Where does power come from? Why the sun, of course!
We take up the issue of national power and real energy in today’s Markets and Money. And we take it up because the fate of nations and the welfare of men and women are directly related to how much sunlight we all get. All power – from the stored solar energy in fossil fuels to the sunlight that makes food grow – comes from energy.
But oh dear, isn’t this problematic? The world’s warming trend ended in 1997, according to the Met Office in the UK. We are at the peak of a sunspot cycle that should correspond to higher temperatures, according to the study. The next cycle, “Cycle 24”, could be the weakest since the Maunder Minimum in the 17th century.
Back then, it got so cold in jolly old England you could ice skate on the Thames. History refers to this cold period between 1645 and 1715 as the “Little Ice Age”. If the Met study is correct, it means the world may actually be getting colder!
Now, we know every time we publish a story on climate change we get dozens of readers cancelling their free subscription and questioning our judgement. Then there are the readers who tell us to stick to our knitting and quit making a fool out of ourselves. So why do we persist?
Well, if you enjoy the Markets and Money (or even if you don’t enjoy it but still find value in it) you have to be comfortable with the idea that some of the things you’re told to believe may not be true. You go about finding out whether they’re true by asking questions and being open minded. But all good enquiries begin with doubt.
For example, why would the authors of the Met study conclude that despite the evidence that solar activity may be in decline for a while, temperatures on Earth will still rise? It turns out there’s an answer! The answer is they believe carbon dioxide emissions play a greater role in the Earth’s temperature than the sun.
Read that last line again.
Okay. We’re no climate scientist. But doesn’t the claim that carbon dioxide plays a greater role in the Earth’s temperature than, you know, the sun, strike you as a little curious? The sun is a 4.5 billion old nuclear reactor in the sky raining down radiation on our planet every second of every minute of every hour of every day for all time. It would make sense, you’d think, that the sun would have a lot to do with the Earth’s temperature.
Of course, we’re probably just being ignorant. The Earth’s climate is a complicated system of systems. You have the oceans and the atmosphere and the sun all combining to produce a climate. And there is the matter of human activity.
In any event, don’t expect the Australian government to abandon the carbon tax, even if the world isn’t getting warmer. If the world is getting colder, people will probably have to burn even more fossil fuels just to avoid freezing to death. The carbon tax really is a tax for all seasons!
But speaking of power and energy and people, we thought we’d take a step back to begin the week and look at the world in pictures. That is, look at power relationships as images. We’ve done this a few times before with the help of the maps at www.worldmapper.org. Even though the data driving the map configurations are not quite up to date, the representations of country size in terms of various resources and metrics puts an idea or concept in a different perspective, quite literally. And it’s fun! So let’s have a look.
First, let’s look at the map of the word in terms of population. As you’d expect, India and China are huge. Australia is not. This highlights so much that is positive about Australia’s economic situation. To its north are many millions of people who need resources. Australia is a big country in real terms. But with a small population, it can afford to export a lot of its resource wealth (provided it wants to, and has the labour and capital to extract those resources).
Now there are some grim people out there who view every new human life as an empty mouth to feed. And each new life does need resources to support it (food, water, energy). But we take the view of economist Julian Simon that people are “the ultimate resource”. That is, when you begin to view each new life as a problem to be solved, you’re just a short step away from deciding which 3 billion people you have to exterminate to make the planet liveable for the rest of us (assuming you’re not one of the unfortunates to get exterminated).
Simon’s point is not that the natural world doesn’t impose limits to growth (scarcity). His point is that if market prices work, human beings tend to substitute, adapt, and innovate. The result is that we don’t run out of stuff. At least not yet. Indirectly, the more brains you have working on ideas, the more adaptation and innovation you get. People aren’t just a cost. They’re a benefit!
It’s hard to see it that way sometimes, given the horrible things people do. But Simon has a good point. And Australian meat exporters certainly wouldn’t complain. The second map below shows the world in terms of meat exports. Australia looks like a nice juicy filet mignon, which is another way of saying it exports a lot of meat. That fact itself may make Australia appetising to countries with large appetites for resources. But food as a scarce resource is another issue entirely.
Protein in the form of meat is energy for human beings. But Australia is not just a large exporter of calories. It’s a large exporter of gas and coal. The map below shows that Australia is a global energy powerhouse – keep in mind this map was generated before the US Energy Information Administration released its estimates on unconventional natural gas reserves. Were those included, Australia would be even more bloated with energy abundance (although, to be fair, this is energy stored in hydrocarbons, which are rich in carbon dioxide, which may or may not be heating the planet).
By comparison, Australia vanishes when the map is expressed in terms of oil and gas imports. You can see that Japan and Europe import a lot of gas. This is probably why Japan’s Inpex and France’s Total approved a $32 billion investment in the Ichthys gas project off the coast of Western Australia in mid-January. It’s also why the European Union is rumoured to have lobbied the US Congress to exempt the Shah Deniz gas field off the coast of Azerbaijan from the proposed Iranian oil embargo. An Iranian company has a 10% stake in one of the biggest gas projects in the Caspian Sea. The Europeans want that gas because it doesn’t come from Russia. So British Petroleum may be allowed to export gas from Shah Deniz as an exception. You could say it’s exceptional.
The gas map has surely changed since the US shale gas revolution. Gas prices in the US have come down so much that some shale players in the US are capping wells and postponing drilling. This, however, isn’t as bearish for gas as it first sounds. The more internationalised the gas market becomes, the more opportunity there will be for unlikely countries to become energy superpowers by virtue of their untapped gas assets. This is the crux of the argument we made in Revolution in the Desert last year.
That is in the future. For now, the map below most clearly illustrates Australia’s best strength and its biggest weakness. The map shows countries in terms of bulk materials and metals ore exports. You can see that Australia, along with Chile (copper) and Brazil (iron ore) is fetchingly rotund when expressed in these terms.
The upside of the ore story is the boom in WA, the flowing resource royalties to state governments, and the still-to-be-sorted-out Mining Tax that would deliver some of this one-off resource wealth to the Federal government. But if you put a giant red dot in the middle of that yellow ball, it would begin to look a bullseye. More on “target Australia” tomorrow.
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