naked capitalism

If my RSS reader is any guide, most of the press about shale gas has focused on two issues. First, shale gas is in considerable supply, cheap to produce, and burns far cleaner than other fossil fuels. Second, shale gas does not look so hot environmentally, all in. Fracking can pollute ground water (and potable water is our most scarce resource) and releases enough methane to make shale gas as detrimental as coal. Still, it has been treated as the Great Hope for America’s energy woes, a way to turn the US into an exporter, and maybe it will cure cancer too. Obama touted 100 years of shale gas reserves, and manufacturers envision an American revival based on cheap fuel.

The problem is that the good part of this story is largely wrong. Shale gas supplies are overestimated, and it is not as cheap as it has been touted to be. The big reason is that shale gas wells, unlike oil wells, peter out really quickly. The result is that the viability of shale gas as a solution to America’s high energy consumption level is only on an interim basis. Shale gas is more likely to be a stopgap, a 25 year solution rather than a 100 one.

As with the housing bubble, analysts and journalists who understand the economics are giving clear warnings, but they don’t seem to be getting much of an audience. For instance, Jeff Goodell in Rolling Stone wrote in March:

At the same time, scientists began to conclude that America’s reserves of natural gas have been overhyped. In January, the Energy Department cut its estimate of the amount of gas available in the Marcellus Shale by nearly 70 percent, and a group affiliated with the Colorado School of Mines warns that there may be only 23 years’ worth of economically recoverable gas left nationwide. Even worse, new studies suggest that because of fugitive emissions of methane from wellheads and pipelines, natural gas may actually be no better than coal when it comes to global warming.

In February, no doubt annoyed by Obama’s State of the Union claim of 100 years of shale gas, aeberman of The Oil Drum wrote a detailed post explaining in some detail what the supply side looks like. One key fact: the US is already at the point where it is drilling less productive wells:

In 2001, the U.S. natural gas decline rate was about 23% and the annual replacement requirement was 12 Bcf/d when total consumption was 54 Bcf/d. Today, the decline rate is estimated to be 32% and increased consumption of gas means that approximately 22 Bcf/d must be replaced each year.

And the broader implications:

The shale revolution did not begin because producing oil and gas from shale was a good idea but because more attractive opportunities were largely exhausted. Initial production rates from shale are high but expensive drilling and completion costs make economics challenging…

Shale plays have produced a land grab business model in which hundreds of thousands of acres are acquired by each company. Unprecedented lease costs have become the norm often based on limited information and science.

Operators have indulged in over-drilling these plays for many reasons but adding reserves, holding leases and company growth are among the main factors particularly with the low cost of capital. The inevitable result has been the collapse of prices as supply exceeded demand. Most analysts forecast that the future will be much like the present, and that natural gas will be abundant and cheap for decades to come. There are, however, strong and consistent indicators that natural gas supply may be less certain than most observers believe and require a higher price to be developed economically. Natural gas demand is growing as fuel switching for electric power generation continues, and will be increased by environmental regulation in the coming years. The U.S. will shift more of its future energy needs to natural gas in many sectors of the economy. The best justification, in fact, for the land grab and over-drilling spree is expectation of higher prices. Those companies that grabbed the land and held it by production will profit greatly once the true supply and cost of shale gas is recognized.

In March, Wolf Richter also explained why the super low shale gas prices ($2.28/MMBtu) were not a sign of a great new energy source, but lack of producer discipline:

Natural gas is dirt cheap, hovering at a 10-year low. In the US, that is. In other parts of the world, natural gas is four, five times more expensive—a rare discrepancy in a globalized economy…

But there is a problem: price. Natural gas is too cheap…drilling activity is collapsing. In 2008, the peak of the drilling bubble, there were at one point over 1,600 rigs drilling for natural gas in the US. During the financial crisis, the rig count fell off a cliff, then recovered a bit, but now is in free fall again. Last year at this time, there were 882 rigs drilling for gas. Two weeks ago, the count was down to 691. Last week it was down to 670 rigs (Baker Hughes).

Fracking has turned into a massacre for producers…at current prices, drilling activity will continue to shrink while production at wells drilled over the last two years is plunging. At some point, the massive amount of gas in storage will be drawn down below a normal level. But production can’t be cranked up from one week to the next. Perceived or real shortages will drive up the price, but not to an equilibrium where producers barely break even and consumers enjoy low-cost energy. It will be a spike. We’ve been through this before.

But why the comparison to subprime? The biggest producers are more land/lease speculators than energy companies, in terms of how they seek to make money. And they’ve been speculating in a highly leveraged manner. Per John Dizard of the Financial Times:

Even before the most recent gas price crash, the shale gas producers were spending two, three, four, and even five times their operating cash flow to fund their land, drilling, and completion programmes.

The widely accepted claims of huge volumes of cheaply produced energy did not square with this deficit financing…

Too much money was borrowed, on complex and demanding terms. Wall Street should have provided reality checks to the shale gas people; instead, they just provided cashier’s cheques with lots of zeroes at the end….Prices will have to adjust upwards, a lot, to cover not only past debts but realistic costs of production.

There is an echo of the late residential real estate financing bubble in the shale gas story. Consider the parallels.

Institutional investors sought to capture excess return while “hedging away”, or simply avoiding, classic sectoral risks (whole loan default risk, dry hole and gas price risk). The ultimate effect is their assumption of larger, less initially visible, and less manageable risks (securitisations backed by unenforceable foreclosures, very large, quickly-depleting, high cost shale operations).

The same institutional investors could not find enough “investment grade” risk to fill those baskets in their portfolios (triple A or double A operating company bond issuers, investment grade energy company equity). In the case of the energy industry, the rise of national oil companies reduced the opportunities for integrated majors or even conventional-prospect-oriented smaller public companies.

US national policy tilted the capital markets’ risk/reward calculation to a favoured set of investments (subprime/ “non-traditional” mortgages, gas substitution for coal, or gas-fired backup for renewables).

The promoters had a “story” for institutions (home mortgages have a low historic default rate/ shale gas fields have little, if any, dry hole risk, and are a way to ‘manufacture’ gas).

The lead companies in the industry devised complex structured products, often priced by OTC derivatives (tranched home equity asset-backed securities, impenetrable joint venture agreements and scantily disclosed hydrocarbon hedges).

The issuers’ apparent risk mitigation was validated by expert opinion (rating agencies/ sellside geology consultants).

The sad bit isn’t just that we seem to be playing the same tired scripts over and over, but that finance now seems to be based on deeply flawed incentives and risk sharing that encourage the manufacture of bad loans. I focused on current readings to contrast them with the hype, but consider: Dizard (not an energy expert, he’s only as good as his sources) was issuing warnings in 2010. As he points out, journalists, again in a parallel to the housing bubble, have been as remiss as the promoters.

By Washington’s Blog

The Gulf Ecosystem Is Being Decimated

The BP oil spill started on April 20, 2010. We’ve previously warned that the BP oil spill could severely damage the Gulf ecosystem.

