Monthly Archives: June 2008

Preventing the October Revolution in Russia?

A question from Yahoo! Answers:

What would you have done to prevent the October Revolution of Russia?

Who is the “you” you’re referring to? Assuming you refer to the Provisional Government that itself ascended to power after an earlier revolution of February 1917, its policy options were severely limited. Whatever they could do would be too little too late… And many things they could do, they wouldn’t…

The country was extremely overextended due to the lunacy of the Romanovs and their advisors. Too many people, instead of growing food in their villages, were feeding fleas in the trenches of World War I, too much gold that could be used to buy food was wasted on the war. The country needed peace and food. Theoretically, both goals could be achieved by immediately concluding a separate peace with the Central Powers and sending farmers home in time for planting, but in practice, it took the Bolsheviks, who were even more desperate, nine weeks to negotiate such separate peace in 1918. So even if the Provisional Government did decide to negotiate it immediately after taking power in February (and it had no such intentions; instead, it proclaimed that the war would be fought “until the victorious end”), it would be too late to get the farmers back home in time for planting.

But even if by some miracle the farmers did make it home in time for planting, what would they plant? The country was basically eating through its seed supply… And on what land? The majority of land was owned by the royal family and other noble families…

Whichever way you turn it, some combination of food aid, peace treaty, and land reform was long overdue. The problem was, the only country rich enough to provide food aid, the U.S., was also the ally in the hopeless war. So food aid and peace could not be had together. But the Provisional Government, while maintaining an aggressive stance on war, made no attempts at either food aid or land reform…

Needless to say, at this point the Bolsheviks, with their program of immediate separate peace, nationalization of agricultural lands, and distribution of use rights to farmers rent-free, started looking mighty attractive, especially because 80% of Russian population at the time were farmers… The city-dwellers could also be persuaded by the fear of German occupation (after all, the German army literally stood at the outskirts of St. Petersburg)…

What really killed the electric car

A question from Askville:

Have you ever wondered what ever happened to the Electric Car manufactured by GM and Toyota and sold in California?

Well, my hubby and I just watch a U-Tube video in 11 parts of the story of the rise and fall of the all electric car. Here is the website:

http://www.youtube.com/watch?v=9vD33UMAtBY

The video is an eye-opener about the power of the oil companies and the car manufacturers. It is pretty lengthy, but very informative. Please review the video and give us your thoughts about what can be done to get the electric car back into production in the United States and the world!

Your concern is obviously well-meaning, but the video you are referring to (which actually is a documentary available on DVD) is just another reminder of how bad Americans are at basic science… A cliché, I know, but here are some relevant thoughts that never occurred to those who lament the electric car.

Gasoline-powered cars produce smog, electric cars don’t. That’s true, but electricity to power electric cars has to come from somewhere. And that somewhere is called a power station. Power stations come in different varieties; some burn coal, others, natural gas, yet others, heating oil. There are also hydroelectric and nuclear power stations. Overall, about 30% of electricity generated in the U.S. today is generated by burning coal, which produces more carbon dioxide and way more particulate matter than burning gasoline or even diesel fuel (worldwide, the figure is even higher, 40%). So if all gasoline-powered cars were replaced by electric cars, it would create even more smog (not to mention other well-known forms of coal-related pollution, such as acid rains and elevated levels of background radiation).

Speaking of power stations, quite a few of those would have to be built, should electric cars become a mass phenomenon. The total installed capacity of all U.S. power stations at the end of 2007 was just under one billion kilowatts. The total “installed capacity” of all U.S. cars, meanwhile, is to the tune of ten billion kilowatts (assuming there are 200 million cars and the average car has a 50 kW, or 70 horsepower, engine). Because cars don’t run 24 hours a day, like power stations do, installed capacity of power stations required to charge all those cars will have to be substantially less than the “installed capacity” of cars (most likely, by a factor of 3 or 4, since the average car seems to be on the road for two to three hours a day, while the most likely time for a car to be charged is during the eight-to-nine-hour window of nighttime). Even so, we’re still looking at a capacity requirement of 2.5 to 3.3 billion kilowatts, with only one billion currently in place, and a commensurate increase in pollution by power stations…

You asked for thoughts about what can be done to get the electric car back into production, so here’s one: why should anything be done about resurrecting an unsustainable dead-end technology? There are much more promising alternatives, from hybrids already on the road to (so far, remotely feasible) cars powered by fuel cells burning natural gas… Honda, meanwhile, in addition to its hybrids, already produces a conventional car burning natural gas and a car powered by fuel cells burning hydrogen

Note, however, that we haven’t even begun to discuss the really important things like abandoning the suburban living, lessening the dependence on the car by developing mass transit, or changes to city planning needed in the world where energy is expensive…

Hedge fund launches hit a low

HF Launches Hit Eight-Year Low

Jun-26-2008 | From Euromoney

The number of hedge funds launched in the first quarter was the lowest for a quarter since 2000, Financial Planning reports. This is chiefly because of volatile market conditions and the credit crisis. Fund liquidations increased from a year earlier.

