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Whacked on the head by God with a sock full of silver dollars

Today I was listening to the Kunstlercast, a podcast about "the tragic comedy of suburban sprawl." They talk a lot about energy, new urbanism, peak oil and other fine subjects. Kunstler is one of my favourite commentators on the future because his very direct and unvarnished way of saying things.  He was featured on the CBC a little while ago and he featured in the documentary "The end of suburbia."  They have some interesting comments about evangelicalism in America.  Keep in mind neither of them of religious. You can listen to the audio here.

Kunstler: I have a feeling that there isn’t going to be a whole lot of structure left except what may be supplied by some kind of a spiritual or church setting.

Crary: Here is the problem that I see though.  Most of the religions, I don’t think, I think that as organizations they would be equipped to help us in to the future, but I don’t think the message that a lot of them are preaching actually one of humanism, about fixing the human [condition].

Kunstler: That is probably the most characteristic about evangelical Protestantism in our time, especially the brand the emanates from the sun belt is how consumerist and materialist it is.  How obsessed it is with riches and getting something for nothing and getting whacked on the head by God with a sock full of silver dollars.

If you want to know why the church is declining and descending perilously into irrelevance is that we make clubs for ourselves and there is nary a hint of sacrifice for anything bigger than ourselves.  From the self-help sermons, to megachurch malls and shallow self-serving spirituality we are revealing what we are really all about.  The world can see through it all.  We’ve hitched ourselves to the wagon of consumerist excess and we will go down with it.

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Resiliency : Strategy for the years ahead

I just finished reading Thomas-Homer Dixon’s the Up Side of Down.  That might be one factor in my dire prognostications.  The Up side in Dixon’s down is the opportunity to adapt to a new and better way of living.  This adaptability is the key component.

In Saskatchewan we can readily identify the generation that lived through the thirties.  While the "dirty thirties" were difficult everywhere Saskatchewan was particularly hard hit because drought turned the place in a dust bowl.  The people who came through that became experts and making do, reducing and reusing everything they could.  They adapted and learned new skills that helped them cope.  Adaptability and resiliency are key for the years ahead.

Here are some things I heartily recommend people consider:

Plant a garden
Carol and I made our first attempt.  It seems as though gardening is as much art as it is science so it is helpful to start small and expand.  Not a lot of effort can get you lots of fresh vegetables.  It was not that long ago that backyard gardens were very common. 

Move close to where you work
Everyone has watched fuel prices increase.  One good way to reduce that bill is reduce the distance you have to travel.  Work from home if it is an option.  Another trend to consider is the transformation of inner cities.  Traditionally the suburbs are where the middle and upper class life while the inner city is where the poorer people live.  This will reverse and the process has already begun.  I live just over 2 blocks from downtown and I’ve seen a tremendous amount of change in the make up of the neighbourhood. 

Downsize to a smaller home or share it
2 people probably don’t need a 1000 sq/ft home with a developed basement.  Why pay to heat 2000 sq/ft when you only really need 1000 or 700.  If you have the opportunity turn your basement in to a suite.  The best way to reduce energy costs is to have more people share the same heat and light.

Renovate your home
Make your home as energy efficient as possible.  Take advantage of government programs that will help pay the bill.  Newer appliances like fridges can save so much electricity you would be financially ahead to lost the older model.

Downsize your vehicle
If you need a car purchase the most fuel efficient one you can.

Invest more cautiously, pay down debt
In the two most notable economic down turns we see two different scenarios.  In the 30’s people panicked, pulled their money out of the bank and put it in their mattress take millions of dollars out of circulation.  This caused deflation.  If you had stocks you were hosed but if you had cash you did very well because each dollar purchased more.  I think deflation is less likely than stagflation which is what we had the 70s.  Low growth with high inflation.  Eventually central banks raised interest rates so high they caused the economy to go down for a reboot.  Stocks took a hit in this era as well.  People that had mortgages were in serious trouble because the interest rates were so high.  I’d consider moving from variable interest rate mortgages to fixed rate mortgages and I certainly wouldn’t get a Home Equity Line of Credit.

