27 November 2009

The Trouble with Cap and Trade

SUN VALLEY, CA - DECEMBER 11:  The Department ...Image by Getty Images via Daylife

On Tuesday, the State of California announced its plans for its own cap-and-trade program as part of Assembly Bill 32, which aims to cut Greenhouse Gas Emissions 15 percent by 2020.

The California Environmental Protection Agency's Air Resources Board released its scoping plan, which was praised by governor Schwarzenegger, environmentalists, and utilities.

But is all the praise deserved?

The California plan follows the same outline of other such plans: a cap limits the amount of GHG emitted by power plants, refineries, cement factories and the like, and requires a permit for every ton of CO2 released into the atmosphere.

The trouble with a California program -- or a Western States Program or a Regional Greenhouse Gas Initiative like we have in the Northeast -- is that it's a patchwork approach.

If you're a company with a national footprint, you have to react to all sorts of different regulations, that's why some companies want a national program.

Yet even a national cap-and-trade program is a flawed scheme for dealing with CO2 emissions. Despite the prevailing sentiment that cap-and-trade is market-based, most of the proposed programs will hand out a significant portion of the permits for free, which could have the unintended consequence of keeping the price of permits lower than desirable.

The EPA estimates that the average price per ton will be around $15 for possibly the next two decades. That's until 2030 folks.

Some analysts say that utilities need a carbon price of $50/ton before they'll commit the billions needed for new technologies, such as carbon capture and storage and alternative energy resources. When will we get to a $50 price for carbon? When it's too late.

At that rate, the price of carbon won't be enough to create incentives for investments in low-carbon energy infrastructure, energy efficiency, and transportation.

The potential for gaming the system is equally troubling. There is little agreement about monitoring and accounting of the permits and projects that qualify, which could provide an avenue for unscrupulous speculators to take advantage of the situation.

A cap-and-trade program potentially creates windfall profits for utilities, but it is unclear whether it will generate significant reductions in emissions or investments in clean technology.

And some analysts think it is doubtful that cap-and-trade will even put a dent in fossil fuel's price advantage. Others fear that much of the transactional value of the assets created by any cap-and-trade program will be in the hands of some of the same folks who gave us the subprime mortgage and credit default debacles.

Finally, if we are going to have a cap, and that seems to be the way it's going, I'd rather see a cap-and-invest structure where you auction of the permits to the highest bidder and use profits to create an R & D investment fund rather than giving the permits away for free.

It seems to me these flaws need to be addressed in any scheme that gets adopted before we head down the road of future regrets.

Reblog this post [with Zemanta]

25 November 2009

The Green Skeptic on Fox Business: On Copenhagen, ClimateGate and Falling Polar Bears

Today I appeared on Fox Business speaking with Stuart Varney about ClimateGate, Copenhagen, and a horrible television commercial that shows polar bears falling out of the sky.

Here it is:

Reblog this post [with Zemanta]

24 November 2009

Still Skeptical After All These (5) Years

Today marks the 5th Anniversary of "the green skeptic." The blog, if not the person.

People often ask me why I'm skeptical and what I'm skeptical about.

Well, the answer is, I believe that skepticism is a hallmark of human nature. Without it, we are sheep.

I think we need to constantly challenge our assumptions about the way the world works or how others tell us it works. We must question even what our leaders tell us, regardless of what side of the aisle their derriere rests upon or what side of the issue they claim to represent.

As the recent controversy around emails sent by and among climate scientists reveals: we are none of us -- left, right or center -- averse to cajoling, tricking or brow-beating to get our point across and win the minds of others.

So, I'll remain a skeptic and try to stop the bleating where I can.

20 November 2009

Philly's Startup Phinest Rock at Founder Factory

WXPN's World Cafe Live regularly features rock bands, but on one day in November, Philly Startup Leaders' Founder Factory gives entrepreneurs, from earnest beginners to successful experts, the chance to be the rock stars.