There were 247 hedge fund launched in the first quarter, down from 251 a year earlier, according to Chicago’s Hedge Fund Research Inc. It said 170 hedge funds were liquidated in the three months, 23.2% more than in last year’s first quarter.

The attrition rate, defined as the percentage of funds liquidated, was 1.68, up “slightly” from a year earlier, the company said.

Single-manager hedge funds had the most liquidations, with 155 closed during the quarter. Of these, equity hedge strategies had the greatest turnover, accounting for over 50% of both launches and liquidations. Macro hedge funds, the top-performing strategy since the third quarter of last year, accounted for 20% of hedge fund launches in the first quarter.

Kenneth J. Heinz, the president of Hedge Fund Research, said hedge funds are generating “essentially flat” returns, generally because of difficult economic conditions.

Heinz said he would be surprised if returns remained flat for the rest of this year. The HFRI Fund Weighted Composite Index has returned 13.4% on an average basis annually over the past 18 years, he said.

“I expect to see greater capital flows into the industry, but I think we will see a lot of those flows moving into larger funds,” he said.

Paul Krugman on oil speculation (or lack thereof)

Speculation and Signatures

Paul Krugman
June 24, 2008
(Link to the original)

One of the problems in the debate over the role of speculation in oil prices is that hardly anyone, even among the economists, is writing down models. As a result, it’s not always clear what people are saying; and I’d argue that some of my colleagues aren’t clear on the implications of their own analysis.

So here’s some quick and dirty modeling that I think captures the essence of the debate.

A point of agreement between Guillermo Calvo and myself is that there’s a downward-sloping relationship between the current price of oil and the expected change in prices. Suppose, for example, that investors believe that the price one year from now will be PF, and they cling to that belief whatever the spot price P is. Then the expected rate of change of the oil price is (PF – P)/P. You don’t have to believe in this specific relationship; all I need is that there is a downward-sloping relationship between the spot price and the expected rate of change in the spot price.

Figure 1 shows that relationship. It also shows the cost of holding oil in storage, which consists both of the rent on the tank, or whatever, and the interest foregone by tying up wealth in physical commodities. (Yes, the independent variable is on the Y-axis. There’s a reason for that.)

krugman_2008-06-24_01.png

Now, what Calvo and others suggest is that speculative expectations are currently determining the spot price – that the spot price is determined by the intersection of the two blue curves in Figure 1.

This certainly could happen – but only under certain circumstances. To see what those circumstances are, look at Figure 2, a back-to-back diagram that adds the flow supply and demand for oil – that is, the oil pumped by producers and burned by consumers.

krugman_2008-06-24_02.png

In Figure 2, the horizontal dashed line indicates the spot price. We have a short-term equilibrium in which the quantity of oil produced exceeds the quantity consumed, but speculators are willing to buy up the excess supply and store it, believing that the spot price will rise enough to make that a good investment. In this case expected future prices – and, speaking loosely, the futures market – are determining the spot price.

This isn’t unheard of. In fact, the market for wholesale gasoline normally looks like this in the late fall, winter, and early spring, as refiners accumulate stocks for the summer driving season.

But notice that this kind of speculatively driven spot price has two “signatures” – things one should see in the markets that go along with that kind of equilibrium. First, the point I’ve emphasized a lot: because of the excess flow supply, somebody must be accumulating inventory.

But the second signature is probably just as important: for this kind of situation to occur, the future and spot markets have to be in “contango”: futures price above spot, sufficiently so to make storage worthwhile.

What if that’s not true? Then the market looks like Figure 3:

krugman_2008-06-24_03.png

Here the spot price, again indicated by the dotted line, is determined by flow supply and demand. Inventories aren’t growing, and the futures market is characterized either by “backwardation” – futures price below spot – or by a contango too weak to make storage profitable.

