March 3, 2015 2:50 pm

The riches and perils of the fossil-fuel age

Martin Wolf

If nations could agree a carbon tax, it would help create a more efficient, less polluting future

Ingram Pinn illustration
Our ancestors lived in eras we call the Stone Age, the Bronze Age and the Iron Age. Ours is the “fossil-fuel age”. The energy we have extracted from the earth’s reserves of fossilised sunlight has spread (unequally shared) abundance across humanity. Will this continue? Can we manage its impact on our environment? The answers will shape the future of our complex global civilisation.
As always, BP’s Energy Outlook provides a glimpse into a possible future. No doubt, its forecasts will be wrong. But it tells us what well-informed people at the heart of the oil and gas industry consider “the likely path of global energy markets to 2035”. It puts forward five important propositions about a plausible energy future.

First, global economic output is forecast to rise by 115 per cent by 2035. Asian emerging economies — principally China and India — are expected to generate more than 60 per cent of that increase.

The primary driver of the rise in global output is expected to be a 75 per cent jump in global average real output per head, as the prosperity of emerging economies catches up with that of high-income countries. Population growth plays a distinctly subsidiary role. It is not the number of people, but rather their prosperity, that drives demand for commercial energy.

Second, as a result of rapidly rising energy efficiency, energy consumption is forecast to grow by only 37 per cent. This is far less than the rise in output of real goods and services.

Third, emissions of carbon dioxide are forecast to grow by 25 per cent, a growth rate of about 1 per cent a year. In terms of the link between output and emissions, this is a huge achievement.
But — given the need to cut emissions outright, in order to have a good chance of limiting the global average temperature rise to below 2C — it is wholly inadequate. Thus, in 2035, emissions of CO2 are forecast to be 18bn tonnes above levels suggested by the International Energy Agency’s “450 Scenario”. This seeks to limit atmospheric greenhouse gas concentration to the equivalent of about 450 parts per million of CO2. If such targets are to be met, something far more radical needs to occur. (See charts.)
Fourth, improvements in energy efficiency are a far more important driver of the relatively low growth in emissions than shifts in the fuel mix. This is despite a substantial rise in use of renewables.

So, between 2013 and 2035, output of renewable energy is forecast to grow by 320 per cent. Even so, its share in primary energy production is forecast to grow only from 2.6 per cent to 6.7 per cent. The combined share of renewables, hydroelectricity and nuclear power grows only from 9 per cent to 19 per cent. This, then, is expected to remain a fossil-fuel age.

Fifth, the revolution in the production of shale gas and tight oil is expected to continue, with their share in primary energy production rising to about 10 per cent. An important result is large shifts in patterns of trade. So the US is forecast to shift from being a net importer of 12m barrels a day of oil in 2005 to being a net exporter by 2035. Meanwhile, China is forecast to shift to being a net importer of more than 13m b/d by 2035 (from self-sufficiency in the early 2000s); and India to being a net importer of about 7m b/d. Such shifts have huge geopolitical implications.
Energy and emissions

It would be wrong to describe these forecasts as simply “business as usual”. They actually imply a faster rise in energy efficiency than between 2000 and 2013. But they are not radical.

The world would continue to rely overwhelmingly on fossil fuels and it would emit ever greater quantities of greenhouse gases. Could we do better?

I start from the presumption that humanity will aspire to and often manage to achieve the prosperity now taken for granted in rich countries. So we need an accelerated technological revolution. At the Oslo Energy Forum last month, I heard Amory Lovins of the Rocky Mountain Institute describe just such a revolution. He argued, for example, that US gross domestic product in 2050 could be 2.5 times what it is today, even if the country stopped using oil, coal and nuclear energy altogether and cut its use of natural gas by one-third. This would mean carbon emissions of just one-fifth of their present level. Moreover, he argued, the revolution could well be driven by market forces alone, given the growing economic superiority of the new technologies. There might, he suggests, be no need to to take direct policy action against rising emissions of carbon dioxide.
The sense of the BP report (not surprisingly, perhaps, given that BP is a fossil-fuel producer) is that such a radical and rapid market-driven revolution is unlikely. The purported obstacles are many: costs, technological limits, slow turnover of the capital stock, inability to implement policy globally and natural inertia. In brief, I fear BP is right about the obstacles. But Mr Lovins might be right about the opportunities, though only if policy makers give them a big push.

