Burning Candles

CandleThe third Earth Hour takes place tomorrow night and once again I have been asked about carbon emissions from candles. So, without wanting to be a party-pooper, I thought I would dig up some calculations from a year ago, courtesy of the friendly family power engineer (you know who you are!).

Tomorrow night, many people will turn off the lights for an hour and light up candles instead. Since the candles themselves emit carbon dioxide (CO2), the question is will we end up reducing emissions for the hour or not? Of course, it all depends on how many candles you light up and what sorts of lights you turn off.

Since candles don’t actually emit very much light, the temptation (particularly in bars and restaurants) is to light lots of candles.  To make it concrete, think of a 40 Watt (W) traditional incandescent light-bulb. Although a 40W light bulb is not very bright, it actually emits the equivalent light of around 40 candles. The amount of CO2 emitted is equivalent to at most 5 or 6 candles. So if you turn off one light and replace it with enough candles to generate an equivalent amount of light, you’d be emitting at least 7 times as much CO2 as using the light-bulb. So, the moral of the story is not to light too many candles!

The comparison gets worse if you use energy-saving compact fluorescent lamps (CFL) rather than incandescent bulbs. A 7W CFL bulb gives about the same amount of light as a 40W incandescent bulb or around 40 candles. However, the carbon emissions from this bulb is equivalent to one candle. Admittedly, this is a fairly dim bulb, so you’d be more likely to be using a brighter bulb. But even if we considered a 14W CFL bulb (equivalent to a traditional 75W bulb) this produces emissions equivalent to two candles but the light output of almost 80 candles.

So if it was just about reducing emissions, you would be far better off leaving on CFL bulbs (and switching as many of your old bulbs to CFL as possible) than lighting candles at home or in bars and restaurants. Of course, it’s more about the symolism than anything else. Furthermore, there is a real saving in commercial premises like office blocks where the lights are turned off and nothing is turned on in their place.

One final point people make is the source of the CO2. Coal-burning power stations release carbon that has been buried in the ground for a very long time, while beeswax candles release carbon that has only recently been captured (of course paraffin candles are just as bad as coal-fired power stations!). While this is true, the end result in terms of CO2 in the atmosphere is the same. Perhaps the best thing to do is to buy the candles and keep them in the bottom drawer for emergencies and keep the carbon captured, while lighting your house with CFL bulbs!

The (Optional) Details

For the brave of heart, here are some of the details used to calculate the figures discussed above.

The aim of these calculations is to compare the carbon emissions of candles, traditional incandescent light-bulbs and energy-saving compact fluorescent lamps (CFL). To make this comparison fair, we should take into account the fact that candles emit much less light than light bulbs. The traditional unit of brightness for candles is candlepower, so I will start with a hypothetical candle that emits one candlepower of light. In more moden units, this is a luminous intensity of 0.981 candela.

Now, to complicate matters, the light output of bulbs is typically quoted in terms of lumens, a measure of luminous flux. The relationship between flux and total intensity depends on the area over which the light is emitted (e.g. a pinhole light might have high flux, but not much total intensity). For our purposes, I will assume that we have an unshaded bulb which emits light in just about every direction.

According to wikipedia, a 40 Watt (W) bulb has an output of 500 lumens, which converts to an intensity of 39.8 candela or 40.6 candlepower. So, our relatively dim 40W bulb generates as much light as about 40 candles. While there is a fair amount of variation amongst CFL bulbs, a typical 14W CFL is equivalent to a 75W incandescent light bulb. To get to the equivalent of our 40W bulb, we would need a CFL of about 7W. To achieve the equivalent light intensity of a 40W incandescent bulb, it would therefore require 40 candles or one 7W CFL.

Each hour a small candle burns at least 2.5 grams of candlewax (most candles would be worse than this), which contains a little over 2 grams of carbon, producing 7 grams of CO2 emissions.  So 40 candles would produce about 280 grams of CO2 each hour. These figures are based on the Hex Jar burn time in this table of candle burn times, which burns 1.5 oz of candlewax in 12 hours. Many others in the list burn at a faster rate.

Coal-burning power stations typically emit CO2 at the rate of 1kg/kWh or 1 g/Wh (need to dig up a reference on this one) (US National Renewable Energy Laboratory figures of 1.114kg/lWh are quoted here). This means that the 40W incandescent bulb produces around 40 grams of CO2 emissions each hour, while the equivalent CFL bulb is only 7W, and so it produces only 7 grams of CO2 emissions each hour. Of course, if your power comes from renewable sources, the emissions of these bulbs may be lower.

