WHAT MATTERS WEBLOG

Just recently it became public that Chinese officials refused to authorize Sichuan Tengzhong Heavy Industrial Machines of China to purchase Hummer from GM.

It is quite revealing to see how actively China is trying to become a leader in the green energy technology business. Tengzhong might have faced some difficulties and financial risks had the takeover been successful, even though there probably would have been enough newly rich Chinese willing to buy a Hummer at a price covering production costs and still leaving a huge profit margin.  Most likely, however, the deal was canceled because China is seeing the benefits of building a strong and innovative clean tech sector as compared to the disadvantages of investing in a declining industry that unnecessarily wastes scarce resources.

 As the Japanese government has been doing for decades, the Chinese leadership is directly (through regulation, decrees and state companies) and indirectly (through incentives and disincentives) steering its economy by withdrawing support from “sunset industries” and supporting “sunrise industries”.

The auto industry is in no way considered a sunset industry by the Chinese given they’re adding more than 11 million new cars a year to their car fleet, but especially since the number of cars in China is increasing so quickly, the country needs to limit the growth of emissions and fuel consumption. China belongs to those countries heavily subsidizing gasoline to make driving affordable for their citizens. Because of the prospect of rising oil prices, energy shortages and higher consumption, China is struggling to find an “exit strategy”. Furthermore, subsidized gasoline benefits those with the biggest gas-guzzlers disproportionately high.

Cars running solely on electricity combine several advantages for China.

First, they have no tailpipe emissions and therefore can reduce the smog Chinese cities are infamous for. During the 2008 Olympics in Beijing, the government banned millions of cars from the capital’s streets to reduce air pollution. The ban worked and most Beijing residents appreciated the step. Were two million of Beijing’s cars replaced with electric vehicles, the effect would be the same.

Second, electric cars reduce overall energy consumption as electric motors are manifold more efficient than conventional combustion engines. Even if all of the electricity needed to run an electric car fleet were generated from burning oil and coal, the environment would still benefit. In addition, China  could save billions by relying on domestic energy resources instead of imported oil.

Third, developing electric cars and bringing them to markets across the world is a golden opportunity for China. Chinese auto makers would hardly manage to catch up with their American and European competitors in regard to conventional propulsion technology. In this field, China clearly lags behind. But when it comes to electric cars, the race is still open. Battery technology is at the heart of an electric car which might even give Chinese companies an edge over their competition.

BYD (short for Build Your Dreams) is a leading battery manufacturer based in Shenzhen which began the development of production of all-electric cars in recent years. Warren Buffett’s investment of $230 million into the company is an encouraging sign that the company is on the right track. BYD is preparing to establish itself as a leading global electric car brand by launching the production of affordable, mass-produced electric cars. By the end of this year, BYD’s 205-mile range all-electric e6 which can reach a top speed of 87 mph is expected to hit the U.S. market. It can be charged at home or at a network of charging stations BYD intends to build at supermarkets, fast-food restaurants and office buildings.  The company further plans to become China’s largest automaker by 2015 and eventually, become the world’s number one.

China’s efforts could prove to be vital to the global breakthrough of electrically-powered personal mobility. As the Chinese car market is important to global auto industry heavyweights such as Toyota, GM and Volkswagen, these companies are definitely working on several electric car models. This week, BYD and German luxury car maker Daimler signed a memorandum of understanding to produce electric cars together in China. (New York Times: BYD Links Up With Daimler to Build Electric Cars in China)  If China one day decided to ban imports of foreign non-electric cars, e.g. for environmental reasons, global sales of electric cars could soon hit more than 10 million units per year. As battery technology moves down the learning curve and mass production brings down production costs, the electric car revolution might just be around the corner.

In May I will travel to China and tell you more about how this new global superpower is developing.

For further reading:

China: A developed, green economy by 2050?

 Sources: 

http://www.foxnews.com/leisure/2010/02/24/gm-kill-hummer-brand-sale-falls/

http://www.marketwatch.com/story/warren-buffett-looks-to-electric-car-in-byd-stake

http://www.byd.com/press.php?index=0

Huge budget deficits as we can see them in all major countries in the world these days appear to have become an issue that people worry about, but somehow have learnt to accept. Except for China whose deficit is only at 2.9% of its GDP according to The Business Times - a very moderate deficit given the difficult environment of the global financial crisis - most OECD countries have accumulated unprecedented deficits. Just recently, President Obama introduced his budget for Fiscal Year 2011 (October 2010 through September 2011) which forecasts a $1.56 trillion deficit for 2010.

