Why Clean Energy Investors Need to Care About Politics

Tom Konrad

I believe that investments in clean energy should outperform the market as a whole for two reasons.  First, the inability of fossil fuel supplies to keep up with demand will raise prices and improve the environment for alternatives.  Second, growing awareness of the seriousness of Climate Change will lead to increased regulation of greenhouse gas pollution, which should benefit clean energy relative to conventional energy.

While I am certain that at some point reality will galvanize public opinion and political action on climate change, the sooner the politicians take action, the better for the planet, and the better for our investments.  This is why I and every clean energy/cleantech/greentech investor should care about politics.  Unfortunately, Green is still a partisan issue, with the typical Republican (with a few welcome exceptions) opposing the legislation we need, and strongest leaders on this subject being Democrats, with the party as a whole being supportive.

With the Democratic National Convention in my home town of Denver this week, you can expect a series of articles on Clean Energy and Politics.  After the break, you will find my take-away from a recent hearing help by Colorado state Republicans on the subject of Energy and the Economy. [Note if you’re reading this on the feed or email, you’ll have to click through to the site to see the full story]

As I attend several convention-related Cleantech events this week, you can expect several short articles on how politics affects the future of Alternative Energy. And, I hope, vice-versa.

Those Crazy Colorado Republicans

The Economist recently published an
article about my adoptive home state, Colorado.  Having arrived here in
2005, the discussion of how the Colorado Republican "House Crazies"
demolished both the state Democrats and the moderate wing of their own party
finally enlightened me on why Colorado Republicans seem so, well,
crazy.  

Before I moved here, I had several nice things to say about
Republicans.  As opposed to Democrats, they are more likely to understand
that free trade tends to bring net benefits, and that for every worker who loses
his job in America, another American probably gets a job in another sector, and
probably two poor workers in third world countries get jobs they would not have
as well.  I also think that more Republicans than Democrats understand that
you can’t borrow your way out of financial trouble, although recently it seems
that that fact has been lost on almost everyone in both parties.

Anyway, I came to Colorado thinking that Republicans, in general, were more
likely to understand financial issues, but too bad about their social and moral
stances.  At the same time, I was also becoming increasingly concerned
about global climate and energy issues, and that has since led me to be involved
in regulatory hearings at the politically appointed Public Utilities Commission,
and more recently to testify before our state legislature.  This personal
experience has led be to conclude (1) Colorado Republicans are nuts, and (2)
Colorado Democrats are a bit less squishy and namby-pamby that I’d expected (although
not much… I have run into some populist Democrats who totally fit the
stereotype of believing all the worlds problems would be solved if we just
outlaw everything bad.) Nevertheless, I have yet to encounter a state elected
Republican who I could agree with about practically anything, while there are
several elected Democrats whom I greatly admire.

The "No Energy Economy"

That said, when I heard through the environmental activist network that the Republican
Study Committee of Colorado (RSCC) was going to have an Energy
study committee meeting which was open to the public, and that it was titled
"New Energy Economy, or just No Energy Economy?" I had to
attend.  (The "New
Energy Economy" is the catch-phrase of Colorado Governor
Bill Ritter, one of those Colorado Democrats I admire.  (You can see
him in a video
advocating saving energy here.  Can you imagine our President in a video
like this?  Or even John McCain?)

Every name I recognized on the list of speakers was someone I consider to be
opposed to what I think needs to be done about energy.  They ranged from Stan
Lewandowski, the General Manager of a local electric cooperative who
was exposed donating his members’ money to a global warming denier by ABC News
in 2006, to someone from the oxymoronic Environmentally
Conscious Consumers for Oil Shale, to Frank McNulty, the State
Representative about whom a
reader chided me last week for calling
a "know-nothing from suburbia."  The only exception to the
general nuttiness of the line-up was the speaker from Range
Fuels, a cellulosic ethanol startup which seems to be the farthest along in
commercializing the technology.  Not
that I think the best thing to do with biomass is to create ethanol, but at
least it’s a start.  I have some hope that he may speak some sense.

So, I attended the meeting with open ears, and as open a mind as I could
muster.  At the very least, it’s worth knowing how the opposition thinks,
and if they have any interests which might lead them to compromise on important
issues. 

When the Public Utilities Commission (PUC) had held a hearing on Global
Warming a few weeks earlier, the room was packed.  At the RSCC hearing,
attendance was sparse, with less than 30 people in the room, including the legislators and
speakers.  Since about 10 of those were the RSSC members, and I counted
between at least 8 members of the opposition (such as myself) attending, there
were no more than a dozen members of the public there for the entirety of the
morning session.  I draw some comfort that these people are not drawing the
crowds.

Of the speakers, they ranged from a good sized list of climate deniers, to
people in the energy business (two natural gas drillers, and one cellulosic
ethanol company, a uranium miner, and a representative of the Colorado Asphalt
Association.)

The Deniers

The Deniers (James Taylor, of the Heartland institute, Bob Ferguson of the
Science and Public Policy Institute, Howard Hayden author of "A Primer on
CO2 and Climate" rolled out the usual tripe about "the climate is not
getting warmer" and attacked various strawmen (people who claim that we can
get hydrogen by doing a "Soft landing on the Sun at night," for
instance.)  Needless to say, these strawmen did not stand up.  Neither
do the deniers’ arguments, but many other people have debunked their arguments
many times over; they’re in the business of providing an "alternative
view" on climate science, and no amount of real science will make them go
away.  If you want the blow by blow (at least until I got fed up), you can read
my notes here. 

Stan
Lewandowski, referenced above as a funding source for the deniers, gave
his usual line about how the only way to ensure cheap, reliable electricity is
coal.  However, the last time I heard him speak, two years before in
Steamboat Springs, he had seemed to make his case a bit more coherently. 
This time, he not only blamed the recent movement towards renewables for his
Co-ops recent rate increases, he also blamed it on investments in gas-fired
generation (the true culprit) which, he said, had been the lowest-cost resource
at the time those investments were made. What’s striking to me is that he seemed
to have no clue that the same reasoning which lead to the investment in natural
gas fired generation  was the same as that he puts forth in favor of more
coal fired generation.

The Businessmen

The energy industry representatives also did a lot of spinning of facts
in order to make their case.  However, unlike the deniers, they were
generally quite intelligent and had done their research with some rigor.  I
got several useful pieces of information from them, which led me to remark to an activist at lunch that "I never know why I’m coming to these things
until after the fact."

The two natural gas drillers (John Harpole, of Mercator Energy, and Scott
Moore, of Anadarko Energy Services) were at the meeting in force because they
are trying to preserve a tax credit.  There will be an initiative on the
Colorado ballot in November which will repeal a 30 year old tax break for gas
drilling.  (The money would be spent on education, Renewable Energy, and to
offset the impacts of drilling.)   Not wanting to give up the tax
break, they are spreading the horror story that the gas industry will up and
leave Colorado.

While of course it’s true that removing a tax break will cause some marginal
drilling projects to leave Colorado… but the gas reserves are not going
anywhere.  In other words, drilling will slow (and it is currently
massively straining the infrastructure in rural Colorado,) but when the wells
are eventually drilled, Colorado will take a larger share.  This will be a
net gain for the state, since much natural gas is exported.

Aside from the industry lobbying, they were fairly convincing that they would
be able to keep up production of natural gas in North America, at least for the
next few years.  Considering that production has increased over the last
few months, we may even see a price decline this fall.  They also mentioned
a company I should probably have included in my article on how
to invest in the Pickens Plan.  That is Cheniere Energy (LNG), a
company which owns liquefied natural gas terminals in the US.  Because
these terminals are for the most part unused, the stock is badly beaten
up.  I would not buy it however.  A cursory look at their financials
makes me think that the company will not survive the few years until we actually
need those terminals.  On the other hand, if a public company manages to
purchase those terminals for a fraction of what they cost to build, that
purchaser might be sitting pretty in a few years’ time.

The representative of Range Fuels simply gave an overview of how his
company’s cellulosic ethanol is produced.  Since this can be had directly
on their website, I refer readers who are curious to there.  

Of everyone, I learned the most from Tom
Peterson of the Colorado Asphalt
Pavement Association.  Asphalt is made from bitumen, the junk that is
left over after oil refining.  As oil becomes pricier, refiners are
increasingly using cokers, which turn a larger percentage of the bitumen into
fuel oil.  Because of this, and the bankruptcy of a supplier of an asphalt
additive, there is currently an asphalt shortage in Colorado.  The major
problem for now is the lack of the additive, which should be a short term
problem.  However, as long term oil prices continue to rise, the asphalt
industry should be under increasing pressure from reduced supply of their
primary feedstock, which will be falling both because crude refining will fall
will crude production, and because a smaller percentage of each barrel of oil
will end up as bitumen.  Because of this, I would expect leaders in asphalt
recycling to benefit relative to asphalt companies who rely on virgin feedstock.

Another significant user of bitumen is composite roofing.  Here, there
are a lot more options for alternative materials for roofing, so continued oil
price rises seem more likely to benefit alternative roofing materials, despite composite’s
widely recognized durability. (Solar
shingles, anyone?) 

Conclusion

Overall, it was a rather frustrating day.  I had hoped to gain some
understanding into the thought processes which might give me ideas about how
this generally obstructionist part of the Colorado Legislature might be
persuaded of the necessity for new ways of thinking about and managing our
energy.  I came away with the disappointing impression that they are too committed
to their viewpoint (Their slogan is "Committed to the Core") to want
to hear contrary opinions.  For instance, the testimony of several of the
business representatives directly contradicted the statements made by the Global
Warming deniers (for instance that climate change is a reality and that
renewable energy is needed)… but while the representatives were very
interested in questioning these men about the price and job impacts of various
proposed changes to Colorado law, they never asked about these blatant
contradictions regarding the big picture.

In many cases, the Representatives were as guilty of setting up strawmen to
knock down as were their "experts."  To me, this is a sign of
people insecure in their convictions, more likely to react with anger to any
questioning of their beliefs than with consideration.  I came away with the
sad conviction that, in the RSCC at least, their only real goal is to be able to
perpetuate the fantasy world in which they live.

DISCLOSURE: None.