Not Apologizing is Costly

Chevron got hit with a $9.47 billion fine from a court in Ecuador for polluting the water in the arc of the rainforest territory for polluting the region's water supply while pumping large amounts of oil in that region since the 1970s. If this judgement is upheld, the damage amount may be the highest-ever awarded in an environmental case. To add insult to injury, if Chevron does not make a public apology within 15 days of the issuing date of the judgement, the fine could go up to $17.2 billion.

At this point, the Company is not willing to apologize. Chevron is stating that the company it acquired Texaco cleaned up the polluted water before it ceased operations in the region and the current problems are due to another oil company, Petroecaudor, which is owned by the Ecuadorian government. Regardless of who is at fault, the inhabitants of that region complain of above-average cancer rates and the dumping of 15.8 billion gallons of toxic water into the streams of the rivers that supplies most of the areas drinking water.

At first blush, it would appear that Chevron has a pretty tough hill to climb because the entity it is blaming to have caused this problem is owned by the government. Chevron, however, has filed a suit in a New York court against the plaintiffs' lawyers alleging fraud and attempted extortion. Specifically, they claim that plaintiffs' lawyers have colluded with court officials to get this outrageously high amount of damages. In addition, Chevron has no assets in Ecuador. Therefore, collecting damages will be difficult. Ecuador will have to other authorities in countries where Chevron has assets to enforce this judgement. Most importantly, the Permanent Court of Arbitration at the Hague along with a court in New York issued an injunction temporally blocking this move by Ecuador.

In the end, Ecuador and the inhabitants of the plotted region may not receive an apology any type of damage payout. What seemed like a major victory now seems more like a Pyhric victory.

The Apocalypse or Just Another Day on the Planet Where Large Amounts of Wildlif Die

eMany of you have heard about the "rare" occurrence of 5000 blackbirds dropping dead in Arkansas and dozens of jackdaws falling from the sky in Sweden along with a few hundred turtle doves in Italy. At least the last one sounds like a scrooge-like Christmas prank. Nevertheless, should I take out my bible and read about the signs of the apocalypse? According to many scientists, mass animal deaths are not a rare occurrence. According to the National Wild Life Center in Madison, WI, which has been tracking mass animal deaths since the 1970s, there have been 188 cases just involving birds with mortality exceeding one thousand per event over the last ten years.

There are a variety reasons besides the "Act of God" that causes these deaths, such as animal starvation, animals eating toxic foods or getting poisoned by people. Some people hypothesized that the massive bird death in Arkansas could have been due to New Year fireworks scaring birds and causing them to fly into buildings, trees and other large hard objects.

According to the US Geological Survey, on average, there are between 160 to 200 such "mass death" events in the wildlife reported each year. In fact, there have been much larger bird deaths than the ones that just happened. In 1996 more than 100,000 ducks died of botulism in Canada.

So should we be afraid? Perhaps not, but then again there are some events that concern the science community, such as over one millions bats dying over the last three years due to the fungal affliction called "nose syndrome." Bats help in pollination of plants and reduce the mosquito population.

In the end, these rare occurrences are not so rare. At the same time, we should still be concerned that the wildlife is dying off in large amounts. It might not be the apocalypse; however, it could be a sign that the ecosystem is deteriorating. Also, certain populations like bats dying off can have significant impacts on our lives. So next time you see a bird slam into your window, you can sit back and relax knowing that its just a "natural" occurrence. Just make sure you stock up on mosquito repellent.

A Heat Wave in Winter Time

While we are digging out from another big snow storm on the east coat of the US and the West is facing another wet wintry mix, South America is in the middle of a heat wave. This is cutting into the harvest forecasts, which is pushing up crop prices to two year highs. Global food prices have been somewhat elastic even with the crop shortages from Russia this summer. This latest crop reduction may test this price elasticity. The dry weather in South America is caused by the La Nina weather pattern, which has already damaged the corn crops in Argentina. Argentina is the world's second largest exporter of corn and third largest exporter of soybeans. Both Brazil and Uruguay have declared a state of emergency with rising temperatures and small amounts of precipitation. Ironically, California has been experiencing an enormous amount of rain and snow during a La Nina season; however, many forecasters believe that California will soon be experiencing a dry winter.

