Should Emerging Markets be Allowed to Emerge Before They are Expected to Recycle?
I was riding the escalator up to the street-level from the subway yesterday on my way to work. Once I got to the top of the escalator, where a mob of people were waiting on Nanjing Xi Lu, I noticed something interesting. An older Chinese gentleman wearing a worn brown jacket and dusty gray pants was asking people stepping off the escalator for their newspapers. As in many major cities around the world, many people in Shanghai buy a newspaper and read it on the subway. Once they arrive at their destination, they either opt to leave the newspaper on the subway, trash it on their way out or take it with them to finish reading later. I didn't engage the older gentleman further regarding his intended use of the newspapers. Given I didn't have a newspaper visibly in hand, I was of no interest to him. I can only speculate that the older gentleman intended to resell the newspaper to someone else, recycle it for money or put it to some other ingeniously thrifty use.
This incident got me thinking about an issue that isn't new: "Should emerging markets be allowed to emerge before they are expected to recycle?" Many present-day industrialized nations, such as the US, were allowed to emerge without environmental restrictions placed upon them. The US developed before there was any awareness of the detriments of greenhouse gases produced by fossil fuels, the Kyoto Protocol was written or Al Gore informed us about "The Inconvenient Truth."
Many environmentalists, investors and business people alike pay lip service to "clean tech" and "green energy," but the reality is the entire world, not just the US, is "addicted to oil." The United Nations Intergovernmental Panel on Climate Change (IPCC) stated there is now a 90 percent probability global warming has been perpetuated by the combustion of fossil fuels and other human activity. This is up from a 66 percent probability from the same group in 2001. I am expert, but I would venture to say there is a 100 percent probability humans have had a hand in global warming. The question now becomes, what will it take for us to clean up? Sadly, I believe running out of the "black gold" is the only thing that will really force us to change.
Rich countries are in more of a position to set an example for weaning ourselves off of oil and explore other energy options because we have the money to plow into research and development. While advancements have been made, we are nowhere near where we need to be. Right before our eyes, other nations are in the process of developing. Jim O'Neill, of Goldman Sach's Economic Research Group, coined the acronym "BRIC" in 2001 to describe Brazil, Russia, India and China. Mr. O'Neill's argues that in 40 years BRICs economies together could be larger than that of the G6's. He goes on to say it is possible, by 2050, only the US and Japan will be among the world's 6 largest economies in US dollar terms. This will create a huge sift and complicate decision making in the world, especially as relates to environmental issues. If Mr. O'Neill's projections are accurate, most of the world's largest economies by 2050 will not be the richest, as is the case today. He article is worth a read and can be found at http://www2.goldmansachs.com/insight/research/reports/report6.html
The US is the largest oil consuming nation in the world. What most people don't realize is that oil was discovered in Pennsylvania and its first major application was as a lighting agent, as cars weren't around in 1860 or so when it was discovered. The US was also a major exportor of oil until the mid-1970s. If you understand the history of oil, it goes a long way toward understanding the history of the world and geo-political relations since the late 19th century. I highly recommend "The Prize-The Epic Quest for Oil, Money and Power" by Daniel Yergin to those of you interested to learn more. It is a fascinating read.
Presently, the US uses most of its imported oil today to fuel cars. As the BRIC nations and other countries around the world continue to come of age, progressively more cars will be on the world's roads. This means, assuming things stay roughly the same, we'll demand more of a finite resource unless we come up with other means of powering our vehicles. What will it take for this to happen?
1 comment:
David, you would think that the decreasing the supply of a finite resource (while demand continually increases) would force companies to look for a cheaper alternative, but it seems to be a consumer driven issue and ultimately consumers will have to implement change to alleviate the situation. Either through legislation or via their wallets.
In my option, there are two major parties which have interests opposite of the interests shared by consumers: On one hand you have companies which use crude oil to power their operations (factories, heating, etc) as well as companies which produce products that consume these resources such as vehicle manufacturers (cars and trucks), boat and airplane manufacturers. On the same hand you have oil companies which sell crude oil which is further refined and sold to said companies.
I don’t know if it holds true for airplane or boat manufacturers, but car manufacturers have been looking for years now at ways to produce vehicles which run on alternative fuels. On a similar vein, oil companies constantly pay lip service to the fact that they are devoting a significant portion of their upstream (oil exploration, extraction etc) R&D dollars into discovering alternative fuels.
At the end of the day though oil companies and vehicle manufactures alike won’t move to (fully) embrace alternative fuel sources if they can still earn lucrative profits off of them. Oil companies and luxury automobile makers had record profits last year. However, short of new incentives via legislation or a sudden change in consumer demand they have little incentive to change their current offerings. Also, the markets tend to reward them for their short-term performance versus their long-term outlook on their respective market, so investing huge amounts towards unknown alternative fuels is risk many investors would not reward them for, in my opinion. There is hope though. I think if a company were to not only offer a viable alternative fuel but also at a rate lower than the existing rate for alternative fuels, consumer demand for the product would cause oil companies and vehicle manufacturers to take notice. Airlines are primary consumers of crude oil, for example (besides salaries, fuel (kerosene) costs are their biggest operating expense), and they would surely have interest in buying planes that either used a lot less fuel or a cheaper alternative and I think the same could be said for consumers in the market for cars.
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