Perpetual Innovation

Category: externalities

  • Contura Coal Goes Public — jumping off of the coal train!

    Contura Energy is going public. (CTRA).

    On the one hand, they have a lot of metallurgical coal; on the other hand it seems like a rather bad investment — especially long-term.

    All the proceeds will go to buy out existing stock holders. Existing shareholders are based on creditors… Alpha Resources went bankrupt and the Contura Energy company rose out out of the ashes.  (After Peabody went bankrupt also in 2016, about half of US coal miners, and about half of US coal production comes from bankrupt mining companies.)

    At some point, coal should hit peak simply because we eventually run out of it… But based on reduced demand, it appears to have peaked in 2012 (see peak coal).

    Coal really should be taxed because of the massive negative externalities. No one anywhere can think that the cost of coal at the meter in anyway resembles to true cost of burning coal. Many of Contura’s mines are strip mines, so the added environmental costs are huge in those local areas. Health impacts affect hundreds of millions of people and contribution to deaths is millions.

    Remember one of the dirty little secrets of coal: Coal Ash.

    Environmental impact of coal. The true costs of coal, including externality costs, could easily be at least twice what we pay for it per ton. One estimate in Europe is that hidden coal costs are 1-2% of GDP.

    Plus there’s the major contribution to greenhouse gases.

    China, the world’s largest consumer of coal (50%) is back-peddling on coal at an astounding rate. At one point, less than 10 years ago, they had 2 new coal-powered plants coming on-board every week. Now, they may have only a handful more (finished). Like the US, we can expect China to continue converting their coal to NatGas.

    As a percentage of the world primary energy mix, coal has dropped below 30%, never to return again. In the US, NatGas has switched with coal as the primary source of electric generation (coal dropping from about 40% ten years ago to only about 30% now). NatGas is so much cheaper, cleaner, safer. Plus the renewables are really starting to be competitive and gain critical mass. Many wind and solar projects are getting to be cheaper per KW than coal (before considering externalities).

    India is the other big wildcard. In many cases they are aiming to skip the smokestack technology and go straight to solar. In many cases, India has serious water issues (since mass amounts of water are needed to run steam turbines in conventional energy).

    So, is it a good investment to buy into the Contra IPO? All the money goes to giving existing shareholders a parachute so that they can get out of the coal plane — well, off of the coal train, technically.

    ‘via Blog this’

  • The State of Green Business, 2016 | GreenBiz

    The State of Green Business, 2016 | GreenBiz:

    The latest report by GreenBiz (and Trucost) on the State of Green Business is great. Optimistic, but no green-colored glasses. There was a lot of progress in Paris (COP21) in December, but the progress from businesses is were major progress seems to be forming.

    It is great to see businesses taking more control and starting to shape sustainability arguments and the form the solutions. We at SustainZine are not great proponents of big government efforts coming to “help” solve all the world’s sustainability issues; businesses can avoid this help by being proactive (and no, proactive does not mean and army of K-street lobbyists protect smoke-stack industries and to inhibit all forms of progress).

    More and more companies are offering more transparency about social and environmental impacts. More companies are stepping forward with transparency on the labels (Campbell’s “non-GMO” labeling, for example) and more transparency on the footprint of the supply chain, and cradle-to-cradle efforts. Management should monitor their full impact on the environment, and investors should care about progress in the most critical areas of the business. Employees are critical to any and every sustainability effort, on corporate facilities, in transit, or in their personal lives.

    It is possible to develop new business models. The sharing economy is kicking huge industries in the rears.  The sharing economy is causing massive and dynamic reallocated of time and resources of homes, cars, crowd funding and innovation on a time-share basis. The old economies of taxis and hotels are going to have to scramble to stay relevant, often sending them to court and to congress to try to stop the renegades from tipping over the ship. The time and resources savings from a sharing economy, often have profound savings to the environment. Many of these improvements in performance will go unmeasured by the traditional metrics of performance (like GDP).

    On a leadership level. Just saying it out loud, seems to be the GIANT step: measurement, forming initiatives and the monitoring progress toward goals. As of 2014, about half of the companies had Greenhouse Gas (GHG) reduction targets. That percentage seems to be increasing at about 2-4% per year since this reporting was started a decade or so ago.

    The current targets by companies represents only about 28% of what is needed in reductions by about 2030 of about 3 gigatons of GHG emissions reduction per year. With the magic of compounding geometric growth, the required reductions per year would need to be about 32 gigatons each year if we wait until 2050. (Or 51 gigatons reduction per year if we continue business as usual until 2100; obviously far too late to consider seriously since CO2 persists in the atmosphere for about 100 years.)

