Uncharted Territory

November 30, 2009

Getting Serious about UK Energy at the Science Museum

Filed under: Complex decisions, Energy policy, Global warming, Reflections — Tim Joslin @ 10:59 am

When I was a boy, a visit to the London museums was a major event. I still feel a slight frisson walking through the pedestrian tunnel from South Kensington tube station. But nowadays I’m most likely to visit the V&A (check out the plaster-cast room), since I’ve gained the impression that the conjoined Natural History and Science Museums are now entirely aimed at the under 10 market.

I am therefore intrigued to read that there is an over 18 venue, the Dana Centre, at the Science Museum.

And what’s more there’s an X-rated event on UK energy coming up this Thursday (7-9pm). It seems some kind of simulator has been built to model the sorts of policy choices discussed in Professor David MacKay’s book, Sustainable Energy Without the Hot Air, which regular readers of this blog will know as the oft-referenced “SEWTHA”. The event will provide an opportunity to try to square the circle on UK energy policy, because we’re going to have to continue to make a series of tough choices to keep the lights on.

I’m thinking I might go along on Thursday, particularly as the event is organised by Serious Change, who are an eminently sensible bunch.

If anyone’s interested in joining me, it seems the event is free. Details including how to reserve tickets are here.

November 25, 2009

Lloyds Rights Issue: Not a Typo, Apparently

Filed under: Economics, Lloyds, Rights issues — Tim Joslin @ 4:35 pm

A while back now, I thought it would be interesting to monitor the Lloyds rights issue to see whether, as I strongly suspect, the rights issue process itself tends to drive down the share price – temporarily, of course. Or, alternatively, whether the market for UK retail bank shares is deep and liquid enough to prevent a mis-pricing during the issue.

Little did I know what I was letting myself in for. There are rather more side-issues than I’d reckoned on. But I’ve started so I’ll finish. I feel obliged to put the record straight on one or two points.

I’ll write again about the TERP business separately, but first need to clarify the cause of the anomaly in share numbers I attributed yesterday to a typo. I guess when Lloyds based their TERP calculation on the closing price on Monday rather than the average price that day which their Prospectus said they would use, I was ready to assume they’d made other mistakes. On the other hand, the typo assumption does seem natural, given the coincidence of the numbers. Reminiscent, perhaps, of George Monbiot’s famous deduction of the erroneousness of David Bellamy’s claims about claims about [sic] advancing glaciers.

To recap, I noticed yesterday that the numbers in Lloyds Rights Issue Price Announcement don’t stack up. Specifically, the document stated the following:

“Basis of Rights Issue 1.34 New Shares for every 1 Existing Ordinary Share [A]

Number of Ordinary Shares in issue as at the date of this announcement 27,161,682,366 [B]

Number of Ordinary Shares to be issued by Lloyds Banking Group pursuant to the Rights Issue 36,505,088,579 [C]”

Naturally, one would expect C to equal A*B. But it doesn’t. In fact, C=1.34399…*B.

The “399” sequence led me to suspect that maybe A should actually be 1.344 and not 1.34, perhaps a reasonably easy “typo” to introduce.

In fact, I’ve been advised (and in the best journalistic tradition will not be divulging my source!) that the correct explanation is entirely different.

Attentive readers will recollect from one of my earlier posts on the subject that there are a few limited voting rights shares in Lloyds. This is what I said:

“Second, there are a small number of Limited Voting (LV) shares – 79 million, compared to over 27bn – in fact ~27,162 million – Ordinary Shares. These LV shares also have an entitlement to rights. What I don’t know, though, is how much these LV shares are worth. If each is worth much more than an Ordinary Share, and, more to the point, if the holder of each contributes significantly more than 50p to the rights issue, then the rest of us would have to put in a bit less than 50p.”

At the time I thought perhaps the LV shareholders might contribute some of the £13.5bn being raised in the rights issue. It did not even remotely occur to me that the LV shareholders might be entitled to rights to buy Ordinary (i.e. full voting) Shares. This seems to me entirely illogical – you’d think they’d get more LV shares instead – but is in fact the case.