And here’s the thing: the actual data we have on crude oil don’t show the signatures of a market driven by speculative demand. Inventory data don’t show a big accumulation; and the market has mostly been in backwardation, not contango. It made news when, late last month, a slight contango developed – because until then there had been backwardation.

Maybe I’m misinterpreting what the advocates of a speculative story are thinking. But in that case, what are they thinking? I’m curious.

Investing in times of high inflation

A question from Askville:

What investments are best during times of inflation?

It usually takes a while for the herd to shift directions (though I’m sure that many are betting on inflation already). What are the best areas to move money to when inflation is ready to accelerate?

Economists say inflation comes in two flavors, demand-pull (as in “government spending exceeds tax revenues” or “wages increase faster than productivity”) and cost-push (as in “oil prices doubled over the last three years”).

Demand-pull inflation is likely to be limited to one country at a time, so reallocating some of your investments to foreign countries may be a prudent choice. Sooner or later, your home currency will depreciate relative to foreign currencies, so your foreign investments should appreciate in terms of your home currency.

Cost-push inflation, on the other hand, can be global or nearly global. If, for example, oil is expensive, it is expensive for everyone. So you must identify some opportunities that perform well in spite (or due to) the source of this high cost-push inflation. Let’s stick with oil prices for example. You could consider oil royalty trusts (there are quite a few publicly trading ones), oil futures, or anything that’s based in Norway, which is about the only country that is a major oil exporter, has decent investor protection in place, and has financial markets open to foreign investors (Russia, Nigeria, and Venezuela are to a different degree short on investor protection, while Saudi Arabia does not allow foreign investment at all).

Regardless of the type of inflation, you can still buy an apartment building, if you can find an attractively priced one (meaning one whose operating yield comfortably exceeds the interest rate used to finance its purchase). Or you could recall that inflation puts upward pressure on interest rates and go short some bond futures…

A weird McAfee issue

For some reason, McAfee System Guard started getting disabled. In my case, a combination of regular McAfee Security Center update and a run of McAfee Virtual Technician seem to have cured the problem (although Virtual Technician found no problems of any kind). Other people, judging by posts in McAfee forums, are less lucky.

Just in case, here’s another possible fix suggested by McAfee support:

  • Click on the Start button, then on the Run button.
  • Type Services.msc in the Run menu. The Services console will come up.
  • In the list of services, find McAfee SystemGuards and right click on it, then select Properties from the menu that appears.
  • Restart the service.
  • Click on the General tab, then select Automatic option from the Start up type drop-down box.
  • Click on the Recovery tab, then select Restart the service option from all drop-down boxes (First failure, Second failure and Subsequent failure).
  • Click on the Log on tab. Check the option Allow services to interact with desktop.
  • Click the Apply button, then the OK button.

Also, here’s a summary of possible fixes from McAfee’s forums.

New top-level domains in works

Domain Name System Set To Expand

Jun-24-2008 | Source: Managing Intellectual Property

The body that regulates internet domain names is set to permit the creation of an unlimited number of new top-level domains this week

At its meeting in Paris starting today, ICANN will discuss the New gTLD Program, which was started in 2006.

If, as is expected, the plans are approved then any organization would be able to apply to launch a new gTLD, provided it meets the relevant criteria.

It is expected that the first new TLDs could be launched as soon as next year, with hundreds of applicants already expressing an interest in running them.

In anticipation of the launch of new gTLDs, the ICANN IP Constituency (IPC), which represents IP owners, has drawn up a guide to pre-launch rights protection mechanisms for gTLDs and ccTLDs.

It is sponsored by MARQUES, the association of European trade mark owners.

The guide is designed for operators of new gTLDs who may not be familiar with IP rights. It covers why rights protection mechanisms (RPM) are important and some ingredients of a programme to protect rights.

It also provides details of the RPM used in five gTLDs: .aero, .asia, .biz, .mobi and .museum.

Recent TLD launches have provided sunrise periods for rights owners, allowing them to protect rights such as trade marks before the registry opens to the public. These often include validation of the rights, and are operated on a first-come, first-served basis or (in the case of .asia) with an auction.

Nick Wood, of Com Laude, who edited the guide, said: “We have strived to encourage good practice rather than to mandate any particular measures.”

He added that RPM are the best means of preventing cybersquatting in the new gTLDs: “It is too late to stop ICANN from introducing new gTLDs but this effort may help in creating a better environment for rights owners.”