Currently, the prices of corn, wheat and soybeans remain well below the peak prices in 2008. However, some analysts see a rise in prices of these crops in the near future, which means an increase in food prices at the supermarket. This may have a bigger impact in emerging markets where food inflation can have a significant impact on its population became more of their disposable income goes to food than in developed countries. A way countries may address this potential inflation is limit exports of its own crops like Russia did this summer. Countries like India are offering other alternatives, such as food subsidies, where the country is already dealing with food inflation surging to 12.13% from 9.46%.

In fact, corn and soybean futures contracts have already increased this month by 18% and 9%, respectively, to their highest prices since the financial crisis undercut commodity prices in 2008. Corn is up 51% since then and soybeans are up 31%. Also, wheat prices this month have increased 23% because of the significant amount of rain in Australia, which has ruined wheat crops there.

So in the end for Americans, this means that the lovely Chilean grapes that you have in the dead of winter might be a little more expensive this year. Unfortunately, this might have a great impact to a family in Haiti or India.

Is this a lot of hot air? And it is not always sunny in Spain.

The continuous battle between China and US in the WTO continues; however, this time it involves renewable energy. The US has requested to talk to China at the World Trade Organization to end the hundred of millions of dollars of subsidies China is spending to build up its wind-power production. Most of us would say, "What is wrong if China wants to build its own wind technology and spend government money on that?" The answer is that China is not just building technology for its own wind production. It is building technology for export to other countries. The US is already falling behind to China in renewable technology. Right now, China ranks among the top ten producers globally in wind-turbine production. So what is the American government's beef here? Actually, it is not just our government complaining. It is also the United Steelworkers complaining too.

The Chinese government is providing wind-power manufacturing grants to this Chinese producers using parts made domestically, which such grants ranges from $6.7 million to $22.5 million. This is a form of import subsidization that creates less incentive for Chinese wind turbine producers to use imported parts, such as US parts, because they will less likely get a grant from the Chinese government to operate their business. Thus, it creates an indirect barrier for US imported parts to get into the Chinese market.

Ironically, one way to mitigate this would be for the US government help develop its own wind-energy program and wind producing technology. Unfortunately, with a push for austerity in government, that is most likely not going to happen.

Solar Side Note: Spain is in the middle of a debt crisis and the Spanish government is looking to cut certain subsidized programs. It looks like Spain's solar energy program is one of the victims of the Spanish debt cutting. The Spanish government is expected to adopt a proposal within the next few days to cut solar-PV subsidies by as much as 30%. There is, however, some push back here. Many investors, including a foreign hedge fund investors in the UK, are pushing back arguing that this was never communicated to them when the invested in the first place. They view this as a "breach of trust." Ironically, some of this view that this action will cause solar producers to default on their loans with the banks without these subsidies. Which is worse, a business defaulting on it loans or the Spanish government? I believe most people in the EU, the US and IMF would say that the Spanish government defaulting would be worse as we saw the chaos created in Ireland and Greece as both countries were on the precipice of such default.

Business and the US Energy Policy- What a beautiful relationship

The Wall Street Journal had its Annaul CEO Council Meeting. Among many issues discussed at this summit was energy. The following five recommendations came out of the those discussions:

1. Develop Domestic Energy: Clearly, this is a no-brainer. They want to promote development of domestic resources with appropriate environmental safeguards and a regulatory system that is timely and predictable and avoids a back-door, de facto moratorium. They also do not want to develop a system that picks winners. Instead, the business sectors prefers a diversified solution.