Learn to share, become a generous friend
No household is an island and if times become tough real friends are one of the most valuable and resilient assets you can have.  Give up on the "stuff makes you happy" dogma and focus on thing that really matter….must resist iPhone.

Learn skills
Cooking, sewing, gardening, home maintenance (carpentry, electrical, plumbing, heating and ventilation etc…) , repair (auto, electronics etc…).  Collect cheap used books on the skills you don’t have time to learn now.

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Why do I have such pessimism these days?

There are a couple of reasons.  None of them stem from much of anything that I get from the mainstream media.  One of them is the state of the American financial system and with that government and consumer debt.  When you add up all the obligations of the American government from foreign debt to medicare and social security the number is staggering.  It comes to $375 000 for each full time employee in the United States.  My source?  The United States Government Accountability Office

The latest expansion of the US economy was largely driven by credit and to keep things afloat the federal reserve is taking unprecedented measures.  The Fed’s monetary policy is causing inflation.  One of the Fed’s roles is the expand or contract the money supply.  They can generate money "out of thin air" to loan it against assets like houses.  Right now they backing worthless investment banks and financial institutions to keep them alive so the economy doesn’t seize up.  This is putting pressure on the US dollar

Currently America enjoys an advantage in the world marketplace as the US dollar is the world reserve currency.  It is the most commonly held currency and it is the currency commodities like oil and wheat are priced in.  If the US devalues its currency too much then other countries, particularly oil producing nations will be more and more tempted to start selling oil in a basket of currencies.  Iran and Venezuela have already begun pushing OPEC in that direction.  Asian nations have significant holdings of US currency, especially China. 

China and the US have something of an unspoken arrangement.  China makes lots of stuff for the United States.  China intentionally keeps the value of their currency low.  America buys lots of cheap stuff from China and borrows money to do it.  China buys up all that debt and the cycle keeps going.  Most countries couldn’t do this the way the US does because the trade deficit would obliterate the value of their currency.  Because the US dollar is the world reserve currency it can get away with this arrangement. 

So far it is in everyone’s best interests to keep this arrangement going.  If the US dollar is significantly devalued America won’t be able to buy the stuff most the world sells it.  This is why countries like Saudi Arabia have been very firm on trading oil in US dollars.  If the US borrows too much money and becomes so financially sick that countries start to think the value of its currency is a heavily inflated bubble they will begin selling their commodities in other currencies and start dumping their reserves of US currency.  Then the race to the bottom will begin.  When the carnage is over the dollar will have lost so much its value that it will be incredibly expensive to buy imported stuff.  Having exported much its manufacturing base off shore this will make things much more expensive.

There are couple of major trends that will continue to be a weight on the US economy.  As oil production begins to decline from its peak the price will continue to increase putting more and more pressure on the economy.  Measures to reduce demand will offer brief relief but as the relentless decline in oil production continues the room created by demand destruction will shrink and the price will remain high.  The only way out of the cycle is to completely change the transportation system and that is an expensive capital project.  If there is an oil shock, say Mr. Chavez decides he doesn’t want to sell oil to the US anymore, or conflict with Iran cuts results in a dramatic drop in supply it could cause such a disruption it will begin cause the US economy to unravel.  For a great explanation of what could happen read "Countdown to Meltdown" published at The Atlantic Monthly in 2005.

Another major trend is the health care costs of the baby boomer generation.  In America the government does pay for health care for those over 65 in the most expensive health care system in the world.  For a government already mired in debt because of wars and bailouts it will prove to be too much.  Something will have to give on the tax side or the spending side.  Whether that means more taxes or more people paying for health care it will put even more pressure on discretionary spending. 

The biggest deficit is in American leadership.  McCain 2008 isn’t an upgrade from McCain 2000.  Aside from Obama’s rhetorical abilities I’m not impressed with him either.  In her history America has overcome some serious challenges in the past.  I believe that America could overcome these challenges, with a lot of pain and hardship, but it could happen. 