The guide also asks 10 brand owners what they think of pre-launch RPM.

J Scott Evans of Yahoo! said: “I don’t mind competing against others under a first come first served system or in an auction. As long as it’s fair with the validation of rights and a fast challenge mechanism.”

He added: “What I’d really like to see though is some better pricing, especially discounts for registering more than 10 domain names in a Sunrise.”

James Elliott of PartyGaming said: “I am not a fan of the introduction of hundreds of new gTLDs. However, if we must have them, it is vital that the RPMs they operate are affordable and well-managed.”

In his welcoming letter, Paul Twomey, ICANN president, describes the meeting schedule in Paris as “packed”. He highlights updates on Internationalized Domain Names and the transition of the Joint Project Agreement with the US Government among the issues due to be discussed.

Managing IP will be reporting from the ICANN meeting in Paris: check the website for updates during the week.

Impact of oil prices on trade

Paul Krugman writes:

I’ve written before about the CIBC study (pdf — second item) suggesting that high oil prices, by making shipping much more expensive, may reverse a significant amount of globalization.

A new NBER working paper by Koopman et al provides some numbers for a thought I’ve had about this: that the effects of higher transport costs may be especially large because so much of world trade these days involves vertical specialization.

What the authors find is that on average, half the value of Chinese manufactured exports consists of imported inputs; in the higher-tech areas, the number is often more than 80%.

Here’s my thought: in such cases, you want to think of transport costs in terms of a sort of effective rate of protection calculation, similar to the ones often used to show that third-world industries are much more protected than the nominal tariff rates might suggest.

Suppose that China engages in some export activity, but half the value is imported inputs. And suppose for the sake of argument that the price China can get for the final good in the export market is fixed by price of import-competing producers. Let the initial price be 100.

Now add transport costs that raise the price of anything shipped back and forth by 10%. This means that China has to cut its fob price to 91, so as to keep the cif price at 100. It also means that those imported inputs now cost 55, instead of 50.

And the result is that the value added China is able to collect falls from 50 — 100 minus 50 — to 36 — 91 minus 55. That 10 percent rise in transport costs in effect reduces the payoff to China from producing the good by almost 30 percent.

OK, you can question some of this: a lot of the inputs into Chinese production come from other Asian countries, so the transport cost won’t be as big a deal as shipping to the US. But the double squeeze, both on export prices and input costs, is real: CIBC mentions Chinese steel, which is suffering from higher cost of acquiring Australian iron ore as well as higher costs of shipping to the US.

If high oil prices persist, we could be seeing a large drop in world trade.

The mode of transportation most affected by oil prices will be air. Trucking would probably be hit as well. How badly would rail and ocean shipping be affected though? In 2005, Burlington Northern Santa Fe reported that its fuel costs were 19.5% of its total operating expenses. In 2007, the percentage increased to 26.0%. If I am doing the math correctly (and, of course, assuming ceteris paribus), it’s a 9% increase in operating expenses (cost of crude oil to refiners, meanwhile, was $50.24 a barrel in 2005 vs. $67.93 in 2007, a 35% increase). That’s railroads; need to look into shipping…

The Economist on alternative energy

From The Economist:

* * * * *

THE FUTURE OF ENERGY

The power and the glory

Jun 19th 2008
From The Economist print edition

The next technology boom may well be based on alternative energy, says Geoffrey Carr (interviewed here). But which sort to back?

EVERYONE loves a booming market, and most booms happen on the back of technological change. The world’s venture capitalists, having fed on the computing boom of the 1980s, the internet boom of the 1990s and the biotech and nanotech boomlets of the early 2000s, are now looking around for the next one. They think they have found it: energy.

Many past booms have been energy-fed: coal-fired steam power, oil-fired internal-combustion engines, the rise of electricity, even the mass tourism of the jet era. But the past few decades have been quiet on that front. Coal has been cheap. Natural gas has been cheap. The 1970s aside, oil has been cheap. The one real novelty, nuclear power, went spectacularly off the rails. The pressure to innovate has been minimal.

In the space of a couple of years, all that has changed. Oil is no longer cheap; indeed, it has never been more expensive. Moreover, there is growing concern that the supply of oil may soon peak as consumption continues to grow, known supplies run out and new reserves become harder to find.

