refuge west

US Energy Portfolio Shift

2011-03-28T10:52:00.000-07:00

March 28, 2011, 6:00 AM

Renewing Support for Renewables

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

The biggest positive result of the accident at Fukushima Daiichi could be renewed public support for the development of renewable energy technologies.

Many influential policy makers, including President Obama, continue to insist that we must expand nuclear power to help meet our energy needs. But plenty of experts disagree.

As the chart below illustrates, renewable energy sources (including hydropower and biofuels) already account for almost the same share of total energy consumption in the United States as nuclear power.

United States Energy Information Administration, “Annual Energy Review 2009,” Table 1.3, “Primary Energy Consumption by Source, 1949-2009.

More important is the rate of change in the cost and utilization of these technologies, particularly those that rely on wind, water or solar power and will not contribute to global warming.

The cost per kilowatt hour of generating electricity from wind and solar power has declined steadily in recent years and is projected to decline further. Energy Secretary Steven Chu predicted that they would be no more expensive than oil and gas by the end of the decade.

The cost of nuclear power, by contrast, has increased, even without factoring in the huge social costs imposed by accidents. These costs include the disruptive effects of major evacuations such as those under way in the vicinity of Fukushima Daiichi, as well as ominous — and difficult to measure — health risks.

In “Nuclear Power: Climate Fix or Folly,” Amory Lovins, a physicist with theRocky Mountain Institute, and two colleagues argued that expanded nuclear power does not represent a cost-effective solution to global warming and that investors would shun it were it not for generous government subsidies lubricated by intensive lobbying efforts.

In The Wall Street Journal, Prof. Benjamin K. Sovacool of the National University of Singapore recently argued, in “The Business Case Against Nuclear Power,” that subsidies for nuclear power during its first 15 years of use in civilian power generation far exceeded those provided to solar power and wind power in their initial years.

The private sector is clearly moving rapidly in the renewable direction. Clean Edge, a research and advisory group, asserts that the clean energy market grew 35 percent in 2010, and global installation of photovoltaics doubled.

Still, the big question remains. Can wind, water and solar power be scaled up in cost-effective ways to meet our energy demands, freeing us from dependence on both fossil fuels and nuclear power?

Yes, they can, say two highly respected scientists, Mark Z. Jacobson of Stanford University and Mark A. Delucchi of the University of California, Davis. In 2009 they published “A Plan to Power 100 Percent of the Planet With Renewables” in Scientific American.

The article persuasively addresses a number of concerns, such as the worldwide spatial footprint of wind turbines, the availability of scarce materials needed for manufacture of new systems, the ability to produce reliable energy on demand and the average cost per kilowatt hour.

A more detailed and updated technical analysis can be found in a two-part article (see Part I and Part II, recently published in the journal Energy Policy.

As Paul Krugman pointed out in his New York Times blog, projections of energy cost and supply are always hypothetical, based on assumptions that may or may not be borne out. This objection applies to all energy supply and demand projections.

The proven dangers of nuclear power amplify the economic risks of expanding reliance on it. Indeed, the stronger regulation and improved safetyfeatures for nuclear reactors called for in the wake of the Japanese disaster will almost certainly require costly provisions that may price it out of the market.

The role of the market, however, is small relative to political battles over relative levels of subsidy to fossil fuels, nuclear power and renewable energy. While both the fossil fuel and nuclear power industries are dominated by large companies with considerable political clout, renewable energy is a more decentralized, small-business-oriented sector that often finds itself outmaneuvered on Capitol Hill.

As Professors Jacobson and Delucchi put it, “The barriers to a 100 percent conversion to wind, water and solar power worldwide are primarily social and political, not technological or even economic.”

Research like theirs will help energize new efforts to overcome those barriers.

Iconoclastic Capitalism

2011-03-12T15:10:00.000-08:00

Patt Morrison Asks

Yvon Chouinard: Capitalist cat

The founder of Patagonia Inc. climbed from a hardscrabble childhood in the Maine backwoods to become a legendary outdoorsman, philanthropist, environmentalist and pioneering businessman.

Yvon Chouinard, founder and owner of outdoor clothing company Patagonia, Inc., holds a ceramic cat that sits on his office desk that's supposed to enhance good fortune. (Jay L. Clendenin/Los Angeles Times)

By Patt Morrison, The Los Angeles Times

March 12, 2011

What's with the kitty?

Yvon Chouinard invented better, eco-friendly rock-climbing gear in his own smithy. He climbed from a hardscrabble childhood in the Maine backwoods to become a legendary outdoorsman, philanthropist, environmentalist and pioneering businessman, the founder of Patagonia Inc. There probably isn't a major mountain range in the world he hasn't climbed, but it's the slippery slope of global eco-business where he's registered his reputation for blazing trails. In short, Chouinard has made his own luck. But that cat statue, an Asian symbol of good fortune and luck, still sits atop his desk at Patagonia's headquarters in Ventura.

Chouinard can sound alternately deeply dispirited and occasionally hopeful about the planet and the humans who overrun it. But what's really irked him just now is seeing that former Defense Secretary Donald Rumsfeld, pretty much the antithesis of Chouinard's personal ethos, poses on the cover of his new memoir -- wearing a Patagonia vest.

When you have to fill out "occupation" on a form, what do you put down?

I traveled to China about 30 years ago; you had to put down your occupation, so I just decided to put down "capitalist," and they would look at that and say, "Capitalist. You must be very rich," and I'd say, "Yes I am!" You could hear them [he sucks in air between his teeth]. Already 30 years ago it was glorious to be rich in China. I hate that word "executive."

What's wrong with "executive"?

To me it's those guys in airplane magazines, in all those executive ads. It denotes that you play golf!

Footprint Chronicles, on the Patagonia website, is a kind of corporate sustainability report, one article of clothing at a time. How does it differ from an ordinary corporate annual report?

Public corporations talk about all the good things they're doing, but none of them talks about all the evil they're doing. That got me kind of angry, so we decided to do one and put it in a format that it was readable by our customers and by other companies. I've heard other companies are now using it as a model.

What we're trying to do is to get companies to be more transparent in the good that they're doing but also all the bad, because if you don't face up to the fact, we're never going to do anything about it.

How about your 1% for the Planet program?

It has 1,400 member [businesses] in 35 countries, and it's growing one a day. Whether you're profitable or not, you have to [give] 1% [of sales]. We don't look at it as charity; we look at it as the cost of doing business, because charity is: you've had a good year and you've got extra profits and you give a few hundred bucks to the symphony or something. We look at it as, we're using up nonrenewable resources, we're polluters, [so] we try to be as responsible as we can.

There's no such thing as sustainability in any human endeavor, so we just feel like this is the cost of doing business that we include in everything we do. It [has been mostly] real mom-and-pop operations, but we're getting more midsized companies joining now, which is what I was hoping would happen. Parts of public companies [are joining], but there's no public company entirely that's a member.

Patagonia isn't a public company?

No, my wife and my kids and I own [it] all. If [it] was a public company, we wouldn't be able to give money to, say, Planned Parenthood, because a stockholder would go nuts. We're able to be much freer.

What would happen if yours were the nation's corporate model?

You'd see more responsible companies, and you'd see companies grow a lot slower. Public companies demand 15% growth every year until they hit a size that is unsustainable and they go belly up. They're all heading toward suicide. You can't grow 15% every single year. Then you exceed your market, and you throw lots of people out of work. I think small, family-owned companies is the way to go.

You believed in sustainability once; do you now?

I think that word has gotten overused, like "gourmet" or "adventure" or "green." You hear it all the time: sustainable this, sustainable that. And it's not. Any economic endeavor is going to cause waste and heat and pollution. It's just consuming and discarding, and the whole economic system is based on that. It's a finite world, but you won't find any economists who will tell you that. We're in a recession, and the government tells us to buy more, and that's the reason we're in trouble.

We have to get away from a system solely based on consuming. You can imagine what will happen if we do -- there's going to be a rough glitch for a while.

Rough to wean ourselves off consumerism?

Yes, absolutely.

[Here's] what [Patagonia is] doing in the next year. We're asking our customers to think twice before they buy one of our jackets: Do you really need it, or are you just bored and you want it? And then if you do buy from us instead of Columbia or North Face or whatever, thank you. And if it breaks down, we promise we'll fix it. If you're bored with it or your kid has outgrown it, we're doing a partnership with EBay and we'll help you sell it. You can pocket the money or give it to [any of] five different environmental organizations. When it's finally worn out, give it back to us and we promise to recycle it into more clothing. We're going to take responsibility for our product.

So what do you make of the green movement at big corporations -- real, or Astroturf? You've been advising Wal-Mart.

I always thought the revolution was going to start from the bottom, but this time it started from the top. Here's the largest company in the world, and they're committed to cleaning up their act as far as what products they sell, and getting rid of packaging and getting rid of fats in a lot of their foods, and they can do that. They could go to Kraft [Foods] and say, "We want you to get rid of all the high-fructose [content] in your thousands of products [or] we won't sell them." They have tremendous power.

Could they lead the way away from globalism, factory farming and the like?

Nah, they're not going to lead us away from globalism, and I'm not an apologist for their labor issues and stuff like that. I do know that the Walton family is really pushing to get Wal-Mart suppliers to clean up their act. Wal-Mart [has the clout to] go to Crest toothpaste and say, get rid of the box, the box is just waste. Yeah, [the tube is] going to roll off the shelf, but you figure it out. And when you figure it out you're going to save money, because there's no box. And we want the savings.

Do you meet with other chief executives? Do they regard you as a pariah?

One time I made a big mistake and I talked to about 50 bankers. They didn't get it. They just stood there stony-faced. They don't get that the world is changing. These millennium kids, they're totally different. [My generation is] not going to save the planet; we're not going to do anything about global warming; we're not even going to change our light bulbs. But these kids have had environmental education. They don't fall for advertising. They know the problems of the world and want to do something about it.

Do you see an awareness that there's more to the value of a product than the price?

I can tell you that I love recessions because Patagonia has always thrived in a recession. In a recession, people stop being silly. They don't mind buying better quality; they just buy less of it. We're thriving in a recession because we have loyal customers who are buying less, but they're buying better.

You're not saying all growth is bad?

There's growth where you grow fat, and growth where you spiritually grow or grow stronger, but America is just growing fat.

That's why I'm in business. I have no desire to grow this business any bigger; I have no desire to make any more money. Basically my business exists to put into practice what all the smart people are saying we have to do to save this planet, and if I can prove it's good business, then other companies are going to follow along. A lot of big corporations are really risk averse. We can take a risk and prove that it works, and then these other weenie corporations can follow along because we've already proved that it's good.

I love this little Zen lesson. If you want to change government, don't focus on trying to change government. You've got to change corporations because they're the ones running government. [Then] don't focus on trying to change corporations; focus on changing consumers. We have the ultimate say. We're telling corporations what to make, and then corporations tell government what to do. Civil democracy is the strongest force in America, and I'd say probably the strongest force in the world.

I've always said we live in a dollar democracy -- every dollar you spend is a vote for or against something.

Within a couple of years a person will be able to go into a department store and zap the bar code on a product and it'll tell you the environmental footprint of that product, how responsibly it was made in every way, the fibers that were chosen, the sewing shop where it was made, how much water was used. The customer would have the final say: "These jeans are way more responsibly made, so I'm going to buy this one." And then corporations are going to have to change.

You sound hopeful.

Nah, not at all. I've been around a long time and I've seen nothing but deterioration. So I'm very pessimistic. But I feel like I'm less a part of the problem than most people and hopefully I'm part of the solution. You have to be proactive. Imagine you had one of the best companies in the world, giving people good benefits and salaries -- but you're making land mines. That's evil.

So I take it no one will see you driving a Hummer?

[Laughs.] No, but they're going to see me on a lot of airplanes! I'll be in that seventh level of hell [for] jet fuel, that's true.

You've done blacksmithing since you were a kid; do you still?

I tinker around. They're outlawing felt soles for fishing boots because they carry invasive species, so I'm working on a [new fishing] boot and doing a lot of it in my blacksmith shop.

Did you see the movie "127 Hours"?

There's no way I could see that. It hits home too much for me. The guy's a climber. He used to work in a climbing shop that sold our gear. I know the guy and the whole grisly part of it. I don't want to have to see that.

patt.morrison@latimes.com

This interview was edited and excerpted from a longer taped transcript. Interview archive:latimes.com/pattasks.

Imperial Valley, Southwest: 50 percent chance of drying up in as few as 10 years

2011-02-10T16:41:00.000-08:00

Fighting For Water In Arid Imperial Valley

by Krissy Clark

KQED Public Broadcasting - February 10, 2011

Southern California's Imperial Valley produces about 80 percent of the nation's winter vegetables. But years of drought, and a population boom in the Southwest, now threaten the water supply in the desert region — and all those cheap winter greens.

The next time you eat a salad this winter, picture the valley Vince Brooke is driving through: a beige desert set against glittering fields of green. Brooke works for the local irrigation district and gives tours to busloads of water wonks from various Southwest cities through this valley — down the bumpy roads, past cropland and canals.

"You know, you can tell when they just are not — how can I say this diplomatically?" Brooke says. They're just not on board, he says, with the way agriculture uses water down here.

In some eyes, "We're water wasters, we're water hogs, the Ag sponge, a waste of water," he says.

The water they're talking about is the Colorado River — the lifeblood of a billion-dollar agricultural industry in the Imperial Valley. The system works, thanks to the giant cement Imperial Dam.

Doug Cox manages the dam for the Imperial Irrigation District.

"This is the only source of water for the Imperial Valley," Cox says. "All the drinking water, all the agricultural water — this is it."

Imperial Dam shunts water from the Colorado River 82 miles through a canal, across the desert to Imperial Valley Farms. Back in the 1930s, when the project was completed, it was considered one of the engineering wonders of the world.

In a newsreel from those days, a narrator describes "the Imperial Valley, once dry and barren, with the help of water from the Colorado yields rich crops when irrigated."

There was just one problem. When Imperial Dam was built, the region was in the midst of the wettest period of the past millennium, and the Colorado River was mighty.

But 11 years of drought — and more thirsty Southwest sprawl than the newsreel narrator could've dreamed — mean trouble for Imperial farmers. Soon, there may not be enough water to go around and still make the desert bloom.

That could bring an end to the area's days of growing sweet corn, onions, lettuce, carrots, cauliflower and broccoli.

Ralph Strahm, a third-generation farmer, hopes his generation won't be the last. The Strahms came here right around the time Western states were divvying up water from the Colorado River.

The strategy was pretty much "first come, first served." And Imperial Valley farmers got served a torrent — priority rights to almost a fifth of the entire river. That represented more water than Arizona and Nevada received combined.

That was almost a century ago, but Strahm says there is still a good reason so much water should go to farms like his.

"The rest of the nation is becoming a service economy, and the Imperial Valley is producing something," Strahm says. "So many of our jobs in the manufacturing industries have been exported away from the United States. We're keeping those jobs here."

But the farmers aren't keeping all the water here anymore. Under pressure from federal officials, farmers have reluctantly sold some of it — to the more populous and powerful cities of Los Angeles and San Diego.

Standing near an irrigation channel, Strahm points to a controversial result of that transfer of water: a big padlock that secures a gate across the channel's mouth.

"That lock is to prevent water from being put on this field for the term of a fallowing contract," Strahm says.

Over each of the next several years, farmers are fallowing a chunk of land about the size of 10 Central Parks. Cities pay thousands of dollars for each unfarmed acre, and it can actually be a good deal for farmers when crop prices are low.

But diverting that water strains the valley's larger agriculture economy — the tractor salesmen, the fertilizer companies. And in the future, even more fallowing may be needed.

Lake Mead — the reservoir that holds Colorado River water for the Imperial Valley and most of the Southwest — has a 50 percent chance of drying up in as few as 10 years, according to climate researchers. That's assuming the region's water use doesn't undergo fundamental change.

But, says retired farmer John Pierre Menville, "There's only so much blood you can get from a turnip."

Menville is on the board of the Imperial Irrigation District. He says the farmers should be the only ones asked to change.

"We want to be good stewards to the land and good neighbors with our urban partners, but they want to put restrictions on us and how we grow our crops and the amount of water we use here," he says. "Why isn't someone putting restrictions on growth on the coastal plain, and their development?"

It's a choice between growing urban populations and growing cheap winter vegetables. And it's one people across the nation make, each time they buy spring greens in February.

Tracing The Water Supply

EnlargeKrissy Clark/KQED

Doug Cox looks out on the Colorado River from Imperial Dam, which he manages. Through the 1930s dam, about a fifth of the Colorado River's water goes to irrigate about 1,200 square miles of farmland.

EnlargeKrissy Clark/KQED

An irrigation channel brings Colorado River water from the All American Canal to a newly planted lettuce field.

EnlargeBrent Stirton/Getty Images

Workers prepare a field for planting in Imperial Valley, where farms have traditionally used flood-and-furrow techniques. Experts claim the process wastes vast quanties of precious water.

The Urban Organism

2010-12-31T15:26:00.000-08:00

December 17, 2010

A Physicist Solves the City

By JONAH LEHRER, New York Times

Geoffrey West doesn’t eat lunch. His doctor says he has a mild allergy to food; meals make him sleepy and nauseated. When West is working — when he’s staring at some scribbled equations on scratch paper or gazing out his office window at the high desert in New Mexico — he subsists on black tea and nuts. His gray hair is tousled, and his beard has the longish look of neglect. It’s clear that West regards the mundane needs of everyday life — trimming the whiskers, say — as little more than a set of annoying distractions, drawing him away from a much more interesting set of problems. Sometimes West can seem jealous of his computer, this silent machine with no hungers or moods. All it needs is a power cord.

For West, the world is always most compelling at its most abstract. As a theoretical physicist in search of fundamental laws, he likes to compare his work to that of Kepler, Galileoand Newton. “I’ve always wanted to find the rules that govern everything,” he says. “It’s amazing that such rules exist. It’s even more amazing that we can find them.”

But the 70-year-old West, who grew up in Somerset, England, is no longer trying to solve the physical universe; he’s not interested in deep space or string theory. Although West worked for decades as a physicist at Stanford University and Los Alamos National Laboratory, he started thinking about leaving the field after the financing for the Texas superconducting supercollider was canceled by Congress in 1993. West, however, wasn’t ready to retire, and so he began searching for subjects that needed his skill set.

