United States – Page 5

Google: Implications of California’s Proposition 23

Posted on 12 August 2010 | by Jay Kimball | 4 Comments

Keywords: Google, California Proposition 23, Vinod Khosla, William Wiehl, cleantech, A.B. 32

Google convened an event at their Silicon Valley campus to discuss the implications of California’s Proposition 23, an attempt to rollback the state’s ambitious climate legislation (A.B. 32). In an article at Greentech Media, panelists, including venture capitalist Vinod Khosla, sounded upbeat on contributions California cleantech ventures will make toward solving US energy and climate challenges.

Highlights from Google’s Implications for California Proposition 23 Event

Khosla stole the show with his outlook for the clean-tech innovation and energy use. “In 10 to 15 years, we will be shutting down (power) plants” because of an excess of electricity in this country, Khosla said. There is an “infinite” opportunity for technological innovation.

Khosla’s firm is backing companies that hope to cut energy use in lighting and data center server racks by 80 percent.

Regarding China’s serious investment in cleantech, Khosla said “I won’t say China is winning the cleantech race,” he says. “But they are clearly paying a lot more attention to the race.”

Asked if there was an advantage to creating companies in Silicon Valley rather than China, Khosla was emphatic. “No question about it. The people are here. The markets are here.”

According to Khosla, nuclear power no longer has an advantage over renewables. There hasn’t been a nuclear plant build in recent years that can beat $7,000 a kilowatt. That makes wind and solar (in some parts of the world) competitive, he says.

Proposition 23 is a threat because it will kill the clean-energy markets that California’s A.B. 32 created. Both Khosla and Google Green Energy Czar William Wiehl concur on this point. Proposition 23, which will go to the ballot in November, would suspend A.B. 32 [see note below for background on A.B 32] until the state’s unemployment rate drops to 5.5 percent or less for four consecutive quarters. Texas oil companies Valero and Tesoro back the measure. A.B. 32 sets reporting guidelines for polluters, establishes a statewide limit for carbon, and guides emissions back to 1990 levels by 2020.

A.B. 32 has helped create 500,000 cleantech jobs in California, Wiehl says.

Google, adds Wiehl, has made strides with energy efficiency. The company builds its own data centers and servers. As a result, data center energy use is half of what it would be if the company followed industry-standard best practices, he said.

As to the next Google — “There is no doubt in my mind we will see 10 of these” in cleantech, says Khosla. “Today, California has the pole position to win that race.”

Note:

California’s major initiatives for reducing climate change or greenhouse gas (GHG) emissions are outlined in Assembly Bill 32 (signed into law 2006), 2005 Executive Order and a 2004 ARB regulation to reduce passenger car GHG emissions. These efforts aim at reducing GHG emissions to 1990 levels by 2020 – a reduction of approximately 30 percent, and then an 80 percent reduction below 1990 levels by 2050. The main strategies for making these reductions are outlined in the Scoping Plan. Also provided here are links to state agencies and other groups working on climate issues which are being coordinated by the state’s Climate Action Team.

More on the California’s Prop 23 initiative here:

California’s Prop 23 Morphing into Prop 26

Atlantic Hotter Than Before Katrina, Boosting Storm Forecasts

Posted on 10 August 2010 | by Jay Kimball | 4 Comments

Keywords: hurricane, climate change, global warming, impact of climate change, cost of climate change

As the world gets warmer, weather forecasters and insurance companies expect increased storm activity, more severe storms, and increased storm-related damage. In an article in Bloomberg, meteorologists at the US National Hurricane Center are predicting Katrina sized storms, saying “The storms we will be talking about in the next few weeks will be the real deal. These will be big-sized hurricanes.”

The chart at right shows the trend. There have been four times as many weather-related disasters in the last 30 years than in the previous 75 years. (NB: Data comes from Center for Research on the Epidemiology of Disasters)

According to the National Hurricane Center, 10 of the 30 costliest American hurricanes have struck since 2000, even after adjusting the figures for inflation and the cost of construction.

