Tuesday, June 05, 2007

Energy Bonanza, Not Crisis!

I mentioned in my last post that I'm reading Kim Stanley Robinson's "60 Days and Counting". It's about a fellow who is deeply involved in the U.S. government's attempt to counter the global climate change created by our excessive use of fossil fuels since the industrial revolution. Robinson is clearly a Renaissance Man who understands science, politics, human nature and the craft of writing, and it's a pleasure to turn the pages.

One of Robinson's points of view is that the oil interests have little incentive to promote alternative energy sources. He notes that oil, even at current high prices, appears to be a highly economical source of energy. Yet this apparent efficiency does not include the costs of mitigating the climate change effects of burning it, nor does it include the political costs of defending or maintaining its sources.

If burning oil raises the sea level by just one or two meters, the cost of lost property will be measured in the trillions of dollars. If we look at the cost of the Iraq war, we get a sense of how much money we spend to ensure influence over the oil producing countries in the Middle East. When these costs are added to the $3.00 or more we pay for a gallon of gasoline, the economy of oil decreases dramatically. However, the oil industry is indifferent to these externalities because the costs never hit its bottom line and its profits are addictively high. Those involved in it can't help but look the other way as their bank balances skyrocket.

This logic helps explain why our government is doing so little to promote alternative energy sources and energy conservation. It's been a mystery to me that, since 1979 when Jimmy Carter raised the alert about oil import risks, our government has not flexed its immense technological and political muscle to deal with the problem. Even today the action comes nowhere near the level of tepid rhetoric emanating from the White House. There is just too much money involved in maintaining the status quo. We should probably be amending Eisenhower's famous warning about the "military-industrial complex" by adding "fossil fuel" to it.

I have to admit that I've made quite a lot of money this year by investing in several U.S. coal mining companies. My economics background tells me that if I hadn't made that coin, someone else would have. Now I'm looking to invest some of those profits in companies that will hopefully make fossil fuel much less important to our economy, but it may be too late for us to avoid tragic outcomes due to climate changes already too far down the road to halt.

One investment sector that Robinson's novel would lead you to avoid is insurance companies, especially reinsurance companies. If climate change comes on with a vengeance, those companies will be wiped out unless they re-write their coverage to exclude their biggest risks. If they can do this, it's the coastal property holders who will see their investments melt like the arctic ice cap. Not a pleasant scenario either way, is it?

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