Monthly Archives: February 2014

Keystone XL environmental report: Is it ‘game over’ for pipeline foes? (+video)

Courtesy of The Christian Science Monitor. By Mark Clayton

Crews work on construction of the TransCanada Keystone XL Pipeline, east of Winona, Texas, in December 2012. In a move that disappointed environmental groups and cheered the oil industry, the Obama administration on Friday, said it had no major environmental objections to the proposed oil pipeline from Canada.
Sarah A. Miller/The Tyler Morning Telegraph/AP

The State Dept.’s Keystone XL report found that the pipeline is unlikely to significantly add to global carbon emissions. But foes say the project still may not be in the ‘national interest.’

The US State Department has concluded that the proposed Keystone XL pipeline – the 875-mile long oil link from Alberta to the US Midwest and ultimately to Gulf Coast refineries – is unlikely to add significantly to global carbon emissions.

The much-anticipated finding in the final Environmental Impact Statement (EIS) on the pipeline, released Friday, thrilled energy producers and dealt a blow to environmentalists. They have long argued that the pipeline would supercharge development of Alberta’s tar sands deposits and contribute mightily to climate change by creating a global market for the sands’ diluted bitumen product.

By rejecting those assertions, the report paves the way for President Obama, who has staked out a strong position on fighting climate change, to approve the pipeline with far less political backlash should he so chose, some experts say.

The report Friday reaffirms a March 2013 Draft Supplemental EIS conclusion that the pipeline would not produce any significant additional greenhouse gases resulting from developing the tar sands.

“Approval or denial of any one crude oil transport project, including the proposed Project, remains unlikely to significantly impact the rate of extraction in the oil sands, or the continued demand for heavy crude oil at refineries in the United States,” concluded the multi-volume EIS.

The report, however, did acknowledge a “potential increase” in greenhouse gas emissions (GHGs) equivalent to the annual emissions of between 271,000 and 5.7 million passenger vehicles for 1 year – or the annual CO2 emissions of up to nearly eight coal-fired power plants. But the EIS market analysis showed that no such jump in added gas emissions was likely to occur.

Last June at Georgetown University, Mr. Obama declared that “our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution.”

“Though many considerations may factor into whether KXL is in the national interest, we would contend that the pipeline appears to have passed the President’s GHG test a second time,” writes Kevin Book, an energy analyst with ClearView Partners, an energy economics consulting firm in Washington.

Environmentalists, meanwhile, ruefully noted the report’s conclusions of a potential GHG emissions surge – while concluding it was unlikely.

“Even though the State Department continues to downplay clear evidence that the Keystone XL pipeline would lead to tar sands expansion and significantly worsen carbon pollution, it has, for the first time, acknowledged that the proposed project could accelerate climate change,” Susan Casey-Lefkowitz, international program director of the Natural Resources Defense Council, said in a statement. “President Obama now has all the information he needs to reject the pipeline.”

Before it can be approved, Obama must also decide whether the pipeline is in the overall national interest – a wildcard, both environmental and energy analysts agree. Some analyses have shown higher gasoline prices resulting. Despite that uncertainty, energy producers were cheered.

“Five years, five federal reviews, dozens of public meetings, over a million comments and one conclusion: the Keystone XL pipeline is safe for the environment,” Jack Gerard, American Petroleum Institute president and CEO, said in a statement. “This final review puts to rest any credible concerns about the pipeline’s potential negative impact on the environment. This long-awaited project should now be swiftly approved.”

Not everyone is so sure. Environmentalists say the “national interest” determination is a major hurdle for the project. If the project were found likely to raise gasoline prices in the Midwest that could undermine the momentum for approving the pipeline, some experts said.

The national interest determination could be concluded within as little as three months in the run-up to a final decision. But it could take far longer depending on how long the public comment portion extends, experts say.

Another wild card is that the State Department’s choice to lead the Keystone XL EIS review has also come under scrutiny for its ties to the oil and gas industry. Environmental Resources Management (ERM), a London-based environmental consultancy hired to perform the environmental review, is a member of at least five trade associations that have lobbied in support of Keystone XL, according to organizations’ websites and promotional material.

ERM has not publicly commented on the allegations and redirects press inquiries to the State Department, which has repeatedly said it maintains rigorous conflict-of-interest procedures which “ensure that no contractors or subcontractors have financial or other interests in the outcome of a project.”

The State Department’s inspector general is looking into the allegations and is expected to publish its findings in the coming month or two.

