Keystone is Absolutely Part of a Systems Solution to Global Warming

Empirical evidence shows that taxation impacts societal decisions. Raising cigarette taxes, for instance, significantly reduces cigarette purchases, especially amongst our youth who have not yet succumbed to their addictions. 

America is now addicted to oil and other carbon energies. However, unlike cigarettes, our true addiction is to energy, independent of whether it is created by release of carbon into the air. Albeit, our energy purchases are influenced most by lowest near term cost, without considering externalities and without considering long term payback on capital. For these two reasons, carbon based fuels continue to be our addiction. 

Could taxation cause our nation to choose alternative fuels such as wind and solar? The answer drawn from empirical tests is yes. However, the idea of carbon tax is not politically viable unless applied within a system solution. System solutions typically do not occur in a political divisive environment for they require compromise of political platforms that are historically based on isolated solutions. 

For instance, the Democratic Party is opposed to the Keystone Pipeline, saying that it endangers a major aquifer, but more importantly because it opens up an entirely new source of carbon that can reign havoc on the planet’s ecosystem. As an isolated solution, the liberals support a worldwide carbon exchange or a carbon tax to make carbon more expensive than alternative fuels. 

The Republican Party, on the other hand, states that global warming is a farce, that the Canadian tar sand oil will come to market whether or not it comes to Texas to be processed, that the pipeline will create and save thousands of jobs, and that the oil will dramatically reduce our dependence on Middle Eastern oil. As an isolated solution, they say build it. 

Both arguments have merit but neither seeks a viable, systems solution. Each party seeks the benefits their constituents want but neither seeks solutions to accomplish an optimum path. System solution achieves Pareto optimization but only when both parties acquiesce to what is best both for the nation and for the environment.

Ultimately, science will win out with global warming. Whether global warming is being caused by man or not, man can slow the rate by reducing our carbon footprint. Therefore, the timing our our actions is all that is really in question. Will we react now by transitioning to renewable energy as part of a system solution, or will we react later to the violent nature of a changing environment? The decision rests with whether or not our politicians will accept their fate of compromise or whether they will be forced by crisis to act.

Ultimately, tar sands oil will come to market for oil prices now support it. While a pipeline to the western Canadian coast can be temporarily blocked awaiting a permanent outcome in America, Canadian citizens cannot hold off forever. Yet timing is such that the pipeline will be built in America, even if not until the next Republican president is elected. Obama’s best strategy is to leverage the pipeline for a system solution that provides the ends if not the means of liberal goals.

A system solution recognizes that the Keystone pipeline is part of an optimal solution. Delaying its completion does nothing to prevent carbon emissions and only hurts jobs. The argument about aquifer endangerment is simply a delay tactic of fear. In fact, shale fracking has magnitudes more potential to harm aquifers, yet our country’s economics will be dramatically changed during the next two decades by dramatic increases in shale oil production.

Interestingly, shale proponents are Keystone opponents not due to environmental reasons but due to competition for oil refinery pricing in a flooded market. Keystone delays are more about politics of pricing than about politics of pollution. Politics makes strange bedfellows.

Given that tar sands and shale oil are now going to be a reality, what then is the systems solution? Liberals, in isolation, suggest that raising the cost of carbon fuel is the answer. They suggest that higher carbon energy relative to alternative energy will change buying patterns and they are right, but at what cost to the economy? They would answer that economic losses are a small price to pay for the sake of the planet, but can you see how this is not a system solution by that answer?

An international Kyoto exchange solution is not part of a national systems solution for it only changes the location of carbon emissions but not the level. However, a carbon tax can be part of a systems solution, or even a national Kyoto type exchange. Yet in isolation, neither are politically viable for they would raise the cost of American business and would adversely impact GDP and jobs.

As part of a system solution, a national exchange or carbon tax could be part of a system solution if revenue neutral. If a business or individual’s net taxes and net energy costs remained the same when switching to alternative fuel, their addiction to carbon could be broken. Tax collection for both business and individuals could be transitioned from income taxes, as an example, to energy taxes that allowed for no net tax increases. Yet even if neutral taxation were part of a system solution, the overall cost of alternative energy, given our capitalist system, is still be higher.