Eventually he settled on cities: the urban jungle looked chaotic — all those taxi horns and traffic jams — but perhaps it might be found to obey a short list of universal rules. “We spend all this time thinking about cities in terms of their local details, their restaurants and museums and weather,” West says. “I had this hunch that there was something more, that every city was also shaped by a set of hidden laws.”

And so West set out to solve the City. As he points out, this is an intellectual problem with immense practical implications. Urban population growth is the great theme of modern life, one that’s unfolding all across the world, from the factory boomtowns of Southern China to the sprawling favelas of Rio de Janeiro. As a result, for the first time in history, the majority of human beings live in urban areas. (The numbers of city dwellers are far higher in developed countries — the United States, for instance, is 82 percent urbanized.) Furthermore, the pace of urbanization is accelerating as people all over the world flee the countryside and flock to the crowded street.

This relentless urban growth has led to a renewed interest in cities in academia and in government. In February 2009, President Obama established the first White House Office of Urban Affairs, which has been told to develop a “policy agenda for urban America.” Meanwhile, new perspectives have come to the field of urban studies. Macroeconomists, for instance, have focused on the role of cities in driving gross domestic product and improving living standards, while psychologists have investigated the impact of city life on self-control and short-term memory. Even architects are moving into the area: Rem Koolhaas, for one, has argued that architects have become so obsessed with pretty buildings that they’ve neglected the vital spaces between them.

But West wasn’t satisfied with any of these approaches. He didn’t want to be constrained by the old methods of social science, and he had little patience for the unconstrained speculations of architects. (West considers urban theory to be a field without principles, comparing it to physics before Kepler pioneered the laws of planetary motion in the 17th century.) Instead, West wanted to begin with a blank page, to study cities as if they had never been studied before. He was tired of urban theory — he wanted to invent urban science.

For West, this first meant trying to gather as much urban data as possible. Along with Luis Bettencourt, another theoretical physicist who had abandoned conventional physics, and a team of disparate researchers, West began scouring libraries and government Web sites for relevant statistics. The scientists downloaded huge files from the Census Bureau, learned about the intricacies of German infrastructure and bought a thick and expensive almanac featuring the provincial cities of China. (Unfortunately, the book was in Mandarin.) They looked at a dizzying array of variables, from the total amount of electrical wire in Frankfurt to the number of college graduates in Boise. They amassed stats on gas stations and personal income, flu outbreaks and homicides, coffee shops and the walking speed of pedestrians.

After two years of analysis, West and Bettencourt discovered that all of these urban variables could be described by a few exquisitely simple equations. For example, if they know the population of a metropolitan area in a given country, they can estimate, with approximately 85 percent accuracy, its average income and the dimensions of its sewer system. These are the laws, they say, that automatically emerge whenever people “agglomerate,” cramming themselves into apartment buildings and subway cars. It doesn’t matter if the place is Manhattan or Manhattan, Kan.: the urban patterns remain the same. West isn’t shy about describing the magnitude of this accomplishment. “What we found are the constants that describe every city,” he says. “I can take these laws and make precise predictions about the number of violent crimes and the surface area of roads in a city in Japan with 200,000 people. I don’t know anything about this city or even where it is or its history, but I can tell you all about it. And the reason I can do that is because every city is really the same.” After a pause, as if reflecting on his hyperbole, West adds: “Look, we all know that every city is unique. That’s all we talk about when we talk about cities, those things that make New York different from L.A., or Tokyo different from Albuquerque. But focusing on those differences misses the point. Sure, there are differences, but different from what? We’ve found the what.”

There is something deeply strange about thinking of the metropolis in such abstract terms. We usually describe cities, after all, as local entities defined by geography and history. New Orleans isn’t a generic place of 336,644 people. It’s the bayou and Katrina and Cajun cuisine. New York isn’t just another city. It’s a former Dutch fur-trading settlement, the center of the finance industry and home to the Yankees. And yet, West insists, those facts are mere details, interesting anecdotes that don’t explain very much. The only way to really understand the city, West says, is to understand its deep structure, its defining patterns, which will show us whether a metropolis will flourish or fall apart. We can’t make our cities work better until we know how they work. And, West says, he knows how they work.

West has been drawn to different fields before. In 1997, less than five years after he transitioned away from high-energy physics, he published one of the most contentious and influential papers in modern biology. (The research, which appeared in Science, has been cited more than 1,500 times.) The last line of the paper summarizes the sweep of its ambition, as West and his co-authors assert that they have just solved “the single most pervasive theme underlying all biological diversity,” showing how the most vital facts about animals — heart rate, size, caloric needs — are interrelated in unexpected ways.

The mathematical equations that West and his colleagues devised were inspired by the earlier findings of Max Kleiber. In the early 1930s, when Kleiber was a biologist working in the animal-husbandry department at the University of California, Davis, he noticed that the sprawlingly diverse animal kingdom could be characterized by a simple mathematical relationship, in which the metabolic rate of a creature is equal to its mass taken to the three-fourths power. This ubiquitous principle had some significant implications, because it showed that larger species need less energy per pound of flesh than smaller ones. For instance, while an elephant is 10,000 times the size of a guinea pig, it needs only 1,000 times as much energy. Other scientists soon found more than 70 such related laws, defined by what are known as “sublinear” equations. It doesn’t matter what the animal looks like or where it lives or how it evolved — the math almost always works.

West’s insight was that these strange patterns are caused by our internal infrastructure — the plumbing that makes life possible. By translating these biological designs into mathematics, West and his co-authors were able to explain the existence of Kleiber’s scaling laws. “I can’t tell you how satisfying this was,” West says. “Sometimes, I look out at nature and I think, Everything here is obeying my conjecture. It’s a wonderfully narcissistic feeling.”

Not every biologist was persuaded, however. In fact, West’s paper in Science ignited a flurry of rebuttals, in which researchers pointed out all the species that violated the math. West can barely hide his impatience with what he regards as quibbles. “There are always going to be people who say, ‘What about the crayfish?’ ” he says. “Well, what about it? Every fundamental law has exceptions. But you still need the law or else all you have is observations that don’t make sense. And that’s not science. That’s just taking notes.” For West, arguments over the details of crustaceans were a sure sign that it was time to move on. And so, in 2002, he began to think seriously about cities.

The correspondence was obvious to West: he saw the metropolis as a sprawling organism, similarly defined by its infrastructure. (The boulevard was like a blood vessel, the back alley a capillary.) This implied that the real purpose of cities, and the reason cities keep on growing, is their ability to create massive economies of scale, just as big animals do. After analyzing the first sets of city data — the physicists began with infrastructure and consumption statistics — they concluded that cities looked a lot like elephants. In city after city, the indicators of urban “metabolism,” like the number of gas stations or the total surface area of roads, showed that when a city doubles in size, it requires an increase in resources of only 85 percent.

This straightforward observation has some surprising implications. It suggests, for instance, that modern cities are the real centers of sustainability. According to the data, people who live in densely populated places require less heat in the winter and need fewer miles of asphalt per capita. (A recent analysis by economists at Harvard and U.C.L.A.demonstrated that the average Manhattanite emits 14,127 fewer pounds of carbon dioxide annually than someone living in the New York suburbs.) Small communities might look green, but they consume a disproportionate amount of everything. As a result, West argues, creating a more sustainable society will require our big cities to get even bigger. We need more megalopolises.

But a city is not just a frugal elephant; biological equations can’t entirely explain the growth of urban areas. While the first settlements in Mesopotamia might have helped people conserve scarce resources — irrigation networks meant more water for everyone — the concept of the city spread for an entirely different reason. “In retrospect, I was quite stupid,” West says. He was so excited by the parallels between cities and living things that he “didn’t pay enough attention to the ways in which urban areas and organisms are completely different.”

What Bettencourt and West failed to appreciate, at least at first, was that the value of modern cities has little to do with energy efficiency. As West puts it, “Nobody moves to New York to save money on their gas bill.” Why, then, do we put up with the indignities of the city? Why do we accept the failing schools and overpriced apartments, the bedbugsand the traffic?

In essence, they arrive at the sensible conclusion that cities are valuable because they facilitate human interactions, as people crammed into a few square miles exchange ideas and start collaborations. “If you ask people why they move to the city, they always give the same reasons,” West says. “They’ve come to get a job or follow their friends or to be at the center of a scene. That’s why we pay the high rent. Cities are all about the people, not the infrastructure.”

It’s when West switches the conversation from infrastructure to people that he brings up the work of Jane Jacobs, the urban activist and author of “The Death and Life of Great American Cities.” Jacobs was a fierce advocate for the preservation of small-scale neighborhoods, like Greenwich Village and the North End in Boston. The value of such urban areas, she said, is that they facilitate the free flow of information between city dwellers. To illustrate her point, Jacobs described her local stretch of Hudson Street in the Village. She compared the crowded sidewalk to a spontaneous “ballet,” filled with people from different walks of life. School kids on the stoops, gossiping homemakers, “business lunchers” on their way back to the office. While urban planners had long derided such neighborhoods for their inefficiencies — that’s why Robert Moses, the “master builder” of New York, wanted to build an eight-lane elevated highway through SoHo and the Village — Jacobs insisted that these casual exchanges were essential. She saw the city not as a mass of buildings but rather as a vessel of empty spaces, in which people interacted with other people. The city wasn’t a skyline — it was a dance.

If West’s basic idea was familiar, however, the evidence he provided for it was anything but. The challenge for Bettencourt and West was finding a way to quantify urban interactions. As usual, they began with reams of statistics. The first data set they analyzed was on the economic productivity of American cities, and it quickly became clear that their working hypothesis — like elephants, cities become more efficient as they get bigger — was profoundly incomplete. According to the data, whenever a city doubles in size, every measure of economic activity, from construction spending to the amount of bank deposits, increases by approximately 15 percent per capita. It doesn’t matter how big the city is; the law remains the same. “This remarkable equation is why people move to the big city,” West says. “Because you can take the same person, and if you just move them to a city that’s twice as big, then all of a sudden they’ll do 15 percent more of everything that we can measure.” While Jacobs could only speculate on the value of our urban interactions, West insists that he has found a way to “scientifically confirm” her conjectures. “One of my favorite compliments is when people come up to me and say, ‘You have done what Jane Jacobs would have done, if only she could do mathematics,’ ” West says. “What the data clearly shows, and what she was clever enough to anticipate, is that when people come together, they become much more productive.”

West illustrates the same concept by describing the Santa Fe Institute, an interdisciplinary research organization, where he and Bettencourt work. The institute itself is a sprawl of common areas, old couches and tiny offices; the coffee room is always the most crowded place. “S.F.I. is all about the chance encounters,” West says. “There are few planned meetings, just lots of unplanned conversations. It’s like a little city that way.” The previous evening, West and I ran into the novelist Cormac McCarthy at the institute, where McCarthy often works. The physicist and the novelist ended up talking about Antarctic icefish, the editing process and convergent evolution for 45 minutes. Of course, these interpersonal collisions — the human friction of a crowded space — can also feel unpleasant. We don’t always want to talk with strangers on the subway or jostle with people on the sidewalk. West admits that all successful cities are a little uncomfortable. He describes the purpose of urban planning as finding a way to minimize our distress while maximizing our interactions. The residents of Hudson Street, after all, didn’t seem to mind mingling with one another on the sidewalk. As Jacobs pointed out, the layout of her Manhattan neighborhood — the short blocks, the mixed-use zoning, the density of brownstones — made it easier to cope with the strain of the metropolis. It’s fitting that it’s called the Village.

In recent decades, though, many of the fastest-growing cities in America, like Phoenix and Riverside, Calif., have given us a very different urban model. These places have traded away public spaces for affordable single-family homes, attracting working-class families who want their own white picket fences. West and Bettencourt point out, however, that cheap suburban comforts are associated with poor performance on a variety of urban metrics. Phoenix, for instance, has been characterized by below-average levels of income and innovation (as measured by the production of patents) for the last 40 years. “When you look at some of these fast-growing cities, they look like tumors on the landscape,” West says, with typical bombast. “They have these extreme levels of growth, but it’s not sustainable growth.” According to the physicists, the trade-off is inevitable. The same sidewalks that lead to “knowledge trading” also lead to cockroaches.

Consider the data: When Bettencourt and West analyzed the negative variables of urban life, like crime and disease, they discovered that the exact same mathematical equation applied. After a city doubles in size, it also experiences a 15 percent per capita increase in violent crimes, traffic and AIDS cases. (Of course, these trends are only true in general. Some cities can bend the equations with additional cops or strict pollution regulations.) “What this tells you is that you can’t get the economic growth without a parallel growth in the spread of things we don’t want,” Bettencourt says. “When you double the population, everything that’s related to the social network goes up by the same percentage.”

West and Bettencourt refer to this phenomenon as “superlinear scaling,” which is a fancy way of describing the increased output of people living in big cities. When a superlinear equation is graphed, it looks like the start of a roller coaster, climbing into the sky. The steep slope emerges from the positive feedback loop of urban life — a growing city makes everyone in that city more productive, which encourages more people to move to the city, and so on. According to West, these superlinear patterns demonstrate why cities are one of the single most important inventions in human history. They are the idea, he says, that enabled our economic potential and unleashed our ingenuity. “When we started living in cities, we did something that had never happened before in the history of life,” West says. “We broke away from the equations of biology, all of which are sublinear. Every other creature gets slower as it gets bigger. That’s why the elephant plods along. But in cities, the opposite happens. As cities get bigger, everything starts accelerating. There is no equivalent for this in nature. It would be like finding an elephant that’s proportionally faster than a mouse.”

There is, of course, a very good reason that animals slow down with size: All that mass requires energy. Because the elephant has to eat so much to feed itself, it can’t afford to run around like a little rodent. But the superlinear growth of cities comes with no such inherent constraints. Instead, the urban equations predict a world of ever-increasing resource consumption, as the expansion of cities fuels the expansion of economies. In fact, the societal consumption driven by the process of urbanization — our collective desire for iPads, Frappuccinos and the latest fashions — more than outweighs the ecological benefits of local mass transit.

West illustrates the problem by translating human life into watts. “A human being at rest runs on 90 watts,” he says. “That’s how much power you need just to lie down. And if you’re a hunter-gatherer and you live in the Amazon, you’ll need about 250 watts. That’s how much energy it takes to run about and find food. So how much energy does our lifestyle [in America] require? Well, when you add up all our calories and then you add up the energy needed to run the computer and the air-conditioner, you get an incredibly large number, somewhere around 11,000 watts. Now you can ask yourself: What kind of animal requires 11,000 watts to live? And what you find is that we have created a lifestyle where we need more watts than a blue whale. We require more energy than the biggest animal that has ever existed. That is why our lifestyle is unsustainable. We can’t have seven billion blue whales on this planet. It’s not even clear that we can afford to have 300 million blue whales.”

The historian Lewis Mumford described the rise of the megalopolis as “the last stage in the classical cycle of civilization,” which would end with “complete disruption and downfall.” In his more pessimistic moods, West seems to agree: he knows that nothing can trend upward forever. In fact, West sees human history as defined by this constant tension between expansion and scarcity, between the relentless growth made possible by cities and the limited resources that hold our growth back. “The only thing that stops the superlinear equations is when we run out of something we need,” West says. “And so the growth slows down. If nothing else changes, the system will eventually start to collapse.”

How do we avoid this bleak fate? Constant innovation. After a resource is exhausted, we are forced to exploit a new resource, if only to sustain our superlinear growth. West cites a long list of breakthroughs to illustrate this historical pattern, from the discovery of the steam engine to the invention of the Internet. “These major innovations completely changed the way society operates,” West says. “It’s like we’re on the edge of a cliff, about to run out of something, and then we find a new way of creating wealth. That means we can start to climb again.”

But the escape is only temporary, as every innovation eventually leads to new shortages. We clear-cut forests, and so we turn to oil; once we exhaust our fossil-fuel reserves, we’ll start driving electric cars, at least until we run out of lithium. This helps explain why West describes cities as the only solution to the problem of cities. Although urbanization has generated a seemingly impossible amount of economic growth, it has also inspired the innovations that allow the growth to continue.

There is a serious complication to this triumphant narrative of cliff edges and creativity, however. Because our lifestyle has become so expensive to maintain, every new resource now becomes exhausted at a faster rate. This means that the cycle of innovations has to constantly accelerate, with each breakthrough providing a shorter reprieve. The end result is that cities aren’t just increasing the pace of life; they are also increasing the pace at which life changes. “It’s like being on a treadmill that keeps on getting faster,” West says. “We used to get a big revolution every few thousand years. And then it took us a century to go from the steam engine to the internal-combustion engine. Now we’re down to about 15 years between big innovations. What this means is that, for the first time ever, people are living through multiple revolutions. And this all comes from cities. Once we started to urbanize, we put ourselves on this treadmill. We traded away stability for growth. And growth requires change.”

While listening to West talk about cities, it’s easy to forget that his confident pronouncements are mere correlations, and that his statistics can only hint at possible explanations. Not surprisingly, many urban theorists disagree with West’s conclusions. Some resent the implication that future urban research should revolve around a few abstract mathematical laws. Other theorists, like Joel Kotkin, a fellow in urban futures at Chapman University, in Orange, Calif., argue that the working model of Bettencourt and West is already obsolete and fails to explain recent trends. “In the last decade, suburbs have produced six times as many jobs,” Kotkin says. And these aren’t just unskilled service jobs. Kotkin says the centers of American innovation are now low-density metropolitan areas like Silicon Valley and Raleigh-Durham, N.C. “For a supposedly complete theory” of cities, Kotkin says, “this work fails to explain a lot of what’s happening right now.”

The theoretical physicists aren’t discouraged by these critiques. While they admit their equations are imperfect, they insist the work remains a necessary first draft. “When Kepler found the laws that govern planetary motion, he didn’t get the laws exactly right,” West says. “But the laws were still good enough to inspire Newton.” In the meantime, West and Bettencourt continue to search for new statistics (they have just received a data set from the I.R.S.) that they hope to feed back into the model. Nevertheless, West says they believe that their essential theory — those superlinear and sublinear laws — will remain intact. The math is scientifically sound.

In fact, West is so satisfied with his urban research that he’s already becoming a little restless. Recently, he and Bettencourt, led by this impatience, began exploring yet another subject: the corporation. At first glance, cities and companies look very similar. They’re both large agglomerations of people, interacting in a well-defined physical space. They contain infrastructure and human capital; the mayor is like a C.E.O.