Since then, there are numerous signs that the worst-case scenario may be playing out:

• New York Times: “Gulf Dolphins Exposed to Oil Are Seriously Ill, Agency Says

• MSNBC: Gulf shrimp scarce this season (and see the Herald Tribune‘s report)

• Mother Jones: Eyeless shrimp are being found all over the Gulf

• NYT: Oil Spill Affected Gulf Fish’s Cell Function, Study Finds

• CBS:Expert: BP spill likely cause of sick Gulf fish (and see the Press Register’s report)

• Study confirms oil from Deepwater spill entered food chain

• Pensacola News Journal: “Sick fish” archive

• Agence France Presse: Mystery illnesses plague Louisiana oil spill crews

• MSNBC: Sea turtle deaths up along Gulf, joining dolphin trend

• MSNBC:Exclusive: Submarine Dive Finds Oil, Dead Sea Life at Bottom of Gulf of Mexico

• AP: BP oil spill the culprit for slow death of deep-sea coral, scientists say (and see the Guardian and AFP‘s write ups)

• A recent report also notes that there are flesh-eating bacteria in tar balls of BP oil washing up on Gulf beaches

• And all of that lovely Corexit dispersant sprayed on water, land and air? It inhibits the ability of microbes to break down oil, and allows oil and other chemicals to be speed past the normal barriers of human skin. Background here. NYT: Impact of Gulf Spill’s Underwater Dispersants Is Examined Speaking on the chemical ingredients of the dispersants used, “The report finds that “Of the 57 ingredients: 5 chemicals are associated with cancer; 33 are associated with skin irritation from rashes to burns; 33 are linked to eye irritation; 11 are or are suspected of being potential respiratory toxins or irritants; 10 are suspected kidney toxins; 8 are suspected or known to be toxic to aquatic organisms; and 5 are suspected to have a moderate acute toxicity to fish.”

If you still don’t have a sense of the devastation to the Gulf, American reporter Dahr Jamail lays it out pretty clearly:

“The fishermen have never seen anything like this,” Dr Jim Cowan told Al Jazeera. “And in my 20 years working on red snapper, looking at somewhere between 20 and 30,000 fish, I’ve never seen anything like this either.”

Dr Cowan, with Louisiana State University’s Department of Oceanography and Coastal Sciences started hearing about fish with sores and lesions from fishermen in November 2010.

Cowan’s findings replicate those of others living along vast areas of the Gulf Coast that have been impacted by BP’s oil and dispersants.

Gulf of Mexico fishermen, scientists and seafood processors have told Al Jazeera they are finding disturbing numbers of mutated shrimp, crab and fish that they believe are deformed by chemicals released during BP’s 2010 oil disaster.

Along with collapsing fisheries, signs of malignant impact on the regional ecosystem are ominous: horribly mutated shrimp, fish with oozing sores, underdeveloped blue crabs lacking claws, eyeless crabs and shrimp – and interviewees’ fingers point towards BP’s oil pollution disaster as being the cause.

Eyeless shrimp

Tracy Kuhns and her husband Mike Roberts, commercial fishers from Barataria, Louisiana, are finding eyeless shrimp.

“At the height of the last white shrimp season, in September, one of our friends caught 400 pounds of these,” Kuhns told Al Jazeera while showing a sample of the eyeless shrimp.

According to Kuhns, at least 50 per cent of the shrimp caught in that period in Barataria Bay, a popular shrimping area that was heavily impacted by BP’s oil and dispersants, were eyeless. Kuhns added: “Disturbingly, not only do the shrimp lack eyes, they even lack eye sockets.”
Eyeless shrimp, from a catch of 400 pounds of eyeless shrimp, said to be caught September 22, 2011, in Barataria Bay, Louisiana [Erika Blumenfeld/Al Jazeera]

“Some shrimpers are catching these out in the open Gulf [of Mexico],” she added, “They are also catching them in Alabama and Mississippi. We are also finding eyeless crabs, crabs with their shells soft instead of hard, full grown crabs that are one-fifth their normal size, clawless crabs, and crabs with shells that don’t have their usual spikes … they look like they’ve been burned off by chemicals.”

On April 20, 2010, BP’s Deepwater Horizon oilrig exploded, and began the release of at least 4.9 million barrels of oil. BP then used at least 1.9 million gallons of toxic Corexit dispersants to sink the oil.

Keath Ladner, a third generation seafood processor in Hancock County, Mississippi, is also disturbed by what he is seeing.

“I’ve seen the brown shrimp catch drop by two-thirds, and so far the white shrimp have been wiped out,” Ladner told Al Jazeera. “The shrimp are immune compromised. We are finding shrimp with tumors on their heads, and are seeing this everyday.”

While on a shrimp boat in Mobile Bay with Sidney Schwartz, the fourth-generation fisherman said that he had seen shrimp with defects on their gills, and “their shells missing around their gills and head”.

“We’ve fished here all our lives and have never seen anything like this,” he added.

Ladner has also seen crates of blue crabs, all of which were lacking at least one of their claws.

Darla Rooks, a lifelong fisherperson from Port Sulfur, Louisiana, told Al Jazeera she is finding crabs “with holes in their shells, shells with all the points burned off so all the spikes on their shells and claws are gone, misshapen shells, and crabs that are dying from within … they are still alive, but you open them up and they smell like they’ve been dead for a week”.

Rooks is also finding eyeless shrimp, shrimp with abnormal growths, female shrimp with their babies still attached to them, and shrimp with oiled gills.

“We also seeing eyeless fish, and fish lacking even eye-sockets, and fish with lesions, fish without covers over their gills, and others with large pink masses hanging off their eyes and gills.”

Rooks, who grew up fishing with her parents, said she had never seen such things in these waters, and her seafood catch last year was “ten per cent what it normally is”.

“I’ve never seen this,” he said, a statement Al Jazeera heard from every scientist, fisherman, and seafood processor we spoke with about the seafood deformities.

Given that the Gulf of Mexico provides more than 40 per cent of all the seafood caught in the continental US, this phenomenon does not bode well for the region, or the country.

***

“The dispersants used in BP’s draconian experiment contain solvents, such as petroleum distillates and 2-butoxyethanol. Solvents dissolve oil, grease, and rubber,” Dr Riki Ott, a toxicologist, marine biologist and Exxon Valdez survivor told Al Jazeera. “It should be no surprise that solvents are also notoriously toxic to people, something the medical community has long known”.

The dispersants are known to be mutagenic, a disturbing fact that could be evidenced in the seafood deformities. Shrimp, for example, have a life-cycle short enough that two to three generations have existed since BP’s disaster began, giving the chemicals time to enter the genome.