I believe we are all in agreement that we need to develop our own domestic energy resources; however, it seems to me our business leaders have contradictory policy. They say they want environmental safeguards, but want to limit the government's the ability to put in place moratorium in situations, such as off-shore drilling. We still need government to quickly intervene where we do not have time to hash out issue until Congress has multiple panels to discuss whether or not a new environmental or existing method is more detrimental to the environment than it is positive to our energy solution. This is an issue that Pennsylvania is facing with shale gas drilling where the methods of drilling have raised questions on the negative impact the drilling is having on the enviroment and in some cases in releasing natural gas into the water system where a person can litterally light on fire his or her running water from the sink faucet. The governor of Pennsylvania initiated a moratorim on this drilling until it can be further analyzed with respect to the level of safety. Most likely, that moritium will end with the new addministration coming into office next year. That administration was heavily supported by the US Chamber of Commerce in the most recent election. I wonder if part of their support was due to the newly elected adminstration's unwillingness to issue these type of moritoriums. In fact, one of it biggest supports were companies doing this shale gas drilling.

2. Support R&D: Business is requesting government involvement in promoting research and development in carbon capturing technology and new energy storage devices, which is something that we need if we really want to expand solar energy on a massive scale. They prefer R&D to reduce cost over mandates and subsidies.

Unfortunately, I believe you need a balance between the two in order for the US to quickly enter into this green technology revolution similar to the same way we did with the Internet.

3. Consistent Federal Regulation: They want a uniform federal policy on energy and setting certain standards, such as fuel cell efficiency in cars. They want to avoid the patchwork state by state solution. At the end of the day, they do not want states like California dictating the country's energy policy in the same way it has done setting certain car standards and other requirements.

I believe one way to solve this is for Congress to pass a comprehensive energy bill, which currently has been passed in the House and not sits in the Senate where it most likely flicker out at the end of this year. This is going to be a more difficult achievement at this time and the solution will be at the state level with the most innovative and job creating and business promoting states setting forth our future energy policy.

4. Competiviness: They want us to be the leaders in energy technology and export this technology to other countries. Unfortunately, we are way behind in this technology. Countries like Germany, South Korea, Japan and China are the current leaders in this technology. Ironically, back in the seventies the US was the leader in solar technology. In fact, President Carter put solar panels on the White House roof. Unfortunately, our competiveness edge in this technology disappeared when the Regan administration came in and removed those solar panels. That action was a message to the business world that the Government had no real interest to invest in this technology, which meant business concentrated on other potential opportunities, such as desktop computers, walkmans and the Delorian. Well, two out of three were good investments. And America continued its dependence on foreign oil. We lost ground over 30 years to Asia and Europe so it is going to take some time to catch up.

5. Energy Efficiency: They want to US to be leaders in energy efficiciency technology. This should include development of building codes, appliance standards and incentives to employ new energy efficient technology.

Actually, I believe this is a real winner. The US has become a leader in this technology and it continues to grow. Also, Americans are demanding this type of technology. We want to be able to consume more without suffering the cost for it; therefore, energy efficiency technology is the solution. This technology is the diet food for the voracious American energy appetite. There is nano technology out there now that will enable cellphones to be used for an entire month with only one charge. Furthermore, there is a big push to promote energy efficient buildings. Cable channels like HGN, DIY and Planet Green are making it trendy to have an eneregy efficient homes with the I-Pad that runs on one monthly charge. There is the drive and, more importanlty to the business sector, there is strong domestic demand for this technolgy.

The end result of this summit is that the business sector has good ideas, but they still have some steadfast contradictory principals, such as less government involvment, that may make it difficult for the US to have a comprehensive and competive energy policy. We might have to rely on the free-market to dictate the policy. I think for the most part that having the free market set policy has been a good thing. That is if you just exclude the little hicup we had with the financial meltdown in which we turned the financial regulatory reins over to the free market to set our policies. It was not too bad. It just cost us about One Trillion Dollars to get out of that mess.

