Evolution of Thought or Spin?

There's a rather interesting article on the front page of the Washington Post that quite a few are talking about. It leads with the possibility that President Bush is ceding ground in the climate change legislation front, and looking for non-Kyoto-based alternatives as solutions:

For years, Bush bristled privately at what he considered sky-is-falling alarmism by the liberal, elitist Hollywood crowd. The clatter over climate change, according to friends and advisers, seemed to him more like a political agenda than a rational response to known facts. But ever so gradually, they say, Bush's views have evolved. He has found the science increasingly persuasive and believes more needs to be done, especially after a set of secret briefings last winter. A former aide said Bush's staff even developed models for a market-based cap on greenhouse emissions.

Now Bush bristles not at the Hollywood types but at the notion that he does not care. At an end-of-the-year news conference, he spent more time answering a question on climate change than on any other inquiry, outlining his approach in detail to dispel the notion that he does not have one. "I take the issue seriously," he said, later repeating the phrase. "And we're developing a strategy that will deal with it, and an effective strategy."

Typically, I find it difficult trying to separate the partisanship and the spin from genuine political developments. This article feels no different. But rather than get embroiled into any kind of debate, I'm just going to follow this article with what I believe are a few countering sentiments. I have a specific viewpoint on the matter (which is why I chose the articles that I did), but others may believe there's more to this article, than I.

Hard Choices on Climate Can Wait for Next President, Aides Indicate

Bush Faces a Long Legal Battle With California

Bush and Global Warming in 2008

Progress at Bali

Just wanted to highlight the progress at Bali. Most reports seem to be taking the "cautiously optimistic" approach.

The U.S. is joining almost 200 nations in a pact that lays the initial groundwork for a new global treaty to combat climate change. But the agreement offers few specifics and doesn't require the countries to make binding emissions cuts...

...Still, the four-page document produced during the talks included few details on how the international community will fight climate change, and is merely a first step in the process of creating a new treaty. Most language regarding specific targets for emission reductions was relegated to a footnote, due to U.S. objections....

...The agreement that was reached called on industrialized nations, including the U.S., to take "actions or commitments" to reduce emissions. But the term "action" allowed the U.S. to avoid the question of whether it will agree to binding emissions cuts as part of a new climate deal. Still, the pact created a framework that would leave the door open to the idea of making binding cuts down the road, which environmentalists hailed as progress.

Also, China and India are apparently making noises about joining the party:

Some say the most noteworthy advance from the meetings was a vow by developing nations, including China and India, to take "actions" to mitigate climate change "in a reportable and verifiable manner" for the first time.

Solar news and notes

I've been tracking the PV solar sector for a while, and have a report coming out on it sometime in the near future (the date keeps getting pushed back). After decades of false promises and missed opportunities, we are definitely witnessing a re-emergence of distributed solar technology, with astounding growth rates in demand and production capacity, innovative R&D, billions in capital investment, sizable annual cost reductions, and a changed political landscape.

I find it interesting that until this year, much of this progress appeared to be occurring under the radar. Now of course, you can't stop reading about solar (too many articles to link), or how to make money investing in it and the inevitable backlash has already begun.

"Why" this is happening is a complicated tale. Too much for this post. The recent McKinsey report had some very interesting things to say on the potential future for PV solar:

By 2030 the US could have somewhere between 28 gigawatts (low-range case) and 148 gigawatts (high-range case) of solar PV capacity [ed. note: this is actual capacity, not peak] depending largely on the degree of cost compression and learning rates achieved from production and installation. Solar PV could achieve growth akin to that of the semiconductor industry, if conditions are favorable.

And ultimately how does that happen according to McK? Grid parity - ie solar cost per watt being equivalent to traditional gas and coal generating sources without subsidies. I'll be writing a lot more on this, but for now, I just wanted to highlight some recent stories I've come across, which highlight some of the key themes in the solar space: policy, investment, and market economics.

• Solar Showdown in Congress: Green Wombat highlights something I'd discussed a few days ago, the fear that vital renewable energy tax credits won't be extended by Congress. This would severely damage the near-term prospects for solar - both on the large utility-scale segment, and in the residential market. Long-term extensions of these incentives would help to create stability in investment and manufacturing, moving away from the damaging volatility of past years. Everyone expects the subsidies to end at some point in the future, but their presence is vital now while the solar industry builds capacity, improves technology and reduces costs. On average, manufacturing costs come down 20% for each doubling of capacity. As highlighted above, eventually you reach the important level of grid parity. This article is a week(ish) old, so extension of these credits has been included in the House energy bill. But it is uncertain if they will remain in the final version of the bill sent to the President (if one gets sent at all).