Lloyds’ Prospectus notes that:

“Number of Limited Voting Shares in issue as at the date of this document 78,947,368 [D]

Number of Limited Voting Shares to be issued pursuant to the LVS Capitalisation Issue 1,973,683 [E]”

And this is what the Prospectus has to say about the Capitalisation Issue (the award of additional shares to existing shareholders, similar to a scrip dividend, though feel free to shout me down on this) in the Glossary:

“LVS Capitalisation Issue: the proposed issue of new Limited Voting Shares pursuant to Article 122 of the Articles”

My dedication to the task has reached its limits. At least until I get a second wind, I will not be trying to find “Article 122 of the Articles”. (Isn’t this legalese gone mad? Shouldn’t that just be “Article 122”? Or next time I tell someone my address should I say “number 47 of the numbers”?).

Anyway, if you add D + E to B and then multiply by A, you do indeed get C, to the nearest share.

I mentioned the possibility of rounding yesterday, i.e. that shareholders would not in general be entitled to a whole number of rights. I presume, since no allowance is being made for this, that such rights are being created and will be sold in the market. Perhaps shareholders will receive a small amount for the sale of part of a right they were entitled to; perhaps they won’t. I’ll let you know if I find out.

I hope that clears the typo issue up. Sorry, Lloyds, though I still think you calculated the TERP differently to how you said you would, and indeed, as I’ll explain next time, I still think you’ve taken liberties with the TERP concept. As I said before, and will elaborate, the one true TERP is that based on the closing price just before the shares go ex-rights, that is, on tomorrow’s closing price.

And if that isn’t a teaser for the next post, I don’t know what is!

November 24, 2009

Lloyds Rights Issue: TERP turpitude?

Filed under: Economics, Lloyds, Rights issues — Tim Joslin @ 12:50 pm

I don’t believe this – another discrepancy!

Not only have Lloyds apparently managed to put a typo in their rights issue announcement and seem to have based their TERP calculation on the closing price of the shares yesterday and not their average price, they also seem to have calculated the TERP on the basis of raising £13.5bn and not the £13bn I used. Since the rights issue is costing the bank £500m (see Prospectus), my logic was that £500m has to be subtracted from the amount raised.

Lloyds claim:

“Discount of Issue Price to theoretical ex-rights price based on the Closing Price on 23 November 2009 ….. 38.6 per cent.”

We can reproduce their calculation, based on last night’s closing share price of 91.47p.

Total value of bank after rights issue/no. of shares after rights issue = £((0.9147 * 27,161,682,366) + 13,506,882,774)/(27,161,682,366 + 36,505,088,579)) = £(38351673634/63666770945) = ~60.238p.

Discount = (60.238 – 37)/60.238 = 38.58% i.e. the 38.6% stated.

But perhaps we should knock off the £500m cost of the rights issue:

Now we get a TERP of £(37851673634/63666770945) = 59.453p.

Discount = (59.453 – 37)/59.453 = 37.77%.

I presume the argument for doing the calculation the way Lloyds have is that the cost of the rights issue is in the share price already. The trouble is you could only really say this if you consider it 100% certain the rights issue will go ahead. To be fair, it’s probably not far off 100% since it’s very unlikely that the shareholders’ meeting on Thursday will vote down the rights issue. And if they did, this would in itself undermine the share price…

So perhaps the basis for the TERP calculation should be the price just before the rights issue was announced. But this would presume the rights issue was a complete surprise, which it wasn’t.

Then there are other aspects of the fund-raising that materially affect the share price: the £2.5bn fee to HMT to avoid the Asset Protection Scheme which was the alternative and the issue of “CoCos” that is part of the same restructuring exercise (and the success of which has given Lloyds shares a bit of a boost today).

So I suppose, on reflection, I will go along with the way Lloyds have done the TERP calculation and their figure of a 38.6% discount, based on last night’s closing price. The implication is that my original calculation of the rights issue price gave a figure that was slightly too low.

My main point is that it should be normal for rights issues to be heavily discounted. The share price of companies raising funds via rights issues can be volatile:

Lloyds share price over last 3 months

The difficulty in pinning down the share price that should be put into the calculation leads to a certain slipperiness in the basis for calculating the TERP – maybe the T for “theoretical” is the operative word – and suggests caution should be the name of the game in setting a rights issue price. But Lloyds is being very cautious.

Afterthought (13:45): The “slipperiness” is in calculating the TERP in advance. The TERP is only a valid measure once the rights issue is 100% certain to proceed. In the case of Lloyds we can only really say what the TERP and the rights issue discount to TERP is, based on Thursday’s closing price, just before the rights are created, and after the meeting to approve the rights issue. At this point everything is certain, and, in particular, the fees for the rights issue are committed, so the full amount raised by the rights issue should be included in the calculation (as Lloyds did it). So we (Lloyds, professional commentators and myself) are all mistaken in trying to determine a TERP until the rights issue is definite. At best the figures we’ve all been discussing are just (educated) guesses.