If governments could agree to implement a tax on carbon, they would give a big impulse towards an energy future that is more efficient and less polluting. Governments should invest strongly in fundamental science and new technologies. Finally, governments can help the spread of new technologies abroad and help finance their uptake at home. With this push, normal market forces should pull the world economy towards a more sustainable future.

Mass poverty is not an option. But neither is taking ever-bigger gambles with the climate. The right course has to lie in between. To put ourselves on that course, we need to wean ourselves off the excesses of the fossil-fuel age. It is a daunting challenge. But it has to be met, for our children’s sake.

Austerity Is Not Greece’s Problem

Ricardo Hausmann

MAR 3, 2015

Greek flag sailboat

CAMBRIDGE – When looking out a window, it is easy to be fooled by your own reflection and see more of yourself than the outside world. This seems to be the case when US observers, influenced by their own country's fiscal debate, look at Greece.
For example, Joseph Stiglitz regards austerity in Greece as a matter of ideological choice or bad economics, just like in the US. According to this view, those who favor austerity must be obsessed with the theory, given the availability of a kinder, gentler alternative. Why would you ever vote for austerity when parties like Greece's Syriza or Spain's Podemos offer a pain-free path?
The question reflects a lamentable tendency to conflate two very different situations. In the US, the issue was whether a government that could borrow at record-low interest rates, in the middle of a recession, should do so. By contrast, Greece piled up an enormous fiscal and external debt in boom times, until markets said “enough" in 2009.
Greece was then given unprecedented amounts of highly subsidized finance to enable it to reduce gradually its excessive spending. But now, after so much European and global generosity, Stiglitz and other economists argue that some of Greece's debt must be forgiven to make room for more spending.
But the truth is that the recession in Greece has little to do with an excessive debt burden. Until 2014, the country did not pay, in net terms, a single euro in interest: it borrowed enough from official sources at subsidized rates to pay 100% of its interest bill and then some. This situation supposedly changed a bit in 2014, the first year that the country made a small contribution to its interest bill, having run a primary surplus of barely 0.8% of GDP (or 0.5% of its debt of 170% of GDP).
Greece's experience highlights a truth about macroeconomic policy that is too often overlooked: The world is not dominated by austerians; on the contrary, most countries have trouble balancing their books.
Recent advances in behavioral economics show that we all have enormous problems with self-control. And game theory explains why we act even more irresponsibly when making group decisions (owing to the so-called common pool problem). Fiscal deficits, like unwanted pregnancies, are the unintended consequence of actions taken by more than one person who had other objectives in mind.
And lack of fiscal control is what got Greece into trouble in the first place.
So the problem is not that austerity was tried and failed in Greece. It is that, despite unprecedented international generosity, fiscal policy was completely out of control and needed major adjustments.
Insufficient spending was never an issue. From 1998 to 2007, Greece's annual per capita GDP growth averaged 3.8%, the second fastest in Western Europe, behind only Ireland.
But by 2007, Greece was spending more than 14% of GDP in excess of what it was producing, the largest such gap in Europe – more than twice that of Spain and 55% higher than Ireland's.

In Spain and Ireland, though, the gap reflected a construction boom; euro accession suddenly gave people access to much cheaper mortgages. In Greece, by contrast, the gap was mostly fiscal and used for consumption, not investment.
Unsustainable growth paths often end in a sudden stop of capital inflows, forcing countries to bring their spending back in line with production. In Greece, however, official lenders' unprecedented munificence made the adjustment more gradual than in, say, Latvia or Ireland.

