Obama talks weatherization and energy efficiency at a Home Depot in Alexandria, Virginia. (image: reuters.com)

Standing in a Home Depot in Alexandria, Virginia, President Obama yesterday made known his most private thoughts on home weatherization. “I know the idea may not be very glamorous, although I get really excited about it,” the president said, according to ABC News. “Here’s what’s sexy about it: saving money.” Rather than ignite a Clintonian scandal, Obama’s candid fetishizing of home energy efficiency is meant to make retrofitting more appealing to the general public. Mindful of the old advertising adage “sex sells,” the president has made himself the campaign’s leading spokesperson, one who’s unafraid to talk dirty if it means making American homes more energy-efficient.

President Obama’s “Cash for Caulkers” proposal would reimburse homeowners for energy-efficient appliances and insulation as part of a broader plan to stimulate the economy and create jobs. The proposal includes designation of money for homeowners who undertake home efficiency improvements, while also offering funding to companies in the renewable energy and energy-efficiency sectors. Individual homeowners could receive up to $12,000 for weatherization-related expenditures. Backed by the promise of cash rebates, retrofitting suddenly becomes a rather—uh—enticing prospect.

The Obama administration has long been a proponent of energy efficiency. In September, US Energy Secretary Steven Chu unveiled a $454 million fund to promote home and business energy efficiency. Around $390 million of these funds went toward neighborhood-sized projects including public and private partnerships, retrofitting and energy auditing programs, and alternative financing initiatives. Around the same time, Vice President Joseph Biden and the Council on Environmental Quality released a report titled “Recovery Through Retrofit,” which outlined a strategy to encourage Americans to retrofit their homes and save a combined $21 billion each year in energy costs.

Just as importantly, the Department of Energy now provides much useful information on its website concerning home energy efficiency.

Homeowners may consult the site to gain a better idea of the money they might save on heating costs if they were to weatherize their homes. The site also provides advice on how homeowners may conduct a home-energy audit to determine their home’s efficiency.

Within the last several months, numerous state programs have begun using federal stimulus money to weatherize homes. Many states, hoping to cut emissions and hold down heating and electricity bills, have also ramped up local spending on weatherization programs. Compared with building new, cleaner power plants, investments in efficiency are cheaper and provide a quicker return on investment. Annual spending on these programs is expected to increase from $3.1 billion in 2008 to $7.5 billion to $12.4 billion by 2020, according to a study released in October by the Lawrence Berkeley National Lab.

HeatingOil.com reported in November that the Denver-based Laborers’ International Union of North America had begun training workers to retrofit homes, making them cleaner and more energy efficient. In October, the Young Mainers Weatherization Corps began using federal money to weatherize homes against the brutal Maine winter. To date, the Young Mainers have retrofitted dozens of homes, making them more energy efficient and easier to maintain; by 2030, the group hopes to have weatherized 100 percent of residences and 50 percent of businesses in the state.

There are few downsides to home weatherization, and perhaps that explains why President Obama is so smitten with the idea of making America more energy efficient. Not only will the widespread weatherization of homes create jobs and stimulate the economy, but retrofitting programs will ultimately lead to lower heating bills. Homeowners will require less oil and gas to heat their homes, and this decrease in demand will likely result in an overall price drop. Sexy, indeed.

Watch a video clip from President Obama’s speech at Home Depot below:

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Demonstrators in Copenhagen give the world the beach ball treatment. (image: whtc.com)

Climate activists in Copenhagen ramped up their protests Friday, resulting in 68 arrests made by Danish police. According to the U.K. Guardian, 250 activists met in the city’s center at 10am before splitting up with the intention of targeting companies and business who they considered to be a threat to the climate agenda. Organizers distributed maps to protesters online, leading them to such targets as the Danish Energy Association, McDonalds, and Shell, among others.