Other implications could soon loom as well. Mr. Book, the energy analyst, notes that the GHG analysis used in the Keystone XL could, ironically, make it far harder for other fossil fuels to show that they should be exported too – by providing a template for greenhouse gas analyses that could be negative for those energy exports.

“In a post-Keystone world, the next targets of opportunity [for GHG analysis and environmentalist opposition] could include: crude oil exports, crude-by-rail and the burgeoning trend of municipal fracking bans (to say nothing of ongoing opposition to coal ports in the Pacific Northwest),” Book writes.

Staff writer David Unger contributed to this report.

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Investment in renewable energy is falling. But you won’t believe what will happen next.

Courtesy of The Week. By John Aziz |

As far as long-term investments go, the renewable energy sector has a bright future

Around the world, investment in renewable energy companies has fallen. According to a studyby Bloomberg, $254 billion was invested in renewable energy worldwide last year, a drop of 12 percent from 2012, which itself was a nine percent fall from a 2011 high of $318 billion.

This is a rather strange development. As a group, solar companies were one of the best-performing investments of 2013. The renewable energy sector as a whole is booming, and solar capacity is growing at an immense rate. So why is investment falling?

There seem to be two main reasons.

First, solar technology has been getting much, much cheaper, with prices almost halving since 2011. This means that more renewable energy is being generated with fewer dollars invested. Even if demand for renewable energy technology rises, falling prices means that the amount of investment can still fall.

Second, the figures compiled by Bloomberg don’t include investments by companies outside the renewable sector. For example, information giant Google alone invested more than $1 billion last year in developing solar capacity to run the company’s data centers, and claims that it wants to go 100 percent solar in the long run. Microsoft and Walmart also made similar investments.

Still, current levels of investment are deemed by the industry to be insufficient, the goal being to increase solar capacity enough to reduce carbon emissions and fend off global warming. Climate-policy advocates and solar investors, including hedge fund billionaire Tom Steyer and former U.S. Treasury Secretary Robert Rubin, called for renewable energy financing to double by 2020 in order to reduce greenhouse gas emissions by 25 percent. They also said the world should obtain at least 30 percent of its energy from renewable sources by 2020, and that renewable energy investment should double again, to $1 trillion, by 2030.

Will we get there? It really depends on the market. If the price of renewable energy continues tofall so dramatically, eventually the market will adopt it solely based on price. If other sources of energy remain cheaper than renewables, it will be an uphill battle regardless of what policies governments enact to encourage people to switch to renewable energy.

In the long run, the economics are on solar’s side, because solar is by far the most abundant energy source available to us. Fossil fuels and fissionable fuels are inherently limited, because there is only a finite amount stored in the Earth’s crust. As this diagram demonstrates (in Terrawatt-years per year), the availability of solar energy on Earth dwarfs other energy sources:

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The Middle Class Is Steadily Eroding. Just Ask the Business World.

Courtesy of The New York Times. By NELSON D. SCHWARTZ

In Manhattan, the upscale clothing retailer Barneys will replace the bankrupt discounter Loehmann’s, whose Chelsea store closes in a few weeks. Across the country, Olive Garden and Red Lobster restaurants are struggling, while fine-dining chains like Capital Grille are thriving. And at General Electric, the increase in demand for high-end dishwashers and refrigerators dwarfs sales growth of mass-market models.

As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.

If there is any doubt, the speed at which companies are adapting to the new consumer landscape serves as very convincing evidence. Within top consulting firms and among Wall Street analysts, the shift is being described with a frankness more often associated with left-wing academics than business experts.

“Those consumers who have capital like real estate and stocks and are in the top 20 percent are feeling pretty good,” said John G. Maxwell, head of the global retail and consumer practice at PricewaterhouseCoopers.

In response to the upward shift in spending, PricewaterhouseCoopers clients like big stores and restaurants are chasing richer customers with a wider offering of high-end goods and services, or focusing on rock-bottom prices to attract the expanding ranks of penny-pinching consumers.

“As a retailer or restaurant chain, if you’re not at the really high level or the low level, that’s a tough place to be,” Mr. Maxwell said. “You don’t want to be stuck in the middle.”

Although data on consumption is less readily available than figures that show a comparable split in income gains, new research by the economists Steven Fazzari, of Washington University in St. Louis, and Barry Cynamon, of the Federal Reserve Bank of St. Louis, backs up what is already apparent in the marketplace.

In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.

More broadly, about 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income, according to the study, which was sponsored by the Institute for New Economic Thinking, a research group in New York.