Pathways of exposure to the dispersants are inhalation, ingestion, skin, and eye contact. Health impacts can include headaches, vomiting, diarrhea, abdominal pains, chest pains, respiratory system damage, skin sensitisation, hypertension, central nervous system depression, neurotoxic effects, cardiac arrhythmia and cardiovascular damage. They are also teratogenic – able to disturb the growth and development of an embryo or fetus – and carcinogenic.

Cowan believes chemicals named polycyclic aromatic hydrocarbons (PAHs), released from BP’s submerged oil, are likely to blame for what he is finding, due to the fact that the fish with lesions he is finding are from “a wide spatial distribution that is spatially coordinated with oil from the Deepwater Horizon, both surface oil and subsurface oil. A lot of the oil that impacted Louisiana was also in subsurface plumes, and we think there is a lot of it remaining on the seafloor”.

Marine scientist Samantha Joye of the University of Georgia published results of her submarine dives around the source area of BP’s oil disaster in the Nature Geoscience journal.

Her evidence showed massive swathes of oil covering the seafloor, including photos of oil-covered bottom dwelling sea creatures.

While showing slides at an American Association for the Advancement of Science annual conference in Washington, Joye said: “This is Macondo oil on the bottom. These are dead organisms because of oil being deposited on their heads.”

Dr Wilma Subra, a chemist and Macarthur Fellow, has conducted tests on seafood and sediment samples along the Gulf for chemicals present in BP’s crude oil and toxic dispersants.

“Tests have shown significant levels of oil pollution in oysters and crabs along the Louisiana coastline,” Subra told Al Jazeera. “We have also found high levels of hydrocarbons in the soil and vegetation.”

According to the US Environmental Protection Agency, PAHs “are a group of semi-volatile organic compounds that are present in crude oil that has spent time in the ocean and eventually reaches shore, and can be formed when oil is burned”.

“The fish are being exposed to PAHs, and I was able to find several references that list the same symptoms in fish after the Exxon Valdez spill, as well as other lab experiments,” explained Cowan. “There was also a paper published by some LSU scientists that PAH exposure has effects on the genome.”

The University of South Florida released the results of a survey whose findings corresponded with Cowan’s: a two to five per cent infection rate in the same oil impact areas, and not just with red snapper, but with more than 20 species of fish with lesions. In many locations, 20 per cent of the fish had lesions, and later sampling expeditions found areas where, alarmingly, 50 per cent of the fish had them.

“I asked a NOAA [National Oceanic and Atmospheric Administration] sampler what percentage of fish they find with sores prior to 2010, and it’s one tenth of one percent,” Cowan said. “Which is what we found prior to 2010 as well. But nothing like we’ve seen with these secondary infections and at this high of rate since the spill.”

“What we think is that it’s attributable to chronic exposure to PAHs released in the process of weathering of oil on the seafloor,” Cowan said. “There’s no other thing we can use to explain this phenomenon. We’ve never seen anything like this before.”

***

Crustacean biologist Darryl Felder, in the Department of Biology with the University of Louisiana at Lafayette is in a unique position.

Felder has been monitoring the vicinity of BP’s blowout Macondo well both before and after the oil disaster began, because, as he told Al Jazeera, “the National Science Foundation was interested in these areas that are vulnerable due to all the drilling”.

“So we have before and after samples to compare to,” he added. “We have found seafood with lesions, missing appendages, and other abnormalities.”

Felder also has samples of inshore crabs with lesions. “Right here in Grand Isle we see lesions that are eroding down through their shell. We just got these samples last Thursday and are studying them now, because we have no idea what else to link this to as far as a natural event.”

According to Felder, there is an even higher incidence of shell disease with crabs in deeper waters.

“My fear is that these prior incidents of lesions might be traceable to microbes, and my questions are, did we alter microbial populations in the vicinity of the well by introducing this massive amount of petroleum and in so doing cause microbes to attack things other than oil?”

One hypothesis he has is that the waxy coatings around crab shells are being impaired by anthropogenic chemicals or microbes resulting from such chemicals.

“You create a site where a lesion can occur, and microbes attack. We see them with big black lesions, around where their appendages fall off, and all that is left is a big black ring.”

Felder added that his team is continuing to document the incidents: “And from what we can tell, there is a far higher incidence we’re finding after the spill.”

“We are also seeing much lower diversity of crustaceans,” he said. “We don’t have the same number of species as we did before [the spill].”

***

Felder is also finding “odd staining” of animals that burrow into the mud that cause stain rings, and said: “It is consistently mineral deposits, possibly from microbial populations in [overly] high concentrations.”

***

Dr Andrew Whitehead, an associate professor of biology at Louisiana State University, co-authored the report Genomic and physiological footprint of the Deepwater Horizon oil spill on resident marsh fishes that was published in the journal Proceedings of the National Academy of Sciences in October 2011.

Whitehead’s work is of critical importance, as it shows a direct link between BP’s oil and the negative impacts on the Gulf’s food web evidenced by studies on killifish before, during and after the oil disaster.

“What we found is a very clear, genome-wide signal, a very clear signal of exposure to the toxic components of oil that coincided with the timing and the locations of the oil,” Whitehead told Al Jazeera during an interview in his lab.

According to Whitehead, the killifish is an important indicator species because they are the most abundant fish in the marshes, and are known to be the most important forage animal in their communities.

“That means that most of the large fish that we like to eat and that these are important fisheries for, actually feed on the killifish,” he explained. “So if there were to be a big impact on those animals, then there would probably be a cascading effect throughout the food web. I can’t think of a worse animal to knock out of the food chain than the killifish.”

But we may well be witnessing the beginnings of this worst-case scenario.

Whitehead is predicting that there could be reproductive impacts on the fish, and since the killifish is a “keystone” species in the food web of the marsh, “Impacts on those species are more than likely going to propagate out and effect other species. What this shows is a very direct link from exposure to DWH oil and a clear biological effect. And a clear biological effect that could translate to population level long-term consequences.”

***

Ed Cake, a biological oceanographer, as well as a marine and oyster biologist, has “great concern” about the hundreds of dolphin deaths he has seen in the region since BP’s disaster began, which he feels are likely directly related to the BP oil disaster.

“Adult dolphins’ systems are picking up whatever is in the system out there, and we know the oil is out there and working its way up the food chain through the food web – and dolphins are at the top of that food chain.”

Cake explained: “The chemicals then move into their lipids, fat, and then when they are pregnant, their young rely on this fat, and so it’s no wonder dolphins are having developmental issues and still births.”

Cake, who lives in Mississippi, added: “It has been more than 33 years since the 1979 Ixtoc-1 oil disaster in Mexico’s Bay of Campeche, and the oysters, clams, and mangrove forests have still not recovered in their oiled habitats in seaside estuaries of the Yucatan Peninsula. It has been 23 years since the 1989 Exxon Valdez oil disaster in Alaska, and the herring fishery that failed in the wake of that disaster has still not returned.”

Cake believes we are still in the short-term impact stage of BP’s oil disaster.

