Why Clean Energy Investors Need to Care About Politics
I believe that investments in clean energy should outperform the market as a whole for two reasons. First, the inability of fossil fuel supplies to keep up with demand will raise prices and improve the environment for alternatives. Second, growing awareness of the seriousness of Climate Change will lead to increased regulation of greenhouse gas pollution, which should benefit clean energy relative to conventional energy.
While I am certain that at some point reality will galvanize public opinion and political action on climate change, the sooner the politicians take action, the better for the planet, and the better for our investments. This is why I and every clean energy/cleantech/greentech investor should care about politics. Unfortunately, Green is still a partisan issue, with the typical Republican (with a few welcome exceptions) opposing the legislation we need, and strongest leaders on this subject being Democrats, with the party as a whole being supportive.
With the Democratic National Convention in my home town of Denver this week, you can expect a series of articles on Clean Energy and Politics. After the break, you will find my take-away from a recent hearing help by Colorado state Republicans on the subject of Energy and the Economy. [Note if you're reading this on the feed or email, you'll have to click through to the site to see the full story]
As I attend several convention-related Cleantech events this week, you can expect several short articles on how politics affects the future of Alternative Energy. And, I hope, vice-versa.
Those Crazy Colorado Republicans
The Economist recently published an article about my adoptive home state, Colorado. Having arrived here in 2005, the discussion of how the Colorado Republican "House Crazies" demolished both the state Democrats and the moderate wing of their own party finally enlightened me on why Colorado Republicans seem so, well, crazy.
Before I moved here, I had several nice things to say about Republicans. As opposed to Democrats, they are more likely to understand that free trade tends to bring net benefits, and that for every worker who loses his job in America, another American probably gets a job in another sector, and probably two poor workers in third world countries get jobs they would not have as well. I also think that more Republicans than Democrats understand that you can't borrow your way out of financial trouble, although recently it seems that that fact has been lost on almost everyone in both parties.
Anyway, I came to Colorado thinking that Republicans, in general, were more likely to understand financial issues, but too bad about their social and moral stances. At the same time, I was also becoming increasingly concerned about global climate and energy issues, and that has since led me to be involved in regulatory hearings at the politically appointed Public Utilities Commission, and more recently to testify before our state legislature. This personal experience has led be to conclude (1) Colorado Republicans are nuts, and (2) Colorado Democrats are a bit less squishy and namby-pamby that I'd expected (although not much... I have run into some populist Democrats who totally fit the stereotype of believing all the worlds problems would be solved if we just outlaw everything bad.) Nevertheless, I have yet to encounter a state elected Republican who I could agree with about practically anything, while there are several elected Democrats whom I greatly admire.
The "No Energy Economy"
That said, when I heard through the environmental activist network that the Republican Study Committee of Colorado (RSCC) was going to have an Energy study committee meeting which was open to the public, and that it was titled "New Energy Economy, or just No Energy Economy?" I had to attend. (The "New Energy Economy" is the catch-phrase of Colorado Governor Bill Ritter, one of those Colorado Democrats I admire. (You can see him in a video advocating saving energy here. Can you imagine our President in a video like this? Or even John McCain?)
Every name I recognized on the list of speakers was someone I consider to be opposed to what I think needs to be done about energy. They ranged from Stan Lewandowski, the General Manager of a local electric cooperative who was exposed donating his members' money to a global warming denier by ABC News in 2006, to someone from the oxymoronic Environmentally Conscious Consumers for Oil Shale, to Frank McNulty, the State Representative about whom a reader chided me last week for calling a "know-nothing from suburbia." The only exception to the general nuttiness of the line-up was the speaker from Range Fuels, a cellulosic ethanol startup which seems to be the farthest along in commercializing the technology. Not that I think the best thing to do with biomass is to create ethanol, but at least it's a start. I have some hope that he may speak some sense.
So, I attended the meeting with open ears, and as open a mind as I could muster. At the very least, it's worth knowing how the opposition thinks, and if they have any interests which might lead them to compromise on important issues.
When the Public Utilities Commission (PUC) had held a hearing on Global Warming a few weeks earlier, the room was packed. At the RSCC hearing, attendance was sparse, with less than 30 people in the room, including the legislators and speakers. Since about 10 of those were the RSSC members, and I counted between at least 8 members of the opposition (such as myself) attending, there were no more than a dozen members of the public there for the entirety of the morning session. I draw some comfort that these people are not drawing the crowds.
Of the speakers, they ranged from a good sized list of climate deniers, to people in the energy business (two natural gas drillers, and one cellulosic ethanol company, a uranium miner, and a representative of the Colorado Asphalt Association.)
