Mr Jeremy Grantham is a huge force sponsoring those who want to change the world’s economy based on their forecasts for 2100. And yet…
GMO’s Quarterly Letter – Third Quarter 2014 (text by Jeremy Grantham)
“Oil was $14 a barrel in 1998 and has now dropped to $83 from $115 (Brent). With costs of production at $60 or $70 a barrel, oil prices are not going back to $14 or even $40 (at least until renewables displace it more or less completely in a few decades). “
Quarterly Letter – Fourth Quarter 2014 (text by Jeremy Grantham)
“Under glut conditions, oil (and natural gas) is uniquely sensitive to declines toward marginal cost (ignoring sunk costs), which can approach a few dollars a barrel – the cost of just pumping the oil.”
Today’s news on CNN
“Crude plunged 4% to as low as $42.85 a barrel on Monday”
Back to Grantham’s 4th-quarter letter
“I believe the reason for the glut is not complicated…yes, my major regret for 2014 is, “How on earth did I miss this!” A combination of laziness and distraction is my lame excuse. “
What’s the value of the information published in the Quarterly Letters then?
In the Obama Administration, Energy Secretary Steven Chu wants to start “addressing the scientific and technical challenges of climate change“. Meanwhile, Climate Czarine Carol Browner is on the record for stating that global warming is “the greatest challenge ever faced“.
But is that a vision shared by the President himself? Hardly so. Very recently at the Costa Mesa Town Hall Meeting in California (March 18) President Obama singularly failed to mention climate in a list of upcoming challenges including the cost of health care, the dependency on oil imports and education.
It appears that for the current President, “climate” is a useful but merely ancillary issue to “energy”. But how can “the greatest challenge ever faced” be subordinate to energy or anything else? And how long will the likes of Chu and Browner, and everybody else one the side of Al Gore, tolerate such a situation?
It will be interesting to see if the “doom and gloom” camp will be able to get any traction against President Obama’s very own “Yes we can” mantra.
With crude oil likely going to pass $100 any time now, some people have started arguing that we may be near peak production with a gloomy future awaiting us.
But there is a solution and it has been waiting for us for almost 5 billion years…
It consists of around 36 thousand billion metric tons of methane, good for another couple of thousand years.
Since the known natural gas reserves are 52 million billion cubic feet (corresponding to 1.2 million billion kilograms), it all comes down to an untapped reserve 31 times as much as what is currently available. With around 80 years between now and exhaustion of Earth’s natural gas deposits, we can burn our way through perhaps another 2,400 years of cooking.
The upshot is that by the time we’ll be able to source such a giant methane deposit, the technological advances needed for the endeavour will likely have made all fossil fuels a thing of the past.
The downside is that this newly-found source is a bit far.
Editorial control must have relaxed at The Economist, of late, or else for a series of unfortunate circumstances nobody at HQ is reading the magazine end-to-end any longer.
That may be a couple of reasons to justify the following of pearls of unintended irony on those esteemed pages…
(1) From one kind of waste to another
“Nuclear power-Atomic renaissance“, Sep 6th, where we are told that “the current expansion of nuclear power”, based on lowering emissions of greenhouse gases, “is unlikely to be slowed down by concerns about what to do with the waste”.
(2) Errare humanum, perseverare…
“Jolly green heretic“, Sep 6th, where credit is given to a Stewart Brand who, having been wrong about “his alarmism over the Y2K computer bug”, and having thereby convinced himself that the world is “modular, shockproof and robust”, for unfathomable (and unfathomed) reasons considers global warming the “single most important environmental threat facing mankind”.
(3) Warming fantasy
“Gambling on Tomorrow” and “Tomorrow and Tomorrow“, Aug 18th, where we are told that all current climate models are too simple, and were not really checked against reality. This from the same magazine that has recently changed its mind, and thinks global warming is “for real”.
Is this what months and months of Global Warming scares by the UK government were all about: building up a consensus towards the re-establishment of nuclear power stations?
Tony Blair’s very last contribution to the future of Britain may as well be this 343-page Energy White Paper, with all its customary “public consultation” that will inevitably result in confirming what was already written in the white paper. Check in fact what happens when the consulted people don’t provide the “right” answer: the Governments marches on regardless.
I am quite skeptical on the feasibility of large-scale nuclear power generation, and even more so when it is blatantly advertised as a way out of purported CO2-related disasters.
Shortly: it is not clear where the uranium will come from and how long it will be available; nuclear power stations are not built in a day, a month or a year, so we’ll be lucky to see any of them providing power before the middle of next decade; sizable pieces of land will be out of reach and contaminated for centuries to come; costs are way too high (if one takes them all into consideration, and not just the marginal costs as in the usual propaganda); there is no clear plan on where to safely stock radioactive waste for thousands and thousands of years; and finally, it can all very easily become a gif waste of time and money: all it will take will be another nuclear accident, and the mood against uranium power will be on the up again.
Are we sure we want to risk all of that just to protect ourselves from CO2?
Perhaps Arnold Kling may want to reconsider his thoughts after realizing he has just argued for higher taxes, and heavier governmental intervention in the energy sector:
The most important, inconvenient truth about energy policy is that there is no justification for a subsidy for good energy. Subsidies for wind farms, solar energy, ethanol, and so forth, whether they come from government “energy policy” or personal carbon offsets, are pure pork.
It may be true, as Greg Mankiw argues in his Pigou Club Manifesto, that higher taxes on bad energy are justified. Figuring out the optimum tax is a difficult challenge, even for the Pigou Club. However, once the correct tax is set, that by itself provides all the incentive that is needed to get people to switch to good energy. The tax on bad energy will raise the price that people are willing to pay for good energy. That higher price for good energy is all of the incentive that producers need to undertake the effort to provide more good energy.
It would have helped to have a little more reasoning on how difficult the challenge to find what a “optimum tax” is, and how dangerous things can become if that’s miscalculated.
As things stand, I can imagine such details getting forgotten whilst certain people will use the article “The Political Economy of Alternative Energy” to support strong governmental activism.
Or perhaps it’s a matter of finding the lesser of two evils? Was Kling’s a way to demonstrate that pork looks worse than taxes in the eyes of a person advocating freer markets?