“I will not be alive to see the Gulf of Mexico recover,” said Cake, who is 72 years old. “Without funding and serious commitment, these things will not come back to pre-April 2010 levels for decades.”

***

“We’re continuing to pull up oil in our nets,” Rooks said. “Think about losing everything that makes you happy, because that is exactly what happens when someone spills oil and sprays dispersants on it. People who live here know better than to swim in or eat what comes out of our waters.”

Khuns and her husband told Al Jazeera that fishermen continue to regularly find tar balls in their crab traps, and hundreds of pounds of tar balls continue to be found on beaches across the region on a daily basis.

Meanwhile Cowan continues his work, and remains concerned about what he is finding.

“We’ve also seen a decrease in biodiversity in fisheries in certain areas. We believe we are now seeing another outbreak of incidence increasing, and this makes sense, since waters are starting to warm again, so bacterial infections are really starting to take off again. We think this is a problem that will persist for as long as the oil is stored on the seafloor.”

Did the BP Spill Ever Really Stop?

We’ve repeatedly documented that BP’s gulf Mocando well is still leaking.

Stuart Smith – a successful trial lawyer who won a billion dollar verdict against Exxon Mobil – noted recently:

New sampling data from the nonprofit Louisiana Environmental Action Network (LEAN) provide confirmation that not only is BP’s oil still very much present in the water in Bayou La Batre, but that it still exists in a highly toxic state nearly two years after the spill.

Here are photos of brown oily foam washing ashore in Bayou La Batre (just west of Mobile Bay) on February 27, 2012:

Photo credit to the Louisiana Environmental Action Network (LEAN)

Water samples were taken by Dennis and Lori Bosarge, LEAN members from Coden, Alabama. The lab-certified test results are in (see full lab report at bottom), and they are startling in that they suggest that oil is still leaking from the Macondo reservoir – most likely from cracks and fissures in the seafloor around the plugged wellhead. Scientists believe the cracks were caused by BP’s heavy-handed “kill” efforts.

***

Despite numerous opportunities to do so, the U.S. Coast Guard has never publicly denied that the Macondo field is still leaking. And these latest sampling results out of Bayou La Batre provide damning new evidence that the BP oil spill never really ended.

Government Sits On Its Hands …
The New York Times notes today:

Congress’s response to the spill has been truly pathetic. It has not passed a single bill to prevent another catastrophe, according to a report issued Tuesday by former members of a presidential commission that investigated the spill. Congress has failed even to codify the Interior Department’s sound regulatory reforms, which could be undone by a future administration.

***

The administration has developed new standards for each stage of the drilling process — from rig design to spill response — insisting that operators fully prepare for worst-case scenarios. But the commissioners’ report notes that the new equipment systems have not yet been tested in deep-water conditions.

Indeed, Mother Jones points out that the White House pressured scientists to underestimate BP spill size. And see this Forbes write up, and our previous reporting on the topic.

This is exactly like Fukushima and the financial mess, because  government’s approach to crises is consistent, no matter what area we are talking about: let the giant companies which fund political campaigns do whatever they want … and then help them cover up the extent of the crisis once it inevitably hits.

This Real News Network story describes how the EPA is under attack from a very specific group of right wing interests are suing to try to prevent the EPA from acting to implement anti-carbon measures as stipulated in a Supreme Court decision. The intriguing bit is the group one might assume would be most opposed to new standards, the auto industry, is actually supportive.

Naoto Matsumura is the only person living inside the exclusion zone and he has no electricity or running water. Reader Martha R recommended running this video as a way to commemorate the anniversary of the disaster.

Science has published a troubling but not entirely surprising article on the fact that the oceans are acidifying at the fastest rate in 300 million years. Actually, it could be the fastest rate over an even longer time period, but we can only go back with any degree of accuracy for 300 million years.

We first wrote about this issue in early 2007, and this section, which quoted Stormy from Angry Bear, will help bring readers up to speed:

….there are side effects to our love affair with CO2 that are not often mentioned. In fact, whether the earth cools or warms is absolutely irrelevant to these effects. I repeat: Absolutely irrelevant.

One of the most startling effects is the acidification of the oceans. Since 1750, the oceans have become increasingly acidic. In the oceans, CO2 forms carbonic acid, a serious threat to the base of the food chain, especially on shellfish of all sizes. Carbonic acid dissolves calcium carbonate, an essential component of any life form with an exoskeleton. In short, all life forms with an exoskeleton are threatened: shell fish, an important part of the food chain for many fish; coral reefs, the habitat of many species of fish….

The formation of carbonic acid does not depend upon temperature. Whether the oceans warm or cool is irrelevant. Of concern only is the amount of CO2 that enters the oceans.

Fast forward to today. Consider the scope of the paper in Science, per a very good discussion in ars technica:

A new paper in Science examines the geologic record for context relating to ocean acidification…The research group (twenty-one scientists from nearly as many different universities) reviewed the evidence from past known or suspected intervals of ocean acidification…They find that the current rate of ocean acidification puts us on a track that, if continued, would likely be unprecedented in last 300 million years.

There is an important driver of this process that this overview mentions only in passing further on, and it’s useful to have it in mind when you review the discussion of the historical record: ocean acidification depends primarily on the rate of atmospheric CO2 increases, not the absolute concentration. Look at how attenuated the rate of past CO2 changes was in the past versus the speed now:

The first period the researchers looked at was the end of the last ice age, starting around 18,000 years ago. Over a period of about 6,000 years, atmospheric CO2 levels increased by 30 percent, a change of roughly 75 ppm. (For reference, atmospheric CO2 has gone up by about the same amount over the past 50 years.) Over that 6,000 year time period, surface ocean pH dropped by approximately 0.15 units. That comes out to about 0.002 units per century. Our current rate is over 0.1 units per century—two orders of magnitude greater, which lines up well with a model estimate we covered recently.

The last deglaciation did not trigger a mass extinction, but it did cause changes in some species…

During the Pliocene warm period, about 3 million years ago, atmospheric CO2 was about the same as today, but pH was only 0.06 to 0.11 units lower than preindustrial conditions. This is because the event played out over 320,000 years or so. We see species migration in the fossil record in response to the warming planet, but not ill effects on calcifiers…

Next, the researchers turned their focus to the Paleocene-Eocene Thermal Maximum (or PETM), which occurred 56 million years ago. Global temperature increased about 6°C over 20,000 years due to an abrupt release of carbon to the atmosphere (though this was not as abrupt as current emissions). The PETM saw the largest extinction of deep-sea foraminifera of the last 75 million years, and was one of the four biggest coral reef disasters of the last 300 million years…

The group also examined the several mass extinctions that defined the Mesozoic—the age of dinosaurs. The boundary between the Triassic and Jurassic included a large increase in atmospheric CO2 (adding as much as 1,300 to 2,400 ppm) over a relatively short period of time, perhaps just 20,000 years. The authors write, “A calcification crisis amongst hypercalcifying taxa is inferred for this period, with reefs and scleractinian corals experiencing a near-total collapse.” Again, though, it’s unclear how much of the catastrophe can be blamed on acidification rather than warming.