Lloyds Rights Issue: I think there’s a typo!

Filed under: Economics, Lloyds, Rights issues — Tim Joslin @ 11:28 am

In my earlier post, I expressed some bafflement that LLoyds say:

“Basis of Rights Issue 1.34 New Shares for every 1 Existing Ordinary Share”

since if you divide the number of new shares to be issued by the number of existing shares you get 1.34399. Suspicious those 9s, aren’t they?

I now suspect that what Lloyds meant to say was 1.344 new shares for each existing share. This would result in 36,505,301,100 new shares, 200,000 odd above the 36,505,088,579 stated. This is much closer to what would be expected since there will be some rounding down of the number of rights as 1.344 times the number of existing shares will not in general be a whole number. (Perhaps Lloyds had the data on shareholdings to calculate the number of new shares exactly).

If I’m right, the cash you need to find is 1.344 * 37p = per share or 49.728p, closer to what I was expecting than 1.34 * 37p which is only 49.58p.

Confidence-inspiring, eh?

[Note 16:40, 25/11: It turns out this isn’t a typo – there’s a different reason for the discrepancy].

Lloyds Rights Issue: Why ~4 to 3 and not 3 to 2?

Filed under: Economics, Lloyds, Rights issues — Tim Joslin @ 10:43 am

I made a confident prediction yesterday that Lloyds would price its rights issue at 33.13p.

In fact the rights are being priced at 37p.

How and why did Lloyds arrive at this price?

I first saw a calculator on Tomorrow’s World when it was so valuable it had to be guarded. The programme claimed that such devices would eventually cost less than £5. Everyone scoffed. Of course they understated their case. Today I have a calculator included in my PC at an additional cost to me of effectively nothing – if it didn’t exist I’m sure I could download some freeware.

So, luckily I can easily check Lloyds’ figures.

First off, let’s see what’s accurate and what isn’t.

The various reports e.g. on Yahoo! are traceable back to this statement from Lloyds.

1. 37p is accurate

Lloyds provide the following data:

Number of Ordinary Shares to be issued by Lloyds Banking Group pursuant to the Rights Issue…. 36,505,088,579

Expected gross proceeds of the Rights Issue receivable by Lloyds Banking Group…. £13,506,882,774

The proceeds divided by the number of new shares to be issued is precisely 37p.

2. 1.34 is not accurate

Lloyds provide the following data:

Number of Ordinary Shares in issue as at the date of this announcement… 27,161,682,366

Number of Ordinary Shares to be issued by Lloyds Banking Group pursuant to the Rights Issue…. 36,505,088,579

The number of new shares divided by the number of existing shares is in fact 1.3439921757…

I confess myself slightly baffled, since I can’t find a more detailed statement from Lloyds.

Is there a rounding error? But to issue more shares than implied by the 1.34 entitlement per existing share would imply rounding the millions of small shareholders’ entitlements up, whereas I would expect the number to be rounded down (you can’t have part of a right).

3. What is the discount to TERP?

The 3rd November Prospectus defined the TERP as follows (p.240):

“Theoretical Ex-Rights Price or TERP:

the theoretical ex-rights price of an Existing Ordinary Share calculated by reference to the volume weighted average price on the London Stock Exchange’s main market for listed securities of an Existing Ordinary Share on 23 November 2009″ [my stress]

Today’s statement says this:

“The Issue Price represents a discount of 59.5 per cent. to the Closing Price of the Company’s Ordinary Shares on 23 November 2009 (being the latest practicable date prior to the publication of this announcement) and a discount of 38.6 per cent. to the theoretical ex-rights price based on this Closing Price.” [my stress]

Yahoo! gives yesterday’s closing price as 91.47p, but, as can be seen from the graph in my post yesterday, it seems “the volume weighted average price” of Lloyds shares yesterday must have been maybe 90.7p.

At 90.7p, the total value of the existing shares is (27,161,682,366 * 0.907) = £24,635,645,906.
Add in the £13bn net being raised and divide by total number of shares after the rights issue (all in millions): £37,636/(27,162+36,505) gives TERP = 59.11p.
37/59.11 = 0.626, so on this basis the discount to TERP is only 37.4%, outside the range they gave of 38-42%.

Why 37p, then?

It seems Lloyds have been very bullish on the rights issue price.

Maybe they’re right – the shares right now are trading up more than another penny at 92.73p, according to Yahoo!