The effects of this phenomenon are now rippling through one sector after another in the American economy, from retailers and restaurants to hotels, casinos and even appliance makers.

For example, luxury gambling properties like Wynn and the Venetian in Las Vegas are booming, drawing in more high rollers than regional casinos in Atlantic City, upstate New York and Connecticut, which attract a less affluent clientele who are not betting as much, said Steven Kent, an analyst at Goldman Sachs.

Among hotels, revenue per room in the high-end category, which includes brands like the Four Seasons and St. Regis, grew 7.5 percent in 2013, compared with a 4.1 percent gain for midscale properties like Best Western, according to Smith Travel Research.

While spending among the most affluent consumers has managed to propel the economy forward, the sharpening divide is worrying, Mr. Fazzari said.

“It’s going to be hard to maintain strong economic growth with such a large proportion of the population falling behind,” he said. “We might be able to muddle along — but can we really recover?”

Mr. Fazzari also said that depending on a relatively small but affluent slice of the population to drive demand makes the economy more volatile, because this group does more discretionary spending that can rise and fall with the stock market, or track seesawing housing prices. The run-up on Wall Street in recent years has only heightened these trends, said Guy Berger, an economist at RBS, who estimates that 50 percent of Americans have no effective participation in the surging stock market, even counting retirement accounts.

Regardless, affluent shoppers like Mitchell Goldberg, an independent investment manager in Dix Hills, N.Y., say the rising stock market has encouraged people to open their wallets and purses more.

“Opulence isn’t back, but we’re spending a little more comfortably,” Mr. Goldberg said. He recently replaced his old Nike golf clubs with Callaway drivers and Adams irons, bought a Samsung tablet for work and traded in his minivan for a sport utility vehicle.

And while the superrich garner much of the attention, most companies are building their business strategies around a broader slice of affluent consumers.

At G.E. Appliances, for example, the fastest-growing brand is the Café line, which is aimed at the top quarter of the market, with refrigerators typically retailing for $1,700 to $3,000.

“This is a person who is willing to pay for features, like a double-oven range or a refrigerator with hot water,” said Brian McWaters, a general manager in G.E.’s Appliance division.

At street level, the divide is even more stark.

Sears and J. C. Penney, retailers whose wares are aimed squarely at middle-class Americans, are both in dire straits. Last month, Sears said it would shutter its flagship store on State Street in downtown Chicago, and J. C. Penney announced the closings of 33 stores and 2,000 layoffs.

Loehmann’s, where generations of middle-class shoppers hunted for marked-down designer labels in the famed Back Room, is now being liquidated after three trips to bankruptcy court since 1999.

The Loehmann’s store in Chelsea, like all 39 Loehmann’s outlets nationwide, will go dark as soon as the last items sell. Barneys New York, which started in the same location in 1923 before moving to a more luxurious spot on Madison Avenue two decades ago, plans to reopen a store on the site in 2017.

Investors have taken notice of the shrinking middle. Shares of Sears and J. C. Penney have fallen more than 50 percent since the end of 2009, even as upper-end stores like Nordstrom and bargain-basement chains like Dollar Tree and Family Dollar Stores have more than doubled in value over the same period.

Competition from online giants like Amazon has only added to the problems faced by old-line retailers, of course. But changes in the restaurant business show that the effects of rising inequality are widespread.

A shift at Darden, which calls itself the world’s largest full-service restaurant owner, encapsulates the trend. Foot traffic at midtier, casual dining properties like Red Lobster and Olive Garden has dropped in every quarter but one since 2005, according to John Glass, a restaurant industry analyst at Morgan Stanley.

With diners paying an average tab of $16.50 a person at Olive Garden, Mr. Glass said, “The customers are middle class. They’re not rich. They’re not poor.” With income growth stagnant and prices for necessities like health care and education on the rise, he said, “They are cutting back.” On the other hand, at the Capital Grille, an upscale Darden chain where the average check per person is about $71, spending is up by an average of 5 percent annually over the last three years.

LongHorn Steakhouse, another Darden chain, has been reworked to target a slightly more affluent crowd than Olive Garden, with décor intended to evoke a cattleman’s ranch instead of an Old West theme.

Now, hedge fund investors are pressuring Darden’s management to break up the company and spin out the more upscale properties into a separate entity.

“A separation could make sense from a strategic perspective,” Mr. Glass said. “Generally, the specialty restaurant group is more attractive demographically.”

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