Blue Marble Sustainable Investing

That was Then, This is Now.

One of the biggest arguments that China, India and other developing countries use when it comes to limiting their carbon emissions is that the rich countries emitted greenhouse gasses unrestricted when they were developing. Therefore, the current developing countries should be allowed to do so as well. This is an argument fraught with so many problems. I will attempt to discuss them each individually.

 The first and most obvious issue is that of scale. In the 1750s to the 1850s there were not near as many people on the planet as there are now. For instance, in 1750 it is estimated that there were 791 million people on the planet. In 1850 the number was 1.26 billion. In 1950 the number was 2.5 billion and in 2008 it was estimated at 6.7 billion.

So we are talking about a far smaller world population during the industrial revolution. Am I the only one who has picked this up? For the Chinese to argue what they are arguing is ridiculous. In 1750 the European and North American populations combined were 0.16 billion people. 1850 it was 0.30 billion. And in 2008 it was 1.07 billion.

What this means is that China wants to be able to pollute in an unrestricted manner for their 1.50 billion people based on the historical emissions for, on average, 0.50 billion Europeans and North Americans. That is ludicrous.

Next, lets think about the Mao years. During a period of massive industrialization in Europe and the United States, the Chinese people decided to fall back to an agrarian, subsistence communist state. Did anyone force them to do this while the rest of the world industrialized? No.

They chose this path of their own accord and as a result they now have to play a game of catch up and they are doing it using old technology. Why is that anyone else's fault but their own? Anyway why should we have to pay for it in terms of exported pollution and rampant GHG emissions?

As part of the massive industrialization of the European and North American economies more efficient power production came as a side benefit. Although not perfect, there were many advances made. The Chinese however are still using soviet era technology for many of their coal plants. In addition they are adding one almost every week. Why is it the rest of the World’s responsibility in terms of increased GHG emissions to allow the Chinese to pump out GHGs without regard to technology and efficiency?

The Chinese are also demanding that they be allowed “intensity” based targets. Well we have all seen this one before. Alberta? The Conservatives. China has about 500 million middle class city dwellers that are already at the Western level of GHG emission per capita. They have another 500 million waiting in the wings. Allowing intensity based targets will only slow the GHG emission trajectory. It will not alter the direction of it. In the next 20 to 30 years China’s coal usage is expected to triple. They are already the world’s largest GHG emitter and their pollution is winding up on North American shores.

So that was then and this is now. And now means that you cannot blame the past for the present. We did not know then that climate change was human induced or assisted. We do now. And that means that everyone has to do their part and limit, in an absolute manner, their GHG emissions.

Copenhagen, COP 15, is here!

The much anticipated Copenhagen or COP 15 (Conference of the Parties 15) round of climate negotiations started December 6th and ends on December 18 of this year.   Representatives from 170 countries and over 8,000 people are expected to attend and at the end of it all there is expected to be a Copenhagen Protocol to replace the Kyoto Protocol which ends in 2012.  

With representatives from over 170 countries I expect that it will be like herding cats. And like cats, I expect there will only be agreement if they all think it was their own idea or there is a lot of food (money) on the plate.  

Will an agreement be reached? I would like to think that there will be.  Despite the problems that the Kyoto Protocol has faced, there are a lot of reasons why this will proceed.   First, the global warming debate is all but over. Deniers there are many, but they are the minority in the scientific community and despite some controversies (East Anglia University noted) it is unlikely that anthopogenically caused global warming will be disproved; the Pascalian wager that it is in spite of the science.  

Next, the argument of “you did it in the past and we should be able to do it now” is losing its punch. It is becoming a “that was then this is now” argument. With tonnes of Chinese generated air pollution reaching the  North America coast it is also becoming a global pollution issue. Solve the GHG emissions issues and you solve much of the air pollution issues by default.  

It is also becoming a national competitiveness / border taxation issue as well. Europe has adopted very aggressive emission reduction targets and even in the absence of an agreement will continue to do so. Does anyone really think that they will accept foreign made goods from jurisdictions that do not have the same strict emissions targets and laws to the detriment of European industry? Think again. Carbon border duties are already being discussed and promulgated as a very sophisticated solution to the problem of non-compliance with GHG reduction agreements.  