The idea of growing what you put in the tank of your car, rather than sucking it out of a hole in the ground, no longer looks like economic madness. Nor does the idea of throwing away the tank and plugging your car into an electric socket instead. Much of the world’s oil is in the hands of governments who have little sympathy with the rich West. When a former head of America’s Central Intelligence Agency allies himself with tree-hugging greens that his outfit would once have suspected of subversion, you know something is up. Yet that is one tack James Woolsey is trying in order to reduce his country’s dependence on imported oil.

The price of natural gas, too, has risen in sympathy with oil. That is putting up the cost of electricity. Wind- and solar-powered alternatives no longer look so costly by comparison. It is true that coal remains cheap, and is the favoured fuel for power stations in industrialising Asia. But the rich world sees things differently.

In theory, there is a long queue of coal-fired power stations waiting to be built in America. But few have been completed in the past 15 years and many in that queue have been put on hold or withdrawn, for two reasons. First, Americans have become intolerant of large, polluting industrial plants on their doorsteps. Second, American power companies are fearful that they will soon have to pay for one particular pollutant, carbon dioxide, as is starting to happen in other parts of the rich world. Having invested heavily in gas-fired stations, only to find themselves locked into an increasingly expensive fuel, they do not want to make another mistake.

That has opened up a capacity gap and an opportunity for wind and sunlight. The future price of these resources—zero—is known. That certainty has economic value as a hedge, even if the capital cost of wind and solar power stations is, at the moment, higher than that of coal-fired ones.

The reasons for the boom, then, are tangled, and the way they are perceived may change. Global warming, a long-range phenomenon, may not be uppermost in people’s minds during an economic downturn. High fuel prices may fall as new sources of supply are exploited to fill rising demand from Asia. Security of supply may improve if hostile governments are replaced by friendly ones and sources become more diversified. But none of the reasons is likely to go away entirely.

Global warming certainly will not. “Peak oil”, if oil means the traditional sort that comes cheaply out of holes in the ground, probably will arrive soon. There is oil aplenty of other sorts (tar sands, liquefied coal and so on), so the stuff is unlikely to run out for a long time yet. But it will get more expensive to produce, putting a floor on the price that is way above today’s. And political risk will always be there—particularly for oil, which is so often associated with bad government for the simple reason that its very presence causes bad government in states that do not have strong institutions to curb their politicians.

A prize beyond the dreams of avarice

The market for energy is huge. At present, the world’s population consumes about 15 terawatts of power. (A terawatt is 1,000 gigawatts, and a gigawatt is the capacity of the largest sort of coal-fired power station.) That translates into a business worth $6 trillion a year—about a tenth of the world’s economic output—according to John Doerr, a venture capitalist who is heavily involved in the industry. And by 2050, power consumption is likely to have risen to 30 terawatts.

Scale is one of the important differences between the coming energy boom, if it materialises, and its recent predecessors—particularly those that relied on information technology, a market measured in mere hundreds of billions. Another difference is that new information technologies tend to be disruptive, forcing the replacement of existing equipment, whereas, say, building wind farms does not force the closure of coal-fired power stations.

Sources of U.S. energyFor both of these reasons, any transition from an economy based on fossil fuels to one based on renewable, alternative, green energy—call it what you will—is likely to be slow, as similar changes have been in the past (see chart 1). On the other hand, the scale of the market provides opportunities for alternatives to prove themselves at the margin and then move into the mainstream, as is happening with wind power at the moment. And some energy technologies do have the potential to be disruptive. Plug-in cars, for example, could be fuelled with electricity at a price equivalent to 25 cents a litre of petrol. That could shake up the oil, carmaking and electricity industries all in one go.

The innovation lull of the past few decades also provides opportunities for technological leapfrogging. Indeed, it may be that the field of energy gives the not-quite-booms in biotechnology and nanotechnology the industrial applications they need to grow really big, and that the three aspiring booms will thus merge into one.

The possibility of thus recapturing the good times of their youth has brought many well-known members of the “technorati” out of their homes in places like Woodside, California. Energy has become supercool. Elon Musk, who co-founded PayPal, has developed a battery-powered sports car. Larry Page and Sergey Brin, the founders of Google, have started an outfit called Google.org that is searching for a way to make renewable energy truly cheaper than coal (or RE<C, as they describe it to their fellow geeks).

Vinod Khosla, one of the founders of Sun Microsystems, is turning his considerable skills as a venture capitalist towards renewable energy, as are Robert Metcalfe, who invented the ethernet system used to connect computers together in local networks, and Mr Doerr, who works at Kleiner Perkins Caufield & Byers, one of Silicon Valley’s best-known venture-capital firms. Sir Richard Branson, too, is getting in on the act with his Virgin Green Fund.

