.com/hostednews/afp/article/ALeqM5gHjWgsJfiyVbZqXMAU1f9TF-kvdA

The Government's record as an "investor" in new technologies

Mr. Jim McTague in his article "Our tough-luck President" (Barron's July 12, 2010, pg. 24) takes a few examples of real tough-luck to make the point that the Obama Administration is wasting tax payers money. This is a serious topic which deserves a balanced treatment.

The Barron's article gives as an example the decision of the Administration to give (through DOE) a $535-million loan guarantee to Solyndra Corp., a new start-up working to improve solar (PV) systems for household applications. Apparently, Solyndra is facing financial problems; hence, the conclusion that Solyndra is "a king-size political embarrassment"!!!

But is it? There is a long history of technological development which proves clearly that both the public and private sectors are needed to bring about technological innovation. The public sector alone should not try to pick winners, but the private sector is not likely to invest in early stage technologies, which are perceived to be and they are risky. Both sectors are needed. The critical element of success is how the two sectors are involved. DOE's Clean Coal Technology (CCT) program in the 1990s was (by most standards) a very successful program.

Maybe The Administration rushed to get money to whoever had a promising idea and could put the money to work quickly. But it should be kept in mind that even private investments do not ensure 100% success. In fact, all the Venture Capital (VC) firms I know are very happy if 2 out of the 10 firms they invest in are successful. At least 4-5 out of the 10 do not make it to IPO stage and often go bankrupt. Why judge the public sector by different standards?

The political economy of power sector reform

In their book "The political economy of power sector reform", Dr. D.Victor and Dr. T.Heller have summarized very well the experience of five developing countries (Brazil, China, India, Mexico and South Africa) with power sector reform. The lessons learned are applicable not only to developing countries, but developed countries, too.

The textbook model was not applied anywhere. Hybrid models emerged crafted around the specific peculiarities of each country. These models are not viewed by the authors as temporary (transient) leading to the textbook model, but rather as stable equilibrium outcomes".

"Dual firms" emerged and continue to play a key role.

Factors outside the power sector are critical, too; key among them are: the legal system ("rule of law") and weak institutions.

Outside the scope of this book is the effectiveness of power sector reform in developed countries. While there are isolated success stories (Wales, UK and Chile), in most cases reform has faced many obstacles and has not resulted in meaningful competition leading to lower prices for consumers.

CCS Commercialization Roadmap

As the leaders of the world are gathering in Copenhagen (Denmark) to try to agree on Post-Kyoto Greenhouse Gas (GHG) emission requirements or more likely agree on the roadmap which will lead to such agreement, the International Energy Agency (IEA) released its report "Technology Roadmap for Carbon Capture and Storage".
Key points of the new report include:

• A call for 100 CCS (Carbon Capture and Sequestration) projects to be deployed by 2020; a significant increase on the IEA's previous estimated requirement of 30 projects;
• Over 3000 CCS projects needed by 2050;
• An additional global investment of at least US$2.5-3 trillion between 2010 and 2050 in order to achieve the projected project deployment target; and
• CCS financing levels of US$1.5-2.5 billion annually in developing countries (through international collaboration).

These estimates are an order of magnitude higher than previous estimates, not to mention that they are likely to increase further as CCS technologies move from the laboratory to pilot and demonstration scale. Also, I doubt very much that the various Governments can keep their commitments at a time of such severe fiscal constraints. Let’s see what would be the agreement in Copenhagen, but it does not look promising!

Who is responsible for the carbon footprint of manufacturing factories producing exported goods?

A position paper released by the Chinese Government on May 20, 2009 states that “Countries that buy goods from China should be held responsible for the carbon dioxide emitted by the factories that make them”.

With this statement, China (officially) brings up for negotiation a well-known, but not extensively discussed, issue: Who is responsible for the carbon footprint of each product, the buyer (end user) or the producer?

In the last two decades, we have observed a huge migration of manufacturing facilities from OECD countries to China, India, Brazil and other developing countries; along with these facilities, have the OECDs exported their obligation for carbon reduction to developing countries, too?

