Monday, April 30, 2007

The Green Numbers

With all the racket about the color green these days, it seems a little hard to remember the simple principles of grassroots democracy, social justice and equal opportunity, ecological wisdom, non-violence, decentralization, community based economics, gender equality, respect for diversity, responsibility and sustainability. Maybe it was a mistake to name a movement after the color of money, but then not everyone's money is green. But, you had to pay for that first link, so maybe the noise is not so deafening that we can't think a little bit for ourselves. The green movement is definitely not about geo-political war mongering, it springs out of hope rather than fear. And it is not a throwback to the flat earth society, it is future focused.

But, as Luke 14:28 points out, if you are going to build for the future you've got to see if you have what it takes to complete the effort. So, let's start counting the green backs. We are spending a huge amount of money to little purpose, servicing debt and keeping forces in the field. So, it might not seem as though we've much wiggle room, especially when larger and larger costs are looming. But, our credit is not as extended as it has been in the past so long as we can inspire confidence among potential lenders. (Open that last link in another window. We'll be using it.)

How can such confidence be inspired? The proper way to borrow is to not really borrow at all but invest. It is just fine to borrow to pay for a road that will last as long or longer than the period over which the debt is repaid. This is not so much borrowing but rather acknowledging that the benefits of the road will be spread out in time and so the costs might be fairly spread as well. Borrowing to cover current accounts or to service debt, however, is not the way to inspire confidence. Part of the huge peak in the last link was investment in the GI bill. Bucky Fuller attributes prosperity since then to this one thing. Future Focus does actually work pretty well. The figure showing the US national debt as a percentage of gross domestic product (GDP) is a ratio. So, some of the ups and downs reflect increased or decreased borrowing and some reflect decreased of increased GDP. For example, GDP fell about 25% from 1929 to 1932 so this accounts for most of the increase in the percentage of GPD that the debt represented during this period. It took a while for idea that bold, persistent experimentation might be the proper response to a crisis, a policy that another wise man named Franklin would have approved. A period of fruitful investment ensued which is shown by the continued increase after 1932, until the war effort took over in about 1941. We reached the highest ratio in 1946, after the war at a level of 120%.

Here is the question we have to address: Is a national debt that is 120% of GDP a bad thing? Well, lets look at what a young family does. A thirty year mortgage might be issued at 7 times gross annual income leading to about 25% of income going to housing over 30 years. So, that is 700% of gross family product (GFP) initially, and if income remains stable it would be an average of 350% over the 30 years. A lot of families think of their home as an investment since they get back at least a portion of what they pay for it if they sell. For secured credit, much higher numbers than 120% are routine. The continued borrowing after the war, to properly handle demobilization, was also an investment that assured prosperity, but it was done on the good faith and credit of the US government, which some feel isn't worth the paper it's written on. History, however, is not on their side. The US does not always keep it's promises but neither has it defaulted on acknowledged debt.

Let's conservatively take 120% of GDP as a dept ceiling in the case of a crisis and on the assumption that we will be borrowing to invest rather than to cover current accounts. Can we transform our dangerous current accounts borrowing in energy into an investment in money that leads to prosperity rather than the rather unforgiving debt collection practices of ecological collapse?

Where we stand now is that debt is about 60% of GDP and is close to $9 trillion dollars so let's assume we have $8 trillion of credit to work with. It is not at all clear that we actually have this much because we need willing lenders in addition to our willingness to borrow. And, since money for lending is probably invested somewhere else right now, we'd need to look carefully at what would happen if we attempted to redirect those investments. But, we are considering a complete shift in the way we use energy, so there is a clear economic sector where money might come from. Transforming ExxonMobil into a lubricants company and Peabody Energy into a Christmas novelty company would free up quite a lot of dollars.

The US uses about 35.2 quadrillion BTU (quad) of energy a year and wastes about 56.2 quad a year owing mostly to thermodynamic laws. Let's consider solar photovoltaic power as a limiting case, since some consider it expensive, and for simplicity since we can largely ignore the wasted energy and concentrate on the used energy because we won't be dealing with a heat engine. First we'll convert quads per year to watts and get 35.2 quads/year * 1.06e18 Joules/quad / 3e7 seconds/year = 1.2e12 watts, or about a terawatt. So our final number is we can spend $8/watt capacity installed. Is this feasible?

A 500 MW solar fabrication plant costs about $600 million and at this kind of scale estimates of installed cost come in at about $4/watt. Over twenty years, such a plant produces 10 GW of capacity so the cost of plant construction is only $0.06 per watt capacity with the rest of the cost being in raw materials, operation costs, transportation and labor for installation. Now, to get to a terawatt over 20 years we need 100 such plants. Actually, we should multiply by 3 or 4 to account for the fact that the Sun isn't always up. Let's take 3 since we might not be finished with hydro power in twenty years. So, our initial investment cost in solar power fabrication plants is $180 billion. But, as noted above, we make spending outlays of this size just to keep troops in Iraq. Now, at $4/watt installed the cost of power is $4/watt /6 hours/day / 365 days/year / 25 years of installed life * 1000 kw/watt= $0.073 per kWh. Oops, this is less that I pay for delivered electricity now. So, since I'm paying more than that anyway, maybe private financing would be the way to go for that part, especially since there is obvious collateral to secure the credit. It is beginning to look as though the green numbers indicate that we don't have to go any where near the level of public debt we were at in 1946 to completely transform our energy use to renewable energy. And, we'd actually save money.

Since the cost of building a manufacturing plant is such a small fraction of the total cost, perhaps the thing to do is to build 600 of them and preserve 300 of them to handle recycling 20 years on. Or, just keep them going beyond our needs and reverse our trade deficit. The next thing to look at is how much we could save by using electric transportation, geothermal heating and air conditioning and such. We could boost our disposable income by quite a bit by financing these things in a sensible way. So, with more than $7 trillion of credit still left to play with, perhaps the proper government role would be to invest in a strategic energy reserve through renewable energy storage, though I doubt this would cost as much as this project, still well less than a trillion dollars.

The green numbers look more than feasible, they look far superior to the ghost energy numbers. Sometimes it takes a crisis to realize that you could have been doing much better all along and maybe green is the color of money. Now, if we just made the GI Bill universal.

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