But it turns out that cities and companies differ in a very fundamental regard: cities almost never die, while companies are extremely ephemeral. As West notes, Hurricane Katrina couldn’t wipe out New Orleans, and a nuclear bomb did not erase Hiroshima from the map. In contrast, where are Pan Am and Enron today? The modern corporation has an average life span of 40 to 50 years.

This raises the obvious question: Why are corporations so fleeting? After buying data on more than 23,000 publicly traded companies, Bettencourt and West discovered that corporate productivity, unlike urban productivity, was entirely sublinear. As the number of employees grows, the amount of profit per employee shrinks. West gets giddy when he shows me the linear regression charts. “Look at this bloody plot,” he says. “It’s ridiculous how well the points line up.” The graph reflects the bleak reality of corporate growth, in which efficiencies of scale are almost always outweighed by the burdens of bureaucracy. “When a company starts out, it’s all about the new idea,” West says. “And then, if the company gets lucky, the idea takes off. Everybody is happy and rich. But then management starts worrying about the bottom line, and so all these people are hired to keep track of the paper clips. This is the beginning of the end.”

The danger, West says, is that the inevitable decline in profit per employee makes large companies increasingly vulnerable to market volatility. Since the company now has to support an expensive staff — overhead costs increase with size — even a minor disturbance can lead to significant losses. As West puts it, “Companies are killed by their need to keep on getting bigger.”

For West, the impermanence of the corporation illuminates the real strength of the metropolis. Unlike companies, which are managed in a top-down fashion by a team of highly paid executives, cities are unruly places, largely immune to the desires of politicians and planners. “Think about how powerless a mayor is,” West says. “They can’t tell people where to live or what to do or who to talk to. Cities can’t be managed, and that’s what keeps them so vibrant. They’re just these insane masses of people, bumping into each other and maybe sharing an idea or two. It’s the freedom of the city that keeps it alive.”

Jonah Lehrer is the author, most recently, of "How We Decide."

Bad Bets: Ever Shifting Winds of Energy Sector

2010-12-23T09:00:00.000-08:00

DECEMBER 22, 2010

A Wind Power Boonedoggle

T. Boone Pickens badly misjudged the supply and price of natural gas.

By ROBERT BRYCE, Wall Street Journal

After 30 months, countless TV appearances, and $80 million spent on an extravagant PR campaign, T. Boone Pickens has finally admitted the obvious: The wind energy business isn't a very good one.

The Dallas-based entrepreneur, who has relentlessly promoted his "Pickens Plan" since July 4, 2008, announced earlier this month that he's abandoning the wind business to focus on natural gas.

Two years ago, natural gas prices were spiking and Mr. Pickens figured they'd stay high. He placed a $2 billion order for wind turbines with General Electric. Shortly afterward, he began selling the Pickens Plan. The United States, he claimed, is "the Saudi Arabia of wind," and wind energy is an essential part of the cure for the curse of imported oil.

Voters and politicians embraced the folksy billionaire's plan. Last year, Senate Majority Leader Harry Reid said he had joined "the Pickens church," and Al Gore said he wished that more business leaders would emulate Mr. Pickens and be willing to "throw themselves into the fight for the future of our country."

Alas, market forces ruined the Pickens Plan. Mr. Pickens should have shorted wind. Instead, he went long and now he's stuck holding a slew of turbines he can't use because low natural gas prices have made wind energy uneconomic in the U.S., despite federal subsidies that amount to $6.44 for every 1 million British thermal units (BTUs) produced by wind turbines. As the former corporate raider explained a few days ago, growth in the wind energy industry "just isn't gonna happen" if natural gas prices remain depressed.

In 2008, shortly after he launched his plan, Mr. Pickens said that for wind energy to be competitive, natural gas prices must be at least $9 per million BTUs. In March of this year, he was still hawking wind energy, but he'd lowered his price threshold, saying "The place where it works best is with natural gas at $7."

That may be true. But on the spot market natural gas now sells for about $4 per million BTUs. In other words, the free-market price for natural gas is about two-thirds of the subsidy given to wind. Yet wind energy still isn't competitive in the open market.

Despite wind's lousy economics, the lame duck Congress recently passed a one-year extension of the investment tax credit for renewable energy projects. That might save a few "green" jobs.

But at the same time that Congress was voting to continue the wind subsidies, Texas Comptroller Susan Combs reported that property tax breaks for wind projects in the Lone Star State cost nearly $1.6 million per job. That green job ripoff is happening in Texas, America's biggest natural gas producer.

Today's low natural gas prices are a direct result of the drilling industry's newfound ability to unlock methane from shale beds. These lower prices are great for consumers but terrible for the wind business. Through the first three quarters of 2010, only 1,600 megawatts of new wind capacity were installed in the U.S., a decline of 72% when compared to the same period in 2009, and the smallest number since 2006. Some wind industry analysts are predicting that new wind generation installations will fall again, by as much as 50%, in 2011.

There's more bad news on the horizon for Mr. Pickens and others who have placed big bets on wind: Low natural gas prices may persist for years. Last month, the International Energy Agency's chief economist, Fatih Birol, said that the world is oversupplied with gas and that "the gas glut will be with us 10 more years." The market for natural-gas futures is predicting that gas prices will stay below $6 until 2017.

So what is Mr. Pickens planning to do with all the wind turbines he ordered? He's hoping to foist them on ratepayers in Canada, because that country has mandates that require consumers to buy more expensive renewable electricity.

How do you say boonedoggle in French?

Mr. Bryce is a senior fellow at the Manhattan Institute. His latest book is "Power Hungry: The Myths of 'Green' Energy and the Real Fuels of the Future" (PublicAffairs, 2010).

The Ethanol Economics Debate

2010-12-21T08:56:00.000-08:00

Ethanol Gets A Boost; Will It Return The Favor?

by Frank Morris

Iowa Public Radio - December 21, 2010

The recent tax cut bill preserves a pretty sweet deal for corn ethanol. It extends a tax subsidy, along with an import tariff supporting a fuel that already enjoys a guaranteed market. But what do taxpayers get for all the help?

In the first of our three-part series on ethanol, Frank Morris of Harvest Public Media reports that the heated debate over ethanol tramples some basic realities.

Ethanol may seem modern, but people throughout Appalachia have been making it for hundreds of years.

"We are known for our moonshine industry," says science writer Bill Kovarik with a laugh, "very well known for our moonshine industry. It is still flourishing."

Kovarik, who's also a professor at Radford University, says that ethanol is, first and foremost, a way to make corn more valuable. More than a century ago, Henry Ford built cars to run on it, with just that in mind.

"So, you could replace the transportation income that farmers used to have by [their] growing the fuel for the cars, instead of growing horses and feed."

Prohibition killed that idea, but the farm crisis, oil shocks and environmental concerns have revived it. Lawmakers gave companies a tax credit -- currently 45 cents a gallon, more than $5 billion a year -- for blending ethanol with gasoline.

The EPA forces fuel blenders to use billions of gallons of ethanol a year. And there's also a high tariff on imports -- giving ethanol triple support. But according to the ethanol industry ads, the payback is huge.

One spot claims that ethanol is responsible for "12 billion gallons of clean, renewable American energy a year, fueling the economy, and nearly 400,000 jobs."

But, says David Swenson of Iowa State University: "Nationwide, the number of ethanol jobs isn't as many as people would think it was. It's probably in the territory of 30,000 to 35,000."

Swenson doesn't count farm jobs in his equation. But he does say that ethanol spreads money across the Midwest -- and even all the way back to Washington, D.C., in a way.

Ethanol uses a lot of corn, which makes it, and other row crops, more valuable.

These days, grain never gets cheap enough to trigger federal price support payments to farmers -- something that used to happen frequently. But "Federal support for ethanol effectively replaces other farm subsidies" doesn't really make a great slogan.

Instead, the industry's ad uses this motto: "Turning everyday, abundant, renewable ingredients into clean, sustainable energy."

Farmers now grow a lot more corn, but ethanol's voracious appetite keeps supply tight and prices high. Ethanol does burn much cleaner than gasoline -- creating no soot -- but producing it creates pollution and sucks up lots of water, which muddies the environmental benefit.

Of course, ethanol boosters aren't the only ones talking in this debate.

"We're importing oil to produce this ethanol," says David Pimentel, a professor at Cornell University.

Pimentel added up all the energy used in growing corn -- the fertilizer, the tractor fuel and tractor manufacturing, everything -- plus the energy used by ethanol plants. He says that making 1 gallon of ethanol uses the equivalent of about 1-1/3 gallons of oil.

Since his first study came out 30 years ago, Pimentel says, his findings haven't changed.

"There's been no net gain, as far as making the U.S. oil-independent," he says.

Pimentel's analysis of corn ethanol as an energy black hole has been widely cited by the diverse coalition lined up against corn ethanol, spanning everyone from liberal environmentalists to Fox News pundit Glenn Beck.

Beck has said: "Not only is corn ethanol wildly inefficient -- I mean, it takes more energy to produce it than it ends up providing. Hello?"

But Pimentel uses what many researchers believe are outdated or worst-case scenarios for growing corn and producing ethanol. Factoring in dramatic technical advances in both fields, most researchers figure that corn ethanol now delivers an energy gain -- of about 40 percent.

"But that's not really good enough," says Kovarik. "What we need is something in the neighborhood of 12 to 1, not, you know, 1 to 1.4."

Kovarik says that larger gains will come only after solving wickedly complex scientific, logistic and financial problems, allowing us to make ethanol from grass, trees or something other than corn.

"The corn ethanol industry is not really a long-term solution to oil dependence," Kovarik says. "It's just an octane booster."

And that's because ethanol is safer than banned gasoline additives, like lead, benzene and MTBE.

So, corn ethanol does create domestic energy and jobs -- but not as much, or as many, as backers hoped. It has helped some farmers get off other subsidies, and improved the rural economy.

The question is: Does it deserve a multibillion-dollar tax credit, on top of a tariff, on top of a huge and growing mandate to use it?

Global Demand: Land Prices Surge

2010-12-18T12:17:00.000-08:00

DECEMBER 16, 2010
A Bumper Year

Real estate may be hurting. But farmland has become a hot commodity.

By LIAM PLEVEN, Wall Street Journal

The price of farmland is climbing sharply again. Will a new round of pleas for aid from Willie Nelson be close behind?

The rally in land values stirs memories of the 1980s farm debt crisis, when many farmers borrowed heavily as property values soared, then faced foreclosure after the bubble burst. The farmers' plight prompted musicians led by Mr. Nelson to stage high-profile Farm Aid concerts.

Arable land has again become a hot commodity—despite the struggles of the broader real-estate industry. It's attracting buyers ranging from wealthy individuals and institutional investors to farmers themselves. Many are investing in farmland funds, though some farmers are expanding operations.

"It's just gotten sexy lately," says Shonda Warner, managing partner of Chess Ag Full Harvest Partners, which has a fund with about $50 million invested in farmland in four states.

Farmland values in key upper Midwest states shot up 10% in the third quarter compared with last year, according to the Federal Reserve Bank of Chicago. The Kansas City Fed says prices of irrigated farmland jumped 12% in Kansas and Nebraska in the same period. The recent increases follow a 55% rise in value in real terms over the past decade.

Near and Far

Investors are plowing money not just into prime U.S. soil, but into major agricultural areas abroad as well. Some expect the land to appreciate in value. Others are betting that fast-growing nations will need to import more food to satisfy increasingly prosperous populations, boosting farm income.

George Washington University, in Washington, D.C., began buying in 2007 and now has $80 million of its endowment invested in farmland. One-quarter of that amount is in the U.S., and the rest is abroad—including money in a fund that leases land in Poland.In October, Teachers Insurance & Annuity Association of America—part of the mammoth TIAA-CREF retirement plan for academics—bought Westchester Group Inc., which already managed some of TIAA's farmland investments. TIAA has about $2 billion invested in more than 400 farms in the U.S., South America, Australia and Eastern Europe.

And Luminous Capital, an investment adviser in Los Angeles and Menlo Park, Calif., that serves wealthy individuals, has put $45 million of its clients' money into a fund that plans to buy 20 to 25 U.S. farms growing crops such as corn, cotton and wheat.

"We believe that the emerging markets are going to continue to grow in wealth," says Kim Ip, who oversees the farmland portfolio at Luminous. That, she says, will mean increased meat consumption, which in turn will drive greater demand for feed grains.

Primed for Exports

U.S. farms are well-positioned to benefit from strong global demand for key crops, because they produce so much more than Americans consume. U.S. farms will provide more than half the world's corn exports and over 40% of its soybean and cotton exports this crop year, according to the U.S. Department of Agriculture.

Exports can help farms earn significant revenue, particularly at times when prices are rising. Grain prices shot up this summer after a harsh summer drought in Russia that led to an export ban in that country on wheat. Corn and wheat prices were both up more than 65% recently from June lows, with soybeans up nearly 40%."

U.S. farmland is also growing scarcer, which can bolster its value. The nation's farmland acreage has been declining steadily for more than half a century, from more than 1.2 billion acres in the mid-1950s to a little less than 920 million acres last year, according to the Department of Agriculture.

Perils Aplenty

Farming, however, is a notoriously perilous business. Outside investors typically rely on tenant farmers or management companies to run the farms day-to-day, putting a premium on selecting skilled farmers. Farms are also heavily exposed to nature's whims.

"The biggest risk is operational," says Don Lindsey, chief investment officer at George Washington University. He tries to mitigate the risk by investing in different regions, and with a variety of managers.

Higher prices increase the risk that buyers may be paying too much, says Jim Grant, editor of Grant's Interest Rate Observer, a New York-based financial newsletter. "I worry about the aging Iowa farmers who are paying up for their neighbors' 80 or 100 acres because interest rates are so impossibly low," he said in a speech last month in Singapore.

And then there's the possibility of another collapse in land values.

U.S. Agriculture Secretary Tom Vilsack says the situation now is different. "I don't think we're looking at a bubble, just because I think people have been far more conservative about debt," Mr. Vilsack says.

Nonetheless, the earlier crash has regulators paying close attention.
"We don't want it to become a problem," says Richard Brown, chief economist at the Federal Deposit Insurance Corp., which monitors lenders.

Meanwhile, Farm Aid, the organization that grew out of the original concerts—and where Mr. Nelson remains board president—has focused its recent advocacy efforts on other farm-country concerns, according to a spokeswoman. But, she adds, "we are definitely watching the situation."

Mr. Pleven is a staff reporter for The Wall Street Journal in New York. He can be reached atliam.pleven@wsj.com.

Wall Street Journal: Gore Swears Off Ethanol

2010-12-17T09:47:00.000-08:00

NOVEMBER 27, 2010

Al Gore's Ethanol Epiphany

He concedes the industry he promoted serves no useful purpose.

Anyone who opposes ethanol subsidies, as these columns have for decades, comes to appreciate the wisdom of St. Jude. But now that a modern-day patron saint—St. Al of Green—has come out against the fuel made from corn and your tax dollars, maybe this isn't such a lost cause.

Welcome to the college of converts, Mr. Vice President. "It is not a good policy to have these massive subsidies for first-generation ethanol," Al Gore told a gathering of clean energy financiers in Greece this week. The benefits of ethanol are "trivial," he added, but "It's hard once such a program is put in place to deal with the lobbies that keep it going."

No kidding, and Mr. Gore said he knows from experience: "One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for President."

Mr. Gore's mea culpa underscores the degree to which ethanol has become a purely political machine: It serves no purpose other than re-electing incumbents and transferring wealth to farm states and ethanol producers. Nothing proves this better than the coincident trajectories of ethanol and Mr. Gore's career.

Ethanol's claim on the Treasury was first made amid the 1970s energy crisis, with Jimmy Carter and a Democratic Congress subsidizing anything that claimed to be a substitute for foreign oil. Mr. Gore, freshman House class of 1976, was an early proponent of what was then called "gasahol."

The subsidies continued through the 1990s, with the ethanol lobby finding a sympathetic ear in Clinton EPA chief and Gore protege Carol Browner, who in 1994 banned the gasoline additive MTBE and left ethanol as the only option under clean air laws. When the Senate split 50-50 on repealing this de facto mandate, then Vice President Gore cast the deciding vote for . . . ethanol. That served him well in the 2000 Democratic primaries against ethanol critic Bill Bradley.

During the George W. Bush years, Big Ethanol adapted again, attaching itself to the global warming panic that Mr. Gore did as much as anyone to foment. Republicans in Congress formalized the mandate and increased subsidies in the 2005 and 2007 energy bills.

Meanwhile, the greens have slowly turned against corn ethanol, thanks to the growing scientific evidence that biofuels increase carbon emissions more than fossil fuels do. But the boondoggle lives on in dreams for so-called advanced fuels like cellulosic ethanol. Note Mr. Gore's objection only to "first generation," though we've been hearing that advanced ethanol is just a year or two away from viability for two decades.

At least on corn subsidies, we now have the makings of a left-right anti-boondoggle coalition. Major corn energy subsidies such as the 54-cent-per-gallon blenders credit expire at the end of the year, and Republican Senators Jim DeMint and Tom Coburn are encouraging the new Congress to prove its fiscal bona fides by letting them die. Chuck Grassley (R., Ethanol) responded this week on Twitter: "WashPost reports 2 of my colleagues want sunset ethanol tax credit R they ready sunset tax subsidies oilANDgas enjoys?"

Messrs. DeMint and Coburn replied, essentially, make our day—and rightly so. Regardless of government intervention, the economy will continue to demand oil and gas, because they are useful. No one could plausibly say the same about ethanol, and maybe now that he's had his epiphany Mr. Gore will join the fight against the subsidized industry he did so much to promote.

Marketplace: Another Asset Bubble?

2010-12-16T14:17:00.000-08:00

Thursday, December 16, 2010

Is farmland the next real estate bubble?

The value of farmland is at an all-time high -- and it's still rising. Investors are snapping up agricultural land -- should they be concerned about another disastrous bubble burst?

A farmer harvests his corn crop in September 2007 near Morris, Ill. (Scott Olson/Getty Images)

More on INVESTING, HOUSING - REAL ESTATE, AGRICULTURE

TEXT OF STORY

KAI RYSSDAL: Timothy Geithner was up on Capitol Hill today testifying about the TARP. He tried again to convince a congressional panel that the bank bailout did what it was supposed to do, save the economy after over-speculation in an asset bubble. That is to say, in English, all those mortgage-backed securities based on residential real estate. But as we deal with lingering reminders of the subprime mortgage crisis, there's another asset class bubbling away: Farmland. Prices are up almost 60 percent over the past decade and still climbing.