Photo credit: Rickydavid on flickr (Creative Commons).

AIG and DZ Bank: Dumb and Dumber

To date, in their efforts to make the Global Financial Crisis (GFC) even more disastrous than it already is, the US Government has pumped an extraordinary $170 billion into the American International Group (AIG), the humbled and humiliated insurance giant. AIG’s biggest problems arose from entering into enormous credit default swap (CDS) transactions. The reason this creates systemic risk is that CDS are bilateral transactions between two counterparties and so if AIG is in trouble, so are the counterparties on the other side of the transaction. CDS are a little like insurance contracts (albeit with far less regulation), which is perhaps why AIG was attracted to the business, and with AIG selling protection, the buyers of protection are nervous.

Dumb and DumberGiven the amount of money that the US Government has provided to AIG, it is reasonable for US taxpayers to expect some transparency from the recipient of their hard earned dollars. Today AIG has begun taking steps in that direction with the release of a number of documents under the heading “AIG Moving Forward”. Among these documents was a list of collateral postings made to AIG’s CDS counterparties. While this does not give the full picture of the vast CDS transactions volumes AIG built up over recent years, it gives an interesting glimpse of some of the larger participants in this dangerous game. The collateral postings are similar to margin payments made on margin loans when share prices fall: as AIG loses money on its CDS, it makes collateral payments to the counterparty to mitigate the risk that AIG may not be able to pay up in the future.

The counterparty list includes many of the usual suspects: Deutsche Bank, Goldman Sachs, UBS, etc. There are, however, a few interesting names. The one that struck me was DZ Bank,. Never having heard of DZ Bank, I had to look them up. It turns out, that Deutsche Zentral-Genossenschaftsbank is the fifth-largest bank in Germany and operates as a central bank for small German co-operative banks.  It is not a listed company as it is collectively owned by the 1,000 or so cooperative banks it serves. It seems that providing services to these banks was not enough for DZ and so they branched out into the exotic world of CDS. Based on AIG’s disclosure, DZ have received a total of $1.7 billion in collateral (split between direct payments from AIG up to December 2008, and payments from the Maiden Lane III vehicle established as part of the Government bail-out) and so they ventured into CDS in scale. I can’t help thinking that in doing so, they didn’t know much more about what they were taking on than Waverly Council. It also helps to explain how they managed to lose €1 billion in 2008.

One last point on the subject of AIG. Despite managing to destroy such large amounts of value, it seems that they still want to pay bonuses of $165 million to senior executives. Timothy Geithner, Obama’s new Treasury Secretary, described this as  “unacceptable”. I think he was politely trying to say “wake up and see what’s going on around you!”.

How Big Are Australian Banks?

There is no doubt that the big four Australian banks have navigated the global financial crisis better than many banks around the world, particularly in the US and UK. However, there seems to be a pervasive tendency in Australia to overstate the success of the Australian banks.

A couple of weeks ago, Michael Duffy wrote in the Sydney Morning Herald that

There are only 15 banks in the world which now have a AAA credit rating. The four major Australian banks are among them.

It would be nice if it was true. However, no Australian bank has a AAA rating, they are all in the AA band.  There are a few Government-owned or guaranteed banks around the world with a AAA and the only privately-owned bank with a AAA rating these days is the Dutch Rabobank.

More recently, Kerry O’Brien was interviewing the astute Morgan Stanley analyst Gerard Minack when he made the comment

Given that the big four banks in Australia are now in the top 12 around the world, what risk still applies to Australian banks as this scenario that you’ve described unfolds?

Gerard blinked for a moment before moving on, so I suspect he knew that Kerry did not have his facts straight here. By my reckoning (with a bit of assistance from Bloomberg),now that Westpac has taken over St George, it just scrapes in at number 12. ANZ, however, is all the way down at number 33 and the other two are somewhere in between. If I have missed any of the major world banks in my calculations, that would only push Australian banks further down.

The chart below shows data I have uploaded to Swivel giving the market capitalization for 40 of the biggest banks in the world in billions of US dollars. Figures are in thousands of millions (i.e. billions) of US dollars. While management of the big four Australian banks should be pleased with how they are faring, there is no need to blow their trumpets to the point of ignoring the facts.

One final point: it is interesting to note that the three biggest banks in the world today are Chinese banks.

Market Capitalization by Bank

For those who read my earlier Amazing Shrinking Banks post, you may notice that I have added a few more banks, including the large Chinese banks.

Time for States to Give Up Borrowing?