A technical solution to reduce the cost of alternative energy below that of carbon fuels does not yet exist in our capitalist system and may not until depleting carbon fuels begin to run out, raising their costs relative to alternative energy. This of course is not likely for a half a century given new horizontal drilling technologies. Therefore, the system solution involves changing the way we finance and benefit from alterative fuels.

The capitalist system of benefit evaluation depends on the return on capital invested. Unfortunately for alternative energy, there is an abundance of other investments that pay investors a much higher return than ether wind or solar power. However, the cost of alternative energy, in the absence of capital requirements, is less costly in the long run, even without factoring in externalities such as global warming and deleterious health effects of air pollution. But we do have a capitalist system.

Capital returns signal what society values most. In a capital constrained world, society would rather employ capital to manufacture iphones than to saving the planet. But are we really capital constrained? By law, we have a Federal Reserve, a money cartel that constrains capital. And we do as a nation, pass all money formation through this constraining cartel. Yet, isn’t capital constraint really a fiction?

Individuals and businesses also make their decisions based on return on capital. For instance, an individual is deterred from investing in solar power because the payback is too long. If an individual sells their house, their initial investment in solar power is not reflected in a higher selling price, and therefore the buyer gets the reward from the orignal home owner’s investment, while the original owner doesn’t see the return of investment if they sell. But isn’t this bad choice under current financial paradigms also a fiction of our financial system?

A system solution could be devised to provide unrestrained capital for environmental investments. A means could also be created to make the investment in environmental solutions portable, letting original home investors, as an example, recoup their capital upon home sales. The combination of these two financial changes could make alternative energy part of a viable system..

Therefore, a system solution can include building the Keystone pipeline, creating pipeline jobs, ensuring America’s carbon independence, transitioning our tax system to favor alternative energy while keeping the solution tax neutral, creating an unrestrained government capital solution and creating a portable alternative energy investment return for individuals and businesses.

Six Relevant Answers to Global Climate Change Questions

1) Is change occurring? How we can be even arguing about this one. The loss of polar ice is so overwhelming that anyone who denies change is occurring is sociopathically political.

2) Is change occurring due to manmade causes? The evidence suggests so. Scientific theory regarding greenhouse gases is valid. As greenhouse gases have increased, the number of large scale natural disasters has increased dramatically over the past 100 years from 73 per decade in the early 1900s to over 2,780 in the last decade, historically unprecedented. Is this as a result of release of combustion gases from fossil fuels that have resulted from captured hydrocarbon over millions of years? Perhaps so….

3) If the trend is not reversed, will it portend dangers for mankind? There is nothing to suggest that the number and intensity of natural disasters will reverse or that climate change will not continue to exponentially change. Once the polar ice caps are gone, their ability to help regulate earth temperatures will be gone as well.

4) Can mankind do something to help reverse the trend? If fossil fuel usage was eliminated worldwide immediately, the accumulating effects of climate change could be slowed, if in fact it is being exacerbated by manmade carbon combustion. However, even if we attempted to utilize all available technologies to replace all existing fossil fuel combustion, the process to replace fossil fuel use would take decades, and in the interim the crisis would continue to heighten.

5) The more important question is will mankind attempt to reverse or even slow the trend? The simple answer is most likely no. Human population is exponentially increasing and combustion will follow and exceed population trends. The Kyoto agreements were highly politicized and created wealth transfer from industrial nations to emerging countries. The politics of carbon cap and trade has attempted to punish last century’s polluters while giving newer polluters carte blanche to take over the helm. Yet, world power is concentrated in the hands of those that wield control of hydrocarbons and no one that has power gives that power up without a fight. No alternatives exist to allow those that currently have the power to keep it if they give up their control of hydrocarbons. Those that hold the hydrocarbon power are unlikely to relinquish it.