Harvest Public Media's Kathleen Masterson has more.

AUCTIONEER: 8,000 bid. Now 8,050, 50, 50...

KATHLEEN MASTERSON: It's standing room only at this auction just outside of Ames, Iowa. Up for bid are three parcels of farmland that were owned by the same family for three generations. The room is packed with more than 100 people, mostly older farmers in flannel and their wives and a few out-of-state investors.

AUCTIONEER: 8,850, I'm asking 89 there. 8,950...

In the end, an investor from California dropped out. The 80-acre plot sold to a local buyer for nearly three-quarters of a million dollars.

AUCTIONEER: I've sold it -- 8,900.

That's $8,900 an acre, double the average price in Iowa from just last year. Farmland prices in the Midwest have been shooting up over the past year, and even over the last few months. All this buzz about farmland has caught the attention of the FDIC. Part of the FDIC's job, says chief economist Richard Brown, is to worry about these things, to worry about signs that, like the housing market, things could get out of control.

RICHARD BROWN: The asset price movement that we're watching right now is farmland values, which have increased by 58 percent over the past 10 years, after inflation.

That's led big financial companies like MetLife, John Hancock, and TIAA-CREF to ramp up investment in agricultural land. Part of the reason land prices have risen so high is the soaring costs of crops, a notoriously volatile commodity. Right now, grain is up, but not as much as land prices.

BROWN: Our sense is that land prices have risen faster than the underlying fundamentals, and again, that's indicative of a boom. But I think what would be more worrisome is if we saw an unstable debt structure under that.

And that last part, that's good news. Farmers and others buying land right now are cash rich, meaning they're able to put money down. So we're not seeing the kind of crazy borrowing that led to the 80s farm crisis. But there are some small signs that make economists wary.

Jason Henderson with the Federal Reserve Bank of Kansas City says he's starting to hear that some farmers are borrowing against the high value of their land. He has this example:

JASON HENDERSON: Farmers own say 500 acres with no debt on it, they're using equity in that parcel of land to purchase another parcel.

Henderson says there's talk of investors buying farmland as a hedge against inflation. Still, there just isn't that much farmland on the market. Low interest rates and an unstable stock market means that, for many farmers, owning land is a better retirement option.

RANDY HERTZ: People say I'd rather own a hard asset, own some farmland. Then if I convert that to cash, and put it in bank, what will I earn on that?

That's Randy Hertz, president of Hertz Farmland Management, Inc., based in Iowa. Hertz has been in the business for several decades. He says he's not worried about a bubble, not yet anyway.

HERTZ: If the wheels fall off our commodity markets, which they will go down, what goes up does come down, and I do not expect wheels to fall off the land market.

The key question is whether high farmland prices are just a result of speculative buying or are they really supported by farmland's ability to make money. One thing investors are counting on is a continuing demand for that non-luxury item we call food.

In Ames, Iowa I'm Kathleen Masterson for Marketplace.

Marcellus Shale: The Environment Versus Jobs Debate

2010-12-14T15:21:00.000-08:00

DECEMBER 14, 2010
Gas Rush Reshapes Town
Tiny Towanda Cashes In on Drilling, But Some Worry About the Changes

By KRIS MAHER, Wall Street Journal

TOWANDA, Pa.—Drill rigs sprouting up on dairy farms are transforming this once-quiet community and dividing residents who welcome the economic boost from those who worry about the effects of development.

On Towanda's Main Street, Select Energy Services LLC hires drivers out of a storefront office to haul the millions of gallons of wastewater generated at the wells. Down the street, though, the owner of the Red Rose Diner says he feels like this borough of 3,000 by the Susquehanna River is "under siege."Energy companies are investing billions of dollars drilling for natural gas in the huge Marcellus Shale, a 400-million-year-old shale deposit stretching beneath parts of Ohio, Pennsylvania, West Virginia and New York. Places like Towanda are especially attractive because they are close to gas users in Boston, New York and Philadelphia, and have high-producing wells.

A similar tension is echoing through the state. In November, Pittsburgh banned drilling over concerns drinking water could be contaminated from pumping water, sand and chemicals thousands of feet underground to fracture rocks and stimulate gas flow in a process known as hydraulic fracturing. Smaller communities have done the same."It's a mixed blessing," said Frank Bertrand, a real-estate appraiser who sold lease rights on 10 acres with a partner to a drilling company for $50,000 in June. He said he expects "collateral damage" to roads from truck traffic and even that some water wells could be contaminated from drilling. "We just have to hope that they use the best practices to do their drilling."

Gas-industry officials attribute much of the anxiety to residents' lack of experience with the natural-gas industry and the sudden influx of out-of-state energy giants, like Chesapeake Energy Corp., of Oklahoma City, and Range Resources Corp., of Fort Worth, Texas.

Environmental fallout from older industries like steel and coal that were less regulated decades ago is "rightfully putting a lot of scrutiny" on drilling, said Kathryn Klaber, president of the Marcellus Shale Coalition, a trade group. But she said stricter federal and state guidelines would ensure that the impact on water and land is minimal. "We want to be first and foremost safe and considerate of the communities we operate in," she said.

Some people believe the Marcellus Shale will transform the entire economy of the state.

This year, 286 Marcellus wells have been drilled in Bradford County, the most in the state. Chesapeake, the most active drilling company in eastern Pennsylvania, has paid out $300 million in lease bonuses and royalties since 2008 in the county, out of a statewide total of $1.1 billion. In Bradford, roughly 13,600 people, more than 20% of the county's population, have leased mineral rights to Chesapeake.At the very least, millions of dollars are being pumped into tiny outposts like Towanda, in the northeast corner of the state. It is the county seat of Bradford County, where the unemployment rate is 6.6%, among the lowest in the state.

Chesapeake has spent more than $94 million this year to pave or repair 300 miles of roads in Bradford and three other counties. That has benefited Leo Drabinski, who co-owns Calvin C. Cole Inc., a hard-rock quarry and construction company in Bradford County. He said demand for rock used for roads and well sites used by gas companies grew 10 times in the past year. He increased his quarry staff to 15 from six, and even started a van service to shuttle rig workers to their jobs. "We were so lucky," Mr. Drabinski said. "We're right in the heart of this natural-gas boom."

Business is also booming for truck dealerships, restaurants and motels. Some farmers have sold lease rights for $5,000 an acre, using the money to pay off debt, invest in new farm equipment or retire

Others aren't thrilled. Many worry drilling will impact drinking water. Since 2008, six wells in Bradford have been contaminated with natural gas as a result of drilling into the Marcellus, according to the state Department of Environmental Protection. The agency has tightened engineering requirements and said companies are providing drinking water to affected residents. "The vast majority of our wells have been without incident," Chesapeake executive Matt Sheppard said. "When we've had incidents we try to address them quickly."

The additional trucks on the road have led to more traffic and accidents. Gary Wilcox, safety director for the county, noted a 23% increase in 911 calls over the past year, mainly for car and truck accidents. Volunteer fire departments are straining to respond to calls, he said.

Then there's the jolt to real-estate values. An apartment in Towanda that would have rented for $425 a month two years ago is now fetching $1,200 to $1,500 a month, according to Henry Dunn II, a local real-estate agent.

Mike Holt, owner of the Red Rose Diner on Main Street, said most small towns in America "would die to have a resource to stimulate their economy." But he and other residents complain that most high-paying jobs are going to out-of-state workers.That is good news for some, but families have become homeless and children placed in foster care because of steeper rents, said Mark Smith, chairman of the county commissioners.

Chesapeake, whose Towanda offices are in a renovated department store, says it is working with local colleges so it can train an all-local work force. In the past year, the company increased its staff in the state to 1,100 from 250 and said more than 400 employees are state residents. It opened a facility last month to house 276 workers and help ease the rental crunch.

"There's no doubt Bradford County is a much busier place,'' said Chesapeake's Mr. Sheppard.

The rapid changes in Towanda are attracting attention from around the state. On a recent day, retirees Bill and Catherine Brubaker of Lancaster, Pa., came to see what they could be in for.

Mrs. Brubaker said they were impressed that drill sites didn't disturb much land. But her husband, sitting in the passenger seat with a pair of binoculars on his lap, remains wary. "We still have major, major questions about the chemicals and the groundwater," he said.

Write to Kris Maher at kris.maher@wsj.com

Regulators Look at Farming Landscape

2010-12-06T10:54:00.000-08:00

DECEMBER 6, 2010
THE WEEK AHEAD
By IAN BERRY, Wall Street Journal

Food prices are back on the march, and the powerful U.S. farm lobby faces a day of reckoning on Wednesday as the Obama administration wraps up a yearlong study into competition and consolidation in the agricultural sector.

The Departments of Justice and Agriculture are holding their fifth and final workshop to review the competitive landscape in food production and livestock rearing after a unique collaboration that has left some of the industry's largest players looking nervously over their shoulders.

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Ellen Weinstein

Monsanto Co. is already embroiled in a Justice Department investigation into alleged anticompetitive practices linked to the sale and distribution of genetically modified seeds that dominate U.S. farming. Dean Foods Inc., the country's largest milk producer, has also seen antitrust officials move to block a small acquisition.

Lawmakers already have had to wrestle with external forces on the sector, such as the rise of speculative funds that critics contend have inflated prices. The latest run-up in commodity prices has also reawakened the long-running food-versus-fuel debate as Congress decides whether to renew subsidies to the ethanol industry.

This week's workshop will seek to unravel the impact of the supply chains that stretch from the field to the retailer and assess whether consumers and producers are getting a raw deal from the industry's existing structure.

U.S. Attorney General Eric Holder, Agriculture Secretary Tom Vilsack and Christine Varney, the Justice Department's antitrust chief, are scheduled to participate Wednesday.

The two agencies announced in August 2009 that they were targeting the agricultural sector, triggering a series of joint agency workshops around the country examining competition, pricing and industry structure in seeds, dairy, livestock and poultry. The events prompted often heated exchanges between farmers and representatives of Big Ag.

The final workshop will include a closer look at margins throughout the industry, including the difference between what consumers pay at the grocery store for milk, beef and poultry, and what farmers receive.

As the final workshop, it will also wrap in themes from earlier events. Smaller farming operations say consolidation has given them little bargaining power as they buy seed or sell their livestock or milk. With feed prices well above historic levels, dairy, livestock and poultry farmers in particular are under pressure.

Write to Ian Berry at ian.berry@dowjones.com

"Protecting what people need from nature -- clean water, clean air, good food...."

2010-12-06T08:27:00.000-08:00

Climate Groups Retool Argument For Global Warming
by Christopher Joyce, NPR
- December 5, 2010

The number of Americans who believe that global warming is a scientific fact has been dropping, and environmental groups and climate scientists who say the evidence for warming is clear are scratching their heads over this reversal and scrambling to find a new strategy.

Three years ago, former Vice President Al Gore won a Nobel Prize for publicizing the threat of climate change with his book and documentary film, An Inconvenient Truth. After that, scientists rejoiced, says Dan Lashof, director of the Climate Center at the Natural Resources Defense Council, an environmental group.

"We in the scientific community by and large said OK, the science debate is over, we are moving our efforts into what we are going to do about it. And that left the science debate in the public largely untended," he says. "That has been recognized as a strategic error."

They hadn't won. Climate skeptics worked to convince the public that the scientific argument for climate change was dodgy and exaggerated. The debate sometimes got hostile and personal, as it did in an exchange between climate skeptic Mark Morano and climate activist Joe Romm.

Even Gore's Nobel Prize hasn't earned him deference from skeptics, as he found when testifying at this hearing before Republican Congressman Joe Barton in March 2007:

Soul-Searching

So now climate activists are doing some soul-searching about where they've gone wrong. For one thing, they've been preaching to the choir. Opinion polls show that attitudes about climate change increasingly fall along political lines: Conservatives are more likely to be skeptics; liberals to be believers.

Climate scientist Richard Somerville, at the University of California, San Diego, says scientists aren't welcome among some conservatives.

"They don't want to hear about it from scientists who they regard as opposed to them on many, many wedge issues -- abortion and stem cells or evolution and creationism," he says.

And then there's the message: Alden Meyer, with the Union of Concerned Scientists, says climate activists need to offer solutions, not just problems. But old habits are hard to break.

"If you offer people only the bad news and the dire straits and no prospect of being able to address it, there's a natural human tendency to deny the reality of the problem because they don't want to believe there's no way out and we're doomed," Meyer says.

But there are also environmental scientists who think the threat has been exaggerated.

"By focusing always on these extreme threats, I think they lost their credibility," says Ken Green, an environmental scientist and resident scholar at the American Enterprise Institute. "I mean, historically they have doom-sayers, they keep getting it wrong, and people keep seeing that they're getting it wrong."

Finally, there's the economy.

"When people feel less wealthy, they are less inclined to listen to arguments that they need to spend more money. It also may mean doubting the person who's saying let's spend more money," Green says.

Local Angle

So far, there's lots of talk about what to do. One group that's already changing its tune is the Nature Conservancy. It's now run by a former Goldman Sachs executive, Mark Tercek, who says the Conservancy's message is going to show that protecting the climate isn't just about saving polar bears -- it's local.

"We're talking about protecting what people need from nature -- clean water, clean air, good food," he says -- all things that could suffer as the climate warms.

As for the messenger -- well, the Conservancy just hired a new marketing director -- from the professional wrestling business. [National Public Radio]

US Will Win 'Green War' When Match Chinese State's Strategic Focus and Industry Scale

2010-12-01T13:26:00.000-08:00

NOVEMBER 29, 2010
Glow From Solar Factories Fails to Match Town's Hopes
By TIMOTHY AEPPEL, Wall Street Journal

GREENVILLE, Mich.—When a fast-growing maker of solar equipment broke ground here in 2006 on the first two of what it said would eventually be six giant new factories, it seemed the sun was finally shining on this town's battered economy.

Just months earlier, Sweden's Electrolux AB had shut its Greenville refrigerator plant, nearly snuffing out what had been the town's marquee industry for more than a century. Counting jobs lost at local Electrolux suppliers and two other smaller factories, this western Michigan town of 8,000 lost some 4,000 jobs almost overnight, and unemployment in Montcalm County soared to nearly 16%. Kenneth Snow, the town's mayor, says attracting the solar plants was a turning point at a dark moment.

Many cities are counting on green industries to help replace the more than eight million jobs lost during the recent recession. The Obama administration has said it wants to make cultivating these businesses a national priority. But Greenville shows how hard that will be to accomplish.But solar hasn't taken up the slack many thought it would. The two plants were built, and now employ 320 people between them. The company—United Solar Ovonic, known as Uni-Solar, a unit of Energy Conversion Devices Inc. of Auburn Hills, Mich.—has indefinitely shelved plans for additional factories in Greenville.

Built on technologies that are new and evolving, green industries spawn lots of start-ups, but they can shrivel just as quickly. Other countries are also pushing—and subsidizing—these same industries, making it hard for them to take root and expand in costlier locales like the U.S.

"Many places are looking for a miracle, and they think alternative energy plants are going to be a savior," says Daniel Meckstroth, an economist at the Manufacturers Alliance/MAPI, an Arlington, Va., public policy and research group. But the businesses aren't large enough or growing fast enough to create large pools of employment.

Greenville's twin solar plants each sprawl more than 288,000 square feet, equal to five football fields. The two buildings sit side by side and are mirror images of each other, part of Uni-Solar's strategy of building up capacity by adding identical, separate buildings as they grow.

But shortly after the plants were built, managers realized they could double their capacity by simply attaching a small wing to the side of each and reconfiguring the floor plans to maximize the use of long rows of automated machines.

Joseph Conroy, vice president of operations for Uni-Solar, says it isn't in the company's "near-term plan" to build more factories in Greenville, mainly because it doesn't need to. "We've already doubled the capacity of our original plants and could double it again" in the two existing structures, he says.

On a recent day, only 50 workers were needed to run a 12-hour production shift, with 25 in each plant. Employment at the factories peaked at 400 before the recession, but it now hovers at about 320.

"We've ramped up production in recent months," says Tim Kelley, the plant manager. "But with no clarity on where the market is going, we've done it with overtime," adding on hours for existing workers. Employees like the arrangement, he says, because they can make up for some of the pay they lost when the plant cut hours and ordered furloughs during the recession.

The factories currently have 66 workers who once worked for Electrolux, many of whom went through training at the local community college.

But even with the training, it was a tough transition for 51-year-old Donna Cooper, who worked in the refrigerator plant for 28 years. She says that going back to school so late in life was daunting. She was also "terrified," she says, by the series of interviews she went through to get the job, beginning with a 3-on-1 session with Uni-Solar managers.

"I'd never had a job interview," she says, noting that when she joined Electrolux, she was one of several hundred people who signed up at the factory over two days during an expansion. That screening process consisted of reading an eye chart and showing she could touch her toes, then being told when and where to report for work.

But the real shock came when she arrived for her first day of work at Uni-Solar. "I didn't understand that buildings this size could be run with so few people," she says. "I pictured 1,200 jobs."

Many workers were also struck by the lack of noise and bustle. "I came here and thought the machines weren't running," says Jeff Adams, a 57-year-old production technician. Indeed, the long rows of machines that apply thin coatings on sheets of stainless steel to create photovoltaic panels are nearly silent.

But while the plant's quiet environment is appealing, wages can be a sore point. Mr. Adams figures he earns about half the $50,000 a year he made as a manager at a local auto-parts plant that closed down. Ms. Cooper says she made $16.50 an hour at Electrolux, and now, even after taking courses to qualify for the work, she earns less than that. The average wage, including premiums for things like working nights, is $15 to $16 an hour, Mr. Kelley says.

"High wages for unskilled workers is a thing of the past," says Ms. Cooper.

Uni-Solar's Mr. Conroy says his company had to hit the brakes on its expansion plans once the global financial crisis hit.

The company's solar panels are designed to go on the roofs of large commercial buildings, but those projects dried up world-wide, including in Europe, which buys 80% of Uni-Solar's products.
Then there's China. The rise of a host of Chinese-based competitors has driven down prices of the company's products world-wide. "Our average selling price has fallen 30% to 40% in the past 18 months to two years," says Mr. Conroy. The company reported a fiscal-first-quarter net loss in early November of $13.5 million, or 29 cents a share, on sales of $68.4 million.