While the Obama administration had no choice but to spend more than a trillion to avoid a sequel of the Great Depression, it is evident that the United States will have to drastically reduce its deficits in order to recover economically and politically.

During a BusinessWeek interview, Obama said:

 “our real problem” is neither the spike in stimulus spending of the last year — as many Republicans charge–or the sharply lower tax collections from hard-hit businesses and individual taxpayers. “The real problem,” he said, “has to do with the fact that there is a just a mismatch between the amount of money coming in and the amount of money going out. And that is going to require some big, tough choices that, so far, the political system has been unable to deal with.”

http://thecaucus.blogs.nytimes.com/2010/02/11/obama-may-consider-tax-increases/

Generally there are four ways of reducing public debt:

1. Strong long-term economic growth
2. Higher taxes
3. Spending cuts
4. Inflation

1.) DEBT REDUCTION THROUGH GROWTH

-> check out my post American Time Bomb

I hope that growth in the U.S. will pick up again soon and remain stable for a longer period of time as future downturns could severely affect the recovery from the financial crisis. Martin Feldstein, Professor of Economics at Harvard University, expects “that the [U.S.] economy will fully recover over the next decade” as he explained in his article America’s Growth in the Decade Ahead. Furthermore, he predicts the average annual growth rate for the coming ten years to be around 1.9 percent,  similar to the one of the previous decade. Professor Feldstein also expects unemployment to be halved during the next 10 years as the cyclical recovery progresses.

It is true that economic growth can reduce the relative public debt of a country. As can be seen on the chart below, the public debt’s share of GDP had been reduced from 94.1% in 1950 to 58% by 2000, even though the total debt had grown exponentially.

Debt reduction through growth is possible, depending on the government’s ability to create an environment that supports - and even more important, doesn’t stand in the way of - the creation of new industries which can create jobs, revenues and new export markets. For more on this, read my post things look pretty bad, don’t they? yet there’s reason to be optimistic from October 22nd.

However, given the longer lasting effects of the crisis, the enormous debt burden and structural problems of the U.S. economy that so badly need to be addressed but are apparently not big enough to push Congress to set aside foolish partisan politics, focusing solely on economic growth won’t be enough to bring down deficits and bring debt under control.

2. & 3.) TAX INCREASES & SPENDING CUTS

Now we come to what the government can directly do to effectively reduce deficits. Obviously, the “mismatch” between tax revenue and federal spending  Obama mentioned, is the core of the immediate problem. The simple truth is that most recent U.S. presidents were too quick at spending and too slow at working out ways of how to pay for it. Especially after the budget surpluses of the Clinton era, U.S. government spending got out of control.

Fiscal Year 2010 U.S. Government Spending

When taking a look at this Graphic from Wikipedia, I conclude that any meaningful short-term reductions in spending must come from major cuts in the following budgets since they make up almost three quarters of all spending: Social Security (accounting for 19.63% of the budget), Defense (18.74%), Unemployment/Welfare (16.13%), Medicare (12.79%), and Medicaid (8.19%). Obviously, there are no ways to save on Medicaid or Medicare. Reducing the Social Security budget would be another mission impossible. Unemployment and Welfare spending in the U.S. is already relatively low compared to other OECD countries, and given the record-high unemployment as an immediate effect of the financial crisis, reductions in this budget would be tough as well. So what’s left? - Defense!

Of course many argue that the United States needs to fund the Department of Defense properly to maintain peace in the world and security in America. Nevertheless, I don’t see any meaningful way of reducing the budget deficit without cutting the budget of the Pentagon. Wars are extremely expensive, and the U.S. is currently involved in two major wars. At the end of the day, America has to find new ways of protecting itself from outside attacks that require significantly less money. After all, America’s military budget of $ 663 billion (or $ 533 billion, depending on who does the math) is approximately one and a half times the federal budget of Germany ($ 442 billion), the largest economy in Europe. (http://www.bundesregierung.de/Content/DE/Artikel/2009/12/2009-12-16-bundeshaushalt-reg.html)

Besides, the U.S. has to force its partners and other military powers to take a more active role in the maintenance of global peace and security. Due to its military actions, the United States has faced harsh criticism over the past decade. America’s military offensives have strengthened anti-American groups throughout the Muslim world. By cutting its military expenditures by 40%, the U.S. could possibly achieve the same level of protection from terrorist and cyber attacks as today and in the process, push the European Union, Russia, China and India to assume more responsibility for the security of this planet we share. Avoiding armed conflicts is in the interest of these countries as well. And finally, ask yourself, where else could we save money if not on defense? Cutting budgets which account for between one and three percent of the total budget by as much as 40% does not get as anywhere close to the reductions we need.