Highlights of Article: Atlantic Hotter Than Before Katrina, Boosting Storm Forecasts

If all the storms forecast by Colorado State materialize, 2010 will be tied with 1969, the fifth-busiest season on record.

Energy companies are reacting to the first signs of danger. They halted 26 percent of oil production and 14 percent of natural-gas output in June, when Hurricane Alex churned through the Gulf into Mexico, according to the Bureau of Ocean Energy Management, Regulation and Enforcement. The operators idled 52 percent of oil and 24 percent of gas output the following month before Tropical Storm Bonnie dissolved south of Louisiana.

Five years ago, in the most-active hurricane season on record, Hurricanes Katrina and Rita killed more than 1,800 people, caused $91 billion in damage, destroyed 115 energy platforms in the Gulf, and shut down 95 percent of Gulf oil production and almost 30 percent of U.S. refining capacity, according to government reports. Gasoline prices soared to as much as $5 a gallon and shortages were reported across the South.

The Gulf of Mexico is home to about 31 percent of U.S. oil output and about 10 percent of gas production, according to the Energy Department. It’s also the site of the worst oil spill in U.S. history, caused by the April 20 explosion at BP Plc’s leased rig. The spill is still being cleaned up.

If all Gulf platforms were closed, the daily production loss would be $160 million to $170 million, based on current prices, according to AIR Worldwide, a catastrophe risk-modeling firm.

A repeat of Katrina also would cause $6 billion to $9 billion in damage to offshore platforms, rigs and wells, according to models created by Risk Management Solutions Inc. of Newark, California.

Since 1995, when a cyclical increase in Atlantic hurricanes began, 89 percent of all storms have formed after Aug. 1, according to the hurricane center. The hurricanes that do about 85 percent of the damage when they hit land typically form between Aug. 20 and Oct. 20, Gray said.

Sea surface temperatures in the mid-Atlantic between the Lesser Antilles and the African coast averaged 1.2 degrees Celsius (about 2.2 degrees Fahrenheit) above normal from March to June, warmer than the 0.92 degrees in 2005, said Richard Pasch, a senior specialist at the Miami hurricane center. “That’s the fuel for tropical cyclones, the water vapor that’s evaporated from warm ocean surface,” he said.

Colorado State, in Fort Collins, forecast 18 storms for 2010, and the National Oceanic and Atmospheric Administration predicts 14 to 20 from June 1 through Nov. 30.

Consumer Behavior: Deleveraging

Posted on 19 July 2010 | by Jay Kimball | 3 Comments

Roger Lowenstein, an outside director of the Sequoia Fund, and author of The End of Wall Street has an article in The New York Times called Paralyzed by Debt.

Highlights of the article are below. It is an excellent example of the impact uncertainty and consumer unease can have on consumer behavior. To put the article in context, here are a couple charts I use when talking about consumer behavior and impact on business and government economic models.

In Maslow’s hierarchy, the higher level needs can only be met when the foundational needs are solid. When something like the current recession, or high oil prices, or job insecurity occur, uncertainty rises and undermines our sense of wellbeing. We shift our focus to the basics – do we have a stable home situation, can we pay the mortgage, do we have a job, can we depend on it, can we afford healthcare, etc.? In short, the consumer mind shifts from Thrive to Survive.

We can see a practical example of this in the Personal Savings Rate. As the US entered the 2008 recession, the Personal Saving Rate, which has been trending down, did a stunning reversal in a single quarter, pivoting from .8 percent to almost 6 percent.

Lowenstein details how economic uncertainty impacted refinancing his home.

Highlights from NY Times Article: Paralyzed by Debt

Last month, my wife and I refinanced our mortgage. Though the rate was lower and we could have afforded more debt, we paid down a chunk of the balance. Don’t ask me why — it just felt better to owe less money. Time was, such thrift would have been hailed as patriotic. Now it threatens the economic recovery. Less borrowing means less to spend.
Suppose everybody did this? Well, it turns out, everybody has. Eschewing trips to the mall, Americans are paying off credit-card balances and home-equity lines. Despite low rates, mortgage demand has plummeted.

