Investing in the Earth

This morning I perused my newspaper (the New York Journal News) to get a sense of this year's obligatory Earth Day articles. Two articles struck me as particularly interesting. The first article that got me thinking was a local article which reported findings from a consumer research firm (Mintel) that found that consumers were willing to buy green products provided they did not cost 10% more than regular non-green products. My first reaction to the story was that it was presuming the negative. Why shouldn't most green products be even cheaper than regular products. For example, energy saving CFL lightbulbs clearly last much longer than traditional incandescent bulbs and use about one-third the energy. Over their lifetime that represents a significant cost savings. So why do we think of them as more expensive?

The reason we think of them as more expensive is that they cost a bit more up front compared to regular light bulbs. We think in terms of the short term cost, not the long-term value. It struck me that this type of valueless thinking is the antithesis of the values I was raised on. I remember once going to a Sears store with my father so he could buy a new hammer. I remember him pointing out to me that the Sears Craftsman hammers were more expensive than others but that it was important to think about the durability of tools and that an investment in a good tool would always pay off in the long run. It was a good lesson and one that sunk in. To this day I won't buy a cheap tool but insist on going with well-made, quality tools, even though they are more expensive.

What I find surprising is that we won't apply this same logic to products which are good for the environment. We put up a new article this week in the Solar Energy section of the EnergyBible which talks about Calculating Payback on solar photovoltaic systems. What the article showed was that a solar energy system can save homeowners lots of money while doing something good for the planet. What's the drawback, the same as with the CFL bulbs, it costs money up front. It requires an investment! It made me think of a neighbor who recently spent $20,000 to put up a new deck on his house. He argued that it would improve the resale value of his house, an understandable reaction in the rapidly declining housing market. However, I got to thinking that if he had used that same $20,000 to put up solar panels on his roof he would have also have improved the value of his property but in addition he would have dramatically cut his energy bills for the next 25 years. Seems like a no-brainer to me but clearly he didn't see it that way.

Investment was also the theme of another article I saw this morning, though this one was found, not surprisingly, in the business section of the newspaper. The article was reporting on a recent analysis by MP Morgan Securities in which the analyst recommended that investors dump stock in companies which required significant water supplies (power plants for example) in order to create their product. The premise was simple. The supply of water is no longer meeting demand given our rapid population growth so companies that rely on water are going to be at significant risk.

I make no claims on sainthood and so I have to admit my immediate reaction to this article was to conjure up an image of a Wall Street banker who is found deceased in his office, up to his armpits in mounds of cash, who unfortunately died of thirst because there was no water in the water cooler. OK, its a tempting scenario, but the point of all this is that while much of the public is hesitant to invest in a future which will protect our planet, many others who live in the investment sector are willing to invest in the probability that we will fail and that our planet will go down in ruin. It is a morbid way of looking at the world but it is real. There is money to be made in selling the planet short, or more precisely, short selling the planet!

I would like to think that the human race has more sense than this. That we will wake up, smell the coffee, and put our money to work protecting our planet instead of destroying it. However, I suspect it won't be Wall Street investors who make this happen. It will happen when individual investors large and small spend their money wisely, by investing in things that payoff in the long run!

Magnitude of Change in Energy Costs

In this time in our history when there is so much happening on so many economic fronts it is often difficult to fully grasp the magnitude of changes that are going on around us. I believe this is particularly the case when it comes to energy prices. All of us realize that energy prices have gone up a lot in the last few years but since we are all very busy managing our day-to-day lives it is hard to fully comprehend the magnitude of the change which has occurred. Fortunately, every now and then the team at the EnergyBible.com comes across data which helps us to crystallize and gain perspecitve on the changes that are occuring. In this case the data is from our friends at the U.S. Department of Energy.

The chart we will be referring to can be found at this link: http://www.eia.doe.gov/cneaf/electricity/epm/epmxlfile4_1.xls. It is a spreadsheet put out by the Department of Energy and what it shows is the cost of coal and oil from 1993 through the end of 2007. When I looked over this chart it really began to hit me just how dramatically our energy costs have changed in the last 10 years. Moreover, it helps to show how different the level of change has been based upon the type of fuel.

This particular price chart contrasts the price of coal versus the price of liquid petroleum (ie. fuel oil). One of the nice things about this chart is that it provides the prices for both in terms of cost per million BTU. This is a good way of comparing coal costs to heating oil costs since each type of fuel is measured differently. Coal is usually measured in cost per ton and fuel oil is measured in cost per barrel. By looking at the cost per btu (heat energy generated) we can accurately compare the costs.