The small stage and close proximity of the audience makes for an intimate setting, differentiating it from the large, cold and poorly lit venues that usually host company showcases.

For the experts who have made it -- as entrepreneurs, investors or both -- Founder Factory provides a chance to regenerate the entrepreneurial ecosystem. The experts share stories, impart wisdom, and lend an objective ear in "Fishbowl" problem-solving sessions with young startups.

For the startups, it's a chance to meet other like-minded entrepreneurs, receive advice that would cost thousands if they had to pay for it, and maybe even find an investor or adviser.

And for the audience, many of whom are entrepreneurs working on their own ideas, they benefit from hearing the types of questions facing young companies and those asked by investors and others who may be in a position to lend a hand to them some day.

This year's speakers included Doug Alexander of Internet Capital Group. Doug has seen it all over almost 30 years as an investor and entrepreneur. He offered an investor's perspective on what it takes to build a successful company.

Success may be determined by how a startup answers a few essential questions, Alexander noted: 1.) Are you solving a problem that is keeping someone up at night? 2.) How are you going to make money? and 3.) What is your go-to-market strategy?

Dr. Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School, arrived with some good news on the economic front. He analyzed everything from the relative value of the dollar to what level of inflation our economy can handle (3-4 percent, in his view), and even criticized former Fed Chairman Alan Greenpsan for not foreseeing the collapse of the credit markets due to highly leveraged credit default swaps.

"Greenspan saw the balance sheets," Professor Siegel said. "He could have told us to watch out." Siegel's bullish optimism on the resilience of our economy was well received.

The sold-out crowd of 200-250 people also heard from Alan Kraus of Ben Franklin Technology Partners Geoff Cook of myyearbook.com and David Brussin of Monetate.

The Fishbowl companies this year were Revzilla, an ecommerce site for motorsports enthusiasts, mobile language learning system PlaySay, and Kidzillions, an allowance and chore rewards platform that lets kids spend and save their money online.

Kendra Gaeta, founder and CEO of Kidzillions stole the show when she demonstrated the art of winging it during her presentation. Her team did not make it due to car trouble on the Turnpike and then her PowerPoint couldn't load. With a sigh of resolve, Gaeta plowed ahead, impressing both the Fishbowl panel and the audience.

The sophomore outing of Founder Factory was not without kinks: some of the presenters need to sharpen their presentation skills and focus on the story rather than every technical issue they wrestled with in establishing their business.

I'd also like to see some cleantech representation in the program next year, either as presenters or Fishbowl companies. There were several interesting cleantech companies in the audience this year, so perhaps one will hit the PSL radar.

And the program would benefit from having a "where are they now?" session recapping what happened with last year's Fishbowl companies and what they learned after Founder Factory.

In the end, Founder Factory is a good reminder that celebrating the entrepreneur can lead to inspiration and value creation. More than one entrepreneur in the audience with whom I spoke shared that Founder Factory helped them renew the spark that got them excited about starting a business in the first place.

And perhaps one of those startups will one day be invited back as an expert imparting his or her wisdom to the next generation of entrepreneurs.

Reblog this post [with Zemanta]

17 November 2009

Global Entrepreneurship Week: "Unleash Your Ideas"

The 2nd annual Global Entrepreneurship Week was launched yesterday:

"From November 16-22, Global Entrepreneurship Week (GEW) will connect young people everywhere through local, national, and global activities designed to help them explore their potential as self-starters and innovators. Students, educators, entrepreneurs, business leaders, employees, non-profit leaders, government officials and many others will participate in a range of activities, from online to face-to-face, and from large-scale competitions and events to intimate networking gatherings."

GEW has four goals (from their web site):

* Inspire. We introduce entrepreneurship to young people under the age of thirty who otherwise might not have considered it as a career path.
* Connect. We network young people and organisations across national boundaries to discover new ideas at the intersection of cultures and disciplines.
* Mentor. We enlist active and inspiring entrepreneurs around the world to coach and mentor the next generation of enterprise talent as they pursue their dreams.
* Engage. We demonstrate to opinion leaders and policymakers how entrepreneurship is central to a nation's economic health and culture, and give them the opportunity to learn about each other's entrepreneurial policies and practices.

