Investment decisions

Sunday, June 14, 2009 by Mats Larsson
The investment decisions of companies are based on pay-back calculations. They make some of all the possible investments that show positive pay-back. This is not because managers are not concerned about the environment or about the future of the planet. It is because their remit is to make decisions that turn out to be profitable for their company and employer. Companies may give small sums for good purposes in society, but their big investments need to turn a profit. Each company also needs to make better and more profitable investments than its competitors, in order to survive over the long term. These basics are given by the market and by the law.
Global warming is a very pressing issue, but a more stable climate is what economists call a “public good”, which everybody in society could enjoy. It is very difficult for any particular company or nation (for that matter) to calculate the future pay-back of investments in the reduction of CO2 emissions. Emission rights try to change this, but will do so only to a small degree. It is impossible to calculate the pay-back time of most of the necessary investments in CO2 reduction.
The peak in global oil production, which an increasing number of experts now hold to be imminent, provides a much clearer basis for calculation of the cost to companies and nations, but still the pay-back time for an investment is impossible to calculate, because each company is dependent on the investments of other companies. If only a few companies make large scale investments, they only reduce our oil consumption a little and their competitors may benefit from this, without paying. What is clearly calculable is the possibility for companies to reduce the cost of transportation, energy and fuel in the future, by using less energy intensive technology.
While this is an important improvement, it still only covers a fraction of the cost to society of a reduced oil supply. The most important cost is related to the need to maintain economic growth and the other imperatives and consequences that follow from this. We need to break the relationship between global economic growth and oil supply and reduce our dependence on oil for transportation. Still, when we have economic growth, given our present system, we also have the best opportunity to finance investments in new technology and changes to our energy systems.
In order to do this we need projects with the explicit aims to achieve a reduced dependence on oil in the first place, knowing that companies will have the incentive to finance only a fraction of the necessary investments. We need to analyse and make strategies. We need plans and managed change. We will need large scale public investements in technology development and implementation.

The investment decisions of companies are based on pay-back calculations. They make some of all the possible investments that show positive pay-back. This is not because managers are not concerned about the environment or about the future of the planet. It is because their remit is to make decisions that turn out to be profitable for their company and employer. Companies may give small sums for good purposes in society, but their big investments need to turn a profit. Each company also needs to make better and more profitable investments than its competitors, in order to survive over the long term. These basics are given by the market and by the law.

Global warming is a very pressing issue, but a more stable climate is what economists call a “public good”, which everybody in society could enjoy. It is very difficult for any particular company or nation (for that matter) to calculate the future pay-back of investments in the reduction of CO2 emissions. Emission rights try to change this, but will do so only to a small degree. It is impossible to calculate the pay-back time of most of the necessary investments in CO2 reduction.

The peak in global oil production, which an increasing number of experts now hold to be imminent, provides a much clearer basis for calculation of the cost to companies and nations, but still the pay-back time for an investment is impossible to calculate, because each company is dependent on the investments of other companies. If only a few companies make large scale investments, they only reduce our oil consumption a little and their competitors may benefit from this, without paying. What is clearly calculable is the possibility for companies to reduce the cost of transportation, energy and fuel in the future, by using less energy intensive technology.

While this is an important improvement, it still only covers a fraction of the cost to society of a reduced oil supply. The most important cost is related to the need to maintain economic growth and the other imperatives and consequences that follow from this. We need to break the relationship between global economic growth and oil supply and reduce our dependence on oil for transportation. Still, when we have economic growth, given our present system, we also have the best opportunity to finance investments in new technology and changes to our energy systems.

In order to do this we need projects with the explicit aims to achieve a reduced dependence on oil in the first place, knowing that companies will have the incentive to finance only a fraction of the necessary investments. We need to analyse and make strategies. We need plans and managed change. We will need large scale public investements in technology development and implementation.

Sunday, June 14, 2009 by Mats Larsson

Market driven innovation

The market is a perfect instrument for the achievement of many things.

According to Ruttan in his book Is War Necessary for Economic Growth? (find a lecture about the subject using the link provided http://www.csbsju.edu/clemens/images/HistoricallySpeaking-Issues%20merged%201%2016%2007_2_.pdf he argues that large scale and long term government investment, not war, is necessary for the development of general purpose technologies.

