US formulating Energy Policy

The Bush administration has appointed former ExxonMobil CEO Lee Raymond and the National Petroleum Council to chart America’s energy future.

Lee Raymond, chair of the National Petroleum Council, is to provide the administration with policy recommendations for the long-term direction of the nation’s energy policy. As chair, Mr. Raymond was granted the power to handpick the study’s leadership.

Why should we care? In the 1990s, Exxon Mobil began a multi-million dollar subversive disinformation campaign to undermine the science on global warming and delay action. The company vocally opposes U.S. energy independence and presses for deeper reliance on oil-producing nations such as Saudi Arabia where the company has sunk heavy investments. Raymond denies that oil dependence is a problem, and he considers renewable energy an uneconomical investment.

Action Needed on Global Warning

Jeremy Siegel (author Stocks for the Long Run) discusses the possible impact of global warming in his column The Future for Investors at Yahoo! Finance. His biggest concern is that rising oceans would flood major cities. He recommends emissions trading as a market-based solution. Excerpts below.

Link: Action Needed on Global Warning: The Future for Investors – Yahoo! Finance.

The reality of global warming is now accepted by virtually every scientist. And the economic consequences of this warming are going to impact our world much sooner than I had anticipated.

Some of the changes wrought by global warming are favorable. Warmer temperatures increase the growing seasons in Canada and Russia and reduce heating costs in northern climates. However, global warming also increases tropical storms and droughts and could disrupt the Gulf Stream that warms Europe. On balance, the above consequences are negative for the world economy, but not substantially so.

However, there is one consequence of global warming that could be absolutely catastrophic: a significant rise in sea levels due to the melting of the polar icecaps.

Rising Water Levels

There is no question that sea levels are now rising. Both land and sea measurements indicate that sea levels are rising between three and four millimeters a year. At this rate, it would take at least 250 years for the seas to rise one meter. But the rise is unquestionably accelerating and has more than doubled over the last century. In southern Greenland, the country’s largest glacier, Jakobshavn Isbrae, has doubled its rate of slide to the sea between 1997 and 2003, a mere six year period. This glacier alone has contributed 4% to the rise in world sea levels.

And there is no controversy about what would happen to seas levels if the great ice sheets in the polar regions were to melt. The melting of Greenland’s ice would add seven meters to the ocean levels, West Antarctica (where the Larsen B ice-shelf recently broke off, causing glaciers to move two to six times faster into the ocean) would add another six meters, and East Antarctica, would add a devastating 70 meters, submerging almost half of the world’s population.

The scary forecast is that this process could take place in a matter of decades. The last great ice sheet collapse, about 14,000 years ago, sent the seas up a total of 20 meters at the rate of a meter every 20 years for 400 years. We are now seeing rapid melting in Greenland and Antarctica not dissimilar to the sea ice collapse the earth underwent after the last ice age.

If this pattern continues, the seas could be 10 feet higher in a mere 60 years. Of the five largest cities in the United States (New York, LA, Chicago, Houston, and Philadelphia), only Chicago and my own Philadelphia would not be seriously impacted. (If you think this comforts me, it does not. I would need a boat to reach the second floor of my home on the Jersey shore). And goodbye to New Orleans and trillions of dollars of real estate that lines our coasts. The economic consequences of rising waters would be catastrophic.

The scary forecast is that this process could take place in a matter of decades. The last great ice sheet collapse, about 14,000 years ago, sent the seas up a total of 20 meters at the rate of a meter every 20 years for 400 years. We are now seeing rapid melting in Greenland and Antarctica not dissimilar to the sea ice collapse the earth underwent after the last ice age.

If this pattern continues, the seas could be 10 feet higher in a mere 60 years. Of the five largest cities in the United States (New York, LA, Chicago, Houston, and Philadelphia), only Chicago and my own Philadelphia would not be seriously impacted. (If you think this comforts me, it does not. I would need a boat to reach the second floor of my home on the Jersey shore). And goodbye to New Orleans and trillions of dollars of real estate that lines our coasts. The economic consequences of rising waters would be catastrophic.

Solving the Problem

Clearly we must stabilize the levels of carbon dioxide in the atmosphere. Some suggest that it might cost 5% of GDP to do this, but most estimates are much lower, at 1% of GDP, or below. And actions to stabilize CO2 may not require a complete switch into solar, wind, nuclear, or hydrogen-based energy sources. The emissions from coal, the cheapest, dirtiest, and most abundant fossil fuel, can be harnessed by a process called “sequestration,” where emissions from coal plants are captured and stored underground.

I believe that to encourage such technologies, the U.S. and developing nations must take action. The U.S. now emits the most greenhouse emissions, but China and India will soon overtake us. That means that the U.S. must enact its own greenhouse measures (or renegotiate the Kyoto Accords) and use its clout to persuade China and others to participate.

I like the Emission-Trading Scheme adopted by Europe, which limits how much carbon dioxide producers can emit by letting them buy and sell emission credits. Carbon taxes are another possibility, but I don’t like handing the government more revenue. We could impose carbon taxes that are matched by tax reductions elsewhere so that the scheme is revenue neutral.

Successful emission controls programs can benefit us elsewhere. Pollsters tell us that “energy independence” is currently a hot political issue that cuts across all party lines. No one likes to give billions of dollars to oil-rich countries, many run by anti-American dictatorships. On balance, emission controls and energy conservation reduce our dependence on foreign oil.

Insurance Policy

There may be only a very small probability that a worst-case scenario that I painted above – the flooding of the world’s coastal regions – will occur. But that’s precisely what insurance is all about. Is it not worthwhile to take necessary measures today to significantly reduce the possibility of this event?

I think so. The fact that scientists have recently confirmed that the Gulf Stream inexplicably came to a halt for 10 days in November 2004 serves as a warning that changes may occur quickly. Let’s take action when the costs of doing so are still manageable.