Pretty cool goals, if you ask me.

Here's a 5-minute video about Global Entrepreneurship Week:

Of particular interest to readers of the green skeptic is the Global Cleantech Open competition, which solicited ideas from around the world, "anything from revolutionary ways to generate clean energy, to better ways to filter water, to ideas about how governmental policies around climate change can foster new businesses."

Winners will be announced tonight at a gala reception in San Francisco: Gala

There are many events around the world marking Global Entrepreneurship Week, and other events that are happening coincidentally, such a Philly Startup Leaders' 2nd annual Founder Factory, which takes place on Thursday, November 19th at World Cafe Live.

The Founder Factory was created by Philly Startup Leaders to help foster growth of an ecosystem of entrepreneurs, mentors, angels, VCs, students, schools, and government groups in the Philadelphia area.

This week it's all about unleashing ideas.

Reblog this post [with Zemanta]

12 November 2009

REDD Ain't the New Black: 10 Concerns About Paying Countries for Forest Protection

Jungle burned for agriculture in southern Mexico.Image via Wikipedia

I was asked the other day why I think the UN's Reducing Emissions from Deforestation in Developing Countries (REDD) is a flawed, if not bad idea.

Here are 10 concerns I have about the REDD scheme:

1.) I've said it before, but will say it again: Entrusting governments to protect their forests in light of competing interests of growth, feeding hungry, and poverty reduction is very risky.

2.) We can't ensure that forest protection won't lead to shutting out the interests of local people and lining the pockets of corrupt government officials, corporations, or even NGOs. Better to trust the local community to manage their forest assets -- or at the very least, make sure they have a seat at the table.

3.) Underdeveloped monitoring and accounting could lead to unscrupulous speculation and gaming the system. How can we protect against the Bernie Madoff of the carbon market or the Enron of global forest protection? (And don't forget organized crime: Interpol, the world's leading policing agency, raised concerns in early October that chances were very high criminal gangs could take advantage of REDD schemes, according to an article in the Guardian.)

4.) We need to raise standards of living by valuing and maintaining natural capital not converting it and not, necessarily, setting it aside. And we need to ensure that the local communities have more influence and power over how their resources are managed for the multiple uses they require for access to pathways out of poverty.

5.) Right now REDD is only about reducing emissions: the money goes to those nations with high rates of deforestation. This could lead to perverse incentives or unintended consequences. If a nation has a low deforestation rate, they can't participate. What's to stop them from thinking, "Hey, if I accelerate my deforestation rate, I'll get paid to stop..."

6.) We need market mechanisms to drive protection. People won't protect it if there is no money in it, especially when cutting it down pays. We need to put a dollar value on the services forests provide: watershed protection, stabilizing soils, flood protection, as well as generating rainfall, storing carbon, and moderating the climate. What is that worth? Nicholas Stern suggested a $15B market value – that's a pittance compared to global insurance business of $3T -- a relatively cheap insurance policy.

7.) Could creating forest bonds, insurance products or user-fee water funds be tied to the ecosystem services provided by forests, ensuring that such things as agricultural productivity or water supplies linked to rainfall coming out of forests? (Some conservation groups have tried this, such as The Nature Conservancy's Water Funds in Ecuador.)

8.) We need an investment grading system for countries that participate in schemes like REDD: Those with good governance, clear land title law, and high forest protection receive AAA rating; those with high levels of corruption, conflict, and high deforestation are relegated to subprime. (This has been suggested by others, but I don't think it has been implemented.)

9.) I've said this before, too: Philanthropy and government taxes are not going to be able to protect the world's forest assets – you need viable market mechanisms and the will to unleash the entrepreneurial spirit of the people who depend upon the forests.