Finally, we come the big one—The Great Dying. The Permian-Triassic mass extinction (about 252 million years ago) wiped out around 96 percent of marine species. Still, the rate of CO2 released to the atmosphere that drove the dangerous climate change was 10-100 times slower than current emissions…

In the end, the researchers conclude that the PETM, Triassic-Jurassic boundary, and Permian-Triassic boundary are the closest analogs to the modern day, at least as far as acidification is concerned. Due to the poor ocean chemistry data for the latter two, the PETM is the best event for us to compare current conditions. It’s still not perfect—the rate of CO2 increase was slower than today…

The authors conclude, “[T]he current rate of (mainly fossil fuel) CO2 release stands out as capable of driving a combination and magnitude of ocean geochemical changes potentially unparalleled in at least the last ~300 [million years] of Earth history, raising the possibility that we are entering an unknown territory of marine ecosystem change.”

Translation: “We’re probably fucked, but the data is so far outside of historical parameters, we can’t say anything with a high degree of certainty.”

Former banking regulator and white collar criminologist Bill Black gives an unvarnished view of the behavior of Apple and other technology companies in dealing with suppliers in China. He does not buy the idea that the US is powerless to do anything about work condition in China and provides some concrete suggestions.

This is a departure from usual NC programming because it is uplifting (hah) and about plants (which will make Lambert happy) and making a real difference in a poor urban community). Hat tip reader John L.

Wow, this bit of news is amazing, in both a good and bad way. Just to mention one fracking contaminant, benzene is a particularly nasty carcinogen (not that this Bloomberg article mentions it, but it is the sort of thing that too often gets into water tables thanks to fracking). The fact that fracking is seen as a big enough public health risk to rally the normally apolitical medical profession (at least as far as measures ex health care reform are concerned) to call for intervention is striking.

From Bloomberg:

The U.S. should declare a moratorium on hydraulic fracturing for natural gas in populated areas until the health effects are better understood, doctors said at a conference on the drilling process.

Gas producers should set up a foundation to finance studies on fracking and independent research is also needed, said Jerome Paulson, a pediatrician at George Washington University School of Medicine in Washington…

“We’ve got to push the pause button, and maybe we’ve got to push the stop button,” said Adam Law, an endocrinologist at Weill Cornell Medical College in New York, in an interview at a conference in Arlington, Virginia that’s the first to examine criteria for studying the process…

A moratorium on fracking pending more research “would be reasonable,” said Paulson, who heads the Mid-Atlantic Center for Children’s Health and the Environment in Washington, in an interview.

A top scientist at the U.S. Center for Disease Control and Prevention said last week that fluids used in hydraulic fracturing contain “potentially hazardous chemical classes.” The compounds include petroleum distillates, volatile organic compounds and glycol ethers, said Christopher Portier, director of the CDC’s National Center for Environmental Health.

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By Richard Smith

Having hooted mildly at FTAdviser yesterday, for their somewhat skimpy fact checking, I found my eye caught today by a similar miss from Reuters (in bold):

Nyesa Valores Corporacion SA announced that it relation to a planned acquisition of 20% stake in the Company’s subsidiary Nyesa Costa Rica SRL by Wilson Capital Group LLC (WCG), it has been informed that WCG is unable to meet the deadline for the first payment due to delay in the completion of formalities for the transfer of funds due to the complex control mechanisms in a different countries from which they originate. Thus it is not possible to specify the exact date that the disbursement will occur, but is expected to be received in the coming days. WCG announced on December 20, will acquire 20% stake in Nyesa Costa Rica SRL through a capital increase in an amount of USD 330 million.

Well, that’s a missed opportunity for a spot of investigative journalism, and no mistake. The bit in bold, ladies and gentlemen, is a classic scammer’s excuse, and should, ideally, have been a prompt for some probing.  I suppose the guy at Reuters who gets the job of pumping out this sort of story just doesn’t get anything like enough time to have that kind of thought. At least we cynics can already guess roughly how the story ended. We have to, apparently: I couldn’t find a followup from Reuters. It’s time to investigate! Here is what I have dug up.

Nyesa Valores Corporacion SA is a listed Spanish property developer. Given its business focus, you can probably guess what its five year share price graph looks like, but have a ghoulish squint at it anyway, hereabouts. Off the top of my head, I make that a 99.5% decline, or a little worse. Results to match, one imagines. “Bloomberg for poor people” only carries the last three years of catastrophe, but you get the idea.

Nyesa had high hopes for their Costa Rican subsidiary. You can see how a project to develop a giant resort in Costa Rica (end value over EUR1Bn) would seem like a wonderful idea to an embattled management drowning in red ink from their Spanish activities. Concerned environmentalists might affirm that dumping a load of concrete and tarmac and sunburned idiots, and sunburned idiots’ waste products, onto the coast of Costa Rica, is a different order of catastrophe altogether than anything in Nyesa’s balance sheet.

But the environmentalists don’t run the show. For Nyesa the immediate problem is funding the project. Who on earth is going to fund such a development by such a precarious company? Bring on the alternative funding sources! Step forward, Wilson Capital Group LLC:

Nyesa Valores Corporación, formed through the merger of the Nyesa Group and the Inbesós Group, has signed a financing agreement with the US investment fund Wilson Capital Group LLC (WCG) to finance approximately €236 million to build the La Roca recreational tourism and residential complex in the town of Esparza, in the province of Puntarenas (Costa Rica), in exchange for taking a 20% stake in this project by signing a capital increase, according to a company statement sent to the Spanish National Securities Market Commission (CNMV).

This agreement modifies a previous one, in which WCG limited itself to financing the Nyesa initiative with a €330 million loan to carry out its project in Costa Rica. The agreement of intent between the two parties encompasses the transformation of Nyesa Costa Rica into a corporation, and the redenomination of its share capital from Costa Rican colones into US dollars.

We see that Nyesa’s financial position has worsened so much that it’s switched the purpose of the fund raising from a pure development loan (to the sub),  to a recapitalization (of the parent), and in a lesser amount. One wonders how big the resort would actually had been, had it ever been built.

Because, of course, there was a wee snag. Here’s the timeline promised when the deal was announced on the 22nd October:

WCG’s commitment to invest in the share capital of Nyesa Costa Rica has been definitively formalized after the signature of a shareholders’ contract by Nyesa Genérica, S.L. and WCG-NGR Limited Partnership, a subsidiary of WCG, obliging the US financial institution to disburse the agreed amount in three tranches, the first and second of these being €71.5 million and the third €93 million, with WCG making a commitment to make the first payment by 15 November 2010, the second on 30 November 2010 and the third on 30 December 2010.