Consequently, in my view, the United States government has to freeze spending on 4 of the 5 biggest posts of the budget and reduce the defense budget by as much as possible. Additionally, the remaining posts ranging from Interest payments to Agriculture to Energy to Commerce to Homeland Security to Veterans’ Affairs to  Treasury to Transport, etc…. will have to be examined one-by-one and either frozen or reduced if possible. Some posts will inevitably rise in the coming years such as Interest Payments due to the sky-rocketing debt burden of more than 12 trillion dollars.

Tax increases appear to be off the table for most American voters, Republican Congress members and even some economists. On the one hand I perfectly understand this sentiment and I absolutely agree that the least efficient way of using money is to hand it over to the government. On the other hand, the United States depends on a functioning government that funds education, infrastructure and vital public agencies sufficiently. What is important though is that the government needs to be extremely careful when it comes to increasing certain taxes. A few percentage points too much and the resulting effects on the economy could lead to further turmoil and a surge of anger from voters who are fed up with seeing their money being wasted across the board.

4.) INFLATION

If tax increases and spending cuts can’t be agreed on in Congress, the inevitable consequence will be high inflation. Throughout the decades, inflation was the tool countless governments used to increase the competitiveness of their economies in the short term, make up for failures of domestic economic policies and shrink the debt burden. Nonetheless, inflation is no good solution to the problem. As inflation goes up, so do interest rates which in turn accelerates the accumulation of public debt. Another downside of inflation is that those who’ll be hit the most are some of the hardest working and most vulnerable members of society. Low to middle income families will suffer enormously from picking up inflation rates.

Whether fiscal responsibility can be restored so that the necessary spending cuts and tax increases can be implemented is vital to the long-term health of the American economy. Above-average inflation rates are almost impossible to avoid, but if spending cuts and tax increases fail in Congress, the resulting massive inflation would eat up people’s few remaining savings and a growing share of their income. In this case, only an unexpected, powerful economic boom could avert an inflation-debt-crisis.

http://thecaucus.blogs.nytimes.com/2010/02/11/obama-may-consider-tax-increases/

http://www.reuters.com/article/idUSN3116401620100201

http://www.business-standard.com/india/news/martin-feldstein-america%5Cs-growth-indecade-ahead/383967/

As part of the research for my research paper “On the Threshold to a New Energy Age“, I conducted a survey in order to find out how “prepared” people are for the transition to a new age of energy generation and use as well as to gather opinions on current trends in energy issues.

This is the second post of the question-by-question analysis of the survey results:

Question 3: Will electric cars outnumber conventional cars within the next 25 years?

Even tough slightly more than half of the people I surveyed do not expect electric cars to outnumber conventional cars within the next quarter century, I have no doubt that there will be an enormous market for electrically powered vehicles as soon as they become available in large quantities, at an affordable price and with a sufficient driving range.

Question 4: Would you buy an electric car if it were sufficient for you daily use?

90 percent of respondents said they were willing to buy an electric car if it were sufficient for their daily use. As I’ve said before, electric cars have huge potential. In the course of the creation of my research paper “On the Threshold to a New Energy Age“, I came to the conclusion that next to the high initial purchase price, the limited driving range of all-electric vehicles was the main reason the majority of people still don’t consider electric cars a viable alternative to gasoline-powered cars. The good news is that both hindrances can be overcome as technology advances and the benefits of mass production bring down production costs. Range won’t be an issue anymore in the future, since advancing battery technology, other energy storage media and the construction of a recharging infrastructure (electricity sockets in the parking lots of shopping centers, fast food restaurants or office buildings, quick-charging stations in downtown areas and along major highways) will enable drivers to recharge their cars’ batteries cheaply and conveniently at many locations and at the same time, can drive further on a single charge.

As part of the research for my research paper “On the Threshold to a New Energy Age“, I conducted a survey in order to find out how “prepared” people are for the transition to a new age of energy generation and use as well as to gather opinions on current trends in energy issues.

This is the first post on the question-by-question analysis of the survey results:

Question 1: Do you own a car?

