Searching for the gridiron

The title of this post reflects my unfortunate search for somewhere, anywhere, to watch the Michigan OSU game last Saturday. I walked around all over Las Condes, went into 20 bars. Found plenty of attractive bartenders, but nary a TV with any American channels. The search continued. I called TGIFriday's-- which, yes, sadly, exists here (and, for some strange reason, is not called "GADHE Viernes!") I called Ruby Tuesdays. No, they said.

I, George Olive, walked into a Hooters. Futbol norteamericano? Un partido muy importante, en ABC?
"No," contestaron las tetas.

I banged on the door of the US Embassy. This was after 2 hours. "No," said Closed-Doors. "It's Saturday. This is an Embassy. Are you out of your mind?"

Anyway:

First half: Saturday, 11/18/06
Thought I'd post again. Things are going very well. I've just completed my first full week at work, and am enjoying an absolutely lovely Saturday afternoon in Santiago. It's incredibly hard to type on a Latin American keyboard-- all the punctiation is in the wrong place, and I can't get used to it, so starting now Im not going to worry about it or this post is going to take forever. At work, we are preparing for a very important day. Before I explain, maybe I should say a little something about what we do. And before I do that, Ill say what Im doing right now... listening to the Michigan and Ohio St game on the radio, drinking a nice cold Heineken, and sitting in the family room using the family computer. Life is good.

So anyway, for now, Im working for a company called EcoSecurities. As the name suggests, this is one of those firms that operates in the area in between environmental science and economics. The Kyoto protocol is the worldwide global warming treaty that is in effect until 2012. The most important things about it are that it was the first worldwide binding agreement, and that it makes a distinction between the emissions of developing and already industrialized nations. Even now, after several years of explosive economic and industrial growth in India and China, 70 percent of the manmade emissions in the atmosphere right now are from the USA and Europe. These emissions are both recent and a legacy of the Industrial revolution in those areas. So, 70% of the global warming that has already happened is our fault, not theirs, and this was recognized in the framing of the Kyoto protocol in the 1990s. Kyoto places binding limits on these economies, with the goal of getting them back down to below their 1990 levels before 2012. Kyoto has no limitations on the developing world, which will becoming increasingly problematic in the future as the sheer size of the developing economies of the world contributes to more and more significant emissions from those nations. Right now, in Nairobi, there is a UN meeting that is seeking to draw up plans for the next Kyoto, to begin after 2012. Already, China is very transparently coming out in opposition to any binding cuts in the developing world. This is both understandable and problematic. Hopefully, China is putting on a strong front, knowing that limitations are inevitable, and is holding out for some sort of compensation for its emissions limitations. In any case, right now there are no limitations on emissions from the developing world.
As part of Kyoto, it was recognized that reducing emissions is of equal value everywhere. Less CO2 from Namibia is equally valuable as the same amount of reductions from the USA. This is because CO2 is well mixed in the atmosphere... when you drive to the grocery store, within a few days the CO2 that you just created will be pretty evenly distributed worldwide. This is unlike the situation with a pollutant like sulfur, which remains localized and produces acid rain. This is why acid rain was a problem in New England, and is currently a problem in China, but was never a problem in Des Moines.
So, since CO2 emissions are non'local, Kyoto was formulated to allow nations some flexibility in reducing their emissions. >The most relevant mechanism to this discussion by which this flexibility was realized is called CDM, or the Clean Development Mechanism. The nations that have to reduce their emissions are called the Annex 1 nations. Annex 1 countries, like Germany, have the option of fulfilling part of their emissions reductions by doing projects in the developing world. As I mentioned above, emissions reductions are, from the climates point of view, equally valuable no matter where they take place. So, a project to, lets say, reduce CO2 emissions from tire factories in Senegal is just as good as moving all of NYCs taxi fleet to Hybrids. Speaking of which, why the hell hasnt THAT happened yet. So anyway, this is the area where EcoSecurities does business. Heres how it works in detail, but the basic story is that EcoSecurities does all the work and then sells the rights to a project to an industrial nation, who has the choice of either sponsoring such projects or meeting their emissions reductions targets entirely through the reduction of emissions in their own nation. Often, it is most cost effective to do a mix of these two strategies.

Heres what we do.

First, we talk to some sort of economic agent in a developing country. This person could be a small business owner, it could be thew regional manager of a global corporation, it could be the mayor of a city in Indonesia. The point is, this person has an influence in some sort of economic activity. We approach this person and we start talking about doing a project to reduce emissions.


