Author: Carlos Enrique

Carlos Enrique Gomez earned his Masters in East Asian Studies with a focus on Chinese solar energy policy at Stanford University, and a B.B.A in International Business and Finance at Florida International University. He is passionate about renewable energy, political science, and complex systems. In his spare time he dances waltz and tango, rock climbs, and makes his friends laugh.

Progress in Climate Negotiations, But The Damage is Done

Posted on by Carlos Enrique
A child walking near her home with a coal-fired power plant in the background in Beijing, China. Credit Kevin Frayer/Getty Images

The recent agreement between China and the United States removes a large stumbling block for a more widespread climate change treaty. Without the two largest polluters, any other agreement was bound to have a limited effect, no matter how stringent the requirements or severe the cuts in emissions. Now that both China and the United States have agreed bilaterally to tackle the issue, it eases the process going forward.

Unfortunately, significant damage is done already done, and the best we can hope with existing technology is mitigation and adaptation to damage. The only way to reverse some of the damage is to actively remove more carbon from the atmosphere then we emit. This is a monumental task, and technology to do this is at its most nascent stages.

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Optimism Faces Grave Realities at Climate Talks

“I was encouraged by the U.S.-China agreement,” said Michael Oppenheimer, a professor of geosciences and international affairs at Princeton University and a member of the United Nations Intergovernmental Panel on Climate Change, a global body of scientists that produces regular reports on the state of climate science. But he expressed doubts that the threshold rise in global temperature could be prevented.

“What’s already baked in are substantial changes to ecosystems, large-scale transformations,” Mr. Oppenheimer said. He cited losses of coral reef systems and ice sheets, and lowering crop yields.

Still, absent a deal, “Things could get a lot worse,” Mr. Oppenheimer added. Beyond the 3.6 degree threshold, he said, the aggregate cost “to the global economy — rich countries as well as poor countries — rises rapidly.”

Xi Jinping and a more active China

Posted on by Carlos Enrique
(Kimi Kyung-Hoon / Courtesy Reuters)

China’s current President, President Xi Jinxing, is promoting a much more robust, energetic Chinese government, both domestically and internationally. There is nothing wrong with a more active government, but Xi’s approach to China’s problems and his usage of Chinese institutions have caused much change and turmoil.

Xi is determined to steer China back towards its role as one of the world’s great powers (and arguably, it’s rapidly getting there), through a more muscular foreign and military policy. Whether it is Confucius Institutes around the world or expanding maritime borders, Xi is determined to translate China’s newfound economic strength into global Chinese influence while cementing the power and centrality of the Chinese Communist Party.

Surprisingly for China’s venerated mandarins, Xi’s efforts are heavy handed. His anti-corruption campaign is seen as a tool for party discipline, not a genuine, impartial uprooting of corrupt officials even as it does reduce corrupt practices. Regional multilateral political and financial cooperatives are undermined by a more aggressive military stance. Vast projects intended to physically connect China with other major countries and regions are met nervously by smaller countries with smaller economies who would be overwhelmed with Chinese economic largesse.

Xi saw his predecessor, Hu Jintao, as a do nothing President, and thus aims to form a dramatic contrast by taking untapped Chinese potential and pushing it to its limits. While some of Xi’s political and economic reforms will bear fruit, so long as there remains insecurity about the CCP’s legitimacy to govern the political, civil, and economic environment required to retain and recruit China’s best and brightest that will create will never be realized.

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China’s Imperial President

OPEC’s inaction prompts Chinese action

Posted on by Carlos Enrique
Motorists fill their tanks at a China Petroleum & Chemical Corp. gas station in Beijing, China. The world’s second-biggest economy consumed the largest volume of oil on record in October, according to data compiled by Bloomberg. Photographer: Nelson Ching/Bloomberg

As the price war between the United States and OPEC begins in earnest, China stands to gain substantially. Developing at a still rapid 7.5%, China’s expansive development projects are necessary to keep unemployment numbers down and local economies thriving. Unfortunately, a lot of these projects are inefficient and necessarily energy intensive, so China will continue to purchase coal and petroleum wherever there is a cheap price to be had.