This renewed interest in energy is bringing forth a raft of ideas, some bright, some batty, that is indeed reminiscent of the dotcom boom. As happened in that boom, most of these ideas will come to naught. But there could just be a PayPal or a Google or a Sun among them.

More traditional companies are also taking an interest. General Electric (GE), a large American engineering firm, already has a thriving wind-turbine business and is gearing up its solar-energy business. The energy researchers at its laboratories in Schenectady, New York, enjoy much of the intellectual freedom associated with start-up firms, combined with a secure supply of money.

Meanwhile, BP and Shell, two of the world’s biggest oil companies, are sponsoring both academic researchers and new, small firms with bright ideas, as is DuPont, one of the biggest chemical companies. Not everyone has joined in. Exxon Mobil, the world’s largest oil company not in government hands, is conspicuously absent. But in many boardrooms renewables are no longer seen as just a way of keeping environmentalists off companies’ backs.

World energy consumptionSome people complain that many existing forms of renewable energy rely on subsidies or other forms of special treatment for their viability. On the surface, that is true. Look beneath, though, and the whole energy sector is riddled with subsidies, both explicit and hidden, and costs that are not properly accounted for. Drawing on the work of people like Boyden Gray, a former White House counsel, Mr Woolsey estimates that American oil companies receive preferential treatment from their government worth more than $250 billion a year. And the Intergovernmental Panel on Climate Change (IPCC), a United Nations-appointed group of scientific experts, reckons that fossil fuels should carry a tax of $20-50 for every tonne of carbon dioxide they generate in order to pay for the environmental effects of burning them (hence the fears of the power-generators).

So the subsidies and mandates offered to renewable sources of power such as wind turbines often just level the playing field. It is true that some subsidies amount to unwarranted market-rigging: examples include those handed by cloudy Germany to its solar-power industry and by America to its maize-based ethanol farmers when Brazilian sugar-based ethanol is far cheaper. Others, though, such as a requirement that a certain proportion of electricity be derived from non-fossil-fuel sources, make no attempt to pick particular technological winners. They merely act to stimulate innovation by guaranteeing a market to things that actually work.

If the world were rational, all of these measures would be swept away and replaced by a proper tax on carbon—as is starting to happen in Europe, where the price arrived at by the cap-and-trade system being introduced is close to the IPCC’s recommendation. If that occurred, wind-based electricity would already be competitive with fossil fuels and others would be coming close. Failing that, special treatment for alternatives is probably the least bad option—though such measures need to be crafted in ways that favour neither incumbents nor particular ways of doing things, and need to be withdrawn when they are no longer necessary.

The poor world turns greener too

That, at least, is the view from the rich world. But poorer, rapidly developing countries are also taking more of an interest in renewable energy sources, despite assertions to the contrary by some Western politicians and businessmen. It is true that China is building coal-fired power stations at a blazing rate. But it also has a large wind-generation capacity, which is expected to grow by two-thirds this year, and is the world’s second-largest manufacturer of solar panels—not to mention having the largest number of solar-heated rooftop hot-water systems in its buildings.

Brazil, meanwhile, has the world’s second-largest (just behind America) and most economically honest biofuel industry, which already provides 40% of the fuel consumed by its cars and should soon supply 15% of its electricity, too (through the burning of sugarcane waste). South Africa is leading the effort to develop a new class of safe and simple nuclear reactor—not renewable energy in the strict sense, but carbon-free and thus increasingly welcome. These countries, and others like them, are prepared to look beyond fossil fuels. They will get their energy where they can. So if renewables and other alternatives can compete on cost, the poor and the rich world alike will adopt them.

That, however, requires innovation. Such innovation is most likely to come out of the laboratories of rich countries. At a recent debate at Columbia University, which The Economist helped to organise, Mr Khosla defended the proposition, “The United States will solve the climate-change problem”. The Californian venture capitalist argued that if cheaper alternatives to fossil fuels are developed, simple economics will ensure their adoption throughout the world. He also insisted that the innovation which will create those alternatives will come almost entirely out of America.

As it happens, he lost. But that does not mean he is wrong. There are lots of terawatts to play for and lots of money to be made. And if the planet happens to be saved on the way, that is all to the good.

* * * * *