12.5% of household after-tax income is devoted to repaying debts (source: The Federal Reserve Board, 2010)

Half of American workers have suffered a job loss or a cut in hours or wages over the past 30 months.

The economy is Deleveraging. Credit in the economy is shrinking, as opposed to the normal state of affairs, in which, each quarter, people borrow more money and banks issue more loans.

Remarkably, this deleveraging has been going on for nearly two years. Ordinary Americans are behaving just as the banks they love to excoriate — having, formerly, assumed too much risk, they are going into hibernation. If credit, in the words of the writer James Grant, is money of the mind, people have become psychologically indisposed to minting it.

Total household credit has contracted for seven straight quarters.

Mortgage debt is down $462 billion from the peak, which it reached in November 2008.

Bank-card borrowings, which peaked two months later, are off $126 billion.

Auto loans have fallen $122 billion; home-equity lines, $77 billion.

As Stephanie Pomboy, publisher of the newsletter Macro Mavens, has pointed out, government transfers like stimulus spending and tax credits masked the effects of diminishing credit for a while. That is to say, even if people were unwilling to borrow, they were happy to spend money they got from the government. Now that government supports are being pulled away, the effects of deleveraging are in plain view. Home and car sales are plummeting again. Job growth has shrunk to a sliver. Personal bankruptcies are soaring. Deflation, a dangerous state of economic dead air, when prices fall from lack of demand, is a distinct possibility.

In 2001, household debt reached a par with annual after-tax household income. (The average family owed what it earned.) By the peak of the bubble, in 2008, borrowings had surged to 36 percent more than income.

Which raises the issue: how much of that debt will have to be repaid before people return to their customary, and stimulative, profligacy? Thus far, we have undone only a portion of the excess. Household debt now stands at 26 percent more than income — still very high by historical standards. “There is no magical level where it should be,” says David Resler, an economist with Nomura Securities. “There is no clear equilibrium.”

To return to the status quo of before the housing boom — say, back to debt to income ratios prevailing in 2000 — it would take five more years of deleveraging at the current rate.

McKinsey recently published an excellent review of the global deleveraging process that began in 2008. From their report:

Americans steadily increased their debt levels for a good six decades, but it wasn’t until the turn of the millennium that the ratio of household debt to income really soared. Yet by the second quarter of 2011, three years after the start of the global economic crisis, the US ratio had fallen 11 percent from its peak. At the current rate of deleveraging, it would return to trend as of mid-2013—a conclusion buttressed by a comparison between US households today and those of Sweden and Finland during the 1990s, when the two Scandinavian countries endured similar banking crises, recessions, and deleveraging episodes. In both, the ratio of household debt to income fell by roughly 30 percent from its peak. As the exhibit below shows, the United States has been closely tracking the Swedish experience, while households in Spain and the United Kingdom have only just begun to deleverage. To learn more, read “Working out of debt” (January 2012).

Creating Leaders Great at Performing in Uncertainty without a Clue as to Why

Posted on 14 July 2010 | by Belina | 3 Comments

There is an interesting phenomena going on in some of the major business schools in Europe. In some – you are not allowed to mention environmental factors as a major catalyst for new business models/thinking. It is “understood” that as a lecturer, you inspire the students with fresh thinking but only so far. Go further, and people just roll their eyes and pigeon-hole you as a treehugger.