By December 20th, we have the Reuters announcement: neither of the first two of these strangely scheduled and bombastically entitled “disbursements” has taken place. But of course, that hitch is not really because of “delay in the completion of formalities for the transfer of funds due to the complex control mechanisms in a different countries from which they originate”. The “complex control mechanisms in a different countries” are no more complex on Dec 20th than they were when the deal was supposedly planned, two months earlier.

Nyesa haven’t a clue, have they? The reason for the delay is that WGC and WCG-NGR Limited Partnership haven’t got €236 million; they are fraudsters, making sure that by the time Nyesa wise up, the money is gone.

So WGC string Nyesa along for a few months. By April 14, 2011 WGC has gone bankrupt (PDF). Quelle surprise.

On June 6th, Nyesa, who still don’t get it, file suit in Florida for breach of contract (!). Mortgage Grapevine had the real story three days earlier:

To any victim of Ayanna James’ Wilson Capital Group:

Please report your case to the FTC – http://www.ftc.gov/ftc/contact.shtm – and provide your details.

We were just informed that a large development project in Costa Rica was taken by Wilson Capital Group for six figures of ADVANCE FEES.

http://www.scribd.com/doc/51251688/Wilson-Capital-Group-LLC-deal-for-20-of-Nyesa-Costa-Rica

By coincidence, we did basic due diligence on this questionable firm with negative press online and no closed loan references, and warned others back in June of 2010.

Also, see the following thread for more details and victim information.

http://www.brokeroutpost.com/loans/brokers/forum/topic.asp?TOPIC_ID=300736

Good luck!

In early July there is vigorous turnover in the board of Nyesa. It’s all very sad (except that the despoliation of the Costa Rican shoreline is delayed for a little longer). To be sure, Nyesa’s pooch had a hunted look before WCG got into the act.

We see that half an hour on Google can be worth six figures to prospective seekers of alternative funding. Even for an entrepreneur seeking development capital in a hurry, or a Spanish guy with a half dead property company in dire need of something, anything, that is a good investment of time. Basic due diligence by Nyesa would have quickly uncovered some pretty salient facts:

• Wilson Capital Group had no more than four employees and a turnover of less than USD 1MN, making it preposterously unlikely that it was sitting astride a quarter of a billion Euros in development capital.
• The people that Nyesa were trying to deal with were by mid 2010 already the defendants of a fraud lawsuit in NYC, presided over by none other than the mighty Judge Rakoff (yes, that Judge Rakoff: small world, eh?). Here is the linkage between two of the defending entities, WGC and WGC-NRC; perhaps that will help someone figure it all out.

Aaah, due diligence! When will they learn?

By Cameron Murray, a professional economist with a background in property development, environmental economics research and economic regulation. Cross posted from MacroBusiness

The word efficiency carries a meaning immersed in all things positive – you never hear that being more efficient could possibly be detrimental. In fact, if you can bear the evangelical fervour, you may have read about achieving ‘Factor Four’ or ‘Factor Five’ gains in energy efficiency, as part of a ‘Natural Capital’ revolution comprising a ‘decoupling’ economic growth from a growth in the consumption of exhaustible resources – also known as ‘sustainability’. You may even have heard about the equation I=PAT or I = P x A x T, where environmental impact (I) is a function of population (P), affluence (A) and technology (T), and that becoming more efficient will enable a desired level of affluence with far less environmental cost.

Historical experience shows that these claims are untrue. While energy and resource efficiency does make us more productive, the facts suggest greater energy efficiency is counterproductive to the stated aims of curbing resource use and decreasing negative environmental externalities.

When it comes to natural resource use, and the externalities associated with resource extraction and production, efficiency alone is the enabler of greater consumption. William Stanley Jevons first noted that technological improvement, in terms of greater efficiency and therefore productivity, was the enabler of greater coal consumption in Britain back in 1865 in his book, The Coal Question: an Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of our Coal-mines. His observation was coined Jevons Paradox, even though the argument that technological improvements in resource efficiency (modes of economy) leads to greater resource use was already widely accepted in the labour market:

As a rule, new modes of economy will lead to an increase in consumption according to a principle recognised in many parallel instances. The economy of labor effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened.

One hundred and fifty years later, the modern debate is fuelled by economic ignorance, with many of the most influential economists and environmentalists remaining confused – failing to acknowledge the parallel effects of technology on the resource called ‘labour’ and other resource inputs to the economy.

More rigorous economists have reopened the debate, under the new term rebound effect, breaking down the transition mechanisms between greater efficiency and greater resource consumption.

1. Direct rebound effect: Increased fuel efficiency lowers the cost of consumption, and hence increases the consumption of that good because of the substitution effect.
2. Indirect rebound effect: Through the income effect, decreased cost of the good enables increased household consumption of other goods and services, increasing the consumption of the resource embodied in those goods and services.
3. Economy wide effects: New technology creates new production possibilities and increases economic growth.

UCLA mathematics professor Terence Tao explains the direct effect as follows:

Suppose one has to decide whether to use one light bulb or two light bulbs to light a room. Ignoring energy costs (and the initial cost of purchasing the bulbs), let’s say that lighting a room with one light bulb will provide $10/month of utility to the room owner, whereas lighting with two light bulbs will provide $15/month of utility. (Like most goods, the utility from lighting tends to obey a law of diminishing returns.)

Let us first suppose that the energy cost of a light bulb is $6/month. Then the net utility per month becomes $4 for one light bulb and $3 for two light bulbs, so the rational choice would be to use one light bulb, for a net energy cost of $6/month.

Now suppose that, thanks to advances in energy efficiency, the energy cost of a light bulb drops to $4/month. Then the net utility becomes $6/month for one light bulb and $7/month for two light bulbs; so it is now rational to switch to two light bulbs. But by doing so, the net energy cost jumps up to $8/month.

So is a gain in energy efficiency good for the environment in this case? It depends on how one measures it. In the first scenario, there was less energy used (the equivalent of $6/month), but also there was less net utility obtained ($4/month in this case). In the second scenario, more energy was used ($8/month). But more net utility was obtained as a consequence ($7/month). As a consequence of energy efficiency gains, the energy cost per capita increased (from $6/month to $8/month); but the energy cost per unit of utility decreased (from 6/4 = 1.5 to 8/7 ~ 1.14).

The indirect effect is more subtle and it is the environmental cost of consumption of other goods due to costs saved on, for example, lighting. If, in the above example, lighting costs were reduced to $2 per bulb for the room, it would be rational to spend $4 on lighting (using two bulbs) and spend the $2 saved on lighting to consume other goods which themselves have energy use embodied in their production.

Finally, the economy wide effect occurs due to stimulated demand for other goods and efficiency gains being shared across other sectors (due to the principle of the indivisibility of economic productivity – the linked article is highly recommended).

These economy wide effects have gained recent attention in The Economist where it is estimated that energy efficient lighting will contribute to greater energy use in the long run. You will note from the comments, the cognitive dissonance of economists when referring to labour and other resource inputs remains.