This was the first surprise for me when analyzing the outcome of  the survey. More than half the people I surveyed own a car.

Given that the vast majority of survey participants lived in or close to major cities in the United States and Asia, I did not expect many of them to actually own a car. Check out my post Survey Results for more information on the breakdown of survey participants by location.

Furthermore, I found out that most Singaporeans (except one) and Japanese I surveyed did not own a car. Many of them did not even have a driver’s license.

Question 2: Do you plan to buy a new car within the next 5 years?

About one third of respondents indicated they had plans to buy a new car in the next five years. Again, I was surprised by the higher-than-expected share of people planning to purchase a new car in the medium term. However, I have to add that a considerable number of those who indicated in the previous question they did not own a car were planning to buy their first car soon. This might have pushed the number up a bit.

In addition, I asked the third with plans for buying a new car whether they thought it would be a conventional car with a combustion engine or a car with a different propulsion technology. This is how they replied:

Although the overwhelming majority of almost 80 percent replied they were going to buy a car with a combustion engine, it is remarkable that more than 20 percent see themselves buying a car with either an electric motor or some other technology.

Whether combustion engine or not, there are many different power sources available next to gasoline or diesel. Bioethanol and hydrogen are two alternatives for the common combustion engine. Electricity generated from any energy source (nuclear, solar, wind, wave or geothermal energy; energy from burning oil, coal, gas and biological matter) can be stored in the batteries of electric cars to power the electric motor. Another option would be to replace the battery with a fuel cell that converts hydrogen into water and oxygen. The byproduct - electricity - could then be used to power the car.

The Question-by-Question Analysis continues tomorrow. In the meantime, you can take a look at the “Energy Survey” page at http://www.whatmattersweblog.com/energy-survey/

As part of the research for my research paper “On the Threshold to a New Energy Age“, I conducted a survey in order to find out how “prepared” people are for the transition to a new age of energy generation and use as well as to gather opinions on current trends in energy issues.

In the coming days I will publish the results of the question-by-question analysis. The questionnaire contained 14 questions. 73 people took part in my survey. More than three quarters of participants came from the United States. I interviewed the remaining quarter in Japan, Singapore, Germany and Portugal.

All questionnaires had been distributed and returned between April 2009 and September 2009.

You can find the survey results on the Main Menu page “Energy Survey”:

http://www.whatmattersweblog.com/energy-survey/

Check out the  ‘RP: New Energy Age’ Category for the downloadable version of my 50-page research paper and further commentary on the survey results:

http://www.whatmattersweblog.com/category/rp-new-energy-age/

Click on the images for higher resolution.

Who can save us from climate disaster? Well, probably those whom you’d the least suspect to care about climate change.

Even if one in ten Americans turned into a tree-hugger, sold their car, moved downtown and commuted to work on a bicycle, that wouldn’t have any impressive, lasting impact on global emissions of greenhouse gases.

American oil consumption might fall a bit - which would be something positive for the country since less money would be shipped to OPEC and instead kept local - but the resulting downward pressure on oil prices would only encourage the rest of the world, most notably quickly developing nations such as China and India to increase energy productivity at a slower pace and consume even more energy in the short term.

Moreover, the entire transportation sector’s contribution to climate change is lower than that of deforestation as New York Times columnist and author Thomas L. Friedman explained in his article Trucks, Trains and Trees:

Imagine if you took all the cars, trucks, planes, trains and ships in the world and added up their exhaust every year. The amount of carbon dioxide, or CO2, all those cars, trucks, planes, trains and ships collectively emit into the atmosphere is actually less than the carbon emissions every year that result from the chopping down and clearing of tropical forests in places like Brazil, Indonesia and the Congo.

http://www.nytimes.com/2009/11/11/opinion/11friedman.html

Apparently, there  are no easy ways of fighting climate change. And trying to talk hundreds of millions of Americans, Europeans, Chinese and Indians into driving less, eating less meat and switching to energy-saving lamps won’t help a lot either.

But there are ways of effectively bringing down global emissions without having to preach green. As soon as ordinary people are offered a possibility to save money by heating, cooling, driving more efficiently, a huge market will take shape. Businesses will be making money, jobs will be created, the economy will grow as more money is kept local instead of being shipped abroad to pay for energy bills, and the byproduct will be a reduction in carbon dioxide emissions.