Secondly, we get into project design. A key economic aspect of this process is that we pay this person to reduce his emissions. Thats the whole idea, to create financial incentives to reduce emissions. Another key economic aspect of this is that the emissions reduction project cannot be profitable in and of itself. ER = Emissions Reductions. An example of an ER project that would be profitable would be to move the NYC taxi fleet from the Crown Royal to Prius. This, since they could provide exactly the same level of service with a much lower fuel cost, would increase substantially the profits of taxi drivers. Why cant we do projects like this? Because, you can expect an economy to exploit opportunities like this on its own, its only a matter of when. So, if Germany were to throw a bunch of money at NYC to get them to move to a Prius taxi fleet, this would have the effect of lining the pockets of taxi drivers but the key change, a move to a hybrid taxi, would be profitable on its own.

So, we find a project that would be unprofitable in a business as usual scenario. A good example is landfill gas. Landfills, which are full of organic matter, produce methane and just leak it into the atmosphere. This is a pretty serious source of global warming, because methane is much worse than CO2 when it comes to trapping heat. So, anyway, you can capture this methane and use it for fuel, but its more expensive to do so than to just find it in the ground like normal. So, we talk to a company in Brazil and set up a system like this. For every cubic foot of methane they capture and sell, they will have two sources of income... they get to sell the natural gas at the market price, but then WE also pay them some amount, lets say 10' dollars, because every bit of methane they produce this way prevents the combustion of new methane from in the ground, which means that it reduces emissions. So, they throw a big plastic bag over the top of a landfill, capture the methane, and sell it. With the money they get from us, this becomes a profitable enterprise. So how can we afford it? Because, we

INTERCEPTION MICHIGAN!!!!!!!!!!!!

eventually sell this project to someone like Germany, for 12 dollars a cubic foot, and we make some money and Germany saves some money. So, its a win win win win. The world has less emissions, theres a transfer of wealth from Germany to Brazil, Germany saves money, and we stay in business. How is this a good idea for Germany? Because its cheaper for them to stop methane emissions in Brazil than it is to impose super expensive regulations on their power industry.

So, thats what we do... reduce emissions in the developing world in a profit maximizing way. Jealous?

Ok, that took forever and Im tired, so I'm going to talk about this meeting later.

UPDATE:

Second half done, 11/24/06

So, this company is one of the few that operates exclusively in this field. This business can be separated into two parts—project origination and credit commercialization. As an analogy, this is like separating the bread industry into two parts, one of which is where wheat is planted, harvested, and baked, and the other is the packaging and bringing to market of the final product. A lot of companies are involved on either side of this equation, but EcoSecurities is one of the only ones that is involved in the whole process—both doing the projects that create carbon credits, and bringing those credits to market.

That’s why they have offices where they do—one HQ in England, where all the trading/commercialization happens, and lots of regional offices in developing countries worldwide, where the projects are undertaken.

The office where I work in Santiago handles all project opportunities in Chile, Peru, Ecuador, and Colombia—all of the South American countries that border the Pacific Ocean. It is a small office, only about 5 people plus me. Next week, 3 of them will be in Colombia on a research trip, and I’ll be here working on long-term projects for the company. Right now, my main projects are:

Writing a guide to project origination. The UN has approved lots of different ways to reduce emissions and earn credits. These are called methodologies. There are about 40 of them, and in some places they are only subtly different from one another. The goal is to go through them very carefully and develop some rules of thumb to help choose how to file a project out of several, seemingly applicable methodologies. (For instance, there are no less than five methodologies about capturing methane that escapes from landfills as waste decays.) Also, I’ll be writing a brief summary of the methodologies. This is good for me because I’ll learn a ton about the different methodologies and how they work, and it’s good for the company because it will help people to get a basic familiarity with all of the methodologies without sitting down to read them all. They’re written in a nice, confusing mixture of technological gibberish and UN-level bureaucratic language. Most of the people in the company are intimately familiar with a couple of the methodologies because they’ve done projects of those types, but they might know nothing about the other types. This project is for the England office, which means that it is going to be valuable company wide.

Doing research on the South American countries that we’re in charge of. This office is very young, only 14 months old. We were just put in charge of Colombia, Peru, and Ecuador very recently. The 5 people that work here permanently are 3 Chileans, a Venezuelan, and an American—in other words, none of them are from the other countries. So, all this to say, they don’t know nearly as much, or as many people, in those other countries as they do in Chile, and they need to know more. So, I’m going to be conducting some research into the economies of these countries, trying to find answers to questions that will help them to successfully enter those markets. The information that is important is the info that will help us to gauge which approaches will be best in each country. We need to be able to talk to businesses, make proposals/negotiate, and actually build the projects. So, the kinds of things I’m going to be looking for:

How much renewable/low emissions capacity do you already have in these countries? Where is it? Who owns it?

Who are the best law firms/construction companies/energy companies in these countries?