In 1998 a barrel of oil cost $13.55 per barrel or about $2.14 per million btu. In that same year a ton of coal cost $25.64 per ton or about $1.25 per million btu. From this we can see that the cost of coal was about half or 58% the cost of oil. Therefore, it should not be a surprise to us, though it often does, that the majority of the electricity we use in the United States comes from coal fired power plants, not natural gas or fuel oil plants. Even 10 years ago coal was a lot cheaper.

Let's compare that with the situation at the end of 2007. By the end of 2007 a barrel of oil had risen to $87.46 per barrel or about $14.19 per million btu. This represents an increase in cost of oil per btu by 663% in just 10 years! What's even worse is that this data is now quite low because oil prices continued to rise dramatically in the first half of 2008 and is now hovering around $110 per barrel. Don't let anyone tell you the energy crisis is not real and not serious. These numbers prove that it is!

Now let's look at the increase in the price of coal over that same time frame. At the end of 2007 coal had risen to a price of $36.07 per ton or $1.82 per million btu. This represents an increase of 45.6%. A definite increase but nowhere near as dramatic as that for coal. Now let's put two and two together. The facts are that the price of oil has increased by an incredible amount while the price of coal has increased only moderately. America has run out of oil for the most part and has to import it, but America has a good bit of coal left, probably enough to last at least 30 years. Given this data what are electric plants running on fuel oil (and possibly even homeowners) likely to do? The answer is obvious, they will switch to coal.

So here we are in 2008 looking at the likelihood that America's electric plants and possibly even homeowners are going to be highly motivated to switch to coal, which is by far the most damaging fuel to our environment and the greatest creator of global warming. Given the economic situation oil and natural gas are no longer reasonable choices as a way of creating electricity. The only other choice is to go with renewable energy resources such as wind energy, solar energy, or hydro energy. This shows that there has never been a time when it is more urgent to push our civic leaders and legislators to get serious about renewable energy. If not we are looking at a near-term future where our skies become polluted and our planet becomes excessively warmed by the black clouds pouring from coal fired electric plants!

The Cantwell/Ensign Energy Bill

As we reported this week the federal tax incentives for both business and residential solar energy and wind energy are set to expire at the end of the 2008. Consequently there are several bills before Congress which are attempting to extend the renewable energy incentives. One bill has already been shot down because it proposed to pay for the incentives by eliminating some of the absurd tax incentives that Bush gave to his oil buddies last year. Fortunately a new bill has been introduced by Senators John Ensign and Maria Cantwell which has a greater chance of making it through. This bill, called the Clean Energy Tax Stimulus Act of 2008, does not call for the solar and wind incentives to be paid for by the oil companies so it might get through.

One of the things we like about this bill is that it not only calls for extending the tax incentives, but it also calls for removing the $2000 cap. This cap has served to minimize the extent to which larger home owners will invest in renewable energy for their home. At a time when energy prices have gone through the roof (sometimes literally) it seems utterly ridiculous to put a cap on how much renewable energy a homeowner can be credited for.

Another thing we like about this bill is that it is broad in scope, and provides incentives for many kinds of renewable energy such as solar, geothermal, wind, biomass, hydropower facilities and much more. Extending the solar and fuel cell Investment Tax Credit for eight years also encourages tremendous development of these technologies.“ Senator Ensign was absolutely correct in saying “If Congress continues to drag its feet, many projects across the country will be a sad reminder of potential that was never met."

It is gradually beginning to dawn on some members of Congress that renewable energy means jobs, local jobs, and so support for Green initiatives seems to be growing despite the current administration's attempt to crush any energy initiative that would compete with the oil conglomerates. Studies have shown that the Production Tax Credit and Investment Tax Credit for renewable energy projects would help create 120,000 employment opportunities and bring almost $20 billion in economic investment into the country.

At last count Ensign and Cantwell’s bill has 6 Democratic cosponsors and 14 GOP cosponsors. It will need to have strong support from both sides of the isle if it is to have a chance of getting Bush to sign it. Therefore, we strongly urge you to contact your own senator and let them know you support this bill and want to see the renewable energy tax credits extended. The bill needs 40 more votes if it is to make it through. Help us find the favorable forty! Thanks!