Nuclear Energy's Double Moral Hazard

Tepco, the owner and operator of the stricken Japanese nuclear power plant, announced record losses of 1.25 trillion yen related to the cost of containing the worst nuclear accident since Chernobyl. That is almost 1,000 times Tepco's annual profit of 135 billion yen last year.

Granted that the triggering event for this nuclear catastrophe was an extraordinary earthquake and tsunami, but the facts so far suggest that the utility made decisions that increased the risks and harms -- from a design that put back-up generators in a part of the plant that would be underwater if a tsunami struck, to delays in emergency cooling measures after the event which some say was an effort to avoid taking actions that would render the plant inoperable in the future.

Tepco's managers, shareholders, and bondholders received the benefits and shared in the profits of this risky plant before the disaster. Will they suffer the losses and other consequences now?

The first "moral hazard" issue is:  Is Tepco too big too fail? It is the largest electric utility in Asia and the fourth largest in the world. It supplies power to a large portion of Japan including Tokyo. Will the government let the utility fail?

Of course not. The utility is too big to fail. The only issues are (a) how it will be kept alive so it can continue providing power, and (b) how much of the losses will be suffered by management, stockholders, and bondholders.

So far, the answer is muddled. The government has not taken over. Yes, the President of Tepco has resigned. But before leaving he appointed his own successor from inside the company.

On the investment side, the government must decide how to treat shareholders and bondholders when it bails out the utility in order to keep it running. The investors knew this company had nuclear power plants in one of the most earthquake and tsunami prone nations on earth.

This moral hazard may be in the past, because Japan may be finished with nuclear power (at least for now). But if Japan has any intention of building new nuclear power plants, how it treats Tepco investors in a bailout now will have a significant impact on the availability and cost of capital for those plants in the future.

Which brings us to the second moral hazard. Is it moral to place the health and environmental risks of nuclear power -- serious illness, death, contamination of the earth for generations -- on those who live and work near the plants?

John Howley
Woodbridge, New Jersey

President Obama Grants One-Year Extension on Oil Leases

President Barack Obama granted oil companies a one-year extension on leases in parts Alaska and the Gulf of Mexico. This action comes as the President faces pressure to do something about rising prices at the pump. It also comes just days after the Senate grilled oil company executives on high gasoline prices and record oil company profits. It gives the oil industry a significant win on its wish list.

The Obama Administration also announced that it will order the Department of the Interior to commence new lease sales in Alaska’s petroleum reserve, with the goal f having at least one lease sold by the end of 2011. It will also speed up environmental reviews.

John Howley
Woodbridge, New Jersey

Greece Invests Bailout Billions In Greener Energy

Greece announced today that it will invest 12 billion euros ($15.6 billion) in environmental and energy projects over the next five years. This amounts to more than 10% of the 110 billion euro bailout fund it received from the EU and the IMF.

If successful, Greece will get 40% of its electricity from renewable sources within 10 years, compared to only 4% today.

Imagine what 40% renewable electricity could do for an economy and an environment. Yes, it requires a large investment up front, but within 10 years Greece could get a significant portion of its energy needs from sources such as wind and solar that have zero fuel costs. Talk about a competitive advantage. Businesses in other countries will be paying inflated prices per ton of coal or barrel of oil, while Greece will have zero fuel costs for a significant portion of its energy needs.

Considering all the ways IMF bailout funds have been used by countries in the past (where, exactly, did all that money go?), investing in infrastructure that will reduce energy costs and emissions over the long term has to be one of the better plans.

Greece hopes to leverage its investment by attracting an additional 32 billion euros of private sector funding for energy infrastructure projects such as natural gas pipelines and storage terminals. It also hopes to create almost 200,000 new jobs in the process.

This will be fascinating to watch. Getting 40% of electricity from renewable sources and creating jobs over 10 years is not a pipe dream. I wish Greece all the best on this venture….and hope they succeed as an example for the rest of us.

John Howley
Orlando, Florida
www.HowleyGreenEnergy.com

The Power of Green Thinking (and Small Green Acts)

A friend invited me to join a Facebook group called the Carbon Conscious Consumer (C3) Campaign. The group has a simple agenda: To promote "6 easy steps that anyone can take to reduce our carbon emissions."

Many people scoff at such lists of "easy" ways to save the planet. Thomas Friedman, for example, worries in his book "Hot, Flat, and Crowded," that the "amount of time, energy, and verbiage being spent on making people 'aware' of the energy-climate problem, and asking people to make symbolic gestures to call attention to it, is out of proportion to the time, energy, and effort going into designing a systemic solution." He points out that the energy problems we face are huge -- if you convert global energy consumption into oil equivalents, we are consuming 420 million gallons per hour. We need game-changing technologies and policies, not just six easy ways to go Green.

I agree. So why did I join the C3 group and invite my friends to join too?

Because our daily thoughts and actions drive our national policies and investments.

Think about the 1980's and 90's. Does it surprise you that a nation of people who drove SUVs and built McMansions elected politicians in both parties who did not think about climate change or how our oil consumption was subsidizing despotic regimes? This is not an ideological issue. Very few people in either political party thought much about energy efficiency when buying cars and homes in the 80's and 90's. That thoughtlessness was an important driver of our national energy policies during those decades.

Since then, we have become more aware of energy and the environment as a result of a few extraordinary events. The terrorist attacks of September 11, 2001, and the realization that the terrorists came from countries subsidized by our oil purchases. The escalation of oil prices a couple of years ago. The current Great Recession. The debate over global warming.