It hasn’t been a very good few months for the Australian State Treasury Corporations. While the ongoing global financial crisis (GFC) has been challenging for everyone dealing in the financial markets, conditions really got difficult for the States when banks began issuing bonds with Commonwealth Government guarantees back in December 2008. Things got worse last week when Standard & Poor’s announced a downgrade of Queensland Treasury Corporation (QTC) from AAA to AA+. Many investors are concerned that New South Wales will be next. Perhaps the time has come for the States to give up their borrowing programs and move to a centralised Commonwealth borrowing model.

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The Amazing Shrinking Banks

Last year, I wrote quite a few posts on the subject of the credit crunch, aka the GFC (“Global Financial Crisis”) or GD2 (“Great Depression 2”). Whatever you want to call it, it has been unfolding for almost two years, and does not show any signs of letting up yet. The hardest hit to date have been banks. Many, including Northern Rock, Bear Stearns, Lehman Brothers, Wachovia, Washington Mutual and every Icelandic bank have fallen along the way, via bankruptcy, merger or Government bailout. Others limp along with the odd adrenaline shot from Government to shake a little more life back into the patient.

Just one of these terminal patients is the Royal Bank of Scotland, whose market capitalization has fallen by 90% over the last two years, despite large injections of capital by the UK Government. The bank’s chief executive, Sir Fred Goodwin, has just resigned and was described by the Telegraph as “the most reviled man in Britain”. The once gargantuan Citigroup has shrunk even more and is now 92% smaller than it was in January 2007. In contrast, whether by good luck or good management, Australian banks have held up  well. Nab has been the worst affected, thanks in part to some pesky CDO write-downs, shrinking by 55%. Westpac has weathered the storm better than any major bank in the world, with a fall of only 17% in its market capitalisation. (Quick note to shareholders: your investment will have fallen by more than this since market capitalization equals share price times number of shares and like all banks, Westpac have raised additional capital during the course of the crisis and of course they have also bought St George).

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Australian Prices Heading South

Yesterday’s quarterly inflation release, which showed prices falling by 0.3% over the December quarter across Australia, cemented expectations of a 1% cut in interest rates in February. How things have changed! My very first Stubborn Mule post back in May 2008 examined the inflationary pressures that had so concerned the Reserve Bank and led them to keep interest rates high well into the financial crisis. In that post I used a heatmap to dig down into the drivers of inflation, and a quick comparison of the latest December inflation rate with inflation six months earlier gives a very clear illustration of where prices are falling.

CPI Dec 08 (qoq)

Austalian Quarterly Inflation – Dec 2008
(click to enlarge)

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My Mechanical Turk

This week’s storm in the blogosphere focused on the question of “authority” on twitter and other social networks. It all began when welebrity Loïc Le Meur suggested that twitter searches should be filtered by a measure of authority. This immediately elicited critical responses from other high profile members of the online world, such as Robert Scoble and Dave Winer, only to have Mike Arrington leap to Loïc’s defence.

So what is the kerfuffle all about? I’ll start at the beginning, with twitter. I’ve written about twitter many times before, but there may be a few readers who still don’t know what it is. Twitter is a microblog. It is one of many, but currently the most popular. A microblog allows users to post very short messages and links to all of their “followers” (also known as “subscribers” or “friends”, depending on the site). While it is possible to make these messages private on twitter, most people keep their messages public. As with anything publically published online, this means that these messages are visible to anyone, not just followers. In particular, they are amenable to searching. A twitter search is a powerful tool. A good example is using twitter to keep track of rapidly unfolding current events. Over the last few days, many twitter users have been posting photos, news links and opinions about the bombings in Gaza, tagging them with label “#gaza” which makes them easy to find on twitter. In amongst the predictably partisan rhetoric from both sides, it is possible to stay a step ahead of reporting in the mainstream media and gain some genuine insight into the crisis. Not so long ago, a search for #mumbai provided a similar window onto the Mumbai terrorist attack.

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End of the Age of the Gatekeepers

Homer & Bart 2Mark Pesce describes himself as “an inventor, writer, theorist, very minor TV personality” (he’s a regular on the ABC’s New Inventors). He is also a major personality in Australian twitter circles. Yesterday Pesce penned an excellent opinion piece connecting two recent Australian court cases. In one a judge ruled that tasteless sexual depictions of Simpsons cartoon characters should be considered child pornography. In the other case, a man was found guilty of distributing child-abuse materials. What he had actually done was pass on a link to a video of a man swinging a baby. He had nothing to do with the creation of the video, but simply shared a link to a video that thousands around the world had already seen.