• First Solar Buys Ted Turner's Green Energy Company: One issue I highlight in my to-be published report is the value and importance of marketplace consolidation horizontally and vertical integration up and down the supply chain. This is an example of the latter. It will be interesting to watch if the pace of this activity increases. Also, Ted Turner exited this investment after 10 months. I wonder if it was the return multiple or the industry itself.
  

• Chinese Solar May Trade Margins for Market Share: Two years ago, analysts and experts began forecasting that silicon pricing would return to normal in a few years. Recently, the timeline for this "decrease in price" continues to get extended. Over the past year, I've seen it move from 2007 to 2008 to 2009, and now some say silicon prices won't drop until 2010. Too much demand, too little supply, coupled with poor policy and manufacturing planning decisions. As this article states, nothing has changed to date with silicon prices and they continue to stay high. Those solar panel manufacturers best positioned are the ones signing long-term contracts. More importantly, you can expect consolidation among those companies least able to weather the shrinking margins. More on the silicon shortage here.
  

• German Subsidies Could Decline 9% in 2009: The boom in German solar interest caught everyone by surprise (manufacturers, politicians, investors, etc.). But I sometimes wonder what people expected, after giving feed-in tariffs for solar that were 55 eurocents per kilowatt hour generated - this was ten times the level of other renewable subsidies. The German proposal still needs to be voted into law, but given past statements from environmental ministers and politicians, I expect this to occur. Meanwhile, California is now contemplating a feed-in tariff. Feed-in tariffs concern me somewhat - they are wonderful at spurring demand, but can cause severe market disruptions, if they push demand too high too quickly. Germany is a prime example of this phenomenon.
  

• 2008 Cleantech Predictions: Solar. Interesting predictions from a solar VC: I think he's too aggressive in his forecast for the alleviation of the poly-silicon supply crunch (he says late 2008, I see this going well into 2009...excluding the possibility of a global recession of course). Completely agree and welcome his prediction that entrepreneurs will move outside cell and module production into various downstream aspects of distribution, installation, financing, etc. Squeezing costs out of distribution and installation could drop overall solar costs 20% and more. Compare Japanese costs to California for evidence. (about $6/watt versus $9/watt, with most of the difference coming on the distribution and installation side). Also, I understand his interest in focusing on China and India, but as the solar sector grew 500% in Spain in 2006, and Italy and Greece are making a lot of noise, I wouldn't stray too far from Europe (or the U.S.) next year.

UPDATE: One other article I forgot to add which I thought tied together several of the themes from above:

Solar Installers: Cutting Costs to Compete: As per the CEO of SunPower - 50% of the cost of solar is in its installation. This sounds high, but I'm not the CEO of a large solar power installer. So go with him on this one. Couple good insights from the panelists this article references, especially that solar installation on the residential level is just like any other consumer product: a lot of it comes down to trust and marketing.

Updates on renewable energy legislation and Bali

The House passed the the Energy Independence and Security Act today. Details of the bill can be found here. Both sides are talking tough, with the White House threatening veto and Senate Republicans filibuster.

Especially contentious is the tax package on oil and natural gas companies and the 15% RPS, for a number of reasons (some economic, some political). Most media outlets are reporting that both issues will be stripped out of the final act. To me, it makes sense that Pelosi would ram through as aggressive a bill as possible, to provide cover and negotiating leverage when a compromise bill is eventually developed. Moving the pendulum as far to one side as possible. Sen. Reid has stated he will quickly act on the legislation. More to come as always...

Meanwhile, in another land far, far away, we see perhaps the first result (internationally) from the recent Australian election and the election of Kevin Rudd as new Prime Minister:

American negotiators at a climate conference came under mounting pressure Thursday to back mandatory caps on greenhouse gases, after Australia threw its support behind deep emission cuts and anti-global warming legislation passed a crucial test in the U.S. Senate

This just seemed more newsworthy to me than the main thrust of the article, which is that the US refuses to concede on mandatory emissions limits at the Bali conference. For anyone who's been following the debate, the US stance is, of course, not news in the slightest.

Finally, my buddy and former boss Nathanael Greene has passed on a quick primer I wrote on LEDs. This also isn't newsworthy, but included here just in case you're hungering for a fact sheet on LEDs. Because really, who isn't hungering for a fact sheet on LEDs?

Business Community and the Bali Communique

Interesting statement released in advance of the Bali sessions taking place this week. Over 150 companies agreed to the following principles:

• Climate change is real, presents significant risks and "demands an urgent global response".
• Costs of action are manageable
• Any delay will require steeper emissions reductions will be required in future
  
• Shift to low-carbon economy is a business opportunity and "tackling climate change is a pro-growth opportunity"
• Business needs certainty of legally-binding UN agreement to reduce GHG emissions, which must incorporate a carbon market
• Agreement needs to be in place by 2012
  

This is a pretty heavy set of statements, especially considering the tone of the business community a few years ago (especially in the U.S.)