Unfortunately the problems are more complex than "we need to defeat Japan."  Instead of putting manpower and ingenuity towards solving the problem of Peak Oil they are going on a witchhunt looking for someone to blame or someone to tax for high oil prices.  The Democrats and the Republicans are equally vacuous on this issue.  Without a common understanding of what needs happen very little does happen.  That is was depresses me the most. 


The potentially fatal flaw in Dion’s Carbon Tax

If Dion’s Carbon tax pulls in 15 billion dollars then 6 billion of that would come from Saskatchewan and Alberta.  If the tax cuts are distributed evenly then only 2 billion would come back to Saskatchewan and Alberta.  Saskatchewan and Alberta have 13% of Canada’s population but produce 40% of the carbon. 

The logical solution to this problem would be to transfer the carbon tax revenue to the province it is collected in.  But that would be a very different plan from the one Dion is proposing.

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Harper is either lying or clueless

Stephen Harper was in the press today responding to solid Liberal policy proposals with empty and inflammatory rhetoric.  The Liberals have proposed shifting taxes from income to carbon.  Harper’s response?  It will "screw everybody" and "recklessly harm the economy."  It will turn Saskatchewan back in to a "have-not" province!

Did we just enter the twilight zone?  Has Harper been smoking a special Karl Rove brand of the sweet herb? 

Shifting taxes from income to consumption is bad for the economy?  Shifting taxes to consumption of resources that are steadily becoming more scarce is a bad thing?  No Stephen, you are right lets keep our entire economy completely dependent oil and natural gas that way we can all pay more and more each year to the non-renewable energy companies and get nothing back for it.

The Liberal plan will have the cost of diesel go up 11 cents a litre in 4 years.  11….cents….a….litre.  Horror of horrors it will bankrupt us all!  Funny I thought we just saw the price diesel go up oh about 4 times that in the last year.  Are we getting any of that back as a tax break?  Actually in Alberta and Saskatchewan we are but most of Canada is pretty much screwed. Harper’s National Energy UnProgram is perfectly designed to continue siphoning oil revenue from most of Canada and pump it in to the provinces that pull it out of the ground. 

Raising taxes on carbon will push down demand and provide an incentive to live more efficiently.  A carbon tax might be tough medicine but in the end it will help cure the disease.  If it motivates someone to switch from an SUV to a car they will be ahead.  If it motivates someone to upgrade their furnace and add insulation, they will be ahead.  It will provide more incentive to build houses to better standards their owners will be ahead.   Canada is a cold country and the longer we wait to shift towards conservation and efficiency the harder it will be.

I’m so disappointed with the obviously disingenuous rhetoric coming out of the Conservative party.  How else can you say that a plan to cut taxes isn’t really a plan to cut taxes?   Does he really believe that Liberals are incapable of cutting taxes?

The end of the oil and gas economy is now on the horizon.  Shall we wait until escalating energy prices kill our economy and make it that much more difficult to transition?


The Green Shift

The Liberals have unveiled their Carbon Tax proposal.  It is revenue neutral which means any increase in taxes on coal, natural gas and petroleum will be offset by lower income taxes and financial support for those who make so little they pay no tax.  There is an existing federal tax on gasoline so there would be no additional taxes on gas.  The tax they propose is fairly modest increasing $10 per tonne per year for 4 years.  After 4 years it means a 7 cents a litre increase on diesel.  In the Liberal plan the price increase on natural gas is more substantial at $2 a gigajoule. 

Now that gasoline is $1.40 a litre we are finally seeing people change their habits.  I’m not sure how much an additional 7 or 12 cents a litre on fuel is going to add to the change but it is a step in the right direction. 

The Conservative plan for reducing green house gas emissions will increase the cost of fuel and electricity but without any mechanism to return any of that money back to the Canadian people. 