And really, why would a country accept these products that have cost advantages partially due to lax or unenforced environmental and emissions laws and that contribute to the erosion of domestic manufacturing? The possibility of border carbon duties is a reality and may actually be the catalyst that gets the Chinese, Americans, and Canadians to the table in a meaningful way. Can you imagine Canadian tar sands producers having to absorb a 10% carbon duty on their exports? Oil is a commodity and no one is going to pay extra just because it comes from Canada.  

So in the context of getting the BRIC countries, US, and Canada on board, there are some very compelling issues at hand. The next item the parties will have to tackle is the Clean Development Mechanism. If ever there was a bureaucracy this is one. But it has not occurred for no good reason. There have been some very suspect projects and even though they have resulted in GHG reductions, they met the additionality test on a very superficial basis. Participants will also have to address programmatic CDM and Portfolio of Domestic Commitments approaches.  

No matter what happens it is imperative that hard targets be maintained. Intensity based targets are a road to nowhere and ultimately reflect head in the sand thinking.   As a species of mammals on this planet, we should all be greatly concerned with the outcome of this meeting.            

 

Water on the Moon

You may have heard in the last two weeks that NASA has found water on the moon. On October 9, 2009 NASA basically crashed a rocket and sensing satellite into the moon. What this did was to cause a plume of lunar dust which was then analyzed by the sensors for composition. According to NASA officials the equivalent of 25 gallons of water was estimated to have been stirred up by the explosion.

Next came prognostications on what this all means for space travel. Ideas ranged from being able to convert the water to hydrogen and oxygen for future space travel that would allow for longer missions to establishing a scientific lunar colony.We were also reminded that ex-President Bush had proposed $ 100 billion to take astronauts to the Moon and then onto Mars. And of course, this would not have been complete without former Astronaut Buzz Aldrin stating that he still believes that the US should focus on colonizing Mars.

I may be dating myself when I say that I was watching TV the day the Apollo 11 mission landed on the Moon and Buzz Aldrin and Neil Armstrong took their stroll on its dusty terra firma. I also heard Neil Armstong say “This is one small step for man, one giant leap for mankind.” I was excited, I was full of hope, I was dreaming of being an Astronaut, and I was 8 years old.

Four decades later I am older and much wiser. So it may come as no surprise to you that finding water on the moon and all the hype around it are now met with wonderment of a different kind. I wonder why it is that mankind, having taken that great leap 40 years ago, cannot address the many problems on the planet with the same fervor, determination, commitment and budgets that are regularly committed by world governments to endeavours of this kind?

To me, the concept of spending billions and ultimately trillions of taxpayer’s dollars on Moon exploration or Mars exploration and possibly colonization is just the most ridiculous thing I have ever heard of now.  We have, under our feet, one of the most amazing planets in the Universe. And accepting that there may be other planets just as wonderful, the reality is we do not really know of any.

So why would we not spend our time and effort making sure that the one planet that we have that can support us remains that way? And while we are at it make it so that everyone on the planet is taken care of appropriately. Why it occurs to anyone on this planet that the establishment of a colony or a base on the Moon or Mars is even a good idea escapes me because the underlying logic fails all tests of reasonableness.  It cannot be justified on learning more about Earth. You can explore the Earth to do that. And the argument that we could have an extra place to live is just insane. Can you imagine the resources from an already overextended Earth that would be required to do so?

As I listened to the news reports about the discovery of water on the moon I thought of a list of discoveries that may serve our planet and the people resident on it so much better. Discover a way to end war. Discover a way to end pollution of all forms. Discover a way to feed, without harm, all people on the planet. Discover a way to efficiently use the resources of the planet without destroying its beauty. Discover transportation that powers itself with no pollution. Discover non-polluting energy generation.

Maybe then I’ll get excited about water on the moon.

Ponzi Schemes - The Suspension of Disbelief

Yesterday the BC Securities Commission levied the largest fines ever on the perpetrators of a Ponzi scheme that cost 800 investors about US $ 13 million. They have to pay $ 26 million in penalties and disgorge (give back) $ 16 million. Good luck. This money is most likely long gone and the possibility of the fines being paid is remote at best.