This is one of the many issues which are being debated, as the international community will be attempting to design a “Post-Kyoto” framework to control greenhouse gas emissions (GHG) in Copenhagen in December (2009). At the heart of the argument, there are three questions which need to be addressed:

1. What country’s GHG inventory is burdened by the CO2 emission produced from exported products?
2. Assuming that carbon is priced into each product, where (in the production-selling cycle) is the carbon-related price adjustment made? and
3. Who collects the revenue derived from this price adjustment?

Answering these questions is not easy, as there are pros and cons on each side. My hope is that the international community reaches agreement on some basic principles related to this issue.

More specifically, it seems rational that:

• The price of every product should reflect its life-cycle carbon footprint at some reasonable carbon price, independently where the product was produced.

• The price adjustment for the carbon footprint should be made in the same country which assumes the burden of GHG emissions in its inventory. So, if the CO2 produced by a shoe factory in China burdens China’s GHG inventory, it is fair for China to make an adjustment to the price of the product to reflect its carbon footprint. This means that China will collect the revenue associated with this adjustment too. Then, China’s GHG inventory should be burdened with the GHG obligation associated this facility. If China refuses to do, it is reasonable for the importing country to accept the responsibility of the carbon footprint (and include it in its own GHG inventory), but be free to apply a price adjustment at the border to reflect this product’s carbon footprint. This should not be viewed as an unfair trade practice, provided that all the products in the importing country are subject to the same price adjustment (proportional to their carbon footprint).

Cogeneration

A few interesting reports and articles have become available in recent months:

1. In December 2008, Oak Ridge National Laboratory (ORNL) published the report "Combined Heat and Power: Effective Energy Solutions for a Sustainable Future", which highlights the sharpened focus on using CHP to deal with environmental and business challenges in the U.S.

2. In the European Union (EU), the use of combined heat and power (CHP) has substantial potential for increased energy efficiency and reduced environmental impacts. It is considered to be a priority for many EU member states, according to the recent report "Combined Heat and Power Developments in Europe," which was published by Energy Business Reports.

3. Power Magazine article: CHP: "Helping to Promote Sustainable Energy"

What do Rockefeller, the present economic crisis and the global mafia have in common?

...They were all created and flourished because of lack of government oversight and periods of power vacuum.

John D. Rockefeller deserves credit for accelerating the development of the industrial age by discovering oil in the US and establishing an efficient production, refinery and distribution industry. However, he was ruthless in exploring government regulatory weaknesses and controlling the market himself. His life has become a focal point for debate regarding the proper role of government in the economy.

Lack of government oversight of the financial markets is the cause of the present economic crisis, too. The genesis of the problem goes back to the “hands-off” and “the market knows best” philosophy of the US and UK governments in the 1980s and 1990s. Rapid technological innovation and the introduction of many “sophisticated financial instruments” made it difficult for the government to follow the market, even if it wanted to. The “hands-off” philosophy acted as a further sleeping pill leading to the well-known results.

Creation and spreading of organized crime benefits from similar weaknesses of the government.

A fantastic book by the title McMafia, which was authored by Misha Glenny and was released recently, documents how the organized crime has spread globally as a result of power vacuum and lack of law enforcement in cases of rapid political, social and technological change. The details of the book are frightening; the lives of most of us are directly affected by such organized crime syndicates present in the most unexpected places!

Then, what is the solution? Eventually, Rockefeller’s dominance of the US market was partially controlled by Theodore Roosevelt in 1906. However, with globalization of financial markets and global trading, a government alone can not be effective. The same applies to the global organized crime, which has no nationality and is free to seek safe heaven every time one government gets serious about law enforcement.

Global oversight is needed for a number of global activities including finance, trade, etc.

I am not advocating micromanagement of the global system, but enforcement of some basic rules to avoid catastrophic consequences for the average citizen and ensure well-functioning global market. At the national level, governments need to strengthen law enforcement, as well as their capability to follow technological change and adopt quickly to avoid being left behind by sophisticated entrepreneurs and gangsters.