In fact, even after the so-called Greek Depression, its economy has grown more in per capita terms since 1998 than Cyprus, Denmark, Italy, and Portugal.
Sudden stops are always painful: economics has not discovered a hangover cure. But the way to minimize the pain is to cut spending without cutting output, which requires selling to others what residents can no longer afford. In other words, unless Greece boosts exports, spending cuts will amplify the output loss in the same way that Keynesian multipliers amplified the output gain from borrowing.
The problem is that Greece produces very little of what the world wants to consume. Its exports of goods comprise mainly fruits, olive oil, raw cotton, tobacco, and some refined petroleum products.
Germany, which many argue should spend more, imports just 0.2% of its goods from Greece.
Tourism is a mature industry with plenty of regional competitors. The country produces no machines, electronics, or chemicals. Of every $10 of world trade in information technology, Greece accounts for $0.01.
Greece never had the productive structure to be as rich as it was: its income was inflated by massive amounts of borrowed money that was not used to upgrade its productive capacity.

According to the Atlas of Economic Complexity, which I co-authored, in 2008 the gap between Greece's income and the knowledge content of its exports was the largest among a sample of 128 countries.
Too much of the debate since then has focused on what Germany, the EU, or the International Monetary Fund must do. But the bottom line is that Greece needs to develop its productive capabilities if it wants to grow. The unfocused set of structural reforms prescribed by its current financing agreement will not do that. Instead, Greece should concentrate on activist policies that attract globally competitive firms, an area where Ireland has much to teach – and where Stiglitz has sensible things to say.
Unfortunately, this is not what many Greeks (or Spaniards) believe. A large plurality of them voted for Syriza, which wants to reallocate resources to wage increases and subsidies and does not even mention exports in its growth strategy. They would be wise to remember that having Stiglitz as a cheerleader and Podemos as advisers did not save Venezuela from its current hyper-inflationary catastrophe.

Personal Technology 

The Best Way to Back Up Your Computer

By Geoffrey A. Fowler                  

March 3, 2015 12:41 p.m. ET

There are two types of hard drives: those about to fail, and those that will fail eventually. Plan accordingly.
I learned this in my great photo catastrophe of 2012. On vacation in Italy with a fancy-pants camera, I saved gigabytes and gigabytes of Tuscan sunsets onto a new portable drive. But when I got home and plugged it in, the drive started to chirp like a cicada. Gulp. My photos would only show up, briefly, when I gave the drive a firm thwack.
I recovered many of my shots, but it took a week of thwacking and fretting. I became obsessed with backing up my digital life. I copied photos and music to extra drives. I burned DVDs. I printed things out.
Eventually, I found a better way: a program called CrashPlan that, for $60 a year, saves an online copy of everything that passes through my computer.
I’m not talking about services like Dropbox or networked hard drives, which act as extensions of your computer’s storage. CrashPlan has diligently and unobtrusively backed up my entire digital life for the past few years. But technology has marched on, so I recently revisited my backup options.

I tested four of the most popular backup services that claim to offer unlimited storage: CrashPlan, Backblaze, Carbonite and SOS Online Backup. I didn’t include services such as iDrive, Mozy and Norton Online Backup because they sell storage by the gigabyte. (I don’t understand how anybody is supposed to know how many bytes they’re going to consume, like one of those contests where you guess how many jelly beans are in a jar.)
Online backup is effective because it does the worrying for you. The cloud is less susceptible to loss than running (or, heaven forbid, thwacking) your own farm of backup drives. The cloud is protected from fire, flood, theft and your cat. You can access online archives from anywhere, including on your phone. And it makes sense if you’re already paying an arm and a leg for fast, unlimited broadband.
We tested four online backup services, one after the other, on identical Dell laptops. Photo: Geoffrey A. Fowler/The Wall Street Journal