Many people don’t care a lot about their contribution to CO2 emissions. A gas that nobody can see or smell. Neither were many willing to switch to a more expensive energy-efficient hybrid in an attempt to preserve the habitat of polar bears. Nevertheless, people would change their habits if they could clearly see the economic benefits for themselves. Most drivers care more about how much they pay at the pump than about their cars’ CO2 emissions. But gasoline consumption and CO2 emissions go hand-in-hand.

Therefore it is important to support companies developing technologies which can help people make little changes to their everyday lives and thereby save dollars and emissions.

Introducing electric cars to the market in large numbers would be a major step forward as the immediate benefits on the economy and the environment were obvious. With zero tailpipe emissions, electric cars would be greatly appreciated by city dwellers.

It is true that it will take several years until efficient vehicles running on alternatives to gasoline become competitive with conventional cars. A way to accelerate the process would be to force up the prices of fossil fuels through taxes and other disincentives. We’re not paying an honest price for oil since the costs of the economic and environmental consequences of our oil consumption are not included in the price. However, oil prices will inevitably shoot up again and make alternatives competitive as growing demand meets tight supply.

And once the point at which alternativ energy sources and new enery-saving technologies are competitive with existing technologies and energy sources, the market will bring those new technologies  to scale and reduce production costs, eventually reducing emissions of carbon dioxide. Middle-class Chinese and Indians would soon follow and embrace new, more efficient technologies. Struggling to power their thriving economies, any means of reducing energy waste is welcome.

Therefore we need the capitalists to take on the challenge. Their job is to figure out the smartest and consequently most profitable way of doing something. When it comes to the energy challenges of the 21st century, only a market approach can effectively deliver the emissions reductions necessary to avoid the unmanageable consequences of climate change. The politicians’ job is to support companies working towards smart energy solutions by creating an environment that allows businesses - big and small - to invest huge sums in research, production and marketing.

You might also be interested in my post The True Cost of Oil

Can politicians lead a global transition to a low-carbon economy of the future? I have my doubts.

More than 12 years after the adoption of the Kyoto Protocol on December 11, 1997, no measures have been implemented to effectively reduce global emissions of greenhouse gases. Despite the perceptible surge of green enthusiasm among world leaders. It looks like all key players have recognized the importance of fighting rising average temperatures since everybody is talking about climate change, emissions, efficiency and renewable energy. The world community seems to have gotten serious about climate change since the Earth Summit in Rio in 1992 which led to the Kyoto Protocol and finally to the Copenhagen Summit last month. However, the sad truth is that while in the 1990s, global carbon dioxide emissions were increasing at about 1 percent per year, emissions were growing at around 3.4 percent per year between 2000 and 2008 - when the Kyoto Protocol was already in effect. Why? Well, the Kyoto Protocol did not demand any emissions reductions from developing nations, neither was it ratified by the United States, then the biggest emitter of carbon dioxide in the world.

Rio did not save the climate, neither did Kyoto nor Copenhagen. So how about the summit in Mexico later this year?

To be honest, I doubt that world leaders will be able to achieve much more in Mexico than they did in Copenhagen. And even if a binding treaty could be achieved, it is questionable whether that would have any measurable effects on global emissions of greenhouse gases.

Hardly any country can be expected to work towards major reductions in its emissions output “only” to help fighting climate change. Given difficult economic circumstances in many regions of the world, few governments will be able to convince their people to accept imposed limits on emissions of a gas that nobody can see or smell. Another issue is that even if a couple of major industrialized countries were able to bring down their emissions by 20 percent until 2020, the growing emissions of emerging economies would nullify these savings immediately.

Consequently, we need a new approach to come anywhere near the reductions necessary to avoid the unmanageable consquences of rising average temperatures.

People need to realize that climate change is not the only reason why a new strategy for energy generation and use is needed.

First, saving energy makes sense to whatever country, industry, party you belong. Saving energy means reducing costs, increasing profits and gaining competitiveness. There is enormous potential for efficiency increases throughout all sectors of the economy. Avoiding costly overcapacities by shrinking peak demand and increasing off-peak demand through real-time pricing mechanisms can help to stabilize the electricity grid, enable the integration of renewable energies and avoid the construction of unnecessary power plants.

Second, renewable energy  as well as increased efficiency can help net-oil-importing countries to ship less money abroad. Domestic energy generation is always superior to imported energy since money can be kept local. Money kept local translates into local jobs and local tax revenue.  