Coal has not burned out yet

As much as there is growth in alternative resources, coal still remains the number #2 energy resource. According to experts, it still will remain a primary supplier of energy for at least the next two decades. What are the reasons for this?

1. Coal is cheap. It still is much cheaper than natural gas and oil. Clearly, it still remains cheaper than solar, wind, bio fuels when you add up the infrastructure cost to harness that energy.
2. It is easily transportable.
3. It is the supplier of energy for two of the largest growing economies, China and India. China accounts for 1/2 of the global demand for coal and India represent 7.5%.
4. U.S. has not put in place a carbon emissions tax or cap. At this point, it does not look like this will happen in the near future, especially if the Republicans gain some control of Congress. Also, too many states have some connection to coal economically, which reduction of coal usage will have an huge economic impact. In this economic environment with a high unemployment rate, it will be difficult for people to give up their jobs that will impact with the immediate future, their livelihoods, in order to protect the distant future, the planet's livelihood. I person is more concerned about putting food on the table now than what will happen is some hypothetical future created by scientists, who have recently had less credibility with the general public.


The US has stated that it is addicted to oil; however, there is a greater addiction for the global economy, coal. Like any addiction, it takes time to got off of that "drug." At least for now, coal will continue to burn that red glow to meet the energy needs of us.

Hey, at least, we will continue to get the latest upgraded ipod from China at a cheaper price because it was created using the cheap energy resource, coal. I just hope that ipod is waterproof when the sea rises twenty years from now. Then again, I guess we will have time to create one of those too.

A Hot Summer at home and in Russia

I took a hiatus from my blog postings to enjoy the summer. Of course, like many of us, I experienced the hottest summer in history on the east coast. Where I lived, we had 8 heat waves, meaning temperatures above 90 degrees Celsius for three consecutive days. It is September 1st and the temperature today will reach close to 100 degrees. What does it mean? Can all of the global warming pundits shout out in unison, "I told you so"? Of course, that might fall on deaf ears of the people who still deny global warming or that it is caused by man. Perhaps, as we see Russia dealing with forest fires and with 1/5th of Pakistan flooded by the heavy monsoons or Tennessee experiencing the most rainfall in one period of time in more than 1000 years, we can all work together and address this ever changing and unpredictable climate change. We will have to wait and see.



As I stated before, Russia faced the worse wild fires in its history this summer. Moscow throughout the summer was under a smokey haze. Also, Russia's wheat industry has been wiped out by these fires. As a result, spot prices for wheat rose by 24% in July and by more than 50% between the beginning of June and August 6th. In fact, the futures prices for September contract on the Chicago Board of Trades, which sales contracts of commodities, such as wheat, rose by more than 5%, which was the biggest daily increase since the end of the 2007-2008 food price spikes. Now, before you run to the supermarket and stock up on bread and flour, this movement in pricing is not unusual. The weekly wheat-price rises in July were no larger, compared with four weeks previously, than those during May and November 2009. In fact, if we look at prices over 12 week periods, they actually rose more at the end of 2009 than the past three months. According to Manuel Hernandez of the think tank, the International Food Policy Research Institute, this volatility is normal. The better indicator is not short term contract here, but long term ones, which have risen in price, but slowly. Another reason for calm is that we still have a significant global supply of wheat. In June 2008, the last "food-crisis", world wheat stocks fell to 121 m tonnes, the lowest level in 30 years. This was caused by the bio fuel frenzy and emerging markets growing demand for wheat. Today, we sit on 197m tones of wheat. This should be enough to absorb the impact of Russia's destroyed crop, which represent only 8% of the world's crop. Overall, the UN's Food and Agriculture Organization forecast that the wheat harvest will fall by about 5% this year. There will be a impact here, but not as cataclysmic as some feared. Also, this should benefit the US economy as one of the largest growers of wheat. Nevertheless, maybe it still is a good idea to get an extra bag of flour next time you are at the supermarket.