Here are three quotes from top business leaders:

“The era of ‘abundance’ is over. The future will see our natural resources, from oil to food, having some level of restriction placed on them.” – Andy Bond, CEO, Asda (May 2009)

“We must rapidly wean ourselves off our dependence on coal and fossil fuels.” – Richard Branson, announcing investment of all profits from Virgin transport business, estimated at $3 billion over 10 years, to be invested in fighting global warming. (21 September 2006)

“Sustainability is here to stay or we may not be.” – Niall Fitzgerald, UK CEO, Unilever

Now, none of these guys are particularly treehuggy. And most MBAs would give their eyeteeth to fill the shoes of these guys – and yet – in many MBA programs – coverage of sustainability issues is absent, apologetic, sidelined, or sketchy.

Let’s stop tiptoeing around the obvious. Business leaders can handle the truth. Though there is uncertainty on what the impact will be, climate change is a global issue that will impact business. Period.

In 2008 the US Director of National Intelligence (DNI) presented to Congress the DNI report National Intelligence Assessment on the National Security Implications of Global Climate Change to 2030. Here are a few excerpts:

“The United States depends on a smooth-functioning international system ensuring the flow of trade and market access to critical raw materials such as oil and gas, and security for its allies and partners. Climate change and climate change policies could affect all of these—domestic stability in a number of key states, the opening of new sea lanes and access to raw materials, and the global economy more broadly—with significant geopolitical consequences.”

“In addition, anticipated impacts to the Homeland—including possible increases in the severity of storms in the Gulf, increased demand for energy resources, disruptions in US and Arctic infrastructure, and increases in immigration from resource-scarce regions of the world—are expected to be costly. Government, business, and public efforts to develop mitigation and adaptation strategies to deal with climate change — from policies to reduce greenhouse gasses to plans to reduce exposure to climate change or capitalize on potential impacts—may affect US national security interests even more than the physical impacts of climate change itself.”

“Climate change is a threat multiplier in  the world’s most unstable regions.”

“From a national security perspective, climate change has the potential to affect lives (for example, through food and water shortages, increased health problems including the spread of disease, and increased potential for conflict), property (for example through ground subsidence, flooding, coastal erosion, and extreme weather events), and other security interests.”

These leaders are talking about fundamental shifts in ‘givens’ that require action, a joined up way of behaving, new ways of thinking, and new approaches. And our top business schools should be on the leading edge.

I first got interested in business schools ignoring the big elephant in the classroom two years ago when I was delivering a course on dominant business metaphors and implementing change. I wanted to say one line – one sentence inviting students to ponder how the nature of sustainability planning would be different if organisations, in addition to approaching business as a ‘competitive sport’, also approached it as a living organism. The professor who brought me in said ‘no’ – that the MBAs would feel they were being hijacked away from the course they had paid for. There was a specific elective for sustainability – and outside of that – best not to mention those issues.

Over the past few months, I’ve been speaking with several top MBA programs in Europe. Each is saying that leaders need, more than at any other time in history, to be able to lead in the presence of ambiguity, and to be able to perform collaboratively with high levels of uncertainty. Applied Improvisation skills are rather good for that, which is why I’m there in the first place.

What I find interesting in talking with these top MBA programs is that many are not contextualising the WHY of this new emphasis. Not addressing why managers/leaders would need to be so good at ambiguity.

“Growth for the sake of growth is the ideology of the cancer cell.” – Edward Abbey

I sat up when I saw this quote. It was refreshing to see in a lecture to potential MBAs at a leading business school in the Netherlands a few weeks ago. During my time at the school, two of the guest lecturers talked about sustainability – kind of…

The first lecturer used the Abbey quote (Abbey is a renown outspoken sustainability activist) and talked about the need to create ‘sustainable businesses’ quickly dismissed the notion of ‘sustainable’ as being linked to any ‘environmental’ issues… – it was about a business which can keep going, despite ‘adversity’. Given what scientists are saying about increasing disruptions over climate change, peak oil, peak minerals, peak water, how could adversity due to these factors not be mentioned?