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Energy Policy and Peak Oil

This week GW Bush called for a lift on the ban on certain kinds of oil drilling.  The drilling is likely inevitable.  The tension between oil supply and oil demand is only going to get stronger.  The price at the pump will steadily increase until we see a fundamental shift in the way we approach energy and oil.  That shift involves a massive investment in public transportation, new renewable power generation, electric or plug-in electric vehicles, and a relocalized economy.  Soon we will face an unrelenting decline in oil prices.  Until we change the price at the pump will continue to increase.  I believe the pressure to drill anywhere and everywhere will overcome any environmental concerns.

Bush blamed the lack of drilling for the high oil prices.  The world uses 85 million barrels of oil a day and Bush claims expanded drilling would net 18 billion barrels of oil.  That would supply a little more than half the market for a year.  It would take years for the production to start and it did it would only offset a fraction of the decline in mature oil fields like those in Mexico and the North Sea.  In the end such drilling would only help a little bit for a little while. 

It is a radical thought but the best government policy would be to raise gasoline taxes and take that money and invest heavily in the transition to what will eventually become a post-oil economy.  The scope of such a transition is massive and the longer we wait the harder it will get.  Unfortunately the idea would be political suicide.   It is too bad really.  Either government policy can drive down demand and spur innovation or the lack of supply will.  In the first scenario the American government gets the cash in the other foreign governments get the cash.  If there is a silver lining the lack of a coherent American energy policy it really benefits Canada.  Right now the average American driver is doing a great job of subsidizing the governments of Alberta, Saskatchewan and Newfoundland.

Keep driving your truck Mike, I need another tax break so I can get a new HD TV! 😉

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In Canada it is time to consider geothermal heating


Peak Oil is finally starting to get some respect in the press.  Under the radar natural gas is also steadily climbing.  The price on the chart here is in MMBTUs which is roughly equivalent to a Gigajoule.  The price I pay here in Saskatchewan is $6.57 per GJ.  Canadians which have already been hit by high gasoline prices are about to pay a lot more to heat their homes.  Natural Gas prices historically trend upward in Sept and Oct and usually don’t spike in spring. 

When does geothermal make sense?  It all depends on how much energy you use, the cost of electricity and the cost of natural gas.  Geothermal pumps use electricity so a switch will see your natural gas bill drop but your electricity bill go up.

According to Manitoba Hydro an average home uses $385 worth of electricity at 5.8 cents per KwH.   So the geothermal pumps use about 6183 KwH to heat an average home.

Manitoba Hydro estimates that the average home with a high efficiency furnace uses about 1700 cubic metres or 62 Gigajoules of natural gas in one year.  In Manitoba that cost is $880 when factoring in the delivery charges and infrastructure fees.  The cost to heat this home with a mid-efficiency natural gas furnace is $1000 and a conventional furnace runs about $1280.

Manitoba Hydro’s example is likely a brand new 1000 sq/ft home.  My older house uses about 170 GJ of natural gas not 62.  If my house was in Manitoba then going geothermal would be a no-brainer.  I would be paying about $2050 to heat my house with a mid-efficient furnace verses $828.40 worth of electricity.

This is how my house would look.

Energy Cost Per Unit Energy Cost Delivery Charge Total Cost
170 GJ $11.2 per GJ $1905 $156 $2056
14300 KwH $0.058 per KwH $828.40   $828.4

In Saskatchewan the numbers change because we pay much more for electricity and much less for natural gas.  Our cost for electricity is 9.4 cents per KwH and natural gas is $6.57 per gigajoule.  Right now geothermal heating would actually cost me more money each month.

Energy Cost Per Unit Energy Cost Delivery Charge Total Cost
170 GJ $6.57 per GJ $1120 $156 $1276
14300 KwH $0.94 per KwH $1340   $1340

However if we look at market price for natural gas the numbers change heavily in geothermal’s favour.

Energy Cost Per Unit Energy Cost Delivery Charge Total Cost
170 GJ $12 per GJ $2040 $156 $2196
14300 KwH $0.94 per KwH $1340   $1340

The cost of the electricity isn’t the only cost with Geothermal.  You have to have to put down a significant amount of cash to get it installed.  A typical residential situation will cost about $20000.  If you have a lot of space in your yard the pipes can be laid down horizontally rather than drilled vertically and this drops the price to $16000.  For me a $20000 investment will likely save me $850 a year.  Not a great investment even with natural gas prices at $12 per GJ.  However the federal government has a program that will rebate home owners $3500 for a geothermal installation.  Now we are looking at $16500 and things start too look a bit rosier.  In Saskatchewan the provincial government will match the federal grant and bring the price down to $13000.  