    Sidebar on GHGs. In terms of greenhouse gasses, this year has blasted through the 400 ppm level for carbon dioxide in the atmosphere. Look at the Keening Curve on this. January 2016 was 402.5 ppm. We may never be below 400 ppm again. Since this is an El Nino year, the September-to-September increase should be about +4 ppm, not the current trend of +2.2ppm per year base on the lowest month of the year (September in Mauna Loa, Hawaii). Paul Keening developed this curve starting with observatory data starting in 1958 when the CO2 level in the atmosphere was below 320 ppm. At that time the annual increase was about +0.75 ppm but quickly jumped during the global industrialization to the current average increase of +2.2 ppm each year. Many (rapidly becoming most) scientist believe that we need to get down below the 350 ppm level to avoid massive impacts from warming and climate change.

    A decent percentage of companies are reporting on water, about 20% in the US and 15% globally. This seems unnecessary for many companies.

    There is an interesting discussion and presentation related to natural capital (R&D, investments, profits and savings).  Natural capital costs are the unpaid costs to the economy from pollution, natural resource depletion and related health costs (see the Natural Capital Project and at Stanford). Natural capital takes into consideration factors that tends to elude normal accounting and finance. A company’s financials may show profits, but when all costs are considered — including externalities — those profits might evaporate. In fact, the S&P 500 have natural costs of about $1T per year and overall natural costs have escalated about 22% since the great recession. If all costs were considered, about 115% (to 153%) of corporate accounting profits would be wiped out in the US (and globally). (Even if you question the cost assignments for natural costing, the general methodology is sound; and this is not a pretty picture of corporate sustainability in terms of true profits.)

    So, in the real world, with full costing, corporations, on average, are not profitable. And, if the company is not sustainable, then the true costs and profits are not real. Right?

    Innovation and patents: Lot’s of CleanTech patents, but the number is way down. The measure of Clean Tech patents is fuzzy and getting fuzzier. Electronic and auto companies (Toyota & Honda) are at the top of the list of patents. But IBM is not listed.

    GreenBiz and Trucost have a wonderful 2016 report; and lots of progress is being made, in large and small ways. But keep in mind that too much reporting is, well, too much. We don’t want businesses to adopt (or have forced on them) the same approach from education where testing and reporting has replaced much (most) of the teaching/learning!:-(

    But, for the 50% of business that is not reporting (may not be monitoring at all), no metrics and no reporting has multiple implications. First, you obviously don’t have a business plan, if you don’t also have a sustainability plan in it. Second, you definitely don’t know your true costs if you don’t assess externalities and supply chain. Third, you have no idea what all your risks are, so you have no ability to manage or mitigate them. Even Sarbains-Oxley would have to kick in at some point when it becomes “material” to the company. Lastly, you don’t know if you are actually, and truly profitable, your accounting system misrepresents the business.

    If you like Sarbains-Oxley, then you will have no end of joy if/when governments starts requiring more environmental or natural capital reporting. Seems like businesses should take initiatives voluntarily, and on their own terms. A sustainable leader would insist on knowing a fully sustainable path forward. Investors, business partners and employees would want to know.

    Note that this report is based on a Trucost database of 12,000 global companies that represents 93% of the world markets by market cap.

    ‘via Blog this’

  • China Pollution Is Blanketing America’s West Coast – Business Insider

    China Pollution Is Blanketing America’s West Coast – Business Insider:

    Oh boy.

    We export raw materials and coal to China so they can make finished goods and export them back to us in the West/USA. They don’t have the safety worries that we do… Some of the externalities affect only China, but many affect us all, especially those countries and environments closer to the mainland of China.

    “Cities like Los Angeles received at least an extra day of smog a year from nitrogen oxide and carbon monoxide from China’s export-dependent factories, it said.

    “We’ve outsourced our manufacturing and much of our pollution, but some of it is blowing back across the Pacific to haunt us,” co-author Steve Davis, a scientist at University of California Irvine, said.”

    Yuk! 🙁

    A good economist would argue that  products (say coal, especially the really dirty, high sulfur stuff) that produce negative externalities should be assessed a tax that roughly matches the costs of the externality. Using this logic, we would tax coal (especially high sulfur coal) that goes to a developing country, and tax them even more if they intend to burn the coal without scrubbers and such. This might not stop them from burning coal, but it would make other options more attractive that are cleaner (less negative externalities).

    Unfortunately, China has a LOT of coal in the country. They now burn more than half the world’s coal each year, so they do have to import it as well.

    ‘via Blog this’