The other lecturer had just hosted a biomimicry event two weeks before and deeply cared about the environment and sustainability. He works with top leaders in the best companies around the world on developing leadership skills. In his session, he talked about the profound need for leaders to be comfortable leading in the presence of ambiguity, but didn’t say why. In the break he confided that there are some groups with which you cannot talk about the environment directly. He had been gently testing the water with that day’s group and found he could mention it a bit…but only a bit. Several people were there for the express purpose of earning more money with an emphasis on value extraction, not particularly wealth creation/exchange.

Contextualising is a vital part of learning. The military does this routinely in their simulations – creating real world scenarios in the classroom. If we are facing a series of challenges (climate change, scarcity of water, oil, minerals, etc.) we must mention that as part of what leaders will face.

One initiative that gives me hope is the UN Principles for Responsible Management Education (PRME) initiative. The head of a leading MBA program in the UK turned me on to it. Finally – a global effort is being made to transform business schools and the Assocation of MBAs is part of it. In theory – that should mean that the taboo-ness of sustainability issues being explicitly mentioned, or mentioned only in specific electives – disappears.

As I continue to work with MBA programs, I will keep you posted on what I see going forward in this arena. And if you know of any best practice in this area – please post it here. Let me know!

“Unless we change direction, we are likely to end up where we are going.” – Chinese proverb

US Energy Use: The Big Picture

Posted on 13 July 2010 | by Jay Kimball | 3 Comments

This chart from Lawrence Livermore National Laboratory provides a simple clear way to understand how energy is used in the US.

I use this chart a lot in my presentations. It is a classic example of the adage “A picture is worth a thousand words.” On a single page it shows the sources for the energy we use, where it goes, how much is used and how much is wasted.

Energy use in US — Energy Use in the US (click to enlarge) (source: Lawrence Livermore National Labratory and DOE)

Some things to note:

Energy sources are on the left side – solar, nuclear, hydro, wind, geothermal, natural gas, coal, biomass, petroleum.
Energy users are broken in to four categories – residential, commercial, industrial, and transportation.
The gray boxes on the right sum up the energy that was used and the energy that was lost (rejected).
The width of the lines running from the various energy sources to their destination uses is proportional to the amount of energy used.

Zeroing In On Oil

As can be seen, the lion’s share of US energy consumption comes from fossil fuel sources (oil, coal, natural gas). Of the fossil fuels, oil is the source most in demand, the bulk of which is used by the transportation sector. And oil consumption in the transportation sector is growing fast.

US Oil Consumption By Sector — (source: DOE)

Zooming in to the transportation sector, we can see that most of that oil is used for personal vehicles (cars, light truck and SUVs).

US Oil Consumption Transportation — (source:DOE)

Any attempt to reduce our dependance on oil will require grappling with transportation in general, and personal transportation in particular.

Price of Oil and Consumer Behavior

Personal transportation is 4 to 10 times less efficient than public transportation (commuter rail, trains and buses). When oil prices rise quickly, as they did in 2008 (to over $140 per barrel), consumer behavior shifts rapidly. Automobile manufactures saw their large car sales plummet. Airlines saw their fuel costs skyrocket, and bookings plummet. Commuters embraced public transportation, with many metropolitan areas seeing 30 to 45 percent increases in use of public transportation in just one quarter.

Transportation Efficiency — (source: Lawrence Livermore National Laboratory)

That rapid behavior shift represents risk and opportunity for business and government. For more on that, check out two related posts: Sustainable Energy Security: Strategic Risks and Opportunities for Business and Walmart Partnering with Patagonia on Sustainable Business Practices.

The last century was a time of abundance in energy. There is a new economy of scarcity emerging in the 21st century. Understanding the energy trends shaping our world is essential to managing risk and innovating solutions for business, government and community.

Sustainable Energy Security: Strategic Risks and Opportunities for Business

Posted on 12 July 2010 | by Jay Kimball | 3 Comments

Lloyds of London, the insurance market, and Chatham House have published a white paper on Sustainable Energy Security that details the risks and opportunities for business.