However, I thought, there must be a reason why economists and politicians want us to believe that market driven technology development could develop and perfect the technologies we need for energy transformation. Maybe this is because the Internet and related technologies seem to have been developed out of the blue by market forces? (If you know the reason, post a comment!)

I thought about this and realized that the implementation of the Internet and broad band landline communication seems to have been driven by the market. Except for all the technologies involved, that have mostly been developed in different military, space and other government financed research projects, largely in the US, the less costly implementation of these technologies, has been financed by the market to a large extent.

I looked up fibre optics, to find out if this has a history from government projects. From the entry at Wikipedia, the origin of the different technolgies is not entirely clear. Laser, a military technology, plays a central role. A central role is also played by large public customers for transatlantic and probably also transcontinental cables. Maybe fibre optics was first applied in the ARPA net or other government programmes? Well, a large share of the technology development behind the Internet, fibre optics and related developments has been funded by government projects and driven by large government customers. Here’s the fibre optics posting where I tried to find out about the possible government history of this technology: http://en.wikipedia.org/wiki/Fiber-optic_communication. The issue of fibre optical cables is referred to, but not deeply covered in Ruttan’s book.

How about mobile telecommunications?

Sunday, June 14, 2009 by Mats Larsson

This could not be politics

Saturday, June 13, 2009 by Mats Larsson
GET Institute is not affiliated to any political party, nation state or corporation. The ideas presented in GET are not based on any existing political ideology. Rather, it is an amalgam (necessary at this point I believe) of existing ideas and ideologies. There is currently, that I know of, no political party or organization (except GET Institute) that argues in favor of change management for large scale change in the energy sector. GET Institute is not financed by any political party, organization or company. This could not be politics! In fact, we have no money, not even a bank account!
For people who like the ideas and who would like to support GET Institute, we will develop a way of doing this. We would like GET Institute to become a force in the global transformation of energy systems. It will be an organization that will be easy to support and work together with. We have no hidden agenda.
At this point, there is substantial room for the application of relatively basic principles of change management in the energy sector. This is not about rocket science, it is about applying experiences and principles that have been developed in other areas, together with some common sense, in the energy sector.
Below you find a link to a randomly selected web page from a consulting company that presents its views on change management:
http://home.att.net/~nickols/change.htm

GET Institute is not affiliated to any political party, nation state or corporation. The ideas presented in GET are not based on any existing political ideology. Rather, it is an amalgam (necessary at this point I believe) of existing ideas and ideologies. There is currently, that I know of, no political party or organization (except GET Institute) that argues in favor of change management for large scale change in the energy sector. GET Institute is not financed by any political party, organization or company. This could not be politics! In fact, we have no money, not even a bank account!

For people who like the ideas and who would like to support GET Institute, we will develop a way of doing this. We would like GET Institute to become a force in the global transformation of energy systems. It will be an organization that will be easy to support and work together with. We have no hidden agenda.

At this point, there is substantial room for the application of relatively basic principles of change management in the energy sector. This is not about rocket science, it is about applying experiences and principles that have been developed in other areas, together with some common sense, in the energy sector.

Below you find a link to a randomly selected web page from a consulting company that presents its views on change management:

http://home.att.net/~nickols/change.htm

Saturday, June 13, 2009 by Mats Larsson

The market works small wonders

Saturday, June 13, 2009 by Mats Larsson
The market works small wonders, at best.
In order to facilitate large scale transformation of energy systems with precision, we need plans.
We may take the example of wave power. There are now several types of wave power generators in development http://home.clara.net/darvill/altenerg/wave.htm that compete with each other. There are probably hundreds of companies that invest in this development. We may be impressed by the activity and the inventiveness that these efforts show. Without a free market we would never have had this degree of inventiveness. Correct!
However, if we look at the time line from here until such time that wave power will generate 1% of the electricity of any large country, or 10%, which is even further into the future, we cannot rely on the market forces alone. If we do we may have to wait 15-20 years until wave power supplies 1% of the electricity of any large country. With planned projects, in which we (a number of countries together or one country, maybe a large region in case investment need is moderate) focus on one or a small number of alternative technologies and companies, we will most probably be able to halve the time to large scale implementation. We will know how much time we can save if we care to analyze the issue.
We know that in the cases such as the present too many inventors and small companies try their luck in a new and promising field. We also know that this is likely to create a bubble, sometimes easily observed, sometimes not so easy to observe, because it may be related to a smaller industry or a few industries.
Regardless of the size of the bubble, society will more rapidly enjoy the fruits of the best ideas and the best efforts to build strong companies. We could evaluate them now, based on a number of criteria that we could agree upon.
In the case of the Apollo project, NASA had a blueprint for the key parts of the space craft and other necessary aspects of the program a year after the famous speech by President Kennedy in May 1961 http://www.youtube.com/watch?v=L8Q4g-iINWU. We can do the same in the case of wave power, biofuels for transportation and other necessary developments for the future. We could, in a planned and managed project, make blueprints for the development of a number of key technologies and run focused development and implementation projects to realize their full potential.

The market works small wonders, at best.

In order to facilitate large scale transformation of energy systems with precision, we need plans.

We may take the example of wave power. There are now several types of wave power generators in development http://home.clara.net/darvill/altenerg/wave.htm that compete with each other. There are probably hundreds of companies that invest in this development. We may be impressed by the activity and the inventiveness that these efforts show. Without a free market we would never have had this degree of inventiveness. Correct!

However, if we look at the time line from here until such time that wave power will generate 1% of the electricity of any large country, or 10%, which is even further into the future, we cannot rely on the market forces alone. If we do we may have to wait 15-20 years until wave power supplies 1% of the electricity of any large country. With planned projects, in which we (a number of countries together or one country, maybe a large region in case investment need is moderate) focus on one or a small number of alternative technologies and companies, we will most probably be able to halve the time to large scale implementation. We will know how much time we can save if we care to analyze the issue.

We know that in the cases such as the present too many inventors and small companies try their luck in a new and promising field. We also know that this is likely to create a bubble, sometimes easily observed, sometimes not so easy to observe, because it may be related to a smaller industry or a few industries.

Regardless of the size of the bubble, society will more rapidly enjoy the fruits of the best ideas and the best efforts to build strong companies. We could evaluate them now, based on a number of criteria that we could agree upon.

In the case of the Apollo project, NASA had a blueprint for the key parts of the space craft and other necessary aspects of the program a year after the famous speech by President Kennedy in May 1961 http://www.youtube.com/watch?v=L8Q4g-iINWU. We can do the same in the case of wave power, biofuels for transportation and other necessary developments for the future. We could, in a planned and managed project, make blueprints for the development of a number of key technologies and run focused development and implementation projects to realize their full potential.

Saturday, June 13, 2009 by Mats Larsson
Saturday, June 13, 2009 by Mats Larsson
Mr. President, European Commissioner, Prime Minister, Herr Bundeskanzler, Statsminister etc,
We no longer need to debate whether we should have a market economy or whether we need planned development. Following the conclusions of the late Professor Vernon W. Ruttan http://en.wikipedia.org/wiki/Vernon_Wesley_Ruttan we need large scale government investments for the long term in order to develop new general purpose technologies http://en.wikipedia.org/wiki/General_purpose_technology . These technologies are necessary for our long term economic development and for the renewal of society.
We need to invest “big time” http://en.wikipedia.org/wiki/Big_Time in order to rapidly develop the ones we need to transform global energy systems on a large scale. We need to run this development as efficiently planned and managed large scale programs, like the Apollo program, which we may remember.

Mr. President, European Commissioner, Prime Minister, Herr Bundeskanzler, Statsminister etc,

We no longer need to debate whether we should have a market economy or whether we need planned development. Following the conclusions of the late Professor Vernon W. Ruttan http://en.wikipedia.org/wiki/Vernon_Wesley_Ruttan we need large scale government investments for the long term in order to develop new general purpose technologies http://en.wikipedia.org/wiki/General_purpose_technology . These technologies are necessary for our long term economic development and for the renewal of society.

