Tag: economics

Climate Change and the Insurance Industry

http://flickr.com/photos/that_chrysler_guy/8139133299/

As the entire eastern seaboard slowly recovers from its lashing by Sandy, insurance companies are bracing for the hurricane’s aftermath and the possibility of another Katrina-scale loss.  If there’s any major incumbent business with an incentive to publicly acknowledge the risks and costs of climate change, it’s the insurance industry, and especially the re-insurers — mega-corps that backstop individual insurance companies by pooling their risks globally.  These companies can do the math, and what they’ve seen over the last couple of decades is a steady upward trend in both the number of extreme weather events and the resulting insured losses that they’ve been on the hook to cover.  The situation is well summarized in a new report from Ceres, entitled Stormy Futures for U.S. Property/Casualty Insurers.  They suggest that insurers face an existential risk from climate change.

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Suburbs == Ponzi scheme

Charles Marohn of Strong Towns on Grist, explaining the way in which American suburbs are a giant Ponzi scheme.  Essentially, since WWII there have been several rounds of up-front financing for suburban expansion, including federal dollars, and debt leveraging supposed future increases in tax revenues resulting from the growth.  Along with these capital investments come long-term O&M obligations.  Unfortunately, the obligations are too large, and we’ve only been able to meet them with new influxes of capital, but that’s flamed out.  Sprawl is inherently expensive to build and maintain, and doesn’t create enough real value to support itself in the long run.  How long will it take to internalize this reality culturally?

Feds underestimate costs of carbon pollution

NRDC blogs about a new study on federal use of discount rates in calculation of carbon costs, which suggests we grossly underestimate the present value of reducing emissions.  Did you even know that the feds had put an internal price on CO2?  They behave as if it costs $21/ton to emit.  But that’s based on a discount rate of around 3%, which is the highest rate OMB suggests using for inter-generational costs.  Part II of the very detailed NRDC post is here.

Renewable Energy Policy by Paul Komor

I just finished reading Renewable Energy Policy by Paul Komor (2004).  It’s a little book, giving a simplified overview of the electricity industry in the US and Europe, and the ways in which various jurisdictions have attempted to incentivize the development of renewable electricity generation.  The book’s not that old, but the renewable energy industry has changed dramatically in the last decade, so it seems due for an update.  There’s an order of magnitude more capacity built out now than ten years ago.  Costs have dropped significantly for PV, but not for wind (according to this LBNL report and the associated slides).  We’ve got a much longer baseline on which to evaluate the feed-in tariffs and renewable portfolio standards being used in EU member countries and US states.  I wonder if any of his conclusions or preferences have been altered as a result?  In particular, Komor is clearly not a fan of feed-in tariffs, suggesting that while they are effective, they are not efficient — i.e. you end up paying a higher than necessary price for the renewable capacity that gets built.   This German report suggests otherwise, based on the costs of wind capacity built across Europe.  Are the Germans just biased toward feed-in tariffs because they’ve committed so many resources to them?  NREL also seems to be relatively supportive of feed-in tariff based policies, but maybe this is because the design of such policies has advanced in the last decade, better accounting for declines in the cost of renewables over time, and differentiating between resources of different quality and utility.

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2011 Wind Market Report from LBNL

Lawrence Berkeley National Labs has put out a report on the state of the wind energy industry, as of the end of 2011.  I didn’t realize that the price trend had been so uneven over the last decade.  The cost of wind power was dropping in the early 2000s, and then rebounded, peaking in 2008/2009 due to shortages in the turbine supply chain, before again dropping in the last year or two.  I started looking into these prices because I’m reading a Renewable Energy Policy by Paul Komor (2004) and the prices he quotes ($40-$50/MWh) seem low, relative to the numbers from Xcel’s ERP and the recent bids I saw in Michigan (more like $60/MWh), but the book was written right at the wind price bottom.  I’m also shocked at how wide the spread in costs is, even in just the last couple of years.  California is paying $100/MWh for huge projects, and in the wind belt some projects are coming in more like $25/MWh.  That’s got to be largely policy driven, and it indicates we’ve got a woefully inefficient market for wind.

What is the EROI for Solar PV?

The IEEE Spectrum magazine has a preview of a book looking at the EROI (energy return on investment) for solar PV, based on 3.5GW of actually installed capacity in Spain.  The authors suggest that based on their case study, the EROI for utility-scale PV, when all the associated energy expenditures are accounted for, is substantially lower than the value of ~7 which is commonly cited.  It’s worth noting, however, that EROI is not something being optimized for right now.  We’re very much focused on the plain old ROI, and in a world without a meaningful carbon tax (and, indeed, many subsidies for fossil fuels) even if you’re building renewable energy installations, you’re going to tend to use the cheapest energy available in that pursuit.  The article also points to another study, suggesting that an EROI of 12 or so is necessary to support “modern society”… but that has to depend pretty intimately on how efficiently you utilize your energy, and what you think constitutes “modern society”.  Either way, the EROI for fossil fuels is steadily declining as we pursue more and more “unconventional” reserves, so we’ll have to come up with a new solution, whether we want to or not.

Quantifying Community Garden Crop Yields

An informal study looking at the urban farming yields, by Mara Gittleman.  67 gardens, with a total area of 1.7 acres in NYC generated 87,000 lbs of food, with a market value of roughly $200k in 2010.  This is equivalent to about $3/square foot.  Just looking at the financial aspect, if we’re talking about land which could be developed, the net present value, discounting at 5%, of $3/sq ft, is (even if we go out 100 years) only about $60/sq ft. If you build a 5 story building, then property values need only be greater than $12/sq ft for the urban farming not to make (economic) sense, and I’m going to go out on a limb, and guess that property values in most of NYC are, um, substantially higher than $12/sq ft.

Cost Effectiveness of Renewable Energy in Michigan

In the 2011 annual report to the state legislature on the cost effectiveness of Michigan’s Renewable Energy standard, it was revealed that wind bids have been coming in far cheaper than anyone expected they would.  In fact, even without the federal production tax credits, they’re far cheaper than new coal fired generation ($61/MWh for wind vs. $107-133/MWh for new coal).  Interestingly, Xcel’s 2011 resource plan lists the cheapest new generation option in Colorado as being natural gas combustion turbines… at $60/MWh.  So wind is cheap.  It’s also very low risk.  So how do we get more of it?

Trade-offs between inequality, productivity, and employment

You can only consume so much, but you can hedge against risk to an unlimited degree, and the ultra-wealthy do, suggests Interfluidity, and this makes a mess of a consumption-based economy when you get too much wealth concentrated in a few actors.  It’s an interesting argument, but it does kind of hinge on a zero-sum game setting — insurance against risk going only to the highest of bidders (lifeboats on a libertarian Titanic).  WWII as a giant re-set button, leading to a temporary age of prosperity.  What’s the next re-set?  Climate change seems like a good candidate…

A Little White Lie-Bor

Turns out the world’s megabanks have engaged in a rate-fixing fraud for years.  The London InterBank Offered Rate (LIBOR) is an interest rate index that literally hundreds of trillions of dollars in financial instruments are pegged to.  And how is it set?  Well, someone phones up 18 duuudes around London every day and says “Yo, if you were gonna borrow money from some other bank right now, what rate would they charge you?”  And they can answer with whatever wild-ass-guess they want.  So they lied, in order to make themselves more money.  Shocking, I know.  Seems like the one thing you can trust banks to do is cheat when given the opportunity.