Lloyd’s CEO, Dr. Richard Ward, doesn’t mince words in his foreword to the white paper:

This report, jointly produced by Lloyd’s 360 Risk Insight programme and Chatham House, should cause all risk managers to pause. What it outlines, in stark detail, is that we have entered a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will have to pay for it.

Is this any different from the normal volatility of the oil or gas markets? Yes, it is. Today, a number of pressures are combining: constraints on ‘easy to access’ oil; the environmental and political urgency of reducing carbon dioxide emissions; and a sharp rise in energy demand from the Asian economies, particularly China.

All of this means that the current generation of business leaders – and their successors – are going to have to find a new energy paradigm. Expect dramatic changes:

Prices are likely to rise, with some commentators suggesting oil may reach $200 a barrel.

Regulations on carbon emissions will intensify.

Reputations will be won or lost as the public demands that businesses reduce their environmental footprint.

The growing demand for energy will require an estimated $26 trillion in investment by 2030. Energy companies will face hard choices in deciding how to deploy these funds in an uncertain market with mixed policy messages. The recent Deepwater oil spill shows all too clearly the hazards of moving into ever more unpredictable terrain to extract energy resources. And the rapid deployment of cleaner energy technologies will radically alter the risk landscape. At this precise point in time we are in a period akin to a phony war. We keep hearing of difficulties to come, but with oil, gas and coal still broadly accessible – and largely capable of being distributed where they are needed – the bad times have not yet hit. The primary purpose of this report is to remind the reader that all businesses, not just the energy sector, need to consider how they, their suppliers and their customers will be affected by energy supplies which are less reliable and more expensive.

The failure of the Copenhagen Summit has not helped to instil a sense of urgency and it has hampered the ability of businesses – particularly those in the energy sector – to plan ahead and to make critical new investments in energy infrastructure. I call on governments to identify a clear path towards sustainable energy which businesses can follow.

Independently of what happens in UN negotiating rooms, businesses can take action. We can plan our energy needs, we can make every effort to reduce consumption, and we can aim for a mix of different energy sources. The transformation of the energy environment from carbon to clean energy sources creates an extraordinary risk management challenge for businesses. Traditional models that focus on annual profits and, at best, medium term strategies may struggle. Parts of this report talk about what might happen in 2030 or even 2050 and I make no apology for this. Energy security requires a long term view and it is the companies who grasp this who will trade on into the second half of this century.

Executive Summary

Businesses which prepare for and take advantage of the new energy reality will prosper – failure to do so could be catastrophic.
Market dynamics and environmental factors mean business can no longer rely on low cost traditional energy sources.
China and growing Asian economies will play an increasingly important role in global energy security
We are heading towards a global oil supply crunch and price spike.
Energy infrastructure will become increasingly vulnerable as a result of climate change and operations in harsher environments.
Lack of global regulation on climate change is creating an environment of uncertainty for business, which is damaging investment plans.
To manage increasing energy costs and carbon exposure businesses must reduce fossil fuel consumption.
Business must address energy-related risks to supply chains and the increasing vulnerability of ‘just-in-time’ models.
Investment in renewable energy and ‘intelligent’ infrastructure is booming. This revolution presents huge opportunities for new business partnerships.

A change in the energy market balance between East and West

Advanced economies remain the biggest consumers of primary energy per person but by 2008 non-OECD countries led by China and India had outstripped them in terms of the share of world demand. This shift began in the 1990s, partly because manufacturing shifted eastwards. Meanwhile, lower population growth, de- industrialisation, greater efficiency, higher fuel prices and a concern for the environment are lowering demand for oil-based fuels and coal in the OECD.

These consumption trajectories mean there is likely to be a tipping point in 2015 when countries in Asia-Pacific need more imported oil in total than the Middle East (including Sudan) can export.

Middle East oil surplus vs Asia-Pacific deficit (Source: John Mitchell, Chatham House 2010)

The white paper goes on to detail market forces, energy trends, risk and opportunity. This is recommended reading for business and government leaders and risk managers.