Their aim was to disrupt business at each of the targets, either with noise or invasions of the premises. Police made arrests at various points around the city, and none of the protesters turned violent at any point. However, ABC News reported out of Australia Friday that although this weekend’s 40,000-strong protest is also expected to be peaceful, it could be a different story next week. Wendy Miller, a volunteer with the Australian Youth Climate Coalition says there is some chatter about a possible “reclaiming of the conference center,” and she imagines it would, in some degree, turn violent. A spokesperson for the AYCC said the group does not anticipate a violent turn, and supports the peaceful protests that will be occurring next week.

Also in Copenhagen protesting are the Yes Men, a group of political pranksters, who intend to commandeer the Hopenhagen Globe and project anti-Coca Cola messages on the 65-foot blue-green ball.

UK Prime Minister Gordon Brown announces the EU’s commitment of $3 billion in financial aid to support climate change mitigation efforts in developing countries. (image: en.cop15.dk)

And from the conference itself, the New York Times reported Friday that the European Union has pledged $3 billion in aid for developing countries dealing with climate change. British Prime Minister Gordon Brown made the announcement Friday, likely in the hopes it will improve the chances of reaching a real agreement next week.

Developing nations have been incredibly vocal at the talks, making it clear that an aid package would be a crucial and necessary part to any agreement reached in Copenhagen. Yvo de Boer, head of the UN climate office, has asked industrialized nations to give $30 billion to such a fund, which would go towards infrastructure projects in developing nations. Higher sea walls and converted electricity systems are some of the engineering projects that have been discussed as part of the aid package.

As the first week of negotiations comes to a close, progress has been slow, kind of like a sputtering engine trying to turn over. The bold stance taken by developing nations on Thursday has made reaching a deal seem more difficult, but has also likely increased pressure on the Western world in all the right ways. As we limp into next week, the thing to look out for will be some indication from the West that it’s really serious about enacting ambitious reduction targets. That’s what’s needed to make Copenhagen a success, the alternative being even slower progress post-conference.

For heating oil and other energy consumers, it’s important to keep in mind that climate legislation in the US that follows Copenhagen will probably lead to an increase in energy costs, but that increase would level out over time.

Chinese consumption has always been projected from imports—but at time when they are stockpiling oil, that assumption cannot be taken for granted. (image: eia.doe.gov)

According to a Reuters poll of oil-tracking analysts and organizations, oil demand in 2010 will rise, lifted by an improving global economy generally and by growth in Chinese oil consumption more specifically. As reported by ABC News on Tuesday, the consensus opinion is for demand growth of 1.3 million barrels per day (bpd), as compared to supply growth of only 800,000 bdp. That 500,000 bpd surplus of demand over supply is projected to drain 150 million barrels out of oil (including heating oil) inventories by the end of 2010, as well as exert upward pressure on prices.

The Reuters results are in line with other recent bullish pronouncements about oil consumption. For example, as Jared Killeen reported for us Monday, OPEC predicts a slight rise in global oil demand, as do the International Energy Agency (IEA) and Energy Information Administration (EIA). These expectations are also based on assumptions of a strengthening global economy, led by non-Western nations, particularly China.

There’s reason to think, however, that these predictions may be little more than whistling past the graveyard.

First, remember that the experts who are predicting a growth in oil demand make their living producing, trading, and analyzing oil. People who make their living from a product or service are usually the last to see or believe in a downturn. Realtors were the last to notice that the real estate market was overheated; the big banks were blindsided by the financial meltdown; the heads of GM, Ford, and Chrysler were clinging to business as usual long after everyone else recognized that “business as usual” for them was a synonym for “death spiral.” People in the oil industry have a built-in bias to see demand growing.

Second, economic forecasting is a black art, more akin to divination by tea leaves than to physics. Again, look at how many macroeconomic movements were missed by those whose job it was to watch for them. Or consider how fast forecasts change. In late November, the IEA is forecasting stronger demand; but three weeks earlier they were revising their 2010 forecast sharply downward. Shortly before that, they were forecasting heightened 2010 demand. High-low-high, all within little more than an economic quarter—has the global economy swung so wildly in that time? If it has, then the IEA is responding to legitimate changes in conditions. But if not, their yawing back-and-forth shows the limits of prediction.

Third, let’s get into the main factors cited as driving increased demand for next year: economic recovery in the developed world and growth in Chinese consumption.