How competitive are these markets? How many energy companies operate in Lima, Peru? What energy sources do they use?

And so on and so forth. I’m really looking forward to doing this, and I think it’ll be really interesting to start answering these questions.

As promised, I’ll now return to the California Delegation.

So, California is the 6^th or 7^th biggest economy in the world. California’s GDP is about 1.5 trillion dollars a year. Their emissions of Carbon Dioxide are on the order of roughly 500 million metric tons per year. This is a lot, but it’s not an absurdly high amount. Texas clocks in at about 600. The European Union is around the 3000 mark. However, what makes CA unique is that they are the biggest economy that is not involved in any Global Warming treaty. Most other economies, developed or developing, are involved in some way in reducing carbon emissions. Obviously, this is happening on a more meaningful scale in some countries than others, but the point is that most countries in the world are either industrialized and limiting their emissions because they agreed to, or industrializing and at the same time implementing some of these projects I’m talking about. Since California is part of the US, it is considered part of a Kyoto Annex-1 country even though the US never signed Kyoto. As such, it is not eligible for CDM projects, meaning that the things EcoSecurities does in Chile, or Malaysia, it could not do in California.

Schwarzenegger recently passed a landmark law—AB 32—which set emissions reduction targets for California independent of federal US action. By the way, this response to the federal inaction on this issue is enlightening, and the fact that it’s necessary is embarrassing. In lieu of federal action, various US states, cities, and counties have pledged to meet the Kyoto targets anyway. Over 60 million Americans live in cities whose mayors have “signed” Kyoto. Including California, the number jumps to about 85 million (because some Californians already were covered by local policy.) So anyway, here is California’s plan. Emissions in California, like everywhere, are higher every year. They’re higher this year than last, and last year than the year before that. The only place in the world where emissions have fallen without intentional effort is in the Former Soviet Union, whose emissions are much lower now than they were in 1988 when they were so much more economically powerful. So, the plan:

By 2010, to get back down to 2000 emissions

By 2020, to get back down to 1990 levels

These are great, and are right there in line with Kyoto targets. But here’s the real deal:

By 2050, to be 80% below 1990 levels.

When you’re looking at numbers like these, it’s very easy to just gloss over them, but I want to stress (as a relative expert in this field) how remarkable that last target is.

The third target in California’s new law will require nothing less than an economic transformation, of one of the biggest and most advanced economies in the world.

Let me put it in perspective for you:

In 1990, CA emissions were about 420 million metric tons, or MMMT. That means that in 2050, they hope to clock in at roughly 84 MMMT.

California’s population is currently 33 million. Let’s say, to be extremely conservative, that it increases to 45 million by 2050. 84 MMMT/45,000,000 is less than 2 tons per person.

Two tons per person! There are a couple of ways to look at this number.

Emissions distribution. California’s current emissions are roughly 15 tons per person, annually. This, however, is the average—this includes lots of poor people that don’t have big, energy-wasting houses or Hummer H2s… that don’t fly from LA to Sacramento on business twice a week… etc. In other words, another way of looking at it is that one way for California to achieve its emissions reductions is for everybody to reduce their emissions by about 90 percent. Sure, it would be easy for someone like Kobe Bryant to make a big cut in his emissions, but a lot of people already drive fuel efficient cars, live in very modest houses, and don’t generally have a lot of wasteful emissions. As my dad says, “you can’t milk a turnip,” and so the idea of already conservative people cutting by 90 percent seems, to me, extremely unlikely. Thus, this means that to meet this target, more affluent folks are going to probably have to cut by even more than 90 percent over the next 40 years. Making no bones about it, this basically means that everything in California is going to change. It’s absolutely fascinating.

Absolute value of 2 tons of emissions. Just to put it in perspective, if you get 30 miles per gallon (I bet you get less than that), and you drive your car 5,000 miles a year (I bet you drive more than that)…

You’ve already used up your two tons.

So, for you, no flying! No cooking! No heating or cooling! No eating!

So, to put it bluntly, here’s how I look at it.

Emissions are a function of 2 variables: level of economic activity, and carbon intensity of economic activity, multiplied together.

E = A * C

In the long run, for global warming to stop, “net emissions” have to be zero. This doesn’t mean that there can’t be any emissions, just that there have to be negative emissions along with positive emissions. How do you have negative emissions? You either have to turn CO2 back into oxygen, or you have to get rid of it. Best way to do that is to stop chopping down the rainforest and let it grow back.

By the way, while I’m on the subject, just so you know: from a global perspective, emissions of CO2 are so large that they are measured in Gigatons of Carbon, or GtC.

The TOTAL CO2 emissions that result from every car on earth, every coal plant on earth… every airplane, every breathing human being, and every beanie baby factory, is about 6.2 gigatons of carbon emissions per year.