Those of us who lived through gasoline and home heating fuel shortages during the oil embargo of the 1970's know too well how transitory these trends can be. How do we sustain our interest in sustainability?

By changing the way we act. People who act every day in small Green ways will enter the polling booths with a completely different mindset than people who drove their gas guzzling SUVs to the polls.

Besides, we must do something while we wait for the game-changing technologies. The six simple steps will have a meaningful impact.

Let's take just one of the six simple steps: Breaking the bottled water habit.

World consumption of bottled water has increased by 70% since 2001 to more than 200 Billion litres. Of that amount, Americans bought more than 33 Billion litres. That's a lot of plastic bottles that need to be manufactured, filled with water, shipped to warehouses and stores, cooled in stores or home refrigerators, and recycled or thrown into landfills where they will take up to 1,000 years to decompose. Each stage of this process uses much more energy than running tap water through a filter.

Will reducing or eliminating all this waste solve our energy and environmental challenges? No. But it's a start. And an American public that thinks about how much energy and other resources are consumed to produce a bottle of water is one that will think about energy and environmental issues when choosing its leaders.

That's why I joined the Carbon Conscious Consumer (C3) Campaign and am promoting the group to my friends. Because thinking and acting Green in our daily lives will make a difference today, and it is the only way we will build a public consensus to invest in the game-changing policies and technologies we need for the long term.

John Howley
Orlando, Florida

Northeast and Mid-Atlantic Governors Commit to Low-Carbon Fuel Standard

Governors of 11 Northeast and Mid-Atlantic states signed a Memorandum of Understanding (MOU) on December 30 that commits their states to developing a regional Low-Carbon Fuel Standard (LCFS), a market-based, fuel-neutral program addressing the carbon content of fuels.

The proposed regional LCFS would involve a market-based, fuel-neutral program to address the carbon content of fuels. If adopted by states, it would apply to the transportation sector, and potentially to fuels used for heating buildings. According to a press release issued by the Governors, a regional LCFS has the potential to reduce transportation-related greenhouse gas emissions, which represent approximately 30 percent of emissions in the region, reduce regional vulnerability to petroleum price volatility, and facilitate the long-term transition from petroleum-based fuels in the transportation sector. In addition, the Governors expect that the regional LCFS will spur economic growth related to development of advanced technologies and green energy jobs.

The Low-Carbon Fuel Standard initiative began in June 2008, when Massachusetts Governor Deval Patrick sent a letter to the governors of all 10 member states of the Regional Greenhouse Gas Initiative (RGGI) inviting them to work together on developing a Low-Carbon Fuel Standard that would apply to the entire region, creating a larger market for cleaner fuels, reducing emissions associated with global climate change, and supporting the development of clean energy technologies. Based on Letters of Intent signed in December 2008 by state environmental commissioners, the participating states - the 10 RGGI states plus Pennsylvania - have been doing preliminary work toward designing a regional LCFS program.

The LCFS MOU signed on December 30 establishes a process to develop a regional framework by 2011 and to examine the economic impacts of an LCFS while getting input from business and environmental stakeholders. The 11 signatories include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont.

Click here for more information on the LCFS work in the Northeast and Mid-Atlantic region.

John Howley
Orlando, Florida

KPMG Survey Suggests Shift Towards Hybrid and Alternative Fuel Vehicles

Senior automotive executives are expected to increase their investment in new technologies to produce more environmentally-friendly, fuel-efficient vehicles. This is the conclusion reached by the 11th annual global automotive survey conducted by KPMG LLP, the US audit, tax and advisory firm.

Of the 200 senior executives surveyed worldwide, nine in ten expect manufacturers and suppliers to focus on new technologies, while 88 percent predict manufacturers will increase investment on new models/products and 78 percent say suppliers will do the same.

Hybrid Seen As Most Important Fuel Technology

When asked to rate the importance of alternative fuel technologies over the next five years, hybrid fuel systems came out on top (almost 85 percent), followed by battery electric power (68 percent), fuel cell electric power (63 percent), and biodiesel (42 percent).

"The consumer mindset on fuel efficiency is forcing automakers to build more fuel efficient cars and to create new product that satisfies demand,"said Gary Silberg, National Automotive Industry leader for KPMG LLP.

The survey results come on the heels of sales data released earlier in the week showing that 2009 industry sales in the US were 21.2% lower than sales in 2008.

Fuel Efficiency Cited As Key Purchase Factor

The key question of course is: How much of the emphasis on fuel efficiency is the result of economic conditions, how much is due to stubbornly high fuel prices, and how much is due to climate change and environmental concerns?

The survey suggests that both fuel efficiency and environmental friendliness are driving consumer demand. When asked what would influence consumer purchase decisions over the next five years, fuel efficiency was most frequently cited (94 percent), fairly flat from last year's high of 96 percent, followed by environmental friendliness (just over 80 percent). Other consumer desires were significantly lower including safety innovation (71 percent) and vehicle styling (61 percent).

When asked which vehicles the executives expect will see sales increases over the next five years, hybrid fuel vehicles (almost 93 percent) were most frequently named, followed by other alternative fuel vehicles (83 percent), low cost or introduction cars (82 percent), cars (66 percent), cross-overs (46 percent) and small pick-up trucks (just under 45 percent).

Most surprising were the responses on incentives, including discounts, rebates and free offers. When asked to name which vehicles might see an increase in incentives during the next year, the top prediction was SUVs (53%). But almost an equal number of the auto executives surveyed responded that incentives would be increased for hybrid fuel vehicles (almost 50 percent) and other alternative fuel vehicles (48 percent).