No specific emission targets are called for (just that they "must be guided primarily by science"). I'm not surprised, although the individuals leading the Communique effort believe this statement to be a significant enough step to promote it on their home page.

A lot of obvious European signatories, but given the strength of the statements, a few corporate names jumped out at me:

• Shell (next to Statoil, the only O&G company)
• GE and United Technologies (both well-publicized environmental "converts" but even so, these are powerful statements to support)
• eBay (the only online company)
  
• News Corporation (I can only imagine the shock on the Fox News set).
  

Progress

Unlike another unnamed global power, India's and China's leadership appear not to have their heads in the sand:

A REPORT by six government departments in China yesterday warned that climate change would harm the country's economy and environment in the coming decades, with potentially devastating cuts in agricultural output.

The warning, from the State Meteorological Bureau, Academy of Sciences and Ministry of Technology, among others, could be a sign that China - which has experienced dramatic rises in carbon emissions because of a booming economy largely powered by coal-fired power stations - is about to take significant steps to address the issue.

India, another rapidly industrialising third world country, also warned yesterday that it and other developing countries, could not afford to copy the West's "wasteful lifestyle".

Japanese Energy Efficiency

Really like this story on Japan's extremely energy conscious ways.

Japan is the most energy-efficient developed country on earth, according to most specialists, who say it is much better prepared than the United States to prosper in an era of higher global energy prices. And if there is any lesson that Japan can offer to Americans, they say, it is that there is no one fix-all solution to living with oil above $50 a barrel.

Rather, as Mr. Kimura shows, it is a combination of many things, from the most advanced technologies to the simplest frugality in everyday life — and an obsession with saving energy that keeps his family huddled in a single heated room during winter.

The notion that it takes both the individual and a collective social consciousness working together is very valuable. The article also mentions the Japanese government's tax on gasoline which pushes it to $5.40 a gallon, and where the subsequent tax revenues have gone.

Finally:

Higher energy prices have also created strong domestic demand in Japan for more conventional and new energy-saving products of all sorts. That has spurred the invention and development of things like low-energy washing machines and televisions and high-mileage cars and hybrid vehicles, experts say. Japanese factories also learned how to cut energy use and become among the most efficient in the world.

Companies like Mitsubishi Heavy Industries are now reaping the benefits in booming overseas sales of their highly efficient electric turbines, steel blast furnaces and other industrial machinery, particularly in the United States. The environment ministry forecasts that exports will help turn energy conservation into a $7.9 billion industry in Japan by 2020, about 10 times its size in 2000.

Is it any wonder that Toyota and Honda have taken the lead in developing hybrid technology?

Cities Respond to Global Warming Challenge

Yeah yeah. I've been busy.

In any event, some interesting GW news. Into the vacuum of leadership created by the absence of Bush Administration interest in what even Ron Burgundy would refer to as "a pretty big deal", steps others:

Tony Blair yesterday sidestepped the Bush administration's refusal to act on climate change by signing what was hailed as a ground-breaking agreement with California, the world's 12th largest carbon emitter, to fight global warming.

Downing Street made no attempt to disguise the fact that the deal is designed to get round Republican objections to states imposing mechanisms to cut carbon emissions. With other US states also interested or involved in carbon trading markets, the path is being opened to bring US business into international efforts to fight climate change, even though international progress has been stymied by the Bush administration's refusal to sign up to binding targets in the Kyoto protocol.

And while the LA Times editorial section may be mildly dubious, it still praises the efforts, and describes the importance of public/private partnerships:

FOR ALL THE FANFARE that preceded it, the agreement on global warming signed Monday by British Prime Minister Tony Blair and Gov. Arnold Schwarzenegger is more a promise than a plan. The nation and the nation-state, the two leaders agreed, will collaborate on new, clean-fuel technologies and research the costs and benefits of mandatory emissions trading programs such as those recently put in place in Britain and the rest of Europe.

[snip]

In fact, business — the constituency so many politicians fear to ruffle by proposing energy regulations — has shown more leadership than many governments on climate change. Business leaders recognize that it is more than simply an environmental issue. It's an energy issue. It's an economic issue. It's a national security issue.

They also recognize the costs of doing nothing. Not only the costs of drought and hurricanes, which we're already paying, but the opportunity cost. They see not just a moral imperative but a market for cleaner energy. The United States, which has always risen to scientific and technological challenges, is in danger of sitting this one out.

But even business leaders acknowledge that they cannot solve this alone. As BP Chief Executive John Browne, who hosted the Blair-Schwarzenegger meeting at BP's Long Beach shipping terminal, said at a meeting Tuesday with The Times' editorial board, the role of governments can't be underestimated even in seeking a market-based solution. "The way government creates regulations determines markets," he said. "And markets determine behavior."

Ahhh leadership. Smells of rich mahogany...