6) What then should be the response of the masses? Even if carbon use does not abate, we must support alternative energy development. Press forward for development of alternatives, even if they are currently more expensive than carbon energy. As carbon energy depletes, it will eventually cost more than alternatives. And as the data becomes clearer, if it in fact shows beyond all doubt that hydrocarbon combustion is destroying the ability of the world to support human life, the demand for change will overtake those that control hydrocarbonic power. If the world does not now develop financially sustainable alternatives to hydrocarbon economy, when and if the evidence eventually cries out for immediate change no matter the financial consequences, technology will not be able to meet the need and the world will suffer immensely. If America does not now lead the effort, our economy will be overtaken by those that do.

The Right Alternative Energy Policy is Critical to America’s Survival, the Wrong Policy Could Hasten Her Fall

A buddy of mine built his Taekwondo studio several miles from the nearest city sewer system. However, city policy required him to connect to the sewer rather than to use a much less costly septic system. The additional cost imposed by the city to run several miles of pipe that would be large enough to handle the sewage of the population that would eventually make its way out toward his studio made building at that location cost prohibitive given their regulations.

This example demonstrates two things; one the cost of regulation sometimes means the loss of otherwise viable businesses. Second, the way America goes about infrastructure development can impact how we view the competitiveness of businesses. In the taekwondo example, this man belongs to an association of over 1,300 studios and has the most profitable of all the studios in the country, yet the irresponsibly misplaced infrastructure policy of the city made it appear otherwise.

When I left the energy industry back in the ’90s, the cost of electricity made from wind was about 160 percent of the cost of that made from natural gas. Therefore, based on economic proformas, no business would logically invest in wind power. But what made wind energy more expensive? For one, the cost of placing electric lines out to wind projects to connect them to the grid made them less economical. Certainly, if there were much larger wind farms using the same electric grid, the cost of connecting would have been much less and the viability of wind much greater.

Another issue with looking at alternative energy purely from an MBA’s spread sheet is that it does not care about the nation state, only the industrial state (our burgeoning multinational corporations). When two thirds of the cost of an oil fired power plant’s electrical energy is sent to Saudi Arabia, the transfer of wealth from America to the Saudis is not reflected in the calculations. The above the line profit benefit may be greater to the company with oil fired power, but that may not translate to the economic benefit to our nation state, America. Without understanding that the two motives are different, the United States will continue to be dictated to by nonaligned motives of our MNCs to the detriment of our future viability as a nation state.

Additionally, by not looking at the potential lifecycle cost of oil as it relates to the exponentially growing demand for oil and the parabolic reduction in supply of this dwindling resource, we are potentially creating a nationally damaging bias toward hydrocarbonically created electricity. Hydrocarbon fuels are facing an exponentially increasing price that is not reflected in current utility business models that base decisions on relatively short time frames. At some point, the exponentially growing price of hydrocarbons will make the less steeply growing price of a more highly capitalized alternative energy plant competitive even from an MBA perspective.

This potential presents several issues. First, if America is caught off guard by quickly rising foreign fuel prices having failed to invest in alternative energy technology and having failed to build the capacity to react quickly with new sources of energy, the cost to America of much higher energy prices over a long ramp up time will be much greater than the additional cost of investing now to create a technological base for alternative energy.

However, the way we go about investing in alternative energy is just as important as the fact that we should be investing now. A recent post discussed that China was building a wind energy farm in Texas. How is America building technological expertise when we export technology development to China? How is America reinvesting maximum dollars back into American resources by investing in China’s wind energy company? This is one simple example of how a national strategy of alternative energy development can have a horribly ironic and ineffective implementation when the overall goals of our national strategy are not carried out through all aspects of development.

If we are to achieve a sustainable America into the 21st century, America must vigorously pursue an energy policy designed to enhance our nation’s core skill in producing alternative energy. It must think in terms of the nation state and not our highly political and well lobbied industrial states. It must pursue scale of grandeur that creates economies of scale instead of continuing to compare projects on a flawed vision of limited size. America will soon face a future of capacity limited by our failure to plan for diminished hydrocarbons and our short sided vision, resulting strategies, and flawed implementation driven by highly manipulative industrial states that our courts have given citizenship status could be our down fall if we do not recognize it in time to react.