We tested four online backup services, one after the other, on identical Dell laptops. Photo: Geoffrey A. Fowler/The Wall Street Journal 
Yes, with the cloud you have to be wary of security, privacy and bandwidth. (I’ll help with that in a moment.) But you’re more likely to actually use it than the alternatives: Reliably dragging a copy of your My Documents folder onto an external drive is just wishful thinking. Dedicated backup drives like Apple’s $300 AirPort Time Capsule are simple enough…until they fill up and you ignore reminders to get a new one.
To make it a fair test, I loaded my four online contenders on four identical Dell laptops stuffed with about 10 GB of video and an external drive with another 10 GB of photos. Then I backed them up, one after the other, through my home Internet connection.
I found a lot to like in three of them (though not Carbonite, which is harder to use and isn’t really “unlimited” unless you pay extra). At $50 a year, Backblaze is inexpensive and simple. SOS offers the most comprehensive archive—it can also back up your phone and tablets. But it’s also the most expensive, at $80 a year.
CrashPlan is still my favorite. It has more of a track record and a much larger clientele, and it offers all of the most important capabilities for $60. If you’ve got a whole family to protect, CrashPlan will back up as many as 10 computers for $150 a year—by far the best value.
CrashPlan is free to download and try on PCs and Macs for a month, so you can judge whether it’s right for you without handing over your credit card.
The first time you run it, CrashPlan scans your computer for the files it thinks you ought to back up. That’s mostly going to be the stuff in your documents folders and desktop, but you can manually add other files and folders.
If you have a very messy computer, Backblaze and an application from SOS coming out in March make it easier to find pictures and documents squirreled away in unusual places.

There’s a lot of fine print, though: CrashPlan and SOS say they’re unlimited and mean it. Carbonite won’t automatically archive any individual files over 4 GB—you have to hunt and select each one, or pay for its $150 Prime service to back them up automatically. Backblaze won’t let you back up certain kinds of files, like applications, at all.
What about portable drives filled with old vacation photos? Here comes the fine print again: CrashPlan and SOS will back up other drives. But Carbonite makes you buy its $100 Plus package to back up external drives. Backblaze does it for free, but annoyingly insists you connect each drive at least once a month to hold on to the archive.
How long does this take? That depends. Home broadband is getting faster, but uploading is usually slower than downloading. On my Comcast connection, uploading 25 gigabytes took me about nine-and-a-half hours with CrashPlan, and an hour longer with SOS.
Just know this: If you have terabytes of photos and video to upload, a full backup could take weeks. If you’re worried about backup gobbling up your Internet speed, all of the programs let you schedule uploads.
After your initial backup, CrashPlan and SOS watch for any time you add new files or change existing ones. Both keep all versions of your files forever. (Fine print alert: Other services delete older versions after a while.) They even keep files if you delete them, which may be a relief or a little bit scary.
So what happens when you need to get your data back? You can download portions of your data by logging into a Web browser or a phone app. This is handy when you leave a file on your home computer you need to access on the go.
You can get all of your data back—and search by file name and date—by installing CrashPlan or SOS’s software on your new computer. If downloading it all will take too long, you can pay CrashPlan $165 to have them express mail it to you on a drive. SOS charges $400 for that.
What about hackers and snoops? CrashPlan uses particularly sophisticated 448-bit encryption before it sends your files over the Internet, locking your stuff not only with your account password but also an optional passphrase that even CrashPlan doesn’t know. SOS allows for an extra passphrase, too, but only for Windows PC customers.
All of these companies should do one thing more for security: offer two-factor authentication. This alerts your phone with a unique code every time you (or someone else) tries to log in on a new computer. I hope they add it soon.
More of us use mobile and Web apps that store our data primarily in the cloud—like documents in Google Drive and photos in iCloud. One of the big advantages to SOS is that can back up photos and contacts from phones and tablets.
CrashPlan says it is looking at phone backups, along with other new features with a software update coming this year. My biggest complaint about CrashPlan is that a bug in its Mac program caused it to crash when I tried to back up a giant collection of photos.
Trusting any company with your entire digital life is a hard pill for some people to swallow.
CrashPlan wouldn’t disclose whether it has had customer “data loss events” but says it stores stuff for millions of customers on its own servers in multiple places to protect against failure. SOS says it hasn’t ever lost consumer data.
For the extra nervous, CrashPlan and SOS also let you simultaneously back up your data to a hard drive you keep.
Ultimately, I trust CrashPlan to do a better job safekeeping my data than I can because that’s its business. I’d rather spend my time taking pictures.