Conservation, using less at a given level of technology by giving up some utility, is equally ineffective (also highly recommended). We still face the indirect effects from conservation as we spend elsewhere in the economy, and if you believe all consumption has equal environmental cost per dollar (due to indivisibility once more and conceptual boundary problems to traditional input-output analysis of embodied resources), then you are back to where you started.

Further, conservation, like waste, is a relative concept, and by definition we can’t all do it. And we wouldn’t do it either due to the tragedy of the commons problem, where it is in each person’s best interest to defect from a cooperative conservation strategy. Terence Tao once again explains:

However, if there are enough private citizens sharing the same resource, then the “tragedy of the commons” effect kicks in. Suppose for instance that there are 100 citizens sharing the same energy resource, which is worth $1200 x 100 = $120,000 units of energy. If all the citizens conserve, then the resource lasts for $120,000/$400 = 300 months and everyone obtains $1800 long-term utility. But then if one of the citizens “defects” by using two light bulbs, driving up the net monthly energy cost from $400 to $404, then the resource now only lasts for $120,000/$404 ~ 297 months; the defecting citizen now gains ~ $7 x 297 = $2079 utility, while the remaining conserving citizens’ utility drops from $1800 to $6 x 297 = $1782. Thus we see that it is in each citizen’s long-term interest (and not merely short-term interest) to defect; and indeed if one continues this process one can see that one ends up in the situation in which all citizens defect. Thus we see that the tragedy of the commons effectively replaces long-term incentives with short-term ones, and the effects of voluntary conservation are not equivalent to the compulsory effects caused by government policy. (Emphasis added)

If energy efficiency is a counterproductive action for our environment, and personal conservation is useless, what should be done? As renowned ecological economist Blake Alcott points out:

If Jevons is right, efficiency policies are counter-productive, and business-as-usual efficiency gains must be compensated for with physical caps like quotas or rationing.

It really is that easy. If you are concerned about greenhouse gases, a cap on greenhouse gases is what is required. If you are worried about deforestation, you create a cap by ‘fencing off’ areas that are not be touched. If you are worried about over-fishing, you create a cap. Whether these caps/quotas are tradeable is a secondary concern, but making the caps tradeable does enable the cap to be met most efficiently.

What about a tax instead?

Many commentators argue that taxing negative externalities (such as a carbon tax) would not only reduce greenhouse gas emissions, but would also provide a ‘double dividend’ of improved economic efficiency because taxes which create other economic distortions could be reduced. However, the very nature of reducing other taxes to ensure revenue neutrality would mean that other sectors of the economy with a reduced tax burden now have greater purchasing power to pay for those goods subject to the new tax. Thus the double dividend comes at a cost to the primary dividend of reducing externalities.

Politics and ideology probably explain why the most basic economics is tossed out the window when it comes to the environmental protection. Then again, maybe we just can’t acknowledge that such a thing of beauty – efficiency – could possibly have a downside.

I can’t recommended enough the book The Jevons Paradox and the Myth of Resource Efficiency Improvements for a more thorough discussion of the topic.

By Washington’s Blog

Tokyo Radiation Exceeds Chernobyl In Some Places … Japanese Government and Experts Discuss Evacuation

As I noted last month, radiation in some parts of Tokyo is higher than in the Chernobyl exclusion zone.

Yesterday, Al Jazeera pointed out:

Experts estimate the radiation leaked from Fukushima nuclear plant will exceed that of Chernobyl.

***

The need to evacuate parts of the sprawling capital of 35 million may have once seemed an incredible prospect but some experts say the possibility can no longer be ignored.

Indeed, as Japan Times reports today, the Japanese government started discussing the potential need to evacuate Japan soon after the quake hit:

In the days immediately after the crisis began at the Fukushima No. 1 nuclear power plant, the government received a report saying 30 million residents in the Tokyo metropolitan area would have to be evacuated in a worst-case scenario, former Prime Minister Naoto Kan revealed in a recent interview.

***

“It was a crucial moment when I wasn’t sure whether Japan could continue to function as a state,” he said.

After the March 11 earthquake and tsunami crippled the plant, Kan instructed several entities to simulate a worst-case scenario. One of those assessments said everyone residing within 200 to 250 km of the plant — an zone that would encompass half to all of Tokyo and cut clear across Honshu to the Sea of Japan — would have to be evacuated.

Things Are Getting Worse – Not Better – In Japan

While this is a worst-case scenario, things are getting worse – rather than better – at Fukushima. See this, this, this and this.

Your humble blogger is a vocal opponent of placing undue faith in single metrics and methodologies, like placing a lot of weight in total cholesterol as a measure of heart disease risk. One of the most troubling examples is the totemic status of discounted cash flow based analyses. It’s a weird defect of human wiring that reducing a story about the future to a spreadsheet and then discounting the resulting cash flows (which means you are now layering a second story, about what you think reasonable investment returns will be over that time period) is treated as having a solidity and weight that simply is not there, a reality of its own that manages to take precedence over the murky future it is meant to help understand.

An article by physicist Marc Buchanan in Bloomberg gives a layperson’s summary of an important paper by Yale economist John Geanakoplos, and Doyne Farmer, a physicist at the Santa Fe Institute. It shows that the conventional use of discounted cash flow models over long time periods, as is often the case when discussing environmental impacts, is fatally flawed. And this finding comes after the publication of a paper by Andrew Haldane and Richard Davies of the Bank of England, which proves what many have long surmised: that businesses use overly high discount rates, which is how you build short-termism into financial models. Needless to say, that assures underinvestment, particularly in infrastructure. Projects with paybacks beyond the 30 to 35 year time frame are treated as having no value at all. From their article:

First, there is statistically significant evidence of short-termism in the pricing of companies’ equities. This is true across all industrial sectors. Moreover, there is evidence of short-termism having increased over the recent past. Myopia is mounting.

Second, estimates of short-termism are economically as well as statistically significant.
Empirical evidence points to excess discounting of between 5% and 10% per year.

The Geanakoplos/Farmer analysis finds vastly larger distortions when NPV approaches are used over very long time frames, say over 100 years. The errors result from the convention of using a single discount rate which is meant to represent an average over the entire period. This simplification, however, is dangerous. Per Buchanan:

In calculating this average, some paths turn out to contribute far more than others. In particular, paths that descend into relatively low rates and stay there for many years have a disproportionate effect — a path at 1 percent for 50 years, for instance, counts 20 times as much as a path running along at 7 percent. Change 50 to 500 years, and the difference becomes 10 trillion times.

This demonstrates how simple thinking about the future can lead to terrific mistakes. When something fluctuates, we often suppose we can use the average rate over time. And sometimes this works. The amount of food you will eat over 20 years, for example, will be roughly equal to 20 times what you ate last year, because your appetite doesn’t fluctuate that much. But averaging to get a true effective discount rate isn’t so easy. Some of the paths of fluctuation — the lower paths — carry extraordinary weight, and hence dominate the outcome.