10.) The solutions must be market-based: If someone is getting paid $5 to cut down a tree, you're going to have to pay him $6 to leave it there; if you can pay him $10 to not cut and make some money off a related product or service, even better. We need to figure out how to make that happen and ensure there are proper financial incentives for the 1.6B people who depend upon forests for water, food, and livelihoods.

To date, rich countries have put up $52M to establish nine UN-sanctioned REDD pilot schemes in Asia, Latin America, and Africa -- and private schemes are forming through a consortia of banks, conservation groups, and other businesses.

I just don't think handing out what essentially amounts to aid to developing countries is the right solution. I do hope the Copenhagen delegates consider the unintended consequences of their bold actions. (Remember the food vs. fuel issue created by jumping on the ethanol bandwagon!)

REDD ain't the new black, at least not to this green skeptic.

Reblog this post [with Zemanta]

06 November 2009

"What Keeps You Up at Night?"

Lou Rappaport of Blank Rome asked me a disturbing question the other day at the MAC Alliance Conference in Philadelphia.

On the face of it, Lou's question was a simple one:

"What keeps you up at night?"

We were interrupted before I could answer, but Lou's question lingered with me.

In fact, it kept me up the past couple of nights.

By way of an answer now, here are seven things that keep me up at night:

1.) We will fail to embrace change and tackle the new green economy.

2.) We are so deeply entrenched in partisan politics that we will blow this opportunity to lead in a sector (alternative energy) that we invented.

3.) The Dems have made climate and energy a "left" issue and the right has ceded it to them. Where is the GOP leadership stepping up to fill the McCain void on these issues?*

4.) Enviros and NIMBYs will kill the energy economy transformation by blocking efforts on clean coal, nuclear, natural gas exploration, and the new electric grid just as they did with wind farms and offshore drilling.

5.) We don't have time to dither, yet we are a nation of inveterate ditherers.

6.) While we dither and dawdle, China is ready to seize the day.

7.) I don't know Mandarin.

*(Note: This is deeply disappointing for the party of Teddy Roosevelt and Richard Nixon, which once led on issues now considered clean and green – and that now seems blind to this incredible opportunity for wealth generation.)

05 November 2009

MAC Alliance: Promise of Clean Tech in Region

Day Two of the 2009 Mid-Atlantic Capital Alliance Conference this week featured the first clean tech track in the history of the conference, an indication that the sector is emerging in this region.

The clean tech track opened with a "financing panel," a good mix of investors, analysts, and utility service companies, including the publicly traded demand-response play Comverge and PJM, which operates the largest regional electricity transmission grid in the country.

Rob Day, a partner at the venture capital firm Black Coral Capital, came down from Boston, and Tucker Twitmyer of local heroes EnerTech Capital offered the investor perspective, along with John Roy, an energy analyst from Janney Montgomery Scott.

Day opened the session with a humorous take on the myths of clean tech in the US.

"If you read national media or the New York Times," Day opined. "You know that the only good clean tech is happening in Silicon Valley -- and it's only solar, wind, and cars. You also know that it is a capital-intensive business that is only for whiz-bang PhDs, and has nothing to do with service providers or implementers."

After letting the audience in on the joke, Day countered that, in fact, "What we're seeing is a growing awareness of clean tech innovation around the country. Real value chains are emerging here in the Mid-Atlantic region and up and down the east coast, not just the left coast."

Twitmyer agreed, suggesting that the "trend is positive for clean tech: there will be fundamental changes in our energy infrastructure; some chosen, some forced. Carbon will be priced in."

With Comverge and PJM at the table, the talk turned to demand-response and systems that will monitor and control energy assets. The panel could not come to agreement about who will benefit more: central generators and the utility industry or distributed generation resources.

But all agreed that subsidizing the advanced metering infrastructure (AMI) and smart grid, will enable a range of ancillary energy assets: transportation, reserves, storage; indeed, the entire enabling infrastructure stands to benefit.