Ponzi schemes are alive and well and always will be. I used to think "OK, now people will smarten up and there won't be anymore of these" after the latest Ponzi scheme was uncovered, exposed, and prosecuted. Especially after the Madoff one. I was wrong. I will always be wrong to think this.

It seems there are two factors that contribute to this endless trail of financial ruin. First, there is no shortage of people looking to make a fast buck by taking advantage of others. In fact, I believe that our society contributes to this problem by focusing on the things that wealth can bring instead of the real work that is required to attain it. The second factor is the ability of people to completely suspend disbelief when presented the opportunity for quick riches.

Ponzi schemes are everywhere. I know. I was approached by two characters once. All the red flags were there. It was a High Yield Investment Program (HYIP) that offered 50% returns per month by trading secret high yield bank instruments. It was simple. You gave them money, they sent it to their guy in Bermuda (flaming red flag), he trades it with his secret trader, they send you 150% of your money within a month. Of course I would have had to sign a confidentiality agreement and by the way would any of my investment clients be interested?

What they did not now was that I had been a bond trader and knew how the system worked. After I had ripped apart their offer I told them it was a Ponzi scheme and that it would end in tears. I also reported them to the local securities commission. They were not happy when they drove away in their severely rusted 15 year old luxury vehicle. It happens.

It could happen to you. Here is a big tip. When ANYONE offers you investments that produce an annual return greater than the long term rate on Canada bonds or the long term rate of return on equities (about 7% per year) then start to ask questions. Your instincts will give you valuable information that you should listen to. If it seems too good to be true it likely is.

Everyone likes to think that they are savvy investors. Frankly few are because they are human and subject to two emotions that get them into trouble all the time. Fear and Greed.

So the next time you are talking to someone about an investment scheme and you start saying to yourself things like "this is great I am going to be rich", or "this is too good to be true", or "wow this is amazing, I cannot believe these returns" stop and take a moment. Remove yourself from the situation. Do not make a decision. Tell them you will get back to them. Then call the securities commission first to see if they have heard of the offer. Next, get professional advice. Seek out a Chartered Financial Analyst (CFA) and ask about the offer.

Do this, and you will save yourself embarrassment, the pain of severe financial loss, and the nagging feeling that you should have known better.

Crazy Ideas or Lazy Ideas? Maybe both!

I have little time to watch television as I find much of it is a waste of my grey matter. I can actually feel my brain cells dying when I watch certain "reality" shows. But once in a while when I flop down on the couch after a day of work I may end up watching an hour if I am too tired to read.

Last night was such a night and I happened to end up watching 20/20 with Elizabeth Vargas and the two authors of Freakonomics and their latest effort Super Freakonomics . I have to say it was an extremely interesting show and I plan to pick up the reading to add to my "to read" mountain I have in my bedroom.

While interesting, one of the ideas presented really made me think. The authors of the books have been in touch with a firm called Intellectual Ventures that spends its days coming up with new and innovative inventions. Frankly, it is an impressive enterprise and tackles some very important problems solving them with science and engineering.

That may be well and good but one of their ideas made me stop and question whether or not it was a crazy idea, a lazy idea or both. The idea essentially is to raise a tube the size of a garden hose to a level of 100,000 feet or so into the atmosphere of the planet and pump sulfur dioxide through it to help cool the planet and thus help solve global warming. The thought being that it is easy, cost effective, and doable in the near future.

I imagine there will be many that will say "What an excellent idea. We don't have to change what we do and we can still cool the planet by pumping sulfur dioxide (the precursor for acid rain) onto the atmosphere". Yes, sulfur dioxide is the stuff that we have for years been trying to reduce emissions of into the atmosphere by coal fired power plants principally because it causes acid rain. Does anyone see the problem here?

What struck me at that moment is how human it is to look for the cheap easy fixes that typically have unintended consequences. And because of their expediency and the tacit permission they given humans to keep doing what they have always been doing instead of the real work that has to be done for permanent change, they are widely accepted, approved, and implemented. They are, in essence, crazy and lazy ideas at the same time.

It is my honest hope that humans are better than this.

Gutless Wonders

I used to think Canada was a leader. I used to think that Canada was run by people who wanted the very best for its citizens. I used to look at the Canadian flag with pride and know that the world viewed our country as the place to be.