Third, new energy technologies will inevitably be the next great global industry. Given growing populations, rapidly expanding middle classes in emerging countries, increased living standards and growing resource demand in tandem with ever scarcer resources will make the 21st century an era of high energy prices. Any technology helping countries and companies to save expensive energy and produce more without having to import more energy will sell in huge quantities. Leading the development of new energy technologies will result in massive investments, job creation and  growth.

 Without doubt, the long-term trend in energy prices is up. This means we will spend more and more money on oil imports and we will lack this money elsewhere.

Understanding the numerous benefits of embracing new ways of producing and consuming energy apart from reducing emissions is important. The infrastructure decisions we make today will determine the energy use and emissions of tomorrow and the coming decades. Investing in smarter and more efficient technologies today will save money, energy and emissions tomorrow.

Promoting emissions reductions for the sake of trying to protect the polar bears and penguins does not work. Promoting selfish energy policy aimed at generating as much energy as possible at home and using it as efficiently as possible to gain a competitive advantage over foreign competition and the OPEC cartel is the right approach.

You want to learn more about the smart grid? I’ve just come across a funny way to do this.

1.) Go to http://ge.ecomagination.com/smartgrid/#/augmented_reality

2.) Print out their Solar Panel Marker

3.) Wave it in front of your webcam and see a smart grid simulation pop out of your screen

4.) If you chose the wind turbine simulation, try blowing into your computer’s microphone

You might also be interested in this insightful introduction to the smart grid by the U.S. Department of Energy:

http://www.oe.energy.gov/DocumentsandMedia/DOE_SG_Book_Single_Pages.pdf

These days I’m working on a research paper with the title “On the Threshold to a New Energy Age - America’s shift towards renewable energy as a consequence of the energy crisis and climate change” . The paper will be published right here on whatmattersweblog.com

I’m pretty sure that by mid-century, China will be a developed country with an efficient economy generating a huge share of its energy needs of renewable energy sources. That’s my prediction.

Next to China, there are two other prospective candidates: Indonesia and Brazil. These three countries are growing fast despite the aftermath of the Great Recession of 2009, they’re investing billions in huge infrastructure projects, they have an enormous supply of laborers and they’re investing in education and knowledge-based sectors of the economy. Furthermore, the three countries also have a sizable supply of natural resources, though China needs to import most of the resources it needs due to its rapid pace of economic development.

China’s influence on geopolitics and the world economy is massive and impossible to overlook. In 2009, China became the world’s new export champion after surpassing Germany and simultaneously, China surpassed the United States as the world’s largest car market.

The ongoing global recovery is in large parts due to the giant Chinese economic stimulus package. Chinese growth is pulling the world economy out of recession. As British Foreign Secretary David Miliband put it, “after 1989, capitalism saved China. After 2009, China saved capitalism.”

Just recently, China and the ASEAN nations of Southeast Asia created the world’s third largest free trade area after NAFTA (Mexico-U.S.-Canada) and the EU.

This year, China might well overtake Japan as the world’s second-largest economy. 

Now Goldman Sachs is forecasting that China is set to overtake the United States as the world’s largest economy by 2027, if present growth rates can be sustained.

Since China’s population by 2027 will be roughly five times the population of the United States, that would mean China’s per capita GDP had to rise to 20% of the per capita economic output of an average American. That is a plausible scenario, however, I doubt that this will happen before 2050.

There is this saying “There is nothing permanent except change” which suggests that most predictions based on the condition of the continuation of current trends are prone to fail.

Inevitably, China will one day become the world’s largest economy. However, this will only happen when China learns to tap the intellectual capacity of its people rather than their raw labor force. Education, the protection of intellectual property, space for creative thinking and a less controlled and restricted economic environment are the preconditions of a transition that would enable China to take on today’s leading knowledge-based economies.

Rather sooner than later, China will reach a point at which its current model of growth won’t work anymore. The environmental challenge China is facing, the inflating real estate bubble and overproduction are major obstacles on China’s path to the top.

More interesting charts: http://www.whatmattersweblog.com/energy-charts/

As you can see on this chart, China’s share of world GDP is still tiny compared to the United States’.

The bottom line, however, is that China is indeed set to become a developed country in the foreseeable future. The long-term orientation of its domestic as well as foreign policy and the diligence of its people are a great foundation for a stable medium-income developed economy.

Not only do I expect China to join the ranks of developed nations in the coming decades, but I also expect that China will become the leader in alternative energy technologies. This has many reasons, but first and foremost, it is an economic necessity for the country.