We need to invest “big time” http://en.wikipedia.org/wiki/Big_Time in order to rapidly develop the ones we need to transform global energy systems on a large scale. We need to run this development as efficiently planned and managed large scale programs, like the Apollo program, which we may remember.

Saturday, June 13, 2009 by Mats Larsson

From small scale experiments to large scale change

Friday, June 12, 2009 by Mats Larsson
Every time we learn about efforts of individuals or companies, or ideas of how to reduce energy consumption, or our reliance on fossil fuels, we need to think: How can I/we/society make use of this experience to make it available to more people? How can we create large scale systems change from small scale experiments? Probably in more ways than we at first think.
If we collect a number of first step ideas, we will soon identify patterns and actions that many want to take. Then we can start changing systems on a small or large scale to make it easier for people to reduce dependence on fossil fuels or reduce energy use altogether.
We need to find ways to do this in a systematic way that requires as little effort as possible for the collection and systematization. Ideas on how this can be achieved???

Every time we learn about efforts of individuals or companies, or ideas of how to reduce energy consumption, or our reliance on fossil fuels, we need to think: How can I/we/society make use of this experience to make it available to more people? How can we create large scale systems change from small scale experiments? Probably in more ways than we at first think.

If we collect a number of first step ideas, we will soon identify patterns and actions that many want to take. Then we can start changing systems on a small or large scale to make it easier for people to reduce dependence on fossil fuels or reduce energy use altogether.

We need to find ways to do this in a systematic way that requires as little effort as possible for the collection and systematization. Ideas on how this can be achieved???

Friday, June 12, 2009 by Mats Larsson

We have more resources to use when we have growth

Friday, June 12, 2009 by Mats Larsson
Undeniably, we have more resources to spend on energy transformation during periods of stable economic growth. How does this fit with our need to reduce our dependence on oil? In order to maintain economic growth, we need to increase the volume of global economic activity, which implies an increasing need of energy…
Instead of increasing the volume of global economic activity, we may increase the volume of local or regional economic activity, but how does this add up with the need to gradually improve productivity/reduce cost in order to maintain economic growth? Global business has helped us improve productivity through advantages of scale on a global market.
These are some of the knotty economic issues we need to deal with in order to transform energy systems on a large scale. Challenging, for those of us who like challenges…!

Undeniably, we have more resources to spend on energy transformation during periods of stable economic growth. How does this fit with our need to reduce our dependence on oil? In order to maintain economic growth, we need to increase the volume of global economic activity, which implies an increasing need of energy…

Instead of increasing the volume of global economic activity, we may increase the volume of local or regional economic activity, but how does this add up with the need to gradually improve productivity/reduce cost in order to maintain economic growth? Global business has helped us improve productivity through advantages of scale on a global market.

These are some of the knotty economic issues we need to deal with in order to transform energy systems on a large scale. Challenging, for those of us who like challenges…!

Friday, June 12, 2009 by Mats Larsson

Do we need to mitigate now?

Friday, June 12, 2009 by Mats Larsson
In order to reduce our dependence on oil we need to start large scale mitigation activities well in advance of the production peak. This is, among other sources, according to the Hirsch report:
http://www.acus.org/docs/051007-Hirsch_World_Oil_Production.pdf
Because of the fact that economic growth historically has been closely linked to growing energy resources and we do not have readily available alternatives for transportation that are available on a large scale, we need to start now.
If oil production will peak in ten or fifteen years, we still have to start now.
If oil production, which seems more likely, will peak during the next few years or maybe has peaked already, we need to start “yesterday”.

In order to reduce our dependence on oil we need to start large scale mitigation activities well in advance of the production peak. This is, among other sources, according to the Hirsch report:

http://www.acus.org/docs/051007-Hirsch_World_Oil_Production.pdf

Because of the fact that economic growth historically has been closely linked to growing energy resources and we do not have readily available alternatives for transportation that are available on a large scale, we need to start now.

If oil production will peak in ten or fifteen years, we still have to start now.

If oil production, which seems more likely, will peak during the next few years or maybe has peaked already, we need to start “yesterday”.

Friday, June 12, 2009 by Mats Larsson
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