What if you don’t have $13000 to invest in your home?  If you have equity in your home you could refinance your mortgage.  Adding $13000 to 25 yr mortgage at 6% will increase the monthly payment $84.  If I borrowed money to put in geothermal my monthly utility bills would go down $71 and my mortgage payment goes up $84.

There are a couple other factors that make this strategy more tempting and some that make it less.  In the long term the price of natural gas will trend upwards outpacing inflation.  It is a finite resource and the production of natural gas has already peaked in North America.  The price may settle back down but there is much more upward pressure on natural gas prices than there is on electricity.  There are too many unlimited sources of electricity that cost just a little bit more than what we pay now.  We will never run out of wind, solar, wave and hydro energy.   The price of electricity will likely go up as we shut down cheap coal plants and natural gas fired stations but it will likely never double.  

Geothermal heating can also cool your house and it definitely increases its value.

Are there alternatives to natural gas and geothermal?  Yes you could go with a biomass furnace.  Go back to the old days of using wood to heat your home.  It costs a lot less than geothermal to install and the operating costs are close to what natural gas will be in the hear future. It looks like the cost for me would be around $2200 for the year.  Not much savings over natural gas but the price of pellets is likely to be more stable than natural gas because grass and wood are renewable resources.

The other way to reduce costs is drop your joules.  If you use less energy it costs less regardless of your source of heat.  Insulating my house, replacing my windows and stopping the leaks would likely cut my energy use in half.  That is a very expensive messy upgrade.  The best long term answer is to do both.  Eventually natural gas will get too expensive to use. 

Currently if you only use $700 worth of natural gas to heat your home geothermal isn’t going to save you much and the installation cost is not going to change much.  Going geothermal is a relatively painless upgrade (installation of the pipes does mess up your lawn) compared to new insulation and windows and those items can be done one at a time. 


Natural Gas Prices

Here in Saskatchewan we are somewhat shielded from the wild fluctuations of the price of natural gas in the markets. If I did my conversions correct we pay about $7 per 1000 cubic feet of natural gas. Currently the market price is $10. CIBC chief economist believes that the price of oil and natural gas is only going to go higher in the future.  SaskEnergy purchases natural gas on the market and resells it at cost to Saskatchewan consumers.  If the price of natural gas doesn’t settle from its current highs this fall we are looking at least a 30% increase in on our SaskEnergy bill. 

If you have the time and money it is time to insulate your house or upgrade to a high efficiency furnace.  Geothermal is becoming a much more viable option.  Right now the cost of heating your home using geothermal in Saskatchewan is less expensive than high efficiency natural gas.  High-efficiency natural gas is much cheaper to install.  However if you add 30-40% on to your natural gas bill it starts to get more competitive.  All things considered it cheaper to retain heat than it is to generate it regardless of the source.

If you are a homeowner get the EnerGuide for homes audit and start working.

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General Motors CEO: Oil has peaked

I’ve always been a Chev man.  I bought a Chrysler once, it was the worst 7 days of my driving life.  Times have been tough for GM in recent years.  Toyota and Honda are both fantastic car companies and they definitely got the jump General Motors.  Our main car is a Toyota Echo and you can’t get much better mileage without going Diesel or Hybrid.  I think the newer Honda Civics are a nicer car though. 

GM is making the Chevy Volt.  A plug-in hybrid electric car.  It runs on electricity it gets from your house.  If they accomplish their goal this vehicle will go 40 miles without using the gasoline engine.  If they can pull this off they will leap ahead of Toyota. 

Hats off to GM for acknowledging the reality of Peak Oil and trying to be part of the solution.

Read more about Peak Oil here and here.

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