Its reliance on fossil fuel imports, the skyrocketing energy consumption and out-of-hand air pollution in most Chinese cities force its leadership to firstly, limit the growth of fossil fuel consumption, secondly, increase efficiency across the board, thirdly, remove tailpipe emissions from inner cities and fourthly, generate as much energy from more sustainable and (in the long term) cheaper energy sources.

Another factor contributing to this development is that China can’t challenge the technology leadership of Western countries in internal combustion engine technologies. But when it comes to electric cars, battery technology, photovoltaic cells, etc., China is already ahead of the competition.

In the summer of 2009, I had a discussion with a NYC hedge fund manager who argued that China is ahead of the United States in terms of know-how in alternative energy and smart energy policies. I agree.

China is already the number one PV cell producer in the world and becoming the leader in electric car technology.

Chinese car manufacturer Geely announced the launch of its all-electric Nanoq which is expected to hit European and American markets later this year. The five-seater has a top speed of 81 mph and has a range of up to 125 miles on a single charge.

BYD, which stands for Build Your Dreams, a major Chinese battery manufacturer, is also aiming at establishing itself as a leading manufacturer of battery-electric cars.

Electric cars help the Chinese government to reduce the need for fuel subsidies which cost the state billions of dollars per year and support those the most who drive the biggest cars.

Chinese companies will soon have an edge over Western competitors in the electric vehicle market which will see enormous growth over the coming decades and a lot of support from governments around the world in an effort to curb carbon dioxide emissions and reduce dependence on dwindling oil reserves from unstable regions of the world.

http://www.timesonline.co.uk/tol/comment/leading_article/article6984237.ece

http://www.autocar.co.uk/News/NewsArticle/AllCars/246312/

Currently I’m working on a research paper with the title “On the Threshold to a New Energy Age - America’s shift towards renewable energy as a consequence of the energy crisis and climate change” and as part of my research, I conducted a poll to find out how prepared people are for the New Energy Economy.

I handed out questionnaires in Singapore, Tokyo, Lisbon, New York City and Honolulu. On one of the questionnaires I had distributed in Honolulu, I found a few interesting comments.

To question #14 (Oil is….?), the respondent did not tick one of the three answer choices (expensive, cheap, neither) but wrote on the side:

Oil is....

I couldn’t agree more. What is important to understand is that we’re not paying an honest price for oil / gasoline. The nominal price of a gallon of gasoline in dollars or of a barrel of crude does not include the cost of the military and intelligence efforts to secure our access to oil reserves and protect ourselves from the dangerous consequences of American petrodollars funding radicalism and potentates around the world. The cost of dealing with the consequences of climate change - which are unpredictable at this point but potentially devastating - is not included either.

The United States of America in particular and generally most industrialized countries are paying a high price for consuming huge quantities of fossil fuels. According to my calculations (-> it’s time to become energy independent, overhaul the entire economy and infrastructure), the United States must have spent more than $ 700 billion on fossil fuel imports in 2008 alone. In addition, the U.S. is very vulnerable when it comes to disruptions of oil supplies. As you can read in my previous post (-> on the unequal consumption of oil & the resulting risks), Iran could easily block the Strait of Hormuz, a very narrow seaway through which roughly 40% of seaborne oil shipments pass every day, and destroy oil production facilities in several oil-rich Persian Gulf countries - including the United Arab Emirates, Saudi Arabia, Qatar, Kuwait, Bahrain and Iraq. I’m not saying this is going to happen or likely to happen, but it is a possible scenario which puts the United States in a strategically disadvantageous position.

Whether you’re concerned about global warming, the health of the economy or national security, you will agree that it should be a number one priority for the U.S. to reduce its oil consumption and thereby ween itself from its dependence on Middle Eastern Oil, spend the money rather on domestic energy generation and keep carbon dioxide emissions from rising.

Much of this can be achieved through increased energy efficiency - the so-called “fifth fuel” after coal, oil, gas and uranium. 

Higher energy efficiency can only be achieved with higher compulsory standards for buildings and cars. Requiring U.S. auto makers to develop automobiles with better fuel economy will not only increase their products’ competitiveness but help decrease demand for foreign oil.

If efficiency standards were increased drastically and policies implemented to make oil reflect its true cost, the economic benefits over the long and medium term as well as the environmental and security benefits were undeniable.