I will always remain an unwaveringly loyal Canadian. To my country. But not to my politicians. In the context of global warming and leadership we have, through our government (?) in Ottawa, the equivalent of the world's most gutless wonders.

John Baird the previous Minister of the Environment and Jim Prentice the current Minister of the Environment are nothing more than shills for the Alberta tar sands producers. And yes it is tar sands not oil sands. I know because I ordered a 5 gallon pail for testing and there is NO way on this planet they could ever be called oil sands.

Canada, under the Conservatives, has become the laughing stock of the Kyoto Protocol. They have basically ignored the Kyoto Implementation Act, a law of Canada. I wish I could ignore the Income Tax Act in the same manner. And to think it was a Canadian that lead the Rio Earth Summit in 1992. Frankly the Liberals faired no better. And the NDP would likely not know what to do if they ever attained power. I carry no colours.

But now, the Canadian government is being particularly obstinate in this period preceding the Copenhagen talks in December. They insist on smaller reductions when everyone is looking for greater commitments. They want China and India to agree on binding caps but they do not produce their own plan and want the tar sands to be able to continue expanding, environmental train wreck that it is, under intensity based targets.

For what it is worth, and this is my opinion, Canada and its government should man up, strap on a pair, and get to work. By committing to serious reductions and getting on with the work required to achieve them, there is no reason why Canada could not become a leader in this field. Do we have enormous challenges? Yes. But if we rise to the occasion and meet them head on the technologies we develop could be world class and provide many of the jobs lost in the last year.

Right now our country is the equivalent of a buggy whip manufacturer in 1901 and it is the actions of this collection of Gutless Wonders in Ottawa that will keep us there. And we all know what happened to the buggy whip manufacturers.

Copenhagen

Copenhagen. The city not the chewing tobacco. Perhaps one of the most important climate change meetings that will occur this century.

The document that will be produced and  the global carbon finance compliance regime that will follow the Kyoto Protocol is quite likely to be viewed as one of the most important inflection points in human history.

 While that may seem overly dramatic, the truth of it is in the air we breath, the oceans we sail upon and the land we live on.

 Performance on the Kyoto Protocol has varied from the overtly pathetic and gutless actions of the Canadians (yes we are the pariah of the Kyoto Protocol) to the stellar performance of Denmark, the host country of the meeting.

 So what are the issues that face the talks at Copenhagen?

 For starters China, India, and Brazil are some of the big players that will have to be included in the final document. More and more they are becoming very large carbon emitters. And the argument that current developed nations polluted in the past is reason enough to allow newly developing nations to pollute in the same manner now is no longer valid.

 Of course the next issue is the United States of America. Like it or not, they will have to participate for the new document to have any serious hope of accomplishing the mammoth task ahead of the governments of the planet.

 Why is it important for the USA to participate? They produce over 25% of the planet's greenhouse gases. If China also participates then combined we will have two countries that account for almost 55% of the planet's greenhouse gasses.

 As you are likely aware the USA signed but never ratified the Kyoto Protocol which while tough was better than Canada signing, ratifying and then reneging on their commitment.

If the USA signs on, and it looks like they will, then we have a much greater chance of making the new agreement that much stronger. Having the majority of the world’s countries sign on would be a very positive step.

 The next issue then becomes dealing with developing countries and refining the current mechanisms for carbon emission reductions and credit generation.

 The two current mechanisms are the Clean Development Mechanism or CDM (developed country to developing country project) and the Joint Implementation process or JI (developed country to developed country projects).

 The CDM has been plagued by a slow and bureaucratic process and the costs of registering a project have steadily increased. For it to be an effective process, and it certainly could be, there must be more staff, faster approvals and lower costs.

 The JI process has been used very little and it may just be a wise move to eliminate it altogether and simply use one process for all projects no matter who the country participants are.

 The next issue is to make the commitments required by all countries significant enough to make a difference. A real difference. 20% reductions from the current levels are not near enough. We need at least 50% reduction from 1990 levels to make a serious difference.  There has to be hard penalties for non-compliance. Otherwise you will have the possibility of countries pulling a “Canada” and signing the agreement without any real intent to actually meet their commitments.

 Finally, the new agreement should be permanent with 20 year commitment periods and 5 year performance review and penalty periods.