Mr. Conroy says Uni-Solar is looking at all options to restore profitability, including moving its production abroad. The company is in talks with India, he says, but he won't elaborate other than to say that many foreign governments seem eager to cultivate solar industries.

"Greenville is a classic story," says Michigan Gov. Jennifer M. Granholm, who was instrumental in luring Uni-Solar to Greenville and advocates promoting green industries. "It's not just a recession story. It's a structural change in our economy."

"If we don't have robust industrial policy in this nation," she adds, "all those jobs will be sucked away" to foreign competitors.

Write to Timothy Aeppel at timothy.aeppel@wsj.com

Market-based Climate Policy

2010-12-01T11:32:00.000-08:00

CANCUN CLIMATE CONFERENCE 2010

Insurance companies have no doubts about global warming

Insurance companies are taking into account the potential for rising water levels and more aggressive hurricanes when considering rates. Marketplace's Scott Tong reports.

Queen's Cove on the Island of Grand Bahama has taken a beating by hurricanes through the years. Today, insurance companies won't insure homes there. So residents have no choice but to adapt on their own to the threats of severe weather, by adding, for example, stilts. (Scott Tong/Marketplace)

TEXT OF STORY

KAI RYSSDAL: The weather forecast for Cancun, Mexico today is mostly sunny, 81 degrees. So if United Nations climate negotiations don't make any progress, at least there's always the beach. It's early yet in the UN's two-week global warming conference; we're on day two. But not much is really expected to happen by the end, anyway. It's a complicated business, this whole idea of coping with a changing climate. Because basically, you're changing everything -- from re-figuring the fundamentals of our energy supply to helping poor countries adapt to a warmer world. Policymakers, so far, have mostly decided they can't decide what to do. So businesses are stepping in.

Not only does Marketplace's Scott Tong get to spend two weeks in Cancun, reporting on the conference itself, but before he left, he took a little side trip to the island of Grand Bahama for this story about insurance and an unstable climate.

Sound of water lapping

SCOTT TONG: I know what you're thinking. But this story comes to you from the other side of Grand Bahama. The rocky north shore, four miles from the nearest rum cocktail. I checked.

The Queen's Cove area of canals and mangrove trees has taken a royal beating from Mother Nature. Ask resident Katherine Bellott. Her two-story house features a sign out front that reads "Hurricane Hole."

KATHERINE BELLOTT: It was pretty amazing...

Bellott recalls Hurricane Frances from 2004. How the storm surge put her house under five feet of water, how her husband tried to protect their family boat.

BELLOTT: He decided when he saw the hurricane coming to sink it, so it wouldn't fly all over the place. When the hurricane was finished and we came home, the boat was in the neighbor's yard.

As for the neighbor's house...

BELLOTT: The only thing we saw there was the tile floor and maybe a toilet. The actual house was gone.

Hurricane Jeanne followed Frances two weeks later. And together, they huffed and puffed and blew away the insurance companies. Every insurer pulled out of Queen's Cove, so now no one here has coverage for wind damage or floods.

Simon Young at insurance consultancy Caribbean Risk Managers says the area's too exposed, too low-lying.

SIMON YOUNG: Storm surge at the coast is the big issue. The general feeling is that it's going to get worse as the oceans warm up. The potential for bigger, more aggressive hurricanes increases, as well as sea level rise. And those two factors together increase the storm surge hazard.

Young says that risk is also rising on the east coast of the U.S. More broadly, he says for the insurance sector, the basic debate over climate change ended years ago.

YOUNG: Industry has accepted absolutely that climate change is real. There is no debate either at the management level or at the technical level as to whether climate change is going to have an impact on their industry.

The consulting firm Ernst & Young considers climate change the greatest strategic risk to property casualty insurance firms.

Now, these companies don't like to skip out on any neighborhood. So when they do, economists call it a "market signal." And the message, loosely translated, is, "What are you people smoking? Live here at your own risk." And the housing market's heard it. If you want to buy in Queen's Cove, you can't get insurance, so the bank won't give you a mortgage.

Again, resident Katherine Bellott.

BELLOTT: So a lot of people have just walked away from their homes. They're just left there. And then you have some people who sold for next to nothing.

Those who stayed are changing the way they live, since they're now on the hook for everything. Most new houses are built on stilts, literally higher ground. The walls are made of cement, roofs steel. And this is how adaptation to an uncertain climate happens here -- not because politicians or scientists saying so, but because people can't afford not to.

UCLA economist Matthew Kahn is the author of "Climatopolis."

MATTHEW KAHN: The first idea in economics is people pursue their own self-interest. And by pursuing their own ruthless self-interest -- moving to higher ground, rebuilding their homes to protect them in floodplains -- all of these strategies will reduce the suffering.

Investors are starting to hedge against Mother Nature, too. Shareholders and federal regulators are demanding companies disclose how future regulation of greenhouse gas emissions would hurt their bottom line.

MICHAEL GREENSTONE: They think it's inevitable that there will be regulation of carbon.

Economics professor Michael Greenstone at MIT says the investors are ahead of the policymakers.

GREENSTONE: Financial markets have an excellent way of aggregating information and reading the future in a much more reliable way than I think political pundits often do. And the reason is that money's on the line.

But here's the thing, these market signals can only be felt in free markets. As opposed to say...

Sounds from a night club -- music, shouting

Florida. At South Beach in Miami, insurance firms are screaming that they need to raise premiums, based on coastal risk. The state acknowledges rates are in some areas severely underpriced. But the regulators won't hike them.

Local insurance broker Alex Soto.

ALEX SOTO: We're not being allowed to charge an actuarially sound rate. So suppressing that artificially for political reasons in effect keeps the private insurance companies away.

Price controls have led national insurance firms to exit risky Florida. So the state of Florida has stepped in, providing cut-rate insurance as a kind of safety net.

But Simon Young at Caribbean Risk Managers says that distorts the market signal. So people don't adapt to what the industry considers climate risk. They keep living and keep building in harm's way.

YOUNG: The regulatory environment in the U.S. is protecting the consumer, they think, from paying too much. But actually it's from paying a fair price for the risk that they're taking. And unfortunately, that's led to overdevelopment or, potentially in the long-term, unsustainable development.

The failed market means the insurance industry can't do its job: To give early warning signals of risk, change, and potentially, disaster.

I'm Scott Tong, for Marketplace.

Natural Gas Futures

2010-11-30T12:00:00.000-08:00

November 29, 2010

Breaking Away From Coal

By CLIFFORD KRAUSS, New York Times

HOUSTON — Progress Energy Carolinas, one of the South’s larger utilities, faced a dilemma last winter.

Several of its coal-fired power plants were aging and needed scrubbers to reduce emissions and meet North Carolina pollution laws. Executives figured that even tougher regulations were coming from Washington, and overhauling 11 generators at four plants would have cost nearly $2 billion, which would have been passed on to the company’s 1.5 million electric customers.

Plunging natural gas prices, however, offered Progress Energy an alternative that would save money and help it achieve pollution goals at the same time: scrapping the coal plants and replacing them with two gas plants over the next four years, at a cost of $1.5 billion.

“It’s a turning point,” said Bill Johnson, chairman and chief executive of Progress Energy, the parent company. “We’ve been a coal-based generator for decades, and until a few years ago, we thought we would remain largely coal-based and nuclear until people started talking about carbon regulation. We decided we had to do something about it.”

A lot of utilities are coming to a similar conclusion. Over the last year and a half, at least 10 power companies have announced plans to close more than three dozen of their oldest, least efficient coal-burning generators by 2019. A few are being replaced by new, more efficient coal plants, but many more are being replaced by gas-fired plants.

Coal still accounts for about half of the country’s electrical power generation, compared with about a quarter for natural gas, but that ratio has been shifting gradually toward gas over the last decade or so.

Gas burns cleaner than coal, helping utilities meet state and corporate goals for reductions in greenhouse-gas emissions. Older coal plants, on the other hand, require expensive upgrades, including scrubbers and other controls, to meet coming compliance rules to reduce mercury, nitrogen oxide and sulfur dioxide emissions. Energy specialists estimate that compliance with new federal regulations alone could require $70 billion of investments over the next decade for replacing or retrofitting the coal power fleet.

Just as significant, gas prices have remained at depressed levels over the last two years after a two-thirds collapse from the 2008 economic tumult, while coal prices have increased by more than a third this year because of higher production costs linked to tougher regulations and increased demand from China. Many people in the industry believe that gas prices will stay relatively low because of the proliferation of gas drilling in shale fields across the country over the last five years.

“Coal is losing its advantage incrementally to gas,” said Michael Zenker, a gas analyst at Barclays Capital, “and as long as gas prices stay as low as they have been, it’s going to continue indefinitely.” New gas generation capacity will outstrip new coal generation capacity by more than 30 percent through 2020, according to projections from the Energy Department. And Credit Suisse predicts that the replacement of coal plants by gas plants over the next seven years could lower annual demand for steam coal, which is burned for electricity, by 15 to 31 percent and increase demand for gas by 8 to 16 percent.

“It has the potential to reshape energy consumption in the United States significantly and permanently,” said Dan Eggers, a Credit Suisse energy analyst.

Although coal is also being replaced by nuclear and renewable energy sources in some places, energy specialists say that gas will be the main benefactor because of availability and cost.

Since burning gas emits a fraction of the greenhouse gas of coal, environmentalists tend to favor the switch, although some worry that more gas drilling could pollute groundwater because of the chemicals used in breaking up shale rock.

Pollution laws generally make gas more appealing than coal. Even as many states like Colorado and Michigan enacted stricter pollution laws, the Environmental Protection Agency last summer imposed new limits on sulfur dioxide and nitrogen oxide emissions in 31 Eastern states and Washington by 2014.

Under court order, the E.P.A. is due to set a national standard for mercury emissions next year that will be phased in over the next three years or so. The E.P.A. is also pressing for efficiency improvements at existing coal plants to lower carbon emissions linked to climate change.

“The biggest challenge we face in this industry is this tsunami of regulatory requirements,” said Frank Prager, vice president for environmental policy at Xcel Energy, a Minneapolis-based utility that has proposed to close four or five coal-fired generators in Colorado and replace them with two gas-fired plants to comply with a new state air pollution law.

“It will be more cost-effective to get off coal and turn toward natural gas than it is to retrofit a lot of these facilities,” Mr. Prager said.

Seventy percent of the nation’s coal plant fleet is more than 30 years old and a third is over 40 years old. Credit Suisse estimates that more than 30 percent of the American coal generating fleet have no emission controls at all, while another third lack either a scrubber for removal of sulfur dioxide or other controls for nitrogen oxides. Those plants, which are largely inefficient, will need expensive overhauls under the new rules.

Sonny Garg, president of Exelon Power, said he expected that the plants with no emission controls would probably be closed by their owners, who he says will be wary of investing billions of dollars on old equipment. “It’s a significant transformation,” Mr. Garg said.

Exelon Power has already announced the closing of three Eisenhower-era, coal-fired generators in Pennsylvania by May 2012 because low gas prices have made retail electricity rates so low the plants are no longer economical to run.

Of course, not everyone thinks gas makes more economic sense. For example, a coalition of investors is building a $4 billion coal-fired generation plant in Illinois, betting that coal prices will remain low enough and regulations light to outperform gas.

Indeed, retrofitting a coal plant can be somewhat cheaper than constructing a new combined cycle gas turbine, industry officials say.

“A very wide range of utilities are wrestling with this issue of identifying what plants they would close because they are anticipating these regulations and there is a lot of planning going on right now,” said Revis James, director of energy technology assessment center at the Electric Power Research Institute.

Utility executives have long been cautious about using gas because its price has historically bounced around unpredictably while coal prices have typically been low and stable. But that appears to be changing. Over the last decade, new drilling techniques have brought a century’s supply of reserves within reach.

For Progress, the decision to scrap coal-fired plants and replace them with gas-fired plants was a drastic change in its business plan. It meant reducing the utility’s coal-fired production capacity by 30 percent while increasing gas power from less than 4 percent of its production capacity to a projected 25 percent after the gas plants are built.

“You had to believe that gas was available long term” at reasonable prices, Mr. Johnson, Progress’s chief executive, said of the decision. “Around the country, people are having to have the same discussion, and what I think you are going to see is a significant move from older coal plants to newer gas plants.”

The Solid Middle

2010-11-24T13:16:00.000-08:00

Record U.S. Exports Reflect Midwest Boom With 3.7% Unemployment

Bloomberg

By Joshua Zumbrun and Steve Matthews - Nov 22, 2010 12:24 PM PT

The unemployment rate in North Dakota is 3.7 percent, and “if it wasn’t for cable news, we probably wouldn’t have any idea that the rest of the country was any different,” said Doug Johnson, co-owner of crop insurer TCI Insurance in West Fargo, who added six new employees this year.

As businesses across the U.S. struggle to recover from the deepest recession since World War II and the national jobless rate remains stuck at 9.6 percent, Johnson has benefited from his location in the northern Great Plains, where a boom in commodities, such as wheat and soybeans, is helping to create jobs, lift farmers’ incomes and fuel demand for goods ranging from Deere & Co. tractors and Agco Corp. combines to dinners at local restaurants.

The agricultural Midwest -- particularly North and South Dakota, Kansas and Nebraska -- has been leading the U.S. economic recovery as its banks, businesses and households avoided the worst of the housing bubble’s collapse and the financial crisis that followed. Now the region is getting a further boost from record exports of commodities, driven by demand in China and Russia and a declining dollar. U.S. farm shipments next year may surpass the 2008 record of $115.3 billion, Joe Glauber, the U.S. Department of Agriculture’s chief economist, said last month.

“This has been the brightest spot in the U.S. economy throughout the recession, the only part of the country that has held up reasonably well,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.

‘Significant Tailwind’

“The rise in commodities prices has been a very significant tailwind for the entire region,” as strong demand worldwide drives sales of products, including agricultural equipment, financial services and fertilizer, he said. “It goes beyond the farm itself.”

Ray Gaesser, 58, who grows soybeans and corn near Corning, Iowa, says he installed new drying and grain-handling equipment this month and may buy tractors, combines or planters next year.

“We are in a cycle that is good for agriculture right now,” he said. “We are pretty optimistic.”

North Dakota and two other states in the region had the lowest unemployment rates in the U.S. during September, with South Dakota at 4.4 percent and Nebraska at 4.6 percent. These are also the three states with the largest share of gross domestic product from agriculture: 10.9 percent for North Dakota, 9.4 percent for South Dakota and 6.8 percent for Nebraska, according to data from the Bureau of Economic Analysis.

Job Creation

North Dakota and Nebraska will help lead the nation in job creation next year, according to Moody’s, which estimates their nonfarm payrolls will grow by 1.53 percent and 1.35 percent, the third and seventh best rates in the country.

“Obviously the economy in North Dakota did not put a stop to our plans” for expansion, said Johnson, who now employs 23 people at his crop-insurance company.

Farmers have done “extraordinarily well,” Ann Duignan, an analyst at JPMorgan Chase & Co. in New York, said in an interview. “With high commodities and low inputs, you’re looking at significant margins and that means a big splurge of spending into the yearend.”

Duignan recommended farm-equipment manufacturers Agco, Deere and CNH Global NV in a Nov. 9 report to clients. Moline, Illinois-based Deere, the world’s largest maker of farm machinery, is “the No. 1 brand of choice in the crop segment” and best positioned to benefit from the strength in U.S. agriculture, she said. “They’re the ones who are making the money.”

Rising Earnings

Deere reported a 47 percent jump in fiscal third-quarter earnings on Aug. 18 as net income climbed to $617 million, beating analysts’ estimates. The company earned about 65 percent of its revenue and 80 percent of its operating income from the U.S. and Canada in 2009, according to data compiled by Bloomberg.

CNH, an Amsterdam-based unit of Italian automaker Fiat SpA that makes Case and New Holland farm equipment, got 43 percent of its revenue from the U.S. and Canada, while North America accounted for 22 percent of Duluth, Georgia-based Agco’s revenue.

“We’re setting up for a very interesting 2011,” Duignan said. “Overall it’s going to be a good year for farmers.”

Agriculture fared better than other sectors of the U.S. economy during the recession, as an expanding world population and growth in emerging economies supported demand for crops. China was a net importer of corn last year for the first time since 1996, even as its government sold state-owned inventories.

Declining Dollar

The U.S. dollar has declined 7.3 percent in the second half of the year as food prices surged after cold in China, drought in Russia and parts of Europe, and flooding in Canada damaged harvests. The spot price of corn has gained 46 percent since July 1, wheat is up 28 percent and soybeanshave risen 25 percent, according to the USDA. The S&P GSCI Agriculture Index added 41 percent, compared with the 17 percent advance in the broader S&P GSCI Index of 24 commodities.

Farmland values also are rising. Land prices in some areas of the Federal Reserve Bank of Kansas City’s district -- which includes Kansas, Nebraska, Wyoming and parts of Missouri -- increased as much as 12 percent in the third quarter from a year earlier, the biggest jump since the fourth quarter of 2008, the Fed bank said Nov. 12.

Land Speculation

That may be prompting some speculation, as people see land as “an inflation hedge,” Thomas Hoenig, the bank’s president, said Oct. 25 in a speech in Lawrence, Kansas. Buyers are thinking “you can’t go wrong with land,” he cautioned. “I don’t want to see that.”

Farm incomes climbed this year to $77.1 billion, 19 percent higher than the 2000-2009 average of $64.8 billion, the USDA forecast in August.

The increase “is absolutely very important to the broader economy,” said Ernie Goss, a professor of economics at Creighton University in Omaha, who conducts monthly surveys of Midwestern banks and supply managers. “Truck sales are up because farmers are buying trucks. That benefits local auto dealerships. And that creates spending money at the local Pizza Hut.”

While agriculture accounts for 1 percent of the more than $14 trillion U.S. economy, its impact may be 10 times greater when related businesses such as farm supplies, grain handling and food making are included, Jason Henderson, an economist at the Kansas City Fed, said in an October interview.

Lagging Areas

Other parts of the country are still lagging behind farming areas, according to Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago.

While “the agricultural side of the Midwest is doing well,” the plains states “are very, very different than the industrial Midwest,” she said.

Unemployment in Michigan is 13 percent, the second highest after Nevada at 14.4 percent. The jobless rate in the Detroit metro area has stalled above 13 percent for 21 months.