But a company’s share price is an arbitrary value. What matters is how many shares you have multiplied by the share price.

It seems to me that it is in shareholders’ interest to price rights issues as low as possible. This makes it much less likely that a rights issue will fail, because the rights will have more value. This in turn will reduce the underwriting fee. As I pointed out a while back, the underwriting fee is not a trivial sum.

I can only explain a desire to price the rights at a higher price than necessary in psychological terms – macho posturing, perhaps.

I still don’t expect this to happen in the case of this rights issue by Lloyds, but the risk is that the normal effects of trading I described yesterday depress the share price and hence the rights price so much that the rights become effectively an option to buy the shares. Shorting the stock (and buying the rights) then becomes an attractive trade, since, if the rights issue fails, the new shares that would have been bought in the rights issue have to be sold in the market by the under-writers. This depresses the price further, added to the speculators’ profits. Of course, it also undermines confidence in the company itself, further depressing the share price…

The reason this won’t happen with Lloyds is I don’t believe the issue is so much underwritten as that commitments to take up rights have been obtained from the holders of the majority of the shares (possibly of a large majority). I suspect Darling’s 43% (discussed previously) is not the whole story.

I wasn’t expecting a twist in the story quite so soon! Let’s hope everything goes smoothly…

November 23, 2009

Lloyds Rights Issue: Price and Subsequent Share Price Predictions

Filed under: Economics, Lloyds, Rights issues — Tim Joslin @ 10:54 pm

The Lloyds rights issue price is to be announced in less than 9 hours, at 7am tomorrow (Tues 24th). I can barely contain my excitement!

Lloyds has been trading at between 90 and 91p today, the reference day for calculation of the theoretical ex-rights price (TERP):

Lloyds share price 23/11/09

I based my calculations on a share price of 90p which gave a TERP of ~55p and a rights issue price of ~33p. I’m pleased to see the Observer agrees, though I do worry who their “analysts” are. If they’ve merely found my blog (and it’s happened before) then their support is rather circular. I noticed, though, that Joseph Dickerson at Execution has been quoted as expecting “a rights in a 30-35p range”, which gives me rather more confidence that I haven’t done something silly.

I’m therefore going to stick my neck out and predict a rights issue price of 33.13p [see Note]. How do I arrive at this? Simple: it’s 3 rights for every 2 shares which is such a simple multiple that I expect Lloyds to be unable to resist it. Remember, we have to put in around 49.7p per share we currently hold. 2*49.7 is 99.4, divided by 3 is 33.13 to two decimal places.

What will happen to Lloyds share price then, though?

We’re coming up to the interesting part of the exercise, and I’ll be watching like a hawk.

My prediction is this:
1. Lloyds will start trading at 55p [see Note] immediately the market opens on Friday morning (when the rights are created and the shares go ex-rights).
2. The rights will start to fall from their value of 21.87p (55p – 33.13p) as some rights are sold in the market by those who simply do not have the cash to take up their entitlement.
3. The shares are dragged down, as arbitrageurs (hedge funds, say) buy rights and sell shares (or short the shares), knowing that they can exercise the rights and make a profit.
4. Other market participants with money to invest in Lloyds exploit the undervalued stock, and buy both the rights and the shares, pushing the shares back up towards 55p.

In other words, I expect supply and demand to depress Lloyds shares below the TERP over the fortnight or so before the rights issue closes. How far the shares fall is the proverbial million-dollar question. I doubt very much the shares will drop as far as 33p, but the natural depression of the price during a rights issue makes it very difficult to use this method of raising capital in a crisis, as we saw last year.

It’ll be very interesting to see how much the tendency of Lloyds shares to drop in price is counteracted by those who see the rights issue as a buying opportunity

I’ll be keeping an eye on things. Watch this space!

[Note (18:45 24/11): Lloyds have actually priced the rights issue at 37p, implying a “TERP” of ~60.24p. This is based on the closing price yesterday, 23rd, but the shares would be expected to start trading on 27th, when they go ex-rights, at a true TERP based on the closing price the previous day, 26th.

The reasons for the difference between the actual rights price and “TERP” and my estimates for these, above, are discussed in a Note to my previous post on this topic].

A Message from Cockermouth to Copenhagen

Dear, oh dear. The issue of the CRU hack is simply not going to go away.

BBC Radio 4 gave some of its Today programme airtime to Nigel Lawson this morning. It’s not very clear to the casual listener exactly what Lawson’s position