The Deniers (James Taylor, of the Heartland institute, Bob Ferguson of the Science and Public Policy Institute, Howard Hayden author of "A Primer on CO2 and Climate" rolled out the usual tripe about "the climate is not getting warmer" and attacked various strawmen (people who claim that we can get hydrogen by doing a "Soft landing on the Sun at night," for instance.) Needless to say, these strawmen did not stand up. Neither do the deniers' arguments, but many other people have debunked their arguments many times over; they're in the business of providing an "alternative view" on climate science, and no amount of real science will make them go away. If you want the blow by blow (at least until I got fed up), you can read my notes here.
Stan Lewandowski, referenced above as a funding source for the deniers, gave his usual line about how the only way to ensure cheap, reliable electricity is coal. However, the last time I heard him speak, two years before in Steamboat Springs, he had seemed to make his case a bit more coherently. This time, he not only blamed the recent movement towards renewables for his Co-ops recent rate increases, he also blamed it on investments in gas-fired generation (the true culprit) which, he said, had been the lowest-cost resource at the time those investments were made. What's striking to me is that he seemed to have no clue that the same reasoning which lead to the investment in natural gas fired generation was the same as that he puts forth in favor of more coal fired generation.
The energy industry representatives also did a lot of spinning of facts in order to make their case. However, unlike the deniers, they were generally quite intelligent and had done their research with some rigor. I got several useful pieces of information from them, which led me to remark to an activist at lunch that "I never know why I'm coming to these things until after the fact."
The two natural gas drillers (John Harpole, of Mercator Energy, and Scott Moore, of Anadarko Energy Services) were at the meeting in force because they are trying to preserve a tax credit. There will be an initiative on the Colorado ballot in November which will repeal a 30 year old tax break for gas drilling. (The money would be spent on education, Renewable Energy, and to offset the impacts of drilling.) Not wanting to give up the tax break, they are spreading the horror story that the gas industry will up and leave Colorado.
While of course it's true that removing a tax break will cause some marginal drilling projects to leave Colorado... but the gas reserves are not going anywhere. In other words, drilling will slow (and it is currently massively straining the infrastructure in rural Colorado,) but when the wells are eventually drilled, Colorado will take a larger share. This will be a net gain for the state, since much natural gas is exported.
Aside from the industry lobbying, they were fairly convincing that they would be able to keep up production of natural gas in North America, at least for the next few years. Considering that production has increased over the last few months, we may even see a price decline this fall. They also mentioned a company I should probably have included in my article on how to invest in the Pickens Plan. That is Cheniere Energy (LNG), a company which owns liquefied natural gas terminals in the US. Because these terminals are for the most part unused, the stock is badly beaten up. I would not buy it however. A cursory look at their financials makes me think that the company will not survive the few years until we actually need those terminals. On the other hand, if a public company manages to purchase those terminals for a fraction of what they cost to build, that purchaser might be sitting pretty in a few years' time.
The representative of Range Fuels simply gave an overview of how his company's cellulosic ethanol is produced. Since this can be had directly on their website, I refer readers who are curious to there.
Of everyone, I learned the most from Tom Peterson of the Colorado Asphalt Pavement Association. Asphalt is made from bitumen, the junk that is left over after oil refining. As oil becomes pricier, refiners are increasingly using cokers, which turn a larger percentage of the bitumen into fuel oil. Because of this, and the bankruptcy of a supplier of an asphalt additive, there is currently an asphalt shortage in Colorado. The major problem for now is the lack of the additive, which should be a short term problem. However, as long term oil prices continue to rise, the asphalt industry should be under increasing pressure from reduced supply of their primary feedstock, which will be falling both because crude refining will fall will crude production, and because a smaller percentage of each barrel of oil will end up as bitumen. Because of this, I would expect leaders in asphalt recycling to benefit relative to asphalt companies who rely on virgin feedstock.
Another significant user of bitumen is composite roofing. Here, there are a lot more options for alternative materials for roofing, so continued oil price rises seem more likely to benefit alternative roofing materials, despite composite's widely recognized durability. (Solar shingles, anyone?)
Overall, it was a rather frustrating day. I had hoped to gain some understanding into the thought processes which might give me ideas about how this generally obstructionist part of the Colorado Legislature might be persuaded of the necessity for new ways of thinking about and managing our energy. I came away with the disappointing impression that they are too committed to their viewpoint (Their slogan is "Committed to the Core") to want to hear contrary opinions. For instance, the testimony of several of the business representatives directly contradicted the statements made by the Global Warming deniers (for instance that climate change is a reality and that renewable energy is needed)... but while the representatives were very interested in questioning these men about the price and job impacts of various proposed changes to Colorado law, they never asked about these blatant contradictions regarding the big picture.
In many cases, the Representatives were as guilty of setting up strawmen to knock down as were their "experts." To me, this is a sign of people insecure in their convictions, more likely to react with anger to any questioning of their beliefs than with consideration. I came away with the sad conviction that, in the RSCC at least, their only real goal is to be able to perpetuate the fantasy world in which they live.