Consumers in farming areas are in the best shape, according to an index of financial distress that includes credit, housing, and employment compiled by Atlanta-based CredAbility, which provides nonprofit credit counseling. Four of the five states with the most favorable conditions in the third quarter were North Dakota, South Dakota, Nebraska and Wyoming.

That coincides with the Fed districts that had the lowest unemployment rates in September: 7.2 percent for Kansas City and 6.2 percent for the Minneapolis district, which includes the Dakotas.

‘Economic Phenomena’

“Some of this relative success can be explained by strong markets for oil, minerals and agricultural commodities,” Narayana Kocherlakota, president of the Minneapolis Fed Bank, said in a speech today in Sioux Falls, South Dakota. “But it is also true that many cities in the Ninth District, like Sioux Falls, are mostly removed from these economic phenomena and yet they continue to perform well.”

The Minneapolis bank is studying the reasons for the district’s success to determine if they could be “replicated at the national level,” he said.

With incomes climbing, farm-credit conditions improved in the third quarter, according to a report from the Kansas City Fed. More district bankers noted higher loan-repayment rates and fewer loan renewals and extensions, the bank said. Average farm- loan interest rates fell to 6.7 percent, the lowest since the survey began in 1976, and collateral requirements eased.

‘Irrational Exuberance’

“The housing debacle and morass was not nearly as significant in this part of the country,” Goss said. “The banking problems were not nearly as great. There was irrational exuberance on the East and West coasts; that was not here.”

Baker Implement Co., a 150-employee farm-equipment dealer in Kennett, Missouri, has hired six or seven employees in the past two years and may add a similar number during the next year, said President Paul Combs, 45. His business sells tractors, combines, cotton pickers, sprayers, planters and hay equipment.

“We are in a boom” as farmers “put money back into our communities,” he said. “To the extent the agriculture sector does well, though it is a small part of the economy, it is a big part of our economy down here.”

To contact the reporters on this story: Joshua Zumbrun in Cleveland atjzumbrun@bloomberg.net Steve Matthews in Atlanta at smatthews@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Alternative Energy, Sans Subsidy?

2010-11-21T15:25:00.000-08:00

Wind energy, solar power face cloudy future

President Obama gave billions of dollars in cash to the renewable energy industry, helping it to grow. Now, the game may be up.By Steve Hargreaves, senior writerNovember 19, 2010: 2:09 PM ET

http://bit.ly/dpEPrt

http://money.cnn.com

NEW YORK (CNNMoney.com) -- After years of rapid growth and darling status among many in Washington, the future of the American renewable energy industry is uncertain.

That's because the government cash it has come to rely on may dry up on Dec. 31.

So far, the government has handed out about $5.4 billion, according to the Energy Department.Before the Great Recession, renewable energy developments were helped by a tax credit, worth generally 30% of the cost of the project. When the recession hit, the stimulus package replaced those tax credits with direct cash grants of similar value. Cash is considered more beneficial than credit to the industry.

Congress could vote to extend the grants, but that's highly unlikely.

If they're allowed to expire, incentives for renewable energy will revert to the old tax credits.

"This is not a great place to be in," said Denise Bode, head of the American Wind Energy Association. "It's an economic opportunity that will be missed."

The wind industry is already hurting -- even with the cash.

Fewer wind farms are being built this year compared to last. The amount of new electricity wind can generate declined 72% in the third quarter compared to the same time last year, according to the wind association.

The wind industry isn't the only one saying it will suffer.

Without the cash grant, "we'll grow at a much smaller rate," said Edward Fenster, CEO of Sunrun, a San Francisco-based company that installs solar panels on people's homes.

"They've ensured that we're building something new everyday," he said

Sunrun has 7,000 customers in seven states. The company installs $1.1 million worth of new systems every day, employing 3,000 contractors.

Fenster said the cash grants let him get cheaper loans than the old tax credits, enabling him to reduce the price of the solar energy he sells by up to 25%. He predicts that price reduction would allow him to double his business next year.

But with "cut spending" the mantra on Capitol Hill, slower growth may be the new reality.

"On a gut level, a lot of the conservatives just don't like to see the government handing out checks to people," said Kevin Shaw, an energy lawyer at Mayer Brown. "I just don't see the grant program being extended."

But the White House does. The Obama administration has proposed a plan: Pay for it by using money left over from the stimulus package. That's led some analysts to at least give it a shot at passing.

"You have a road map from the White House," said Whitney Stanco, an energy analyst at the Washington Research Group. "And previously, Republicans have been amenable to using unspent stimulus funds to pay for other priorities."

A spokesman for presumed Speaker of the House John Boehner wouldn't get into details about what the incoming house might fund.

He did say that Republicans support all forms of energy development, including renewables and nuclear power, provided that any money for them comes from expanded domestic oil and gas drilling, a prospect that looks dim.

There's another piece of legislation that could provide support for the renewable industry besides the cash grant -- a mandate that would require utilities to buy a certain percent of their power from renewable energy.

About 30 states already have such a mandate, and the industry has been pushing hard for a federal standard of at least 15%.

But most analysts say that while a broader "clean energy" standard that includes nuclear and natural gas may have a slightly better chance of passing, neither idea will gain traction in the next year.

Even absent the cash grants or the requirement to buy renewable power, some analysts say the sector is not doomed.

Michael Hennessy, a wind analyst at Bloomberg New Energy Finance, is predicting wind turbines will add about 8 gigawatts of power in 2011.

That's up from 5 or 6 gigawatts projected for hard-hit 2010, but below the record breaking 10 gigawatts in 2009.

The country has about 1,100 gigawatts installed from all sources, with wind accounting for the vast majority of what people consider renewable energy.

"It doesn't bode horribly in our view," Hennessy said of the cash grants expiring. It's just not as good as it could be.

"The Fortune at the Bottom of the Pyramid"

2010-11-15T15:52:00.000-08:00

Want to Help Developing Countries? Sell Them Good Stuff — Cheap

By David Wolman
September 27, 2010 |
2:00 pm |
Wired October 2010

Illustration: Stephen Doyle

The Tata Group, India’s version of Acme and maker of the supercheap Nano automobile, recently introduced a $22 water purifier that works without electricity or running water. (Every few months it needs a new $6 filter.) A big-hearted, philanthropic, and important effort? You bet—cue the somber stats about preventable waterborne diseases. But check out the size of the market for a product like that: Some 900 million people worldwide lack access to clean water, 200 million of them in India alone. Tata is saving lives and making a killing.

That’s why, at next year’s G-whatever meeting in France, world leaders would do well to rip up those big checks to tin-pot autocrats and channel the cash to startup companies instead. Help those companies make cheap, useful products to sell to the world’s poor, who will use them to become less poor, and everybody wins. Management guru C. K. Prahalad advocated this very idea six years ago in The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, and now a few companies like Tata are putting it into action.

D.Light Design is a case in point. After witnessing the inefficiencies and harmful health effects of kerosene lamps as a Peace Corps volunteer in Benin, Sam Goldman returned to the US to earn an MBA and pursue a very specific agenda: Replace kerosene lighting, everywhere, with inexpensive solar-powered LED lamps. Three years ago, he launched D.light to produce such lamps and has already sold 250,000* to customers throughout the developing world at an average price of $20 apiece. The company hopes to light the homes of 50 million people by 2015.

Another example: Forty percent of humanity gets by on less than $2 a day, and most of those people are rural farmers. Efficient drip irrigation systems could triple or quadruple their yields while reducing their costs, but manufacturers haven’t bothered making drip systems for tiny farms. In 2004, a company called Global Easy Water Product began selling a setup that can be used for small plots. The price: $32.50 per quarter acre. In just two years as a for-profit venture, it has sold more than 250,000 units in India.

“Conventional development economics was always about increasing per capita income to a certain level before people become consumers,” says Vijay Govindarajan, a professor at Dartmouth’s Tuck School of Business. The new view flips that logic on its head: Providing access to modern technologies by creating supercheap products may, in fact, be the best way to improve economic well-being. For entrepreneurs, the race is on to tap that massive population of penny-wielding consumers-in-waiting. Put another way, if Coke and Marlboro can sell to the world’s poor, companies whose products are actually useful should be able to do it, too.

But selling to subsistence farmers takes some reshuffled thinking. To simplify a bit, companies in traditional markets design a product, figure out what it costs to make, and then select a profit-maximizing price. That approach assumes, of course, that your market exists in the first place. When doing business in Burundi, you’re trying to conjure buyers out of thin air. To do that, you start by committing to a price as close as possible to nothing. The task, then, is to design a product that costs even less to make. Only with what Govindarajan calls “frugal engineering” can companies gain access to the masses at the bottom of the pyramid.

Of course, that’s easier said than done, especially for big firms that are already hardwired for other priorities (Tata is the exception here). But nimble startups can have a real advantage in this new environment because they aren’t trying to satisfy the tastes of existing first-world customers.

The trick is balancing affordability and quality. In a Harvard Business Review article last year, Govindarajan, together with Tuck colleague Chris Trimble and General Electric CEO Jeffrey Immelt, wrote that people in emerging markets “are more than happy with high-tech solutions that deliver decent performance at an ultralow cost—a 50 percent solution at a 15 percent price.” That’s not a green light for lame products, though. As in any market, what’s being sold has to fill an unmet need. The poor may be poor, but they’re not stupid.

Contributing editor David Wolman(david@david-wolman.com) wrote about diploma mills in issue 18.01.

*Correction appended Sept. 23, 2010 at 2 pm. D.light has sold more than 250,000 lamps, not 20,000 as previously reported.

More Valuable Than Gold

2010-11-14T13:04:00.000-08:00

Land Becomes Cash Crop in Farm Belt
By LAUREN ETTER and SCOTT KILMAN
Wall Street Journal
Prices for irrigated cropland soared 9.6% in the third quarter across the western swath of the Farm Belt amid booming demand for U.S. crops, according to a survey released Friday by the Federal Reserve Bank of Kansas City.

The quarterly survey of the region known as the 10th District, which covers western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico, found that farmland prices rose for the fourth consecutive quarter since a drop in the third quarter of 2009, which is when the livestock sector was contracting in face of the steep recession.

The value of nonirrigated cropland in the region rose 6.4% compared with the 2009 third quarter, while ranchland values climbed 4.3%.

The rise in farmland prices is another sign that the U.S. farm economy is pulling out of the sharp recession far more robustly than the general economy, which is burdened by a stubbornly high unemployment rate and weak real-estate values. The U.S. Agriculture Department estimates that U.S. net farm income, a rough measure of profitability, is jumping 24% this year to $77.1 billion.

While most demand for farmland is coming from farmers, there also is growing interest among nonfarm investors who are looking for hard assets with a higher rate of return, and as a potential hedge against future inflation. Rex Schrader, of Schrader Real Estate and Auction Co., based in Indiana, says more outside investors, including pension funds, are buying farmland. "They're looking at agricultural land as a class of assets that they should have in their portfolio," he says.

Interest in farmland as an investment is high because economists expect a planting boom next spring. Prices of several of the major U.S. crops have soared since July as prospects for U.S. agricultural exports brightened. The Black Sea drought that temporarily crippled Russia's ability to export wheat is creating huge marketing opportunities for the U.S. wheat industry, which is expected to export 42% more bushels of wheat from this year's harvest than last year.

At the same time, the weak U.S. dollar is making U.S. commodities look like a bargain to emerging and developing nations.

The U.S. is exporting a record amount of soybeans, thanks largely to the protein-hungry middle class within China, a country that will likely buy one-third of all soybeans just harvested in the U.S. The appetite of Chinese textile mills is so strong that U.S. cotton exports are expected to climb 31%, which could drain U.S. supplies by next summer to the lowest level since 1925, according to USDA projections.

The prices of cotton, corn, wheat, and soybeans are up, 119%, 49%, 39% and 35%, respectively, from a year ago.

Dan Basse, president of AgResource Co., a Chicago commodity forecasting concern, said Friday that the broad price rally is signaling U.S. farmers to plant an additional 10 million acres, or 4% more than this year.

Some regulators have begun to wonder whether farm land prices are climbing too high, too fast. Sheila Bair, chairman of the Federal Deposit Insurance Corp., posed the question in an October speech of whether an asset bubble is building in U.S. farmland, the value of which has climbed 58% since 2000 in inflation-adjusted terms, she said.

"While the credit structure underlying U.S. farmland does not appear to involve excessive leverage or inappropriate loan products, this is a situation that will continue to require close monitoring," Ms. Bair said then.

Write to Lauren Etter at lauren.etter@wsj.com and Scott Kilman at scott.kilman@wsj.com

Suburban Evolution

2010-11-08T11:41:00.000-08:00

latimes.com

Urban farm really grows on visitors and volunteers

David Kahn founded Edendale Farm five years ago on a sloping half acre in the middle of a Silver Lake neighborhood. He wanted to show that a slower pace is possible, even in a metropolis like Los Angeles.

By Kate Linthicum, Los Angeles Times
8:10 PM PST, November 7, 2010

After a hot morning of work, David Kahn and his farmhands sat down to lunch at a long wooden table on the porch.

Today's feast featured a salad of juicy heirloom tomatoes picked from vines just a few feet away, pasta and pesto made with homegrown cilantro, and a crusty loaf of wheat bread baked the day before in an outdoor clay oven.

If there are any doubts about the viability of Edendale Farm — which Kahn built, improbably, on a sloping half acre smack in the middle of a swanky Silver Lake neighborhood — the mealtime menus should quell them.

The workers were chewing in silence Thursday, gazing happily out at the shady yard, when they noticed that something seemed off. The landscape was moving — and clucking.

Half a dozen hens had flown the coop and were now scattered about the farm, hunting worms.

"It's a revolution!" cried Francois Feutrie, 27, an artist from France who with his girlfriend is volunteering on the farm in exchange for meals, showers and place to pitch a tent.

Kahn, 59, sighed and put down his fork.

"Let's go, ladies," he said, clapping his tan hands to shoo the birds back to their roost.

The rhythm of chickens, the ring of wind chimes, the spray of the garden hose — this is the tempo of life on Edendale Farm. Kahn founded it five years ago to show that a slower pace is possible, even in a metropolis like Los Angeles.

Kahn, who was born in Egypt and speaks with an accent, says he hopes the farm will teach people "there's another way to live."

A handful of urban farms have cropped up in the neighborhood in the last decade or so, including Silver Lake Farms. Kahn says he also knows of at least 15 families in the area who raise chickens in their backyards.

Still, when Kahn first persuaded his friends Louise and Jozef Bilman to let him tear up the elegant lawn behind their white Southern Revival home and replace it with planting beds, some neighbors were skeptical. When he added chickens to the mix, one woman worried the entire block might catch avian flu.

Five years later, the neighborhood has embraced the farm.

Parents take their children here to feed the chickens their favorite treat: pink flowers from the bougainvillea vines that grow like weeds. Other neighbors bake Kahn quiche in exchange for eggs. The farm occasionally hosts cooking lessons and by-donation yoga classes, and Kahn dreams of building a stage for bands and community theater.

For now, only the eggs are for sale. Most of the crops — which include carrots, mushrooms, passion fruit and sugar cane — go to feed the volunteers who help Kahn keep the operation running.

The food is grown organically, without pesticides, and is irrigated with gray water from the laundry machine and shower.

"Everything is a resource," Kahn said. "Even our waste."

One of his favorite books is "The Humanure Handbook." Among his proudest accomplishments are two composting toilets.

A hand-lettered sign inside one of toilets reads: "Urine is the best fertilizer for tomatoes. Thank you for contributing to our tomatoes!"

The farm, like its farmer, is endearingly disheveled. It is strewn with rusting garden tools and scrap wood that might come in handy someday. Kahn has stains on his T-shirt and wears a baseball cap with a frayed brim.

In Los Angeles, he says, where the ideal of the single-family home and the single-passenger automobile still holds strong, people have lost their connection to one another.

"I know," he said, "because I was one of them."

For years, Kahn was an architect who lived in Malibu and helped supervise the construction of luxury resorts, including the San Francisco Ritz-Carlton.

But that life never felt quite right.

"I remember flying to Italy to buy marble and seeing half of it destroyed because it didn't match perfectly," he said. "There was so much waste."

In the 1990s, he started traveling around the world to learn more about natural construction. He took classes on straw-bale building in Denmark and mud-brick construction in Egypt. Then he found out about permaculture.

A design principle coined in the 1970s, permaculture is a model for sustainable living that follows patterns found in nature.

Consider the "herb spiral," which was Kahn's first experiment on the farm. The spiral — a trellis that allows herbs that need sun to get it while simultaneously shading herbs that need cooler temperatures — was inspired by the principle that in the wild, different plants grow together for their mutual benefit.

"Now," Kahn says, "I feel I'm doing something that is more constructive than destructive."

The Bilmans have given Kahn, who lives in the bottom half of their house, free range to do what he wants with their yard. The antique lamppost that once lit their lawn is now a scarecrow with a button on its shirt that reads "zero waste."

The Bilmans have also put Edendale Farm in a trust so that it will continue even after they — and Kahn — are gone.

The farm has already grown beyond them. Feutrie, the French artist, learned about Edendale at the website of World Wide Opportunities on Organic Farms, a network that connects volunteers with farms.

During breaks from farming, he and his girlfriend, Caroline Guittet, 26, work on an art installation around a palm tree in the middle of the farm. They're using only objects found on the site. On Thursday, three kitchen chairs hung upside down from grooves in the trunk. They will exhibit their work with a party on the farm on Nov. 14.

Another volunteer, Emily Slezak, has been working as unpaid intern every day for the last two months. A recent graduate of USC, Slezak, clad in striped overalls, said working on the farm allowed her to better understand the way of life of her grandparents, who tended a farm in Arkansas. "These aren't really new principles," she said. "It's just how we used to live."

Edendale Farm gets many visitors. Some, like schoolchildren on class trips, are welcome. Others, like squirrels and gophers, are not.

On Thursday, as a regal elm tree shed golden leaves, a yellow convertible pulled up to the curb. Out hopped Allen Plone, 63, who handed Kahn two fluffy squash muffins made with eggs from Edendale Farm.

Plone, a screenwriter, drives 20 miles from his home in Playa Vista every two weeks to buy two dozen eggs from Kahn. Plone is a vegan, but his wife eats eggs and he likes to bake with them.

"There's a richness to them, there's a freshness," he said. "And it's a special treat to meet the chickens and meet the farmer."

Kahn smiled.