The total amount of CO2 released due to tropical deforestation every year is 2 gigatons.

In other words, on top of all anthropogenic sources of emissions, we throw in another 33% by not preventing rainforest destruction. Best way to prevent rainforest destruction? Rent the rainforests, pay people not to chop them down. Don’t want to pay some Brazilian the few dollars it costs to make rainforest maintenance more profitable than cattle ranching on former rainforested land? I challenge you to find a more cost effective way to cut Global Warming substantially.

Next best way to do that, in the future, will be Carbon sequestration—taking CO2 out of the air, change-phase, and store it somewhere. Turn it into a liquid and inject it into lakes in Antarctica (seriously). Or, turn it into basaltic rock deposits and store it in veins of olivine. Stuff like that. This process is neither free nor simple, but it also doesn’t defy the laws of thermodynamics:

By combusting fossil fuels, you release much more energy than you need to take the resulting CO2 and stick it back in the earth. (Note: I did not say that you release more energy than you need to restore the bonds in the original hydrocarbon molecules.)

Here’s the other thing—in the future, to not only stop global warming but to get things back to the way they were before the Industrial Revolution, we’re going to have to have NEGATIVE net emissions for a long time. Kinda like you have to have negative caloric intake after the holidays.

So, global warming stops when E = L * C = 0. In other words, it stops when either:

The level of economic activity is 0, or;

The net carbon intensity of economic activity is 0.

Which do you prefer?

For California to meet its targets, it’s going to require an economic transformation of an enormous magnitude. It is not facetious to say that this transformation will be of a similar significance to the transformation that occurred when electricity was invented. Or, the transformation that occurred when the semiconductor, and then the internet, was invented. In other words, it will be nothing short of an economic revolution. And, the coolest thing is, if it happens in California, it can happen everywhere. Making California basically carbon neutral is not nearly as easy as it is to make, say, Palo Alto carbon neutral. PA has a population of about 50,000 really rich people. They could probably re-plant enough trees to make Palo Alto’s emissions completely disappear from the atmosphere. But, that’s not going to cut it in California. In the long run, California is going to have to find a way to dramatically reduce the coefficient of the carbon intensity of industry. That means that they’re going to have to find a new way to do basically everything. It also means they’re going to just have to stop doing some things. In other words, Global Warming might be the thing that has finally forced a major economy to reinvent itself in a globally sustainable way. And that makes this, the first half of the twentieth century, probably the most economically fascinating time to live in since the first Industrial Revolution.

That’s about all I have to say. I consider that more important than listing copious details about the actual meeting we had with the people from California. Basically, the meeting was a chance for us to argue that California would need to participate in similar, international carbon projects, especially in the short term, as a way of injecting some flexibility into their “compliance path” over the next 46 years. We had some very important people down here, including Schwarzenegger’s chief of staff, 6 state Senators, 10 state representatives (the congresspeople most centrally relevant to the actual framing of the policy), as well as people like the CEO of Southern California Edison and the US Ambassador to Chile. The governor’s law, AB 32, says what the targets are. It doesn’t say the best way to meet them. They’ve been on a trip to South America for 2 weeks, for the purpose of figuring out the actual strategy. Meeting with us was part of that goal.

The meeting took place at a vineyard about an hour outside of Santiago. It was beautiful, almost beyond description. A paradise. I’ve never been to a vineyard before, and I fell in love instantly. Probably, one of the most romantic places I’ve ever been, in both senses of the word. We took a tour of the vineyard and all the wine-making facilities, including a naturally climate controlled room underground, with low lighting, soil on the ground (for moisture control), brick arches, and the best wine in the vineyard in French Oak barrels all around us. Each barrel contained about 20,000 dollars worth of Viña Underraga reserve. It was a pretty special place, and I won’t soon forget it.

At the vineyard, I met Mack and Bev Tadeu. Mack is the business ambassador to Chile. He facilitates joint ventures between US and Chilean companies, and also does what he can to strengthen trade ties. His formal title is “Commercial Counselor” to Chile. Anyway, he figured I’d be homesick for Thanksgiving, so he graciously invited me over to his home for a beautiful Thanksgiving dinner yesterday. It was superb. It’s also nice that the sun doesn’t go down until 9 PM, because we ate at 5:30, finished at 7, and then went outside in the late-afternoon sun, drank port, and talked in the 70 degree weather for another 2 hours. They had about 15 guests for dinner, and it was extremely well done.

There’s your update! It’s 10 PM, Friday night. I’m debating going out on the town, just winging it by myself. In fact, I’m thinking that that’s exactly what I’m going to do.

Take care, you all.