Not surprisingly, Geanakoplos and Farmer find that the correct formulas for discounting over long periods don’t follow the textbook exponential form. The math is tricky (I’ve put some discussion of the technical stuff on my blog). But the consequences are not. Using a standard model from finance for interest rate movements (with an average rate of 4 percent), the authors show that, for the first 100 years or so, their correct form of discounting gives results that are similar to those that come from traditional calculations. But at 500 years the standard exponential discounts the future not just a little too strongly, but a million times too strongly. And it gets worse after that.

And the flaws of using discount rates greatly exaggerate the bias we already see in practice, that of undervaluing anything beyond the next few years. Après moi, le déluge, indeed.

William Rees is one of the pioneers of ecological economics and is the originator and co-developer of ‘ecological footprint analysis’. This video contains some basic facts about current consumption levels in advanced economies that are attention-grabbing. I’d normally say “Enjoy” but this is not that sort of video.

By Jon Rynn, author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class. He holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems. Cross posted from New Deal 2.0.

Between questionable science, health hazards, and exorbitant costs, there’s no fracking way that drilling for natural gas will solve our long-term energy issues.

Natural gas is being touted as a fuel of the future, a way to bridge the gap between a dirty energy and clean energy economy. But according to numerous articles and a report from David Hughes at the Post-Carbon Institute, what we may have is another bridge to nowhere (page numbers in this post refer to Hughes’ study). Fracking, the rapidly expanding technique for pulling natural gas out of the ground, may be worse for global warming than coal, ultimately very expensive, and not productive enough to make much of a difference in natural gas supply anyway.

Fracking, or hydraulic fracturing, is a 60-year old technique that has recently been applied to the huge deposits of what is called shale, a form of rock that can contain large amounts of natural gas or oil. Now natural gas companies are drilling thousands of these wells, fracturing the shale, and pumping millions of gallons of water laced with hundreds of chemicals to release the natural gas (pages 22-24).

While burning natural gas emits about half the greenhouse gases of coal, transporting, processing, and delivering that gas significantly reduces its advantages. And methane — natural gas — is a much stronger greenhouse gas than carbon dioxide for about 20 years. According to a recent study and other research, shale gas actually leads to more greenhouse gas emissions than conventional drilling.

The main problem seems to be that the drilling companies and trucking companies do a sloppy job and let gas escape into the atmosphere – and into drinking water. This was best exemplified in the movie GasLand, which showed that people near drilling sites could light their tap water on fire.

An enormous controversy has erupted around this technique, with some making accusations of potentially catastrophic environmental impacts, while others call fracking a ”game changer.” A new study shows that drinking water near fracking sites contains large amounts of natural gas, while proponents claim that none of the toxic chemicals that make up the fracking mixture have contaminated water supplies. New York State has temporarily banned the procedure, although Governor Cuomo has indicated he will lift the ban for most of the state. New Jersey (and France) will probably ban it. The EPA is still studying the issue, but Dick Cheney and company made sure that fracking is not covered by the Safe Drinking Water Act, and states have less expertise, money and motivation to monitor the situation.

The Federal Energy Information Administration (EIA) gets more and more bullish about the prospects for shale gas, recently claiming that 45% of natural gas in this country will come from shale gas by 2034. Currently, the number is only 25% (pages 28-30). But according to the New York Times, this opinion is contested from within the agency itself. There are signs that the EIA is following the lead of the natural gas industry, not doing independent research. Meanwhile, the current price for natural gas, about 4 dollars per thousand cubic feet (mcf), is below the level needed to make shale gas profitable for most drilling – costs estimates range from a bit over 4 dollars to an average of 7 dollars and even 11 dollars per mcf (page 31). And many fracking firms are now moving to drill for oil, not gas, because the price for gas is too low to justify the added expense.

Some fracking advocates claim that we could switch our transportation system to be natural gas based. But to do that would require a doubling of our natural gas production (pages 52-54). Despite all the hype, even the EIA seems to think that natural gas production in this country will only increase from about 24 trillion cubic feet to about 26 trillion by 2034 (page 29). That isn’t enough to even keep up with the anticipated demand, and basically shale gas production will make up for declining conventional gas production, assuming there is as much shale gas as advertised. As David Hughes explains, the EIA is grossly underestimating the amount of wells that would have to be drilled. Recently that number has climbed as high as 30,000 per year(page 19). If half of those use fracking techniques, and a good percentage of those use millions of gallons of water that become toxic – well, it certainly doesn’t sound like a very sustainable solution.

Even if we wanted to make the switch, getting gas from there to here poses its own challenges. The only way to do it is with liquified natural gas (LNG); that is, cooling it way down to liquid form, putting it on a big ship that keeps it cool, and warming it back up when it gets here. It has been estimated that LNG adds enough greenhouse gas emissions that the natural gas has about the same emissions as coal. It is also more expensive than domestic gas, and it also means the US would become dependent on nations like Qatar, Russia, and — hmmm, Iran — than we might want to be.

Another strike against natural gas: wind is getting very cost competitive. Wind could form the backbone of a national electrical system, with gas used for those times when there isn’t enough wind blowing – although the more wind built in the more places, the less gas would be needed for this purpose. A new report suggests that solar panels on buildings could be used to substitute for gas used at peak usage times, say when air conditioners are going full blast, at pretty close to the same price.

There is one interesting technology that could make natural gas more sustainable: microturbines. These are systems that are installed in a large building — say, an apartment building that has 60 or more apartments, according to the New York Times. These can use any source of natural gas, such as natural gas generated from a building’s own waste, or from landfills. And because the turbine is in the building, the heat from the turbine can be used to heat air and water, in a process called co-generation. Up to about 80% of the energy from natural gas can be captured by these units, as opposed to the miserable 32% or so when centralized gas or coal plants generate electricity. Many European countries, such as Denmark, use district heating, a method of using the heat from energy production to warm neighborhoods. This is a reason that density in cities and towns can be more efficient than sprawl.

Even if natural gas emitted “only” half the greenhouse gases of coal, or if fracking turns out to be not as toxic as feared, and relatively profitable, natural gas would still not be a “game changer”: we need to take greenhouse gases out of the atmosphere, not put any more in; we shouldn’t be endangering our water supplies. and we can find renewable sources of energy that, in the long run, make much more economic sense. Not only will natural gas not be the fuel of the future, we won’t be using much fuel. Instead we will use renewable sources of energy from the sun, wind, and the earth.

Andrew Sheng, Chief Adviser to the China Banking Regulatory Commission, is wonderfully straightforward and realistic for an economist. He is willing to say, as he does in this video, things that are obvious yet somehow unacceptable to ‘fess up to in policy circles, like the planet simply cannot support 3 billion people in Asia living European lifestyles. He warns of the danger of creating the mother of all crises if governments cannot stem the tide of leveraged capital flows, and also discusses the role of China on the global stage.

Enjoy!