"If you eat consciously, you realize there's this enormous relationship between how something is grown and how it tastes," Plone continued. "This is way better than some factory farm, where chickens are living on top of one another. That creates stress. Then you ingest the stress.

"Frankly," he said, "I have enough stress in my life."

kate.linthicum@latimes.com

Price Pressure

2010-11-08T10:59:00.000-08:00

Suddenly, Corn Costs More. Why Not Corn Flakes?

by Marilyn Geewax, National Public Radio

- November 7, 2010

For months, prices paid to farmers for corn, wheat and soybeans have been shooting up. But so far, grocery prices have held steady for consumers.

The reason is largely a matter of lag time. Crop prices have jumped so quickly since June that the changes haven't made their way -- yet -- through the retail pricing pipeline.

"You will have higher prices for beef and pork and poultry, but that does take a while to work through the system," U.S. Department of Agriculture economist Larry Salathe says.

A Sudden Jump …

The USDA has released a report showing that in October, grain prices took huge leaps. The price paid to farmers for a bushel of corn averaged $4.78, up from $3.61 in the same month last year. The price per bushel of wheat jumped to $6.08, compared with $4.47 in the same month of 2009.

The numbers were the latest of a steep and sudden rise in grain prices that started when summer weather took its toll on crops worldwide. Some of the worst weather was in Russia, where drought became so severe the government banned all exports of wheat. Elsewhere, flooding wiped out wheat farmers in Pakistan, and poor weather in parts of the United States also reduced grain production.

Corn in particular has been in short supply this year. U.S. farmers didn't produce enough to satisfy all of the demand from ethanol producers, food companies and livestock growers.

At the same time, the demand for grains continued to increase in much of the world. The growing ranks of middle-class families in India and China have been buying more food, adding to the demands on farmers.

… And A Slow Rise

But while grain prices have been soaring, grocery store prices have remained subdued. Over the past year, the federal Consumer Price Index for food has gone up only 1.4 percent. That's the lowest annual food inflation rate in nearly two decades.

The contrast between farm price increases and retail price stability reflects how different sectors of the economy are responding to change. In the agriculture commodity markets, prices can change by the minute to reflect new conditions. The grain prices jumped up immediately this summer when it became clear that bad weather around the globe was going to hurt crop yields.

But the spike hasn't translated immediately or directly into an equal-sized jump in retail food prices. That's because the price of groceries is tied to many costs, such as packaging, marketing, labor and, most especially, transportation. The biggest single cost in a box of cereal is the cost of delivering it to the local grocery store, so the cost of gasoline is a bigger factor than corn in the retail price.

Still, the rising grain prices are starting to create some inflationary pressures. General Mills Inc. recently announced that in mid-November it will impose a "low single-digit list price increase on selected cereals."

Also, as grain prices rise, the cost of feeding livestock goes up. As a result, economists now say food price inflation likely will rise by at least 3 percent in 2011. [National Public Radio]

If Every State is for Itself, Divided US Falls

2010-11-07T15:06:00.000-08:00

latimes.com

In climate politics, Texas aims to be the anti-California

The state has filed seven lawsuits against the EPA, and its members of Congress want to check the EPA's efforts to curb greenhouse gases. 'At times they're their own country,' one observer says.

By Neela Banerjee, Tribune Washington Bureau

November 7, 2010

Reporting from Washington

For decades, California has set the pace for the country on air pollution and climate change, adopting ever-higher standards for controlling auto emissions and, more recently, greenhouse gases that scientists say have led to global warming.

Now, California's dominance is being challenged — under attack from another mega-state that wants to displace California by calling for a freeze of the status quo instead of a move toward tighter controls.

In effect, Texas is staking out a role as the anti-California.

With Republicans in control of the House of Representatives, powerful Texans such as Rep. Joe L. Barton of the House Energy and Commerce Committee have vowed to check the Environmental Protection Agency's efforts to use its existing authority to curtail greenhouse gases.

An even more ambitious challenge is coming directly from the Texas state government and leading Texas politicians. State Atty. Gen. Greg Abbott, with the support of Republican Gov. Rick Perry, has filed seven lawsuits against the EPA in the last nine months.

In some ways, Texas' attack was bound to be bigger and bolder than it might have been from other states. After all, Texans proudly trace their lineage back to the defiant stand of Texas patriots at the Alamo and the days when Texas was an independent republic under the Lone Star flag.

"At times, they're their own country," said Bill Becker, executive director of the National Assn. of Clean Air Agencies, a group of state environmental regulators. "They feel strongly, politically, that this is an issue that shouldn't pertain to them and they would like to proceed on their own terms."

And Texas corporations clearly have California in their gun sights, as reflected in their determined though ultimately unsuccessful attempt to roll back California state law in the recent election.

In a recent letter to the EPA, state officials likened the agency's efforts to regulate greenhouse gases to a socialist "plan for centralized control of industrial development."

Rebelling against federal regulation, especially on the environment, was a touchstone of Texas politics long before the "tea party" emerged and made it a national rallying cry. For years, the state's congressional champions had compelled the EPA, starting in the 1990s, to look the other way as Texas crafted regulation that went easy on industry, said Tom Smith, Texas state director for Public Citizen, a watchdog group.

"The big change is that now we have an administration whose EPA has some courage," Smith said.

Abbott, the Texas attorney general, contends his state had a "cooperative relationship" with the EPA that has been all but ruined by the Obama administration, which, he said, "is putting a target on Texas."

Perry, who has successfully run for three terms in part by criticizing Washington, took aim at outside regulatory intrusion during his victory speech Tuesday night.

"People are tired of the government cooking up new ways to micromanage their lives," he said. "They're tired of the government killing jobs with their do-gooder policies that have nothing to do with science or economics."

Texas officials and their allies assert that regulations they consider hasty and onerous would hurt the state's vast economy, which relies on oil refineries, coal-burning power plants and manufacturing.

Those facilities have made Texas the nation's largest emitter of greenhouse gases from power plants, industrial facilities and other so-called stationary sites, according to an Environmental Defense Fund analysis of EPA data. If it were a separate country, Texas would be the seventh-biggest emitter of stationary-site greenhouse gases in the world, according to the environmental group.

Still, Texas is also among the world's largest producers of wind energy, because of a measure adopted when George W. Bush was governor.

On Jan. 2, crucial EPA regulations will kick in limiting greenhouse gas emissions from large industrial facilities. Texas is the only state refusing to enforce the new rules.

"EPA is cramming this down the throats of citizens and the states," said Howard Feldman, director of regulatory and scientific affairs at the American Petroleum Institute, another plaintiff against the EPA. "We see Texas as standing up for normal processes under the Clean Air Act."

But Texas' activism also seems to reflect close relations between leading politicians and corporations. E-mails made available to the Tribune Washington Bureau indicate that the initial idea for suing the EPA on greenhouse gas regulation came from a new, little-known Texas nonprofit called the Coalition for Responsible Regulation.

"Just a quick interruption to see whether y'all know if TCEQ/Texas is planning on petitioning on DC Circuit Court review of the endangerment finding?" wrote Eric Groten, a lawyer at Vinson & Elkins, referring to the Texas Commission on Environmental Quality in a Dec. 30, 2009, e-mail to a commission official.

Just weeks earlier, the EPA had issued the so-called endangerment finding, which said carbon dioxide emissions were a threat to public welfare and therefore subject to regulation.

"I represent a national organization, Coalition for Responsible Regulation Inc, and its members, which already has filed (in fact, we believe we were the first to file), and I'd like to begin the coordination process," Groten continued in the e-mail. "Plus of course we would like to see state petitioners involved, and Texas is an obvious candidate."

The first Texas suit challenging the endangerment finding was filed about five weeks later.

The Coalition for Responsible Regulation was formed to challenge the EPA, its incorporation papers say. Its Houston address and officers are the same as those of Quintana Minerals Resources Corp. Quintana's leaders, including chief executive Corbin Robertson Jr., have given tens of thousands of dollars to Abbott's and Perry's war chests. Robertson has also donated to Barton and many others in Congress.

By some estimates, Quintana is the largest private owner of coal reserves in the United States; only the federal government has bigger reserves.

Robertson, who began as an heir to a Texas oil fortune before diversifying into coal, is a founder of two new groups that work to refute climate science.

Texas environmental regulators and Groten, attorney for the coalition, said that Texas decided on its own to file suit. "It is safe to say that Texas needed no push from CRR or anyone else to understand and protect its own interests," Groten wrote in an e-mail.

Abbott said that Robertson's donations to his election comprised a tiny portion of his overall contributions. He said his office had sued at the behest of the Texas Commission on Environmental Quality and no one else.

"All of our decisions are based on the law," he said in a phone interview. "Any suggestion to the contrary is just make-believe."

The EPA says it will continue its efforts to scale back greenhouse gases, regardless of Texas' resistance. In an e-mailed statement, the agency said: "The state government in Texas seems to have different priorities right now, but we have not yet given up on our efforts to work with them."

neela.banerjee@latimes.com

Los Angeles Times

NatGeoSociety: Natural Gas Stirs Hope and Fear in Pennsylvania

2010-11-06T12:19:00.000-07:00

Marianne Lavelle

National Geographic News

Published October 13, 2010

SPECIAL REPORT: THE GREAT SHALE GAS RUSH

Exploring the promise and challenge of a new energy supply.

Along the narrow two-lane roads that wind through Washington County in southwestern Pennsylvania, there is little sign that the surrounding pastures and hay bales, barns, homes, and children’s swing sets all are sitting on one of the largest reservoirs of natural gas in the world.

But at second glance, an observer can see red and white lattice towers rising here and there over the hillside. New gravel roads separate the thick woods and brush. Fields feature long stretches of grass that don’t quite match the surrounding meadow—recently reseeded places where new pipeline has been buried. Giant barrel-like structures, pipes and valves, painted green to blend in with the landscape, are condensate tanks and compressor stations. And chemical tank trucks, sand haulers, flatbeds stacked with lengths of pipe, and cement mixers seem to be rumbling in every direction.

It’s all part of a new energy industry that’s being built here. This is the epicenter of the Marcellus shale.

From Barrier to Boon

For decades, the Marcellus was known to geology buffs as a 389-million-year-old soft rock formation, a mile or more under the Appalachian Mountains, encompassing 95,000 square miles (246,000 square kilometers) in an arc from West Virginia to New York. Named for a surface outcrop of the rock near Marcellus, New York, the formation was thought of as an underground barrier, simply an annoyance to drillers who focused on little pockets of oil and gas in sandstone beneath.

But within the past three years, all of that has changed.

Applying a method developed in a similar geological formation, the Barnett shale in Texas, scores of energy companies proved that by combining and supercharging some old oil industry technologies, they could drive fissures through that rock to yield sizable amounts of natural gas.

There are shale deposits all over the United States, well-mapped thanks in part to intensive geological research done by the U.S. Department of Energy and theU.S. Geological Survey in response to the 1970s energy crises. These studies sat on shelves for decades. Now they’re a key reference for producers in shale “plays,” as they’re called, around the nation—including the biggest by far, the Marcellus.

How big? Estimates are that the Marcellus shale holds between 50 trillion cubic feet (TCF) and 500 TCF of natural gas. At the low end, that’s double the gas stores seen in Alaska’s big Prudhoe Bay at the dawn of its development. At the high end, the reserves would be second to those of the world’s largest natural gas field, the Pars field of Iran and Qatar.

But unlike Pars, this gas isn’t in the middle of the Persian Gulf. It’s right in the heart of the energy-hungry East Coast of the United States. The eastern tip of the formation is less than 100 miles from New York City. With development centered in Pennsylvania, it’s a location that has lured billions of dollars of investment by companies around the world. Defying critics who wonder how such an energy boom can be sustained in a slow economy, companies from India, Japan, Norway, and elsewhere have descended on the scene, wowed by the Marcellus shale’s great potential and proximity to markets.* They also hope to take this made-in-the-USA technology overseas. The United States is the number one consumer of this fuel, but shale can be found all around the planet—and the world has plenty of interest in a new source of natural gas.

Shaking Up the Energy Equation?

Most people know natural gas as the fuel that lights the blue flame on the stove. It also heats half the homes in the United States and 35 percent of the homes in Europe. But the largest use around the world is at power plants, where it is burned to generate electricity. Depending too much on natural gas for power has long been seen as risky, because its price was traditionally volatile—largely linked to the roller-coaster global oil market. So natural gas provides just 20 percent of U.S. electricity, compared to nearly 50 percent for King Coal.

The prospect of abundant, cheap natural gas in the United States—especially gas that’s easily delivered by pipeline to the populous East Coast—profoundly shakes up that energy equation. Natural gas generates electricity more efficiently than coal, with half the greenhouse gas emissions, fewer acid rain precursors and virtually free of many other troubling pollutants like mercury and particulates. Natural gas also burns cleaner than oil. And although only a tiny percentage of vehicles are now outfitted to run on natural gas, it’s capable of powering cars, trucks, and buses.

Billionaire oilman T. Boone Pickens says the United States ought to be producing vehicles to take advantage of domestic shale gas and break its foreign oil dependence. "This is our chance," Pickens told The Philadelphia Inquirer in an interview on the Marcellus shale. "I think it's almost divine intervention that we had all this gas show up at this time in the deal."

Gas companies in Pennsylvania also frame their role as a pivotal one in the big U.S. energy picture. “We’ve talked a lot about taking control of our energy future in this country,” says Matt Pitzarella, spokesman for Range Resources, the first company to drill in the Marcellus and one of the most prolific drillers. “Now we have that opportunity, and it really was literally beneath our feet all this time.”

Reversal of Fuel Fortunes

Not long ago, it looked like the United States was running out of natural gas.

Federal Reserve Chairman Alan Greenspan warned Congress in 2003 that the nation would need to begin to import substantial amounts of the key fuel from overseas. This raised the specter of foreign gas dependence that mirrored long-standing U.S. oil dependence, and risky reliance on big reserve holders like the Persian Gulf and Russia. In Europe, which imports a quarter of its gas by pipeline from Russia, gas disruptions pose a security problem.

But precisely at the moment Greenspan was delivering his grim forecast for the United States, energy industry iconoclasts in Texas were proving definitively that combining horizontal drilling and large-volume hydraulic fracturing could unlock a huge rush of gas from shale. (Related: “Forcing Gas Out of Rock With Water”) And in that same year, a Range Resources geologist decided to urge his bosses to try the method on a stubborn well he’d been working at in Pennsylvania.

Although the Keystone State was thought to have tapped out its big-time energy supplies long ago, Pennsylvania was key to the rise of oil and coal that fueled U.S. industry in the 19th and 20th centuries. The world’s first oil well was drilled here, on leased farmland in Titusville in 1859.

About 100 miles south of the storied Drake Well, in 2004, Range drilled the first gas well into the shale on leased farmland in Mount Pleasant Township.

After several years of experimentation, there were nearly 20 Marcellus wells in Pennsylvania in 2007, nearly 200 were drilled in 2008, and nearly 790 last year. The Marcellus industry, now made up of 67 companies—ranging from the world’s largest to some of the smallest energy players—has already drilled about 1,100 wells this year. That puts producers on track to drill somewhat less than the 1,700 wells they had aimed to drill in Pennsylvania this year, a slowdown certainly due to tough economic factors roiling the industry. But more than 2,480 permits for new wells have been issued this year in Pennsylvania, and the industry’s plans call for a pace of more than 3,500 wells annually within the decade.

Marcellus drillers say they can bring 200,000 jobs to a state that has struggled to revive its industrial sector, and they have paid $3.5 billion in lease payments and royalties to landowners in the past two years for the right to drill on private property.

But all this means building a big extractive industry in a state that hasn’t seen this kind of development in decades, right near homes and schools, in the midst of rural farmland, and close to treasured parks and forests. (Related: “Parks, Forests Eyed for the Fuel Beneath”)

For Pennsylvanians, even generations past the heyday of the state’s big coal- and coal-fired steel industries, it’s hard to forget the havoc that an energy business can wreak on the environment. To remind them, there are 260 million tons of abandoned waste coal in piles that mar about 8,500 acres across the state. And more than 5,510 miles of the state’s streams are impaired by discharges from 220,000 acres of abandoned coal mine lands, Pennsylvania’s worst water pollution problem.

“Been there, done that,” says Democratic Senator Bob Casey of Pennsylvania, who is pushing for greater federal oversight of the industry. “For many, many years people said, ‘Don’t worry about this, don’t worry about that, just get out of our way, we need to extract this natural resource from the ground.’ ”

The industry is battling to improve its image, recently hiring Tom Ridge, a former Republican governor of Pennsylvania and director of U.S. homeland security, as a strategic consultant. Early this month, Ridge and an industry group, theMarcellus Shale Coalition, unveiled a set of “commitment to the community” principles, promising to implement state-of-the-art environmental protection and to improve transparency and responsiveness.

Pennsylvania native Pitzarella of Range points out how his company has pioneered reuse of wastewater from the drilling process, and how it was the first shale operator to disclose chemicals used at each of its wells. “The challenge is demonstrating to people that this is not the second coming of the coal industry from 100 years ago,” he says.

But across Pennsylvania, there also have been wastewater spills and conflicts with neighbors—for Range and for other drillers. (Related: “A Dream Dashed by the Rush on Gas”) And at least two serious documented incidents—an EOG Resources well blowout in a central Pennsylvania forest this summer and alleged faulty well construction by Cabot Oil & Gas that the state says allowed natural gas to migrate into home drinking water—have helped feed a backlash. There’s an effective moratorium on drilling above the border in New York and in eastern Pennsylvania’s Delaware River basin, enforced by a compact agency of four states and the federal government that oversees the watershed.

“The industry is poised on a knife-edge of public acceptance that could affect its license to operate for years to come,” says Timothy Wirth, a former Democratic senator from Colorado who heads up the nonprofit United Nations Foundation, which is trying to ensure a safer and cleaner global climate. Wirth has touted the natural gas from shale as a “game-changer” that could help address global warming, but he says the industry’s inadequate response to land and water concerns have imperiled the fuel’s future as a bridge to a low-carbon future.

Harsh Economics for Gas Producers

An even greater risk, perhaps, is that the United States shows no sign of adopting the kind of national policy to cut greenhouse gases that would increase demand for natural gas in the energy marketplace, thereby enhancing its value. In fact, one key coal industry lobbying point against congressional climate action has been to warn that utilities’ inevitable switch from carbon-intensive coal to natural gas would expose consumers to the risk of higher-priced electricity.