• Western recovery: Tuesday, it was released that US third-quarter economic growth was 2.8 percent, not 3.5 percent, as previously estimated—25 percent lower. Unemployment is at 10.2 percent and the “underemployment rate” is 17 percent— more than 1 in 6 Americans who want work can’t find any job or a job paying enough. Projections call for unemployment to rise until next year, then take up to four years to improve. Does this feel like the economy’s getting better? Since economic activity drives oil and gasoline consumption, until the economy really picks up, demand will be depressed.

• Western consumption: Separate from the above, there are short- and long-term factors reducing consumption. Short term: mild winters here and in Europe have reduced demand for heating oil. Long term: studies show that Western oil demand peaked in 2005 and started declining well before the recession.

• Chinese consumption: The truth is, we don’t know what Chinese consumption really is—China does not have a free press or a forthcoming government. All statistics about Chinese consumption are implied from data about their oil imports, but there’s reason to take a haircut off those numbers. For example, China has been stockpiling oil at a ferocious rate, which means that some of their “consumption” is actually “banking” oil for later. If their 2009 consumption is lower than popularly supposed, then future predictions based off it need to be reduced as well.

We could go on—cite how household spending this year was pumped up by short-term government subsidies, like Cash-for-Clunkers or the homebuyer’s credit; mention how domestic legislation or an international treaty on climate change could make burning fossil fuels more expensive, reducing demand; even talk about how China’s strong focus on conservation and alternative energy may dampen growth in its oil demand.

There are as many, or more, factors auguring lower oil demand as higher, which makes recent pronouncements of greater demand by organizations with a vested interest in stronger demand at least somewhat suspect.

Michael Martin, commodities trader. (image: ecx.images-amazon.com)

On Saturday, Michael Martin, a proprietary commodities trader, wrote a blog taking issue with an ABC News Story on commodities positions limits from the CFTC. These limits would restrict how much oil financial firms can own through futures contracts.

(Note: some people claim that trading oil by contracts does not constitute ownership or control, because the traders don’t take physical delivery. I’d ask those people, “Do you think that when you have a bank account, there’s a pile of dollars sitting in a vault with your name on it?” Physical control of assets ceased to be in any meaningful way distinguishable from purely contractual rights a long time ago.)

In his Huffington Post blog (warning: Martin’s post contains two swear words), Martin makes some very good points. One is that “[s]table prices and cheap fuel are not are birthright,” which is absolutely true. Gravity is a law of nature; affordable oil is not. Another good point is that American CEOs are too focused on short-term earnings numbers, which drives bad or least shortsighted-decision making.

Where I part company with him is with his defense of speculation and his attack on fuel-users (in this case, airlines) who decry speculation and price volatility.

Let’s start with something simple: when Martin says “[s]peculators exist so industries such as airlines can hedge exposure to an oil price shock,” he’s omitting a rather important fact—they’d leave it to the government to provide a mechanism for hedging, the same way it’s left to the government to bail out bank depositors wiped out by bad bank management.

Second, while there are people who are pro speculation and people who are con, ever notice how the people who defend speculation tend to be (1) traders and investors; or (2) people who otherwise make their money from the financial industry, such as by studying, lecturing, or writing about it? For the most part, only people with an economic or emotional investment in speculation defend it. If only industry actors defend an industry practice, it’s a good idea to exercise prudent skepticism.

(In the interest of fairness—I’m writing for an oil industry blog. It represents a very small portion of my income, but I am paid for this.)

Another thing about people who defend speculation—they tend to be absolutist. Rather than argue that speculation’s effect is not as great as claimed, they present speculation as a pricing nonissue. When Martin says that home heating oil prices rise owing to seasonal demand fluctuations, he’s partially right-seasonal demand fluctuations do affect heating oil prices. Similarly, people who attribute the rising price of crude to dollar weakness rather than speculation have it partially right—as a dollar-denominated commodity, crude’s price rises when the dollar’s falls. However, just because other factors also affect prices doesn’t mean that speculation has no impact.