Interestingly, China is also taking in additional supplies of petroleum to expand their Strategic Petroleum Reserve. Current Chinese leadership aims to expand their reserves from 30 to 100 days. This is a significant increase, and this is an excellent time to buy lots of petrol at a bargain price. If demand from developing countries continues to increase, existing explored oil/shale/coal deposits are exhausted, and exploration for new deposits goes into geologically or politically dangerous regions, the prices China will purchase at today will seem like a bargain in a few years.

This development, along with the favorable energy deals China has struck with Russia within the last few months, will allow China to continue developing at a moderate cost. Whether this is is a good thing in the long-run is questionable. Loose fiscal discipline enabled by cheap credit and cheap energy allows for projects that, under normal circumstances, would not net a sufficient return on investment. Additionally, cheap fossil fuels slow the adoption of alternative energy sources, causing further environmental damage at a time when health and the environment are growing concerns with the Chinese citizenry.

P.S. It’s rather telling how much petroleum the United States consumes when comparing strategic reserves. 570 million barrels is equivalent to 100 days in China, where 691 million is equivalent to only 37 days in the United States.

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China Winning in OPEC Price War

Climate Change: Environmental Risk, Security Risk

Posted on by Carlos Enrique
The Department of Defense has a plan for adapting to climate change. But will they be allowed to? Credit: Department of Defense

The Department of Defense (DoD) has issued a report detailing how it plans to adapt to climate change. Beyond impacting the logistics of moving military supplies and personnel around the world, the DoD expects that climate change will be an immediate threat to national security interests, causing “increased risks from terrorism, infectious disease, global poverty and food shortages.” (Davenport, 2014)

It is very telling when a reserved institution such as the DoD acknowledges the impact of climate change and is actively working to integrate the effects of climate change into its operations. Unfortunately, this is unlikely to sway the hearts and minds of the Republican leadership on Capitol Hill. The DoD’s opinions and decisions have minimal impact on elections, and there are considerable local and national interests that are invested in ignoring climate change.

There is one very bright spot, however. The DoD invests a considerable amount of money in the development and deployment of new technology, and so is a major driver of technological development in the United States. If it decides that alternative energy technologies are necessary to adapt to climate change, we can expect to see a significant boost for the alternative energy industry. This is more likely that it seems; transporting heavy liquid fuels around the world is both expensive and dangerous. There have been instances where American fuel trucks traveling through Pakistan were blocked by military leaders due to shifting sentiments between Pakistan and the United States.

Additionally, it is very telling that when removed from an elected position, even staunch Republicans like Hagel (at the time, Secretary of Defense) assert the importance of addressing climate change. Note that this is a particularly huge change in the case of Hagel, considering he was one of two Senators to block the United States from ratifying the Kyoto Protocol.

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Pentagon Signals Security Risks of Climate Change 

The report is the latest in a series of studies highlighting the national security risks of climate change. But the Pentagon’s characterization of it as a present-day threat demanding immediate action represents a significant shift for the military, which has in the past focused on climate change as a future risk.

Before, the Pentagon’s response to climate change focused chiefly on preparing military installations to adapt to its effects, like protecting coastal naval bases from rising sea levels. The new report, however, calls on the military to incorporate climate change into broader strategic thinking about high-risk regions — for example, the ways in which drought and food shortages might set off political unrest in the Middle East and Africa.

The Future of Early Cancer Detection?

Posted on by Carlos Enrique

Cancer detection is absurdly behind the times. When cancer becomes symptomatic it is usually too late, and requires a massive intervention to control and treat. If cancer is caught early, however, it is readily treatable in most cases.

If this technology works reliably, cheaply, and at scale, it is an extremely exciting prospect. I look forward to the day when treating cancer is akin to treating the flu; cheap, simple, and with minimal disruption to the day-to-day lives of patients.

I admit this is far afield my area of expertise. But it is interesting and exciting nonetheless.

Immigrants Create a Disproportionate Share of New Businesses

Posted on by Carlos Enrique
Where do entrepreneurs come from? Credit: Migreat

It turns out that immigrants are far more likely to start new businesses and those businesses are more likely to be successful. Most immigrant entrepreneurs come from:

  • Mexico
  • India
  • China
  • Korea
  • Cuba

Additionally, immigrant entrepreneurs account for 30% of growth in small businesses in spite of the fact that they account for 13% of the population.