Ironically, natural gas prices are now extremely low—in the past two years they’ve been closer to coal prices than they have been at any other point in the past decade. That’s partly because the slow economy has kept all energy prices down. And it’s partly due to the drilling for shale gas, which has pushed new supply onto the market at a time when demand is weak. Shale gas companies, in fact, try to illustrate how they’ve benefited consumers by pointing to how the price of natural gas on the New York commodities market began to take a sharply divergent path from the price of oil in 2005 if the prices are compared by heating value. The 2009 price of natural gas on NYMEX, the New York Mercantile Exchange, was $6.55 less than oil per million BTU, and has averaged $8.80 less this year. The futures market price doesn’t translate exactly into what consumers are paying today, but it’s a gauge of where prices are heading. If this trend holds, Pennsylvania consumers would save $6.8 billion and U.S. consumers would save $205 billion annually compared to what they would have paid if natural gas prices were in line with those of oil.

But low natural gas prices, welcome as they may be for consumers, put the gas companies in a squeeze. The more they produce, the more they depress the price of natural gas. And, given the high cost of drilling wells, the harder it is to make money.

The history of the energy business is replete with boom and bust cycles: frenzy of competition to exploit a new opportunity, leading to ruin when the resulting excess of supply causes prices to plummet. A number of analysts wonder if that scenario is playing out in shale. "Most U.S. natural gas basins do not generate sufficient returns to justify drilling in today's weak price environment, suggesting that the current growth pace is not sustainable in a market that is likely to see little near-term demand growth," investment bank Credit Suisse said in a report earlier this year.

Today’s harsh economic conditions force gas producers to cut costs. And for the time being, at least, that makes increased drilling in the Pennsylvania Marcellus even more likely. The “geologic risk” is low; companies don’t have to spend money finding the well-known rock formation, and the drilling process is standardized, repeatable from well to well. In Pennsylvania, they’ve been able to acquire land at a relatively low price and pay lower royalty rates than in other producing states. In fact, one of the reasons the bulk of development has been in Pennsylvania rather than in neighboring West Virginia, located on the same Marcellus shale formation, is because of the Mountain State’s higher taxes.

“I believe that this is one of the highest, if not the highest rate-of-return gas play in the United States,” said Range Resources Chief Operating Officer Jeff Ventura at the company’s last quarterly conference call with Wall Street analysts. Range also benefits because its acreage is in southwestern Pennsylvania, where the gas is “wet,” mixed with other valuable products that can be separated out and sold, like propane and butane.

There’s a catch for the drillers, though, if they want to hang on to their prime acreage. Many of the leases they signed with landowners compel them to begin drilling within a certain time frame—five years is typical—or the leases expire. So drilling continues apace. Range has told shareholders that its production will increase 14 percent this year and no less than 25 percent next year. “We believe that this accelerated drilling and completion is the right thing to do even at today's gas price,” Ventura said, given the rate of return and the production the company expects over the life of its Marcellus wells.

Of course, drilling in the Marcellus is so new that nobody knows how much gas the wells ultimately will produce. And there are other uncertainties for the gas companies even as they try hard to keep their costs down. New environmental requirements—state or federal—could hike costs. Pennsylvania, its state government budget in woeful deficit, also is considering a severance tax on the industry; it is the only large oil- and gas-producing state that doesn’t take a percentage of the revenue from the natural resources “severed” from its soil. Analyst Kevin Book of ClearView Energy Partners, who typically follows developments in Washington, D.C., for his energy industry clients, has been regularly reporting to them on shale policy news from Pennsylvania, because of their potential implications for any place shale stores are found. “We cannot discount the viral nature of energy policy,” he wrote in one report.

So the future of the boom hangs in the balance. How successfully producers will apply their new technology, whether they can add wealth to a place while preserving its cherished land and water, and how much fuel they can provide a world in dire need of cleaner energy—all will be decided on Pennsylvania’s changing farmland, in its forests, and in its shale.

*This report is produced as part of National Geographic’s Great Energy Challenge initiative, sponsored by Royal Dutch Shell, which recently acquired a stake in the Marcellus shale. National Geographic maintains autonomy over content.

Natural Gas Stirs Hope and Fear In Pennsylvania

Without Resources, Resourceful

2010-11-03T16:21:00.000-07:00

Abhishek Sinha, Founder, Eko India Financial Services Private Limited

Friday, 15 October 2010 09:49 YourStory Team

http://www.yourstory.in/entrepreneurs/social-entrepreneurs

“Financial services sans Banks”

In the hinterlands of Bihar, Jharkhand and Delhi-NCR where there are no branches of any banks, the average India citizen still has access to financial services. Secure financial transactions and life insurance are now available at your neighborhood store and on your mobile. Financial services like these have been a boon to the citizens of these regions since 2007 thanks to the efforts of Abhishek Sinha. The young entrepreneur’s business venture “Eko” functions on the simple business idea of reduced cost financial services via technology.

Yourstory learnt more about the business idea behind Eko and its founder’s entrepreneurial visions in a fascinating interview with Abhishek Sinha

What sort of financial services does your venture Eko offer?

Eko is based on the fundamental premise of reducing the cost of secure financial transactions and providing an extremely intuitive user interface such that access to financial service can be democratized.

Currently Eko works as a Business Correspondent of State Bank of India, ICICI Bank and as a distribution partner of Bharti AXA Life Insurance. We provide people access to a no-frills bank account and an off the shelf insurance policy that a customer can acquire in less than 15 minutes from a neighborhood store. We also provide the ability for these customers to deposit cash, withdraw cash, remit funds and pay the insurance premium at these local ‘kirana’ like stores – all in a matter of seconds.

Which segment of the populous are your services aimed at?

Eko is not a bank, insurance provider or Micro-finance company. We are providing an infrastructure and servicing layer supported by technology, user-interface and processes that allows traditional financial institutions like banks, insurance companies to extend last mile reach and convenience to small ticket customers – who may be un-served or under-served. To our partners, we bring the ability to reduce the transaction costs to a level that makes it viable to serve this customer.

We are presently serving a little over 130,000 customers across Delhi-NCR and Bihar-Jharkhand.

What makes the financial transactions done by your business uniquely innovative?

The following would be the key differentiators:

- Choice of existing, trusted, neighborhood kirana / chemist shops to deliver last-mile financial services

- Choice of mobile phone as a low-cost, always on low-energy consuming connected device for enabling financial transactions

- Number dialing and patent filed security mechanism that allows merely number literate customers to easily conduct financial transactions themselves

- Absolutely no CAPEX is needed for either the customer or the ‘human ATM’ – and extremely low technology cost for the transactions

Is Eko a part of the Microfinance sector?

Eko is not an MFI. We provide an infrastructure and process layer that allows low-income customers to access financial services at lowered transaction costs, without lowering the quality of service. It is incidental that our current customer segment is largely ‘low-income’ users. But the need for small value transactions is universal.

What has been the biggest challenge in getting people to use Eko?

I will list two of our major challenges:

Getting people (partners) to believe that it is possible to serve low-income customers profitably

Creating customer awareness and trust: given that ours is a technology enabled service set in a context that is traditionally bereft of technology, it has been a tough journey convincing customers to trust that the service is for real.

We are still some distance away from overcoming the first challenge – and clearly that will take its own time. On the awareness front, we have done a lot of local level marketing initiatives to try and talk to customers one on one. We are now seeing that our financial service provider partners are becoming more open to spending marketing dollars to educate this customer base of the veracity of the services being offered. That will go a long way in helping us.

Who inspired you to become an entrepreneur?

The trigger was a chance meeting with Dr. APJ Abdul Kalam at an Airport. He seeded the thought that as a country of young, enterprising and skilled people, we must look to create wealth. I was very influenced by his idea and concluded that the best to create wealth – and share it – is to pursue an entrepreneurial venture. That led me to quit Satyam and to start-up 6d, my first venture.

Given an opportunity to change the environment that your business works in, what is the one thing you would change?

This is a very difficult question for me to give a specific answer. While there are expectations entrepreneurs train themselves to expect least changes in the environment and still continue to chase the milestones.

Which regions are you currently active in? Are you looking at expanding your employee base?

We are currently present in Delhi-NCR and Bihar-Jharkhand with an office in Delhi and one in Patna. We continue to remain quite small so far with only 42 employees – 15 of whom are in Bihar and the remaining in Delhi-NCR. Our model does not require us to add very large numbers of people except in the front-end channel sales function. As such, we have had steep customer growth without needing to add too many people. Once we are funded and look to expand geographical presence, we expect to grow quicker.

Where are you planning to implement your services next? Any foreseeable impediments?

We are currently focusing on getting our templates in place for Delhi-Bihar. We have designed our technology and back-end processes for scale and entered into partnerships with very large players who are best-in-class. The most significant issues to scale will be creating an organization and processes that can handle the stress that comes with scale.

What is the best validation for your work with Eko till now?

Our partnerships are our biggest achievement. The fact that despite being a start-up we have been able to partner with India’s biggest public-sector bank SBI, the biggest private sector bank ICICI, and one of the leaders in life insurance Bharti AXA as partners is very special for us.

I would have to say that the field visit by Mr. Bill Gates in November 2009, and his validation of the principles on which Eko is modeled is the biggest recognition Eko has received.

What significance does the technology platform have in your business?

The most critical aspect of our technology platform is its ability to do simple, secure financial transactions using an ultra-low cost device in real-time. Even now, when one witnesses a live transaction of money being transferred instantly into an account over long distances in seconds, it is a terrific thrill.

We had built on top of an open source platform to start with; but now we have spent thousands of engineering man-hours with partners in fine tuning the platform and integrating it with core-banking systems.

What is your view on entrepreneurship as a life choice?

Entrepreneurship is a journey I would strongly recommend. My advice to budding entrepreneurs would be to commit themselves wholly and passionately to their idea, be open to making a lot of mistakes and unlearn things very quickly, never give up and in the initial stages look towards family to back you financially as well as emotionally.

We at Yourstory applaud Abhishek Sinha’s innovative thinking and entrepreneurial insight. We wish him success in replicating his business model in other parts of India and hope to see him come up with many more business ideas.

The Green Underdog: Small, Complex Systems

2010-11-01T11:17:00.000-07:00

latimes.com

Solar farm sparks heated debate in California's Panoche Valley

San Benito County officials support a proposed Solargen facility just south of San Francisco Bay, but local farmers and ranchers say it will ruin their livelihoods and further endanger some species.

By Louis Sahagun, Los Angeles Times

November 1, 2010

A kind of family feud has erupted in San Benito County's rich slice of Central California farmland over plans to build a massive solar power facility in a valley shared by 20 ranchers and organic farmers and some of the rarest creatures in the United States.

Both sides of the dispute insist they are fighting for the same things — protecting the environment and growing the local economy.

County officials — some of them farmers themselves — believe Solargen Energy Inc.'s proposed 400-megawatt solar farm on 5,000 acres just south of San Francisco Bay will be a key part of a new future based, in part, on green technology.

But the small-scale ranchers, farmers and horse trainers who live and work in the misty pastures and furrowed slopes of Panoche Valley believe the old connotation of "green" is worth more.

"They are selling us and a unique landscape out for a measly 50 long-term jobs and $24 million spread out over 20 years," said Kim Williams, who raises grass-fed pastured chickens in the valley. "That's pathetic."

In an effort to hasten construction of the plant, the county recently approved a final environmental impact report that opponents say was faulty.

In addition, despite opposition from the California Farm Bureau, county leaders and the San Benito County Farm Bureau approved the withdrawal of about 6,500 acres in the Panoche Valley from pacts intended to keep that land in agriculture for 10 years, in return for tax breaks under the state's Williamson Act.

The San Benito County Board of Supervisors was expected to approve a conditional use permit for the project, which would cover nearly a third of the valley floor, within a few weeks.

County officials say they are not fast-tracking the project, as detractors suspect.

Many county officials suggested that the valley's land was of marginal agricultural value, and that concerns about the solar panels' effect on habitat crucial to the survival of three federally endangered species —the giant kangaroo rat, the San Joaquin kit fox and the blunt-nosed leopard lizard — were overstated.

"The photovoltaic plant looks like nothing more than a vineyard, so the risk to the creatures is insignificant," said Greg Swett, president of the San Benito County Farm Bureau. "If the blunt-nosed leopard lizard is a standard lizard, it will get out of the way."

Nancy Martin, president and chief executive officer of the San Benito County Economic Development Corp., would not go that far. But she likes to say, "Now is the time to reinvent ourselves and take advantage of a confluence of opportunities. We cherish our environment, but we also must cherish the people who live here. If we weigh the needs of the lizard against the needs of the people, I think the people win."

Sensing their pastoral community is slipping away from them, Panoche Valley residents have been studying their legal options in a case that also is being watched by environmental groups, including the Defenders of Wildlife and the Center for Biological Diversity.

The arid, wind-whipped Panoche Valley is a checkerboard of vineyards, pistachio orchards and range lands scented with sage and pungent vinegar-bush. Long-eared owls and ferruginous hawks roost in the cottonwood trees edging a perennial stream. Cattle and horses share the flatlands with foxes, badgers, tarantulas, gopher snakes and the blunt-nosed leopard lizard, a large, multicolored reptile with bright stripes on its back and a penchant for dashing hundreds of yards at the sound of human voices.

"For years we thought we were far enough away from the powers that be that they would leave us alone," said Panoche Valley cattle rancher Nenette Corotto, 74. "Now, it seems the county is going down a new rail. It's a new ball game and we have to survive it."

United under the banner Save Panoche Valley, the small-scale ranchers and farmers argue that building something on the scale of the Solargen power plant will kill wildlife, spook valuable livestock and clog the valley's narrow dirt lane — which is subject to flooding after even modest rain — with heavy traffic.

"I have never seen a process as rushed as this one, and it's happening in the face of real environmental impacts," said Mike Westphal, a Bureau of Land Management herpetologist. "Those species will not recover if this area is lost."

While Panoche Valley ranchers rally around their embattled landscape, related pressing issues have been unfolding in the offices of state and federal regulatory agencies in Sacramento and Washington.

Before construction can begin, the project must be permitted by the California Department of Fish and Game and the U.S. Fish and Wildlife Service, a process expected to take several months. It remains unclear whether the project would be eligible for federal loans and stimulus programs scheduled to expire Dec. 31.

In August, Gov. Arnold Schwarzenegger dispatched a letter to the Obama administration urging that it help find a way to expedite endangered species reviews by the Fish and Wildlife Service for several renewable energy projects trying to break ground on private land this year, including Solargen's. "We need immediate action if these projects are to have a chance of receiving a permit in time to meet this deadline for groundbreaking or the deadline for the Department of Energy loan guarantees," Schwarzenegger said.

Mike Peterson, president and chief executive officer of Solargen, said the project can be built without federal subsidies. He said the power plant is an ideal fit for the valley, one of the sunniest spots in Central California with direct access to local Pacific Gas & Electric transmission lines. Beyond that, he said, the company has developed a generous mitigation plan, which includes setting aside 23,000 acres as a permanent grazing easement and habitat, most of it outside the valley.

"I believe we will be a benefit to these endangered species," Peterson said. As for Panoche Valley ranchers and farmers, Peterson said, "I understand their concerns. The sacrifice for them is that the valley will have a change. Truth is, they may have to go out of business."

That kind of talk rankles Panoche Valley dairyman Ron Garthwaite, co-owner of 4-year-old Claravale Farm.

"You don't destroy a group of people and their way of life just because you stand to make a little money off of something like this," Garthwaite said. "County officials are either incredibly stupid or incredibly disingenuous. I suspect the latter. I think they believe that, as individuals, they will somehow gain politically or financially off it. Otherwise, it makes no sense."

San Benito County Supervisor Reb Monaco, whose district includes Panoche Valley, said Garthwaite missed the point.

"Our small rural county has discovered a new marketable commodity: sunshine," he said. "Is it risky? Yes. But there are also potential benefits for the county and the world."

louis.sahagun@latimes.com

Los Angeles Times

Big Solar's Rube Goldberg

2010-10-30T13:11:00.000-07:00

The Tortoise And The Solar Plant: A Mojave Story

by Sarah McBride, National Public Radio

- October 30, 2010

Mercy Vaughn crouches over a young tortoise peeking out from its burrow near a creosote bush in California's Mojave Desert.

The area is home to rare species, including the threatened desert tortoise. But a giant solar plant is under construction in the vast wilderness area.

To help save the animal, the company building the plant, BrightSource Energy, had to agree to a lot of conditions, including reptile relocation.

Vaughn, a biologist from Texas, and her colleague Peter Woodman are leading a team of 50 biologists hired to survey the site over and over before construction begins. They have to keep track of every single tortoise.

"This is one that was walking down the middle of the road when it was spotted by one of the monitors," Woodman says. "Luckily, we've got a radio transmitter on it now."

He's looking at an adult female tortoise; she's about the size of a dinner plate, and the transmitter is glued to her shell. It almost looks like a stray twig.

Checkups For Tortoises

The biologists also do health assessments, which include weighing, measuring and checking the tortoises for unusual markings, and taking a blood sample.

Tortoises don't really like that kind of attention, and sometimes, they let the scientists know.

"They will pee," Woodman says. "And they can pee copiously if they have a full bladder."

He's talking from personal experience: "It does have an odor. It's a musky scent."

Controversy Over Relocation

All this health care comes ahead of a major relocation. The tortoises can't stay where construction crews might harm them, so the biologists are moving them to pens to ride out the desert winter. In the spring, they'll try relocating them to the wild.

BrightSource is spending more than $40 million to protect plants and wildlife. That includes buying acres of land to keep as nature preserves.

Compared to the more than $2 billion the solar plant will cost, though, it's a drop in the bucket. And conservationists like Michael Connor of the Western Watershed Project say that the millions aren't getting the job done.

"Those tortoises will slowly die away," Connor says. "It's very unlikely we'll have a sustainable population."

The biologists are doing everything they can to prove Connor wrong, including helping tortoises with problems that have nothing to do with BrightSource.

Hazards Of The Road

Vaughn spots a tortoise with a crushed shell that is trying to move its legs, but they barely wriggle. It's the type of injury tortoises get when an all-terrain vehicle or motorcycle accidentally rides over them.

"Pete! We have a tortoise that's been hit," she beckons.

Another biologist comes and drives the injured tortoise to a shelter in Las Vegas where vets will try to save it. The bill could run thousands of dollars -- all on the solar company’s tab.

National Public Radio

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