Financial meltdown slams corn ethanol and threatens mass transit, but Big Oil still riding high

(Photo of ethanol plant from Flickr and and photographer freddthompson, actor, senator and presidential candidate)

Weekly Angst: Because of the financial meltdown, ethanol companies are struggling and some are going under. Caught between corn contracts signed last summer when prices were sky-high and lower fuel prices, and with credit hard to come by, businesses are seeing the ethanol bubble of the past year burst. Investors have lost billions. VeraSun Energy, for example, expects to lose up to $103 million this quarter. Its stock is down 90% from its peak earlier this year. And ethanol companies in Kansas and Ohio declared bankruptcy last week. The Agriculture Department is considering loan guarantees to keep ethanol businesses afloat.

Mass transit hits trouble
Mass Transit agencies are also caught in the crunch. They face having to pay banks billions as old financing deals fall apart. The problem was triggered by the failure of insurance giant AIG, which guaranteed deals between the agencies and banks. Because of long-standing agreements to give banks tax shelters by selling them rail cars and then leasing them back, some 30 mass transit agencies around the country are now in danger of having to pay back their loans all at once. Washington, D.C.’s Metropolitan Area Transit Authority is the first to be hit. KBC Group of Belgium wants $43 million by next week. The feds may have to get in the middle of this one too – to keep the trains running.

Other repercussions include cancellation of a coal-to-liquid joint venture between Consolidated Energy and Synthetic Energy Systems and the delay of a SunCor Energy oil sands project in Canada. (No tears shed over those).

Major oil companies in good shape
So how is the meltdown affecting Big Oil? With prices dropping rapidly you might think they’re feeling the pain. But apparently not. With record profits last year, they have reduced their debt and are cash fat. So now they can buy up distressed smaller rivals and make deals with resource-heavy countries. Production may be down, but refining should be profitable this year. And they expect less pressure to pass windfall profits taxes. So lower prices and lower demand don’t really bother them. (No one ever said life is fair.)

On the bright side
The economic downturn could benefit green technology, though. It could give government a historic opportunity to climate-proof its infrastructure as part of a public works effort to generate jobs. This may translate into an investment opportunity, says a recent report from Deutsche Bank. The International Energy Agency has called for a $45 trillion investment in climate related technology by 2050. And Deutsche Bank says renewable energy investments have more promise in the long term than tradition energy sources.

At the same time, venture capital continues to flow into Silicon Valley and California in general. VC investments in energy and utilities were up in the 3rd quarter 90% over the same period last year, as investors pulled back from other sectors like information technology, media and financial services. Clean tech reported a record $1.08 billion in investments, most of it going to solar. In the Bay Area, which includes Silicon Valley, overall VC was up 22%, the highest single-quarter total since 2001. One benefit of green technology is most of it is tied to government policy so it’s not as vulnerable to swings in the market.
Observers are waiting to see the results of this quarter, however, anticipating that falling oil and carbon prices could have an impact. VC fell in the third quarter in other parts of the country.

And Neal Dikeman, of Jane Capital Partners, warned that a prolonged financial crisis could have an adverse effect on a 2012 post-Kyoto international agreement to fight global warming, by either delaying or weakening it.

For additional comments on the financial crisis’ impact on climate change see my earlier post.

(Sources: Greenwire, Washington Post, Wall Street Journal)

Deforestation: inevitable as population surges?

(Photo of deforestation in Brazil from Flickr and photographer [cas]/Sotto)

Weekly Angst: World population growth, up from 6 billion to 9 billion (that’s 50%) in the first half of this century will likely lead to cutting down forests to provide more food, fuel and timber, two new reports say. The Rights and Resources Initiative, a global coalition of environmental and conservation NGOs (non-governmental organizations) expects land the size of 12 Germanys will to be cleared between now and 2030.

“Arguably we are on the verge of the last great global land grab,” said Andy White, co-author of one of the reports, called “Seeing People Through the Trees.” And this is going to cause conflict, as well as global warming.

Governments still own most of the forests, said the second report, “From Exclusion to Ownership,” but have been unable to prevent industrial incursions. In Brazil, soy and sugar cane for biofuels are likely to take another 247 million acres from the Amazon rainforest by 2020.

There are several problems intersecting here.

Population growth and economics
First is the rapid and relentless growth of population on the Earth. In 1950 the population stood at just 2.5 billion. By 2000 it was 6 billion, more than double. This week it is 6.7 billion and by 2050, the UN estimates, the number will reach close to 9 billion (8.9B if you want to be exact).

So not only are developing countries trying to lift their people out of poverty with their own industrial revolutions, but there are increasingly more people to lift. More food, more fuel, more plastics, more cars and more electricity will be needed. (China, by the way, points out that without its one-child policy its population would be far bigger than it is.)

Then there’s the difficulty of maintaining forest in its natural state when money is to be made from clearing it to plant crops, grow cattle and sell timber. Most of the forest likely to be cleared is in developing countries, the reports said.

The Amazon rainforest
The Amazon rainforest is a case in point. The largest in the world, it is often called “the lungs of the world” because it consumes CO2 and produces 20% of the Earth’s oxygen. It contains 1/10 of the carbon dioxide stored in land ecosystems on the planet.

After 3 years of declining deforestation in the Brazilian Amazon (due to enforcement and the low price of soybeans), the tide turned last summer, and an estimated 1,096 square miles were lost in May alone.

Brazil is No. 4 in emission of greenhouse gases, not because of fossil fuel plants, but mainly (70%) because of deforestation.

Brazilian officials, under world scrutiny, say outsiders, including NGOs, are grabbing their land, stealing medicinal plants, spying and logging illegally. They say they fear the outside world is after their considerable resources.

Other forests at risk
The Amazon isn’t the only place forest is disappearing. Parts of Asia are losing more than 10,000 square miles of forest every year.

And Canada is logging its boreal forests (mainly evergreens) at such a rate that, combined with permafrost melt, it could produce a “carbon bomb,” according to Greenpeace. A report by the University of Toronto, “Turning up the Heat,” said a 1993 study showed Canada’s large swath of boreal forests stored 186 billion metric tons of carbon (27 times what the world emits from fossil fuels in a year), two-thirds of it stored in the soil. When trees are destroyed, not only is carbon released from them, but also from the soil that is exposed.

The province of Ontario last week promised to preserve 55 million acres, or at least half, of its pristine boreal forests from future development, keeping it as an undisturbed ecosystem and carbon sink. What about the other half? Chainsaw massacre?

More research, more regulation
The interaction between forests and climate change is complex. Droughts can damage forests and so can wildfires and pests brought on by warmer temperatures. The Amazon is threatened by increasingly frequent droughts. A Smithsonian research study going on now on an island in the Panama Canal suggests that as temperatures rise, trees slow their growth and absorb less CO2. There also is the issue that trees, as they get old, reach a point where they don’t take in as much carbon.

Clearly there needs to be more research, and a worldwide agreement to save or replace the forests we have – and not lose more. World officials meeting in Bali last December agreed credits should be given for saving rainforest, a step in the right direction. The details need to be worked out between now and 2012, when a post-Kyoto agreement would begin. And likely the wealthy nations are going to have to pony up.
(Sources: Thomson Reuters, PlanetArk, Greenwire, ClimateWire, State of the Planet 2006-2007, U.S. Census Bureau)