With immigration in the news as of late and in light of this information, it’s apparent that placing significant restrictions on immigration is not an economic issue but rather a cultural one.

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Immigrants aren’t taking your jobs, they’re making their own

Over the last two decades, immigrant owned businesses have made up 30 percent of the growth in the small business economy, a significant chunk given that immigrants only account for 13 percent of the US population. Their businesses also performed better than your average American. Employees within these small companies earned over $55,000 a year over the median earned income of $41,000 a year, according to the Fiscal Policy Institute’s report.

Financial Uncertainty in Europe Amidst Policy Debate

Posted on by Carlos Enrique
From left, Christine Lagarde, the International Monetary Fund chief; Jim Yong Kim, president of the World Bank; and President Alpha Conde of Guinea at the World Bank last week. Credit J. Scott Applewhite/Associated Press

There is a lively debate going on in global financial institutions, and the question seems to be “How much is too much?” Top economists at the International Monetary Fund, the European Central Bank, and the World Bank are debating about recent economic policy and its effects on global financial markets.

The primary concern is that loose financial policy is once again contributing to over-excited financial markets, leading to another asset bubble. National debt loads are increasing significantly and bond markets are quite active, in large part to low interest rates across the board. However, there is some decoupling from financial markets and national economic performance which is quite worrisome. The strength of a national bond does not seem to reflect the economic health of the country, which could lead to poor national investment and a banking crisis.

There is legitimate concern that raising rates would trigger another recession, and so there is reluctance to pull on that particular lever. There’s not much to be done about that, though, because interest rates must rise at some point. As the CEO of Morgan Stanley put it: “Rates are going up because the U.S. economy is doing better – and that is a good thing.”

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I.M.F. Warns of Global Financial Risk From Fiscal Policies

 Such a step, of course, would create even more of a global buying frenzy for eurozone government bonds, and earlier in the week Christine Lagarde, the chief of the I.M.F., warned that the strong performance of these instruments was not supported by the underlying economies in their countries.

Milking a Dead Cow: Argentina’s Vaca Muerta

Posted on by Carlos Enrique
An oil rig in Argentina. Credit: Nestor Galina, 2007

Argentina is having serious difficulties developing a massive oil and gas deposit in it’s famed Vaca Muerta (Dead Cow) formation. While the region is geologically difficult to access and process, it is not geology alone that stands in the way. Argentina’s continuous flouting of international capital markets (defaulted twice in 12 years!) and penchant for nationalizing major assets after significant foreign investment all serve to keep potential investors away.

This may all become irrelevant, however. Vaca Muerta is said to rival Eagle Ford, one of the largest deposits in production in the United States. It is production enabled by the likes of Eagle Ford and the regulatory and business environment created by the American government that may stifle any ambitions the Argentine government may have. So long as gas and oil prices remain low, American civil institutions are more reliable than Argentine institutions, and capital costs remain high, there may be little reason for foreign investors to spend significant amounts of time and money into developing Vaca Muerta.

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Argentina’s Brilliant, Terrible, Very Unclear Energy Future

Meanwhile, the boom in U.S. and Canadian production has given oil companies safe, attractive places to invest. At the same time, oil prices are slumping, which means that expensive, hard-to-develop projects like Vaca Muerta risk becoming uneconomical — even if the government maintains a stable energy policy for years to come.

“The biggest impediment could simply be the cost of doing business there,” said Walter Molano, managing partner at BCP Securities and author of In the Land of Silver, a history of Argentina’s economic development. Argentina lacks many of the advantages that drove the U.S. fracking boom, from private mineral rights and a stable legal regime to a spate of small, nimble oil companies and plentiful energy infrastructure.

China’s Economic Growth – Water can float a boat, but also sink it.

Posted on by Carlos Enrique
Are sunny skies permanently in China's future, or are they merely a brief reprieve?
China’s investments are building out massive infrastructure, but to what end? Credit:ImagineChina/CORBIS

China’s debt and corruption are certainly going to be large drags on their economy, but the question both in China and in the China-watching community is if those two forces will eventually sink China’s economic miracle.

Massive ghost cities built at the periphery of China’s 2nd and 3rd tier cities threaten the economic health of China. With untold millions poured into construction and few tenants, the sustainability of China’s growth is in question as exports weaken and debt drives demand for real estate domestically. While millions of Chinese citizens are poised to move into metropolitan areas, there is no guarantee they will move to these ghost towns or that these ghost towns will be in habitable condition when that time comes.

The Chinese government now has the task of both slowing construction of these buildings and unravelling millions, if not billions, of bad debt. It faces numerous obstacles, first being the method used to rank local bureaucrats; GDP growth. Whether through useful infrastructure or useless buildings, construction work is a quick and easy way to boost economic growth and provide quick jobs for the uneducated. Local bureaucrats are loathe to renounce this method of goosing their numbers, and will require strict and frequent oversight if further needless buildout is to be prevented. The other solution would be to change the metrics upon which bureaucrats are judged, but that is unlikely in the short-term.

The second obstacle is related to the debt. Bad debt is often wound through the Chinese banking system in such a way as to make it exceedingly difficult to track. Shadow banking is quite common, and local bank branches are pressured into making bad loans in order to support the local economy. China’s banking system is surprisingly fragmented and would require a great, concerted effort to bring into line. This problem also plagues the Chinese solar energy industry.

While I am not as pessimistic as the author of the piece, I am wary of China’s future. It no doubt has a place amongst the major world powers, but the question is if China’s civil institutions are up to the task of getting China there.

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The End of China’s Economic Miracle?

But even powerful Chinese leaders have trouble enforcing their will. I reported earlier this year on the government’s plan to handle one straightforward problem: reducing excess steel production in Hebei, the province that surrounds Beijing. Hebei alone produces twice as much crude steel as the U.S., but China no longer needs so much steel, to say nothing of the emissions that darken the skies over Beijing. Mr. Xi weighed in by warning local officials that they would no longer be judged simply on increasing GDP; meeting environmental goals would count too.

In late 2013, Hebei staged an event called “Operation Sunday.” Officials sent demolition squads to destroy blast furnaces, and imploding mills made great TV on the 7 p.m. news. But it turned out that the destroyed mills had long been out of production, so blowing them up didn’t affect output. Indeed, China’s steel industry is on track for record production this year.

The Winds Shift and the Sun Rises

Posted on by Carlos Enrique
A wind farm in Weatherford, Okla. In a study, the cost of wind power came in as low as 1.4 cents a kilowatt-hour. Credit: Paul Hellstern for The New York Times

Solar and wind generated electricity have reached price levels that are comparable, if not superior, to that of conventional fuels such as coal and natural gas. This is a wonderful and significant event, particularly because they are now price competitive without continued government support.

While continued government support would certainly be a boon to the industry and speed its adoption, the removal of government support would not be a death knell for the alternative energy industry. Unfortunately, the alternative energy industry has been stuck in a boom-and-bust cycle for the previous 44 years, mostly due to intermittent government support for both research and development, and deployment of alternative energy technologies. The fact that these technologies are finally commercially competitive sans government support means that, while the growth of the industry is impacted by government involvement, the industry is certainly not the risky investment it was before.

There is still one major issue to tackle, however. The current intermittent nature of solar and wind electrical power generation means that it is still very expensive for utilities (and individuals, but particularly utilities) to adopt alternative energy technologies wholesale. There are instances of utilities investing in large scale alternative energy power plants, but it is still necessary for utilities to have back-up, on-demand power plants based on coal or gas in order to smooth out the power generation curve. This is a very expensive set up, and so long as alternative energy generation has the intermittency issue, cost will remain a prohibitive barrier to the full-scale implementation of alternative energy around the country.

The solution? Utility-scale battery grids capable of storing and distributing the power generated by solar and wind. This would allow for solar and wind farms to smooth out their energy curve on their own, eliminating the need for expensive, massive back-up power plants.

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Solar and Wind Energy Start to Win on Price vs. Conventional Fuels

According to a study by the investment banking firm Lazard, the cost of utility-scale solar energy is as low as 5.6 cents a kilowatt-hour, and wind is as low as 1.4 cents. In comparison, natural gas comes at 6.1 cents a kilowatt-hour on the low end and coal at 6.6 cents. Without subsidies, the firm’s analysis shows, solar costs about 7.2 cents a kilowatt-hour at the low end, with wind at 3.7 cents.