Could Oil Prices Plummet A Second Time?

by Tyler Durden

03/03/2015 13:20 -0500

Are oil prices heading for a double dip?

The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust. After tanking to a low of $44 per barrel in January, falling rig counts and enormous reductions in exploration budgets have fueled speculation that the market will correct sometime later this year.

However, there is a possibility that the recent rise to $51 for WTI and $60 for Brent may only be temporary. In fact, several trends are conspiring to force prices down for a second time.

Drillers are consciously deciding to delay the completion of their wells, holding off in hopes that oil prices will rebound, according to E&E’s EnergyWire. The decision to put well completions on hold could provide a critical boost to the ultimate profitability of many projects. Higher oil prices in the months ahead will provide companies with more money for each barrel sold. But also, with the bulk of a given shale well’s lifetime production coming within the first year or two, it becomes all the more important to bring a well online when oil prices are favorable. With prices still depressed – WTI is hovering just above $50 per barrel – drillers are waiting for sunnier days.

Yet another reason to wait is the possibility that costs for well completions will decline. Oil and gas companies often contract out well completions to third parties, and those companies will face pressure to cut their fees in order to keep business. That works in favor of producers who put their projects on hold for the time being. Well completions can make up as much as three-quarters of the total project cost.

Several prominent shale drillers have confirmed they are undertaking such a wait-and-see strategy.

EOG Resources, one of the biggest Texas shale drillers, announced its plans in late February to hold off on completions. Chesapeake Energy and Continental Resources have now followed suit.

"We're intentionally holding production back in 2015, because we believe it's the prudent thing to do," Doug Lawler, Chesapeake's CEO, said in a conference call. Chesapeake has said it may delay completing as many as 100 wells. EOG has 200 wells awaiting completion, a backlog that will intentionally rise to about 350 this year.

As the industry clears out that queue of wells awaiting completion, a rush of new supplies could come online, pushing WTI prices down once again.

Even with well completions being suspended, supplies continue to build. The latest EIA data shows that oil stocks in the United States climbed to 434 million barrels, the highest levels in storage in over 80 years. “My gut feeling is that the oil price could see a double bottom,” Jason Kenney, an analyst with Banco Santaander SA said in a Bloomberg interview. “We’ve got too much inventory.” Bloomberg noted that Kenney has a good track record of predicting price swings in the past. Even though rig counts have declined significantly, output has so far proved resilient.

Finally, there is some evidence that the ability to move excess oil into storage may run into trouble if production does not decline. Storage tanks are starting to fill, raising the possibility that a glut could worsen. There is a great deal of uncertainty around how quickly this might happen. The EIA sought to clarify, noting that the markets have confused some of its storage figures – some oil supplies in the EIA’s weekly inventory data is actually sitting in pipelines and at well sites, meaning there is more storage capacity available than many news outlets had originally thought. An EIA analyst recently told Bloomberg that overall storage capacity is only at about 60 percent, and “[w]e still have a way to go before we can consider ourselves to be full,” Rob Merriam, EIA’s head of petroleum statistics said. It would take a few months of strong inventory builds to fill up the remaining storage, perhaps an unlikely scenario, especially if production starts to take a hit. But if storage tanks did start to fill up, prices would dive once again and companies would have to shut in wells and cut back on production.

Rig counts are at six year lows, forcing oil prices up on speculation that supply reductions will soon relieve the oil glut. But a double dip cannot be ruled out.