Ruminations

US energy policy

The cover story of the latest edition of Business Week (Asian edition) should be a bit of an eye-catcher for sustainable development types.

Spurred on by the recent law suit filed against five power companies in the US by several states and the City of New York, this is a hard hitting story which shows that, even in the absence of a forward-looking energy policy on the part of the Bush administration, the private sector is not taking any chances. This is the best article on this topic in the mainstream media that I've read in a while, and it also contains some great graphics on the basic facts, the effects of global warming on the planet (including the retreating glaciers and ocean currents), what action companies are taking, the question of trading carbon credits, and the leadership from governments (or lack thereof).

World Water Week

As I'm sure my friends and colleagues in Australia will appreciate more than most, the question of access to water is shaping up as the 'big issue' of the noughties. No longer considered a 'free gift' of nature, Australia has an increasingly sophisticated market for water (see 'Water trading becomes a liquid market for economic dries' in the Australian Financial Review, 29 July 2004). How alert the rest of us are to the profligate nature of our water consumption is a moot point. The Stockholm International Water Institute (SIWI), organiser of this week's World Water Week conference presents a pretty gloomy picture. They make the link between water and food production and contend that the carnivorous amongst us are a big drain on water supplies because it takes so many more cubic metres of water to produce 1kg of meat compared to that required for 1kg of cereals. It should perhaps be of no surprise, therefore, that the US is top of the water consumption league table. What I found most interesting about the SIWI commentary, though, is the notion of water-poor Australia being an exporter of 'virtual water' on account of its meat exports.

The oil currency

After a longish break -- as a consequence of a 5-week sojourn of India-England-Wales-Ireland-France, and the problem of dealing with a massive spam attack on all my blog sites' comments boxes offering readers, inter alia, instant debt relief, online casino services, and hand jobs -- I'd like to return to one of my favourite topics - the price of oil. This, in fact, was the very first topic I ever blogged about, and it has cropped up once or twice since. An article in The Guardian a week or so ago, The real reasons Bush went to war, written by retired civil servant John Chapman jogged my memory about something I've been meaning to make a note about for a while; viz. why pricing oil in euros would be bad news for the US.

There have been quite a few articles on this topic from those on the right and the left over the last year or so, and they generally reach the same conclusion as Chapman: if the euro were to become the standard for oil transactions, things could turn very ugly indeed for the US economy.

With the price of a barrel of oil hitting a record high last week of US$44, and the US importing about 70 per cent of its oil (constituting about one quarter of its trade deficit), this is bad news. It would be even worse if they were paying for their oil in euros at a time when the US$ would inevitably be depreciating. Had other OPEC countries followed Saddam Hussein's lead in 2000, many oil-consuming economies would have to convert large quantities of their central bank holdings of dollars to euros. With the forex market flooded with US dollars, the exchange value of the US$ would fall, foreign investors would abandon the US stock markets and dollar-denominated assets, the price of US imports would rise, and the trade deficit would be blown out further. It is also foreign demand for the US dollar that funds the US federal budget deficits. This could spell more trouble if foreign investors opt for euro-denominated securities instead of US Treasury bonds.

The best piece I've read on this topic is an essay by William Clark entitled: The Real Reasons for the Upcoming War With Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth. Look out for a book Petrodollar Warfare: Oil, Iraq, and the Future of the Dollar later this year by the same author.