Obama vs. McCain on Energy

Obama vs. McCain on Energy
Renewable energy: a long-term vision

Alfredo Ascanio (askain)
Published 2008-10-12 09:16 (KST)

The stock markets in the Americas, Europe and Asia continue to decline, for example, the fall in Japan was 9.6 percent. In some Latin American countries with stock exchanges also have had significant problems and also their currencies (the Mexican peso and the Brazilian real).

"The US structural problem persists, despite the reduction in interest rates and the plan to rescue the institutions at risk, and that causes volatility in the markets," said economist Roberto Dotta in Sao Paulo.

The price of oil drops and now is lower than the level of $90. Against this background, OPEC decided to convene an extraordinary meeting on Nov. 18, to discuss "the global financial crisis, the global economic situation and its impact on the oil market."

But a major topic for discussion at future is alternative energy sources. Is more optimistic this subject that the issue of the crisis that is wrapped in a disheartening pessimism. Discuss another issue psychologically serves as a catharsis.

So the issue of renewable energy alternatives has been a core issue of presidential campaign. Hence the importance that both candidates have given to this important problem.

If the oil has been a disturbing element of global economies of consumer countries, it is logical to put more interest in a policy alternative that can assure a better future.

During the Presidential debate, each candidate had positive things to say about renewable energy.

McCain: "We have to have all of the above, alternative fuels, wind, tide, solar, natural gas, clean coal technology. All of these things we can do as Americans and we can take on this mission and we can overcome it."

Obama: "We've got to deal with that [energy] right away. That's why I've called for an investment of $15 billion a year over 10 years. Our goal should be, in 10 year's time, we are free of dependence on Middle Eastern oil."

And, just as they had positive things to say about expanding the use of renewable energy, they had equally negative things to say about oil.

John McCain said: "We've got to eliminate our dependence on it."

Obama added, "We have three percent of the world's oil reserves and we use 25 percent of the world's oil. So what that means is that we can't simply drill our way out of the problem."

The big oil companies do not want to put all eggs in one basket. The truth is that the big oil companies have already closed more than a decade channeling billions of dollars in the energy sector alternative. Of course they know, better than anyone that the end of the oil age is upon us.

Here's how they see the future of energy: demand growth per annum 2005 - 2030 (estimates in percentages):

Total primary energy 1.8
Wind 13.8
Solar 20.9
Biofuels 9.2

On April 1, 2007, top executives from the five biggest US oil companies were called to a meeting in Washington to discuss the affairs of the investment in alternative energies and their role in it. And these were some results:

Chevron: "Chevron has invested more than US$2 billion in alternative energy. We expect to invest more than $ 2.5 billion from 2007 through 2009 in the same areas."

Conoco Phillips: "While oil, natural gas, and coal will remain vital components of energy supply in the short term, other supplies are needed. These include renewable such as wind and solar power. Conoco Phillips believes we must continue to balance investment in the search for new Technologies and diverse energy sources with responsibility and continued care for the environment."

Royal Dutch Shell: "Our solar power activities are focused on advancing our proprietary thin-film technology. With our joint venture partner, Saint-Gobain, we are building a 20 MW thin-film solar plant in Germany. The Showa Shell joint venture is operating a 20 MW thin-film in Miyazahi, Japan and building a second thin-film factory with a capacity of 60 MW."

Incidentally, Shell is also a major wind developer. The company participates in wind projects with a capacity of over 1,100 MW or enough to power more than a half million homes.

The company's alternative energy priorities for 2010 include:

A 3 GW wind power capacity (enough to power over 2 million home)
About 800 MW of solar capacity (enough to power half a million home)
The development of new biofuel projects across the globe

According to the International Energy Agency (IEA)...

The world's primary energy needs are projected to grow by 55 percent between 2005 and 2030.
Chinese and Indian crude oil imports will almost quadruple by 2030, creating a supply crunch no later than 2015.
Coal demand will rise by 73 percent between 2005 and 2030.

Because of this unprecedented demand for energy, the IEA found that $20 trillion of investment in supply infrastructure is needed to meet projected global energy demand, but alternative energy.

In fact, from 2006 to 2007 alone, new investment in alternative energy soared a full 60 percent... to $148.4 billion.

And what about the investment growth rate for exploration and development in oil and gas? Nothing, not even a 1 percent increase.

Therefore, if the world is so desperate to get more energy (especially oil (with Chinese and Indian imports expected to quadruple by the year 2030), why is it puts more emphasis to the alternative energy, and so little on oil and gas? Because the smart money is invested in low-risk products. And no matter how they behave today supply and demand for oil, because in the long-term supply and demand will be more important for alternative energy.

That's why Big Oil, the big institutional investors, and all those hot shot venture capital firms are injecting hundreds of billions of dollars into the alternative energy sector.

And if you don't believe it, take a look at these findings from a 2008 UN report on global trends in alternative energy investment (in 2007):

Early-stage venture capital investment surged 112 percent to $2 billion.

Research and Development spending on clean energy and energy efficiency was $16.9 billion.

Alternative energy companies more than doubled the amount of money they raised on the world's public markets in 2007, raising $27 billion.

Financing of sustainable energy assets grew by 61 percent to $108 billion.

$30 billion was under management in core clean energy funds.

Even developing countries are shifting investment priorities. New clean energy investment in China, India, and Brazil grew from $1.8 billion in 2004 to $26 billion in 2007. That's a growth rate of more than 1,300 percent in only three years... at the same time spending remains flat for oil and gas exploration and development.

Of course, the total investment that'll be plowed into alternative energy by 2030 won't even come close to the $20 trillion the IEA expects we'll need.

Truth is, most analysts believe alternative energy will only cover about 5 percent of that total investment. But that still comes in at $1 trillion. That means alternative energy investors like, Chevron, Conoco Phillips and Shell are looking at a 30.6 percent annual growth rate for the next 22 Years.

Even in today's market, which is more volatile than anything we've seen in nearly 80 years, those who are properly positioned to take advantage of the coming energy crisis will continue to make a fortune in alternative energy, said Nick Hodge, the managing editor of the Alternative Energy Speculator.

On the long term it will be economically feasible to develop major projects in alternative energy? Even with an oil price of $80 per barrel does not allow alternative energy sources are highly profitable.

If the price of oil continuing to decline, and global oil reserves down significantly, other alternatives will be explored. When did this happen? It is not known with any certainty, because this matter depends on many variables, and also of research and technology development; but to observe the behavior of major investors may suspect that something will happen but did not know the exact date.

Alfredo Ascanio is a professor of economics at Simon Bolivar University in Caracas, Venezuela.