Now each of these cases in isolation may well be legitimate interpretations of Australian law, but taken together the implications are rather ridiculous. As Pesce observes:

[It] means that viewing a clip of The Simpsons on YouTube will soon be as illegal as watching it on television. In particular, videos showing the various times Homer has strangled Bart – which exist – would be very illegal, the equivalent of the most severe child abuse materials. And God help you if you should flip a link of that video to one of your friends. That’d be “distributing” child-abuse materials, because, where we are now, distribution has expanded to include link-sharing.

Another Australian twitter luminary, Stilgherrian, is fond of seeking out modern day inheritors of King Canute (not Stil’s preferred spelling) who try to turn back the tide. So it seems that Australian courts are joining the RIAA, television stations and the Australian Government in vying for the Canute mantle and attempting to put Pandora’s internet back in the box. They should face reality and give up. As Pesce says, we have reached the end of the age of the gatekeepers.

Rudd, Carbon and the Price of Petrol

Power StackAustralia’s Prime Minister, Kevin Rudd, triggered waves of protests from environmentalists this week when he annouced that Australia’s target for emissions for 2020 would be a mere 5% reduction from the levels in 2000. With substantial commitments to emission reductions from other countries around the world, this target would be increased to 15%. The Government was at pains to point out that Australia’s population growth makes this target more ambitious than it sounds. However, by world standards Australia’s emissions are very high, whether measured per capita or by gross domestic product. This means that Australia should have more scope for relatively inexpensive emissions reductions than many other countries.

So 5% does seem to be a very unsatisfactory target. If you are a climate-change skeptic, even a 5% target is a needless waste of time and money, while if you take forecasts of climate-change seriously it seems woefully inadequate. However, rather than focusing on the target itself, in this post I will look at the implications that the Government’s plan will have where consumers will see it most directly, on the price of petrol.

In their White Paper on the carbon reduction scheme, the Government proposes a cap on the price of carbon of $40 per tonne for the next 5 years while, for their financial impact modelling, a price of $25 per tonne has been assumed. In an earlier post I calculated the impact of the price of carbon on the price of petrol. Here are the results for a range of carbon prices.

Cost of
Emissions

($/tonne)
Petrol Price
Increase
(cents/litre)
10 2.4
20 4.8
25 6.0
30 7.2
40 9.6

So, if the Government’s assumption is correct that the price of carbon will initially be around $25 per tonne, we can expect an increase in petrol prices of 6 cents per litre. Even if the price of carbon reaches the $40 cap, the impact on petrol prices will only be around 10 cents per litre. I say “only” because that 10 cents is small compared to extraordinary moves in petrol prices seen over the last year due to movements in the price of crude oil. From July to November, the price of petrol in Sydney fell by almost 40 cents per litre, according to prices published by the Australian Automobile Association, and based on my observations has fallen another 20 cents since then. Even compared to the 38 cents per litre fuel excise, 10 cents seems a modest figure. The chart below shows the dramatic moves in petrol prices along with projected prices based on the daily price of Singapore 95 refined oil, based on a regression model I have used in a number of posts in the past.

Petrol - Dec 2008

Introducing an emissions trading scheme for carbon will eventually affect a wide range of consumer prices, but based on the relatively small increase in petrol prices that it will produce, the scheme is not likely to have a significant impact on consumer behaviour. The scheme will do all its work on the behaviour of businesses and, given the dire financial straits we find ourselves in today, this is presumably why the Government has been so unambitious with their target. But this does also highlight that there is a lot more that the Government could be doing to reduce consumer carbon emissions beyond the trading scheme itself.

Photo Source: Foto43 on flickr (Creative Commons).

RIAA Continues to Stifle Innovation

Back in August, muxtape, a popular music playlist site, was forced to close by the Recording Industry Association of America (RIAA). Now mixwit have announced that it is closing too. The only explanation offered was as follows:

We’ve put a year of work into Mixwit so this choice wasn’t taken lightly. I won’t go into the details of our situation but state simply that we boldly marched into in [sic] a position best described as “between a rock and a hard place.”

Reading between the lines, it looks as though they too have fallen at the hands of the RIAA. Under the cover of claims to be protecting artists, claims that do not bear close scrutiny, the RIAA is building an impressive track-record of stifling innovation. While it is possible to take comfort from the fact that attempts to stem the tide of progress always fail in the end, it is nevertheless frustrating to see the suffering of victims of this pernicious organisation in the meantime, whether those victims are single mothers sued for file-sharing or the creators of sites like muxtape and mixwit.

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