The Road Ahead–Some Thoughts

By Stormy

Now is not a good time. In fact, the credit crunch may affect areas important to moving ahead: from funding renewable energy sources to rebuilding infrastructure, from a stable local tax base to the creation of jobs through business investment–to say nothing of mitigating the growing effects of pollution and global warming. One side effect has been the creation of ever-larger entities in almost every area–perhaps a dangerous development–as smaller firms in almost every area are gobbled up. Increasingly, the national government, along with these huge firms, will play a larger and larger role. And how much can a government do, especially one that is seriously in debt?

Taking each of these areas separately, I see considerable difficulties.

Funding Renewable energy sources: Cash rich, large utilities will be in the best position.

Even if utilities do have to borrow, they can do so cheaply as government-regulated businesses with guaranteed rates of return which can pass on costs to consumers, said analyst Pavel Mulchanov at Raymond James & Associates in Houston.

Europe may be better off than the U.S. in terms of renewables:

On Monday, US lawmakers said they could run out of time to extend a wind power production tax credit (PTC) and a solar power investment credit (ITC), which have been powerful spurs for installations, in time for a Dec. 31 expiry deadline.

What certainly will happen is that smaller firms, often the genesis for new ideas, will be absorbed. Start-up companies will be unable to find the necessary cash to get a foothold. Our choices for the kinds of renewables we pursue may increasingly be in the hands of larger and larger entities.

How these larger firms choose to allocate investment resources will be important. Will they make wise decisions or be simply governed by short-term returns?

Rebuilding infrastructure: As houses decrease in value, local tax bases will decrease, putting increasing strains on state governments. Once again, the national government will be asked to help, even as its tax base is slowly strangled. While national investment in infrastructure may create some jobs, without a better trade position, there will be little hope that infrastructure in the long run will be enough. Countries that are cash rich and that have good export markets will be better weathering the coming storm, as long as they export items that are essential.

Creation of jobs through business development: Most firms will head for the trenches. If we are worried about “float loans,” imagine the attitude towards actual investment. Even when the stock market boomed and the bubble grew, actual business investment inside the U.S. was mediocre. Firms saw better returns in emerging markets that offered cheap labor and tax subsidies. The chances of those firms returning to the U.S. are small–unless, of course, labor here becomes cheap enough–or the cost of transportation becomes prohibitive.

Pollution and global warming: If the argument for meeting these twin demons head-on was that it would adversely affect the bottom line, that argument now, regardless of how foolish, is even more persuasive. Pollution grows apace.

The Gulf of Mexico may just be a glimpse into the future of coastal waters around the world, if this is the case. Already, dead zones have been identified across the globe, from the Scandinavian fjords to the South China Sea to the U.S.’s Chesapeake Bay.

On the global warming front, don’t worry about buying hip waders. We know, of course, that Arctic ice mass continues to dwindle. We know also that for the first time as far as anyone can remember, both the Northwest and Northeast passages were simultaneously opened. Again, these are side issues. The real thing to watch is the permafrost and the massive peat bogs in Russia. The carbon and methane these areas hold exceed anything humanity could place in the atmosphere in the next seventy years. According to Sergei Zimov, a Russian who has been studying climate change in the Russia’s Arctic,

The deposits of organic matter in these soils are so gigantic that they dwarf global oil reserves…U.S. government statistics show mankind emits about 7 billion tonnes of carbon a year…Permafrost areas hold 500 billion tonnes of carbon, which can fast turn into greenhouse gases…

Zimov the world’s carbon reservoirs. (Note, to use the prior link, go here; otherwise, you will confront a subscription request.)

The following quotations of his study deserve careful reading:

The carbon content of Earth’s atmosphere has increased from ~360 gigatons (Gt)–mainly as CO2–during the last glacial maximum to ~560 Gt during preindustrial times and ~730 Gt today. These changes reflect redistributions among the main global carbon reservoirs. The largest such reservoir is the ocean (40,000 Gt, of which 2500 Gt is organic carbon), followed by soils (1500 Gt) and vegetation (650 Gt).

There is also a large geological reservoir, from which ~6.5 Gt of carbon are released annually to the atmosphere by burning fossil fuels.

Permafrost (permanently frozen ground) is an additional large carbon reservoir that is rarely incorporated into analyses of changes in global carbon reservoirs. Here we illustrate the importance of permafrost carbon in the global carbon budget by describing the past and potential future dynamics of frozen loess (windblown dust, termed yedoma in Siberia) that was deposited during the glacial age, covering more than 1 million km2 of the north plains of Siberia and Central Alaska to an average depth of ~25 m.

…we estimate the carbon reservoir in frozen yedoma to be ~500 Gt. Another ~400 Gt of carbon are contained in nonyedoma permafrost (excluding peat lands), and 50 to 70 Gt reside in the peat bogs of western Siberia. These preliminary estimates indicate that permafrost is a large carbon reservoir, intermediate in size between those of vegetation and soils.

Then there is the methane, now hissing out of frozen and unfrozen lakes.

The yedoma carbon beneath the thermokarst lakes is decomposed by microbes under anaerobic conditions, producing methane that is released to the atmosphere primarily by bubbling. Near eroding lakeshores, methane bubbling is so high that channels through the lake ice remain open all winter. During a thaw/freeze cycle associated with lake migration, ~30% of yedoma carbon is decomposed by microbes and converted to methane. As a potent greenhouse gas, this methane contributes to climate warming.

The question ahead is: Do we have the resources to see our way through the coming difficulties, even if credit begins to become more available? Larger and larger entities will stand astride the globe. In the U.S., the U.S. government will be everywhere. For the U.S., the coming recession will be long and painful. It has become the provider of last resort. How intelligently it will be guided remains to be seen. Most importantly, will it have the wisdom and the fortitude to address directly the issues of pollution and warming at a time when tax dollars are desperately needed in other areas?