As with everything in this sector, however, it will come down to price. (What isn't about price?)

How is the Mid-Atlantic region positioned for clean tech development? The panelists agreed it is well positioned.

"But it isn't really about one region or state over another, " John Ray of Janney reminded the audience. "It is really the US against the rest of the world -- and we have some catching up to do."

My three take-aways from the 2009 MAC Alliance Conference, especially the clean tech track:

1.) The Mid-Atlantic region has great potential, but is competing globally;
2.) We need to keep up the momentum presented by events like this and the REBN events we've held over the past year;
3.) We need more clean tech investors in the region and need to build on existing assets to attract more investors and companies.

(Eleven companies also presented at the conference. I'll write about a few of them in a future post.)

04 November 2009

Mark Zandi to MAC Conference: "The Great Recession is Over"

Mark ZandiImage by New America Foundation via Flickr

"The Great Recession is over," Mark Zandi, founder and chief economist of Moody's Economy.com, told a crowd of investors, entrepreneurs, and others gathered at the 2009 Mid-Atlantic Capital Alliance Conference in its opening keynote Tuesday.

"In fact, it ended on August 23rd," Zandi quipped. "If you want to know the precise time, you have to buy my book."

Zandi was referring to Financial Shock, his new book about the subprime crisis.

"It was no accident that the recession ended just as the stimulus kicked in," Zandi related. "The maximum impact was felt just when the maximum contribution was made: 3Q of this year."

And that's not a bad thing, Zandi said. In fact, this former economic advisor to GOP presidential candidate John McCain said he hopes that policymakers will be more aggressive in trying to rise the tide.

"The policy response was aggressive, but it needed to be," said Zandi. "Now they need to do more."

He cautioned that "recovery will be a bit of a slaw." (I first thought he said "slog," but then he repeated "slaw," by which I think he meant a salad of mixed bag.)

The foreclosure crisis will continue and we'll start to see it hit the commercial real estate market soon, according to Zandi, perhaps by the second quarter of next year.

Zandi wasn't all doom-and-gloom and tried to reassure the crowd gathered in the grand ballroom at the Pennsylvania Convention Center in Philadelphia.

This year's conference location was significant, in Zandi's opinion, because the region weathered the recession better than other parts of the country.

In part, this is due to the fact that it didn't have very far to fall, and partly due to relatively stable real estate prices -- especially outside of New York City and Washington, DC -- but also because the region boasts healthy components that are critical to getting out of the recession and building beyond it: health care and education.

"50 year olds are the single largest age group in the US," Zandi remarked. "And they will be sucking up a lot of health care."

The second largest age group? The 20-year-old firstborns of that top group, most of whom are setting out on their secondary and tertiary educational paths. Both education and health care will be engines of growth in the future -- and the future is here.

The MAC Conference is the annual venture capital gathering for the Mid-Atlantic region, which comprises the area between New England and the South, and can include states such as Delaware, Maryland, New Jersey, New York, Pennsylvania, Washington D.C., and sometimes Virginia and West Virginia.

The Conference runs through 4 November, with company presentations and other speakers and panels. (I'll be covering the clean tech track and reporting on it here later.)

For more information, visit the MAC Alliance website.

Reblog this post [with Zemanta]

03 November 2009

The Green Skeptic on Fox Business: Is Burlington Northern a Coal Play for Buffett?

OAKLAND, CA - NOVEMBER 03:  The Burlington Nor...Image by Getty Images via Daylife

Today, I appeared on Fox Business reacting to the Warren Buffett and Berkshire Hathaway $44B acquisition of Burlington Northern. Brian Sullivan was working under the premise that the railway acquisition may have been a coal play on the part of the Master from Omaha.

My views on coal and the need for investments in R&D related to carbon capture and storage are known to readers of this blog.
Here is a link to the broadcast (will try to embed later): Fox Business