(image: theliepolitic.com)

Third, there’s ample evidence, in fact, that speculation does drive up prices, such as studies showing that prices rise with the number of speculators in the market or attributing 2008’s oil price spike to speculation. There are studies coming out the other way—again, generally by those with industry connections—but the bulk of research supports at least some pricing impact from speculation.

Fourth, look at it through the lens of common sense and common experience. Have you ever been in an art or estate auction? Bid for something on e-Bay? Been in a multiple bid situation on a home? If you have, you know that the more bidders there are, the more money there is in the room chasing an acquisition or profit, the higher prices go. More speculation, higher prices.

So if speculation raises prices, what do you do about it? One possibility is regulate it—that’s what the CFTC proposes. Martin’s suggestion, however, is to fight fire with fire. Remember his equating speculation with risk-hedging? He feels the proper response is for companies, like airlines, affected by fuel prices to hedge (through their own speculation) against those prices. An airline spokesman said that a dollar’s rise in fuel prices increases airline costs by $430 million. Martin’s response is to claim that “[a]n effective hedging program that will offset EVERY $1 increase in the price of oil will run you but a few percentage points of the $430 million number quoted.”

A few percentage points of $430 million? If it’s 5%, that’s still $21.5 million; if it’s 10%, $43 million—tens of millions not spent on paying wages, improving customer service, marketing airlines, upgrading passenger facilities, maintaining planes, or anything else that an operational manager of an airline would like to do. Instead, much of those “few percentage points of $430 million” will end up in the pockets of commodities traders and financial institutions. That doesn’t mean that a hedging strategy might not have value, but Martin is being awfully cavalier about telling another industry to spend millions of dollars to enrich his industry.

Martin goes further—he accuses airlines of deliberately choosing to not hedge, so they can pass higher prices onto their customers. I’ve not been a fly on the wall at airline executive meetings, so I don’t know for certain that he’s wrong, but based on my own experience as a businessman, I certainly think he is. Pricing power, especially during a recession, is not absolute. When commodities prices rise, business would like to pass on costs—but often find they can’t.

(image: jaunted.com)

I know—it’s happened to me. When fuel prices spiked in ‘08, it drove up the cost of shipping for my small publishing company. Suddenly, it cost more to ship our books. But at the same time, our customers were also hit hard. We couldn’t simply raise our prices to them. It hurt, but that’s business, especially in our increasingly interconnected world, where the ability to shop online anywhere, anytime, instantly, tends to drive all prices down to their lowest common denominator.

Anyone who assumes that businesses in a competitive industry—like the airline industry—can simply pass commodities prices increases along to their customers is wrong; there’s simply no other way to put it. They may have a keen grasp of how financial or commodities markets work, but those markets do not function like any other business on Earth. Once you step foot off Wall Street, you realize that increases in the price of goods that business need—such as oil—will cost those businesses money.

And finally—even if Martin were right, and hedging were a completely viable response for big businesses, like airlines, what about individual homeowners and drivers? What about small businesses, who lack the capital and expertise for sophisticated hedging strategies? If speculation drives up oil prices, as most evidence suggests, there is nothing individuals and small businesses can do but suffer. The only way to help them is to stop speculation from driving up prices in the first place—and that means government regulation.

Apparently, Obama has some lift with Americans when it comes to energy reform. (image: Ben Heine via Flickr.com)

President Obama may not have many fans right now when it comes to health care, but a Washington Post-ABC News poll published August 28th shows that 55 percent of Americans approve of the way Obama is handling energy issues, while 30 percent disapprove.

The controversial cap-and-trade element of the current climate bill wins by a narrower majority: 52 percent to 43 percent back a cap-and-trade system that would set a limit for greenhouse gas emissions and would allow companies to buy and sell the ability to emit those gases.

The climate bill, called the American Clean Energy and Security Act, is being called a “compromise bill” from both sides. Some argue that if it passes through the Senate, heating oil customers can expect to bear a large part of the burden of the oil industry’s higher operating expenses. Others argue that the bill won’t do enough to counteract climate change caused by greenhouse gases.