Monday, January 23, 2012

Prediction: A Revitalized Environmental Movement Will Impact The U.S Economy

It's challenging to deny that there has been an increase in extreme weather events. All one has to do is note the increase in property insurance rates and it becomes obvious that the actuaries at insurance companies have factored extreme weather into rates. Of course, it is certainly possible that the large number of destructive extreme weather events  in 2011 was an aberration and the insurance companies are opportunistically taking advantage of an opportunity to increase rates. However, if Michael Mann, director of the Earth System Science Center at Pennsylvania State University, is correct and the "atmosphere contains 4 percent more water vapor–and associated additional moist energy–available both to power individual storms and to produce intense rainfall from them" it seems likely that the trend toward more extreme weather events will remain in effect. If so, 2012 will be another year of droughts and flash floods.

The environmental movement will be tremendously energized if extreme weather events continue to increase in frequency and severity. It is human nature to make correlations between events. Thus, regardless of whether the conclusion is valid, people living in areas experiencing extreme weather will conclude that it is due to man made pollution. Experiencing extreme weather will create converts to the green movement. It may also radicalize those that are already consider themselves to be environmentalist.

The above conclusion may seem like a jump in logic, but I serve as a perfect example of someone that has made a correlation between extreme weather and global climate change. Regardless of whether there is any causation or not, the December snow drought in Chicago has convinced me that global climate change is leading to an increase in droughts and flash floods. Given my track record of being slightly ahead of the mainstream, I am reasonably certain that others will make the same leap that I have and the environmental movement will gain converts. While I realize that there may not be any causative effect, the correlation seems strong enough that I am jumping to the conclusion that the extreme weather is due to more than just La Nina and unusual arctic steering winds.

Thus, my prediction about a revitalized environmental movement is based on two assumptions:
  1. the trend of increasing extreme weather events will continue
  2. extreme weather events will create converts to the environmental movement, regardless of whether or not there is scientific proof of causation due to human activity
If the environmental movement becomes energized, as I expect, large scale protests seem likely to occur. Frankly, the concept of "saving the planet" should have far more appeal to protesters than the grievance oriented message of the Occupy Wall Street movement. The news media loves to cover protests, and the publicity generated by these protests will galvanize the movement.

So, what will be the effects of a revitalized environmental movement? The primary impact is likely to be an increase in energy costs. There will be:
1) increased pressure to shut down coal fired power plants;
2) continued challenges to obtaining permits for oil developments;
3) attempts to shut down fracking;
4) further legislation requiring utilities to increase usage of clean energy
5) increased pressure on auto makers to increase fleet mileage

It is going to be tough to fight a "save the planet message". However, all of the above trends would hurt the economy.

Coal fired plants are the lowest cost source of electricity. Replacing coal fired plants with other types of fuel will increase electricity bills. Even without any additional rules, the Chicago Tribune reports that Chicago area consumers could see their electricity bills jump an estimated 40 to 60 percent in the next few years. "More than 8,000 megawatts of coal-fired generation capacity has been retired in the U.S. since 2005, according to data from industrial software company Ventyx. Generators have announced they plan to retire another 21,000 megawatts in the near future, and some industry consultant studies estimate 60,000 megawatts of power, enough for 60 million homes, will be taken offline by 2017."

Oil Project Development Will Be Slowed. The "permitorium" on drilling in the Gulf of Mexico has resulted in decreased investment. An industry source estimates that total U.S. employment has been reduced by 72,000 jobs in 2010 and approximately 90,000 jobs in 2011. Further, the delay in approving the Keystone XL Pipeline has eliminated a project that may have created an additional 20,000 U.S jobs.

Attempts to Shut Down Fracking. The battle over fracking is likely to become noisier. Environmentalist have succeeded in keeping fracking from being approved in New York and New Jersey and are would love to shut it down in Ohio and Pennsylvania and the rest of the U.S. Shutting down fracking would be an economic disaster for the U.S. Oil and gas extraction accounted for 25,200 new jobs in 2011. Producing natural gas from shale may support 870,000 U.S. jobs and add $118 billion to economic growth in the next four years according to IHS Global Insight.

Further Legislation Requiring Utilities to Increase Usage of Clean Energy - Clean energy is expensive. Wind and solar require subsidies to make them cost competitive with burning fossil fuels. Further, due to their intermittent nature, additional gas fired capacity must be developed to provide a backup source for days when the wind is not blowing or the sun is not shining. Some are estimating the current California standards for renewable energy will increase the cost of electricity in the state by 11% by 2020. It is instructive to note that Germany's wind power revolution is costing the country billions of dollars and their cost of electricity in now double that of neighboring France.

Increased Fleet Mileage Standards - Mitch Bainwol, president of the Alliance of Automobile Manufacturers, judges that new regulations covering the 2012 to 2016 model years will cost the industry $52 billion to comply. And as Car and Driver reports, the Obama administration's CAFE Fuel Economy Standards will create a fleet of tiny, expensive vehicles.

Related Posts
Extreme Weather Events - The Headwind Missing From Financial Predictions for 2012
Just What the Struggling California Economy Needs, A Proposal to Shut Down Its Nukes

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