The Rude Awakening
Wall Street, New York
Tuesday, November 7, 2006

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• Icebergs in Greenland, CO2 levels in the atmosphere,
  rising tides...you know what's coming here,
  
  
• A Whiskey & Gunpowder correspondent gives you all the
  news on this hot topic from Boston,
  
  
• Your chance to get in early on 11 of America's energy
  saviors, the market data FINALLY returns and plenty
  more...

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Eric Fry, basking on the globally warmed beaches of Laguna
Beach, reports...

Last week, our colleague, Byron King traveled to Boston,
where he attended the annual meeting of the U.S.
Association for the Study of Peak Oil & Gas (ASPO-USA). The
term "Peak Oil," refers to the all-time peak of the entire
planet's oil production – a peak that many geologists
believe the earth will reach within a decade or two.
But Peak Oil is not merely a phenomenon that threatens to
alter life on this orb of ours, it is also an obsession of
Byron's. As a former geologist, Byron understands quite a
bit about the energy sources that lie within the earth's
crust. And as an expansive thinker, Byron also understands
quite a bit about the far-reaching environmental and
economic implications of Peak Oil.

We were quite excited, therefore, when we learned that
Byron would be attending the ASPO Conference. And we were
even more excited when we learned that he would be sharing
many of his observations from the conference with the rest
of us.

Byron's insights do not often appear in the Rude Awakening.
But that's only because he is a contributing editor to our
sister publication, Whiskey and Gunpowder. However, since
we have friends in high places – as well as a few in low
places – we managed to obtain permission to re-publish some
of Byron's latest insights. The column below first appeared
in the October 30, 2006, edition of Whiskey & Gunpowder.

Hope you enjoy it...

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Time to Get Worried
By Byron W. King

"IF YOU HAVE EVER peeled an onion," writes Lemony Snicket
in the first paragraph of his latest book, entitled The
End, which is the last volume in his classic A Series of
Unfortunate Events, "Then you know that the first thin,
papery layer reveals another thin, papery layer, and that
layer reveals another, and another, and before you know it
you have hundreds of layers all over the kitchen table and
thousands of tears in your eyes..."

"Tears in your eyes," he says. My sentiments exactly,
because if you have ever attended a real top-shelf
conference on Peak Oil, you will understand why I am
beginning my article with a quotation from the one and only
Lemony Snicket. You can probably appreciate the depth of
meaning in what Snicket wrote in another, earlier volume,
that "If you want a happy ending, you should read another
book, perhaps a book about bunnies." There are no bunnies
in the world of Peak Oil.

I have been studying in the field of geology for almost 35
years. I met M. King Hubbert [the original Peak Oil
theorist], and heard him give his Peak Oil brief, about 30
years ago when he gave the talk at Harvard. Later on, in
1978, my first boss at Gulf Oil Co. told me in no uncertain
terms that a big part of my job and career, if I kept on
working as an oil company geologist, would be "nursing some
great old oil fields through their phase of irreversible
decline." So I have been drinking this particular flavor of
Peak Oil Kool-Aid for a long, long time. And I know a lot
about Peak Oil, to include holding a respectful
appreciation for how much else there is to learn, and that
is one heck of a lot.

Along these lines, I have to say that the intellectual
content of the ASPO-USA conference was truly like taking a
drink of water from a fire hydrant. I mean it. There was so
much there that I was learning something new with almost
every presentation. I filled two fat legal pads with notes,
and that does not include the content of the slides that
were flashing up on the screen. I just plain loved it.

The first evening of the ASPO-USA conference kicked off
with three lectures on the subject of global warming (GW).
Why global warming? Because it is what you get when you
burn up lots of fossil, carbon-based fuels and load the
atmosphere with excess levels of carbon dioxide (CO2). GW
is the other side of the coin of Peak Oil. That is, in the
process of rapidly depleting the Earth's supply of fossil
fuels, mankind is also playing a life-threatening
experiment with the Earth's atmosphere. Life-threatening?
You had better believe it. If you are not worried, get
worried.

Dartmouth professor and climatologist Cameron Wake gave a
presentation about the current buildup of CO2 in the
atmosphere. Wake's research includes reviewing more than a
century of very accurate, chemical measurements of
atmospheric CO2, a period that covers the vast majority of
the industrial era. As one might expect, CO2 levels have
increased dramatically over the past century as coal, oil,
and natural gas have been burned in immense quantity and
scope. Recent figures for CO2 releases, including the
breakneck industrialization of China and India, yield
charts that accelerate upward on a skyrocketing trajectory.

Wake also made reference to Antarctic ice core
measurements, in ice strata dating back about 420,000
years, analyzed by Russian, European, and U.S. scientists.
The bottom line is that CO2 levels have increased
dramatically in the past century, to levels experienced, by
comparison, only during the warmest interglacial periods
during the past half million years. This has contributed to
a consistent pattern of surface warming, on land as well as
at sea, in the form of ocean warming. There have been
measurable alterations to climates across the world, to
include a measurable increase in the rate of ice melting in
Greenland and Antarctica. So no, dear readers, "climate
change" is not just some Internet conspiracy. It is
empirically demonstrable.

Wake's research on the climate of New England and the
Canadian Maritimes has demonstrated relationships between
increased CO2 and increased temperatures, and an increased
occurrence of "extreme weather" events, such as longer
droughts and more intense periods of rainfall and snowfall
when the droughts break. This has ominous implications for
agriculture, forestry, flood management, emergency
planning, and general public safety.

Harvard geology professor and former MacArthur Fellowship
recipient Dan Schrag picked up where Wake left off. Schrag,
a geochemist by training, noted that CO2 levels are rapidly
increasing due to man-made causes, to levels that the Earth
has not experienced in almost 30 million years, meaning
since Eocene times. Back then, there were no ice sheets at
all in the polar regions of the Earth, and fern trees and
critters like alligators actually thrived where now there
is only ice. Sea level was more than 200 feet higher than
it is today, what with immense amounts of water presently
locked up in ice sheets, and the "thermal shrinking" of the
world's oceans at the current, relatively cooler
temperatures.

The immense problem with all of this is that mankind is
fundamentally altering the character of the Earth's
atmosphere in the course of a mere century or so, and
changing an atmospheric system that has otherwise taken
hundreds of thousands, if not millions, of years to evolve.

This constitutes an irreversible experiment with the
Earth's atmosphere, and on a planetary scale. "Yes," said
Schrag, "science is uncertain about a lot of what is
happening. But most of what we do not know about these
rapid changes in conditions is dangerous." Just a few feet
of rise in sea level, which could occur in as little as 20
years if the Greenland ice sheets melted, would convert
vast tracts of the world's coastal areas into uninhabitable
tidal zones. And Schrag believes that the ice of Greenland
will eventually melt, probably sooner than later. Unless
you are rather elderly, you will probably live to see it.
Things could, of course, be worse, depending on how a great
number of related and dynamic natural systems play out.

Schrag noted that GW and climate change make up more than
just an environmental issue. It is a critical economic and
national security issue. It is of such importance as to be
beyond a partisan issue, and Schrag believes that GW and
climate change will (or at least certainly should) become
major issues in the 2008 presidential election. Yet this is
one issue that is now barely on the radar screen of the
world's policymakers, but is simultaneously an overarching
issue that transcends what are otherwise considered the
issues of supreme national interest of nations across the
world.

Is there a solution to the GW problem? Certainly not in any
short-term sense, and probably not in the medium term.
There is far too much economic and political momentum for
mankind to stop, let alone to reverse, the trends toward
using more and more fossil fuels going forward (other than
Peak Oil, of course). And much of the CO2 that has already
entered the atmosphere has not even begun to reveal itself
in observable changes to climate patterns.

A quick rundown of Schrag's proposed policy solutions
include, over the long haul, replacing the use of carbon-
based fossil fuel with carbon-neutral, if not carbon-free,
energy sources. Energy production will have to trend
rapidly toward renewable energy, with nuclear power
included in the mix.

And the night was young. Another presentation in the GW
theme of the first evening of the ASPO-USA conference, by
an energy economist named Charles Komanoff, focused on how
to make markets work to address carbon emission issues.
Komanoff went through a series of mathematical explanations
that were remarkable in demonstrating how relatively low-
cost some of the policy solutions might really be. With a
"carbon tax" on all fossil fuels (coal, oil, natural gas)
at the equivalent of about $1 per gallon of gasoline, it is
possible to envision a stunning amount of change in energy
usage patterns, and in the increased use of carbon-
mitigating technology such as wind power and photovoltaic
systems. Yes, changing energy technology will cost a lot of
money. But then, mankind burns a lot of carbon, so a carbon
tax will also raise a lot of revenue and alter a lot of
behavior at the margin.

Komanoff was careful to emphasize that carbon taxes are, in
essence, "use taxes," that force people who add carbon to
the atmosphere to pay for the deed. Thus, the people who
are using the most carbon-based energy, and thereby
contributing the most to GW and by implication drowning the
world's coastlines with Greenland and Antarctic ice melt,
will be the ones who pay for it. And any revenues raised by
government entities through carbon taxes should be offset,
according to Komanoff, with tax reductions elsewhere, such
as in reduced payroll taxes.

Well, I sure wish that it were that simple, but all of you
who are reading this probably know that it is not. Global
warming and climate change is empirically demonstrable, and
a serious issue that will both literally and figuratively
alter the world for the rest of all of our lives. No one
will outlive it. And you cannot buy your way out of it.

[Joel's Note: Our sometimes controversial Monday Mailbag
has seen Rude readers aplenty write in with conflicting
opinions about the global warming phenomenon. Physicists
have melee-bagged with farmers who have, in turn, offered
rebuttals to geologists and the like. Clearly, global
warming is a subject that is hot on the lips (pun intended)
and one that is not likely to loose any momentum in the
near future.

We will be publishing more of Byron's report from the U.S.
Association for the Study of Peak Oil & Gas conference
throughout the week but, in the meantime, we would love to
hear what you have to say on the matter. Please address any
thoughts to your climatologically challenged junior editor
at aussiejoel@the-rude-awakening.com

If you are interested in reading more of Byron's thoughts
on Peak Oil be sure to check out his regular rants in
Whiskey & Gunpowder – possible the most irreverent source
of hard data delivered free to inquisitive inboxes around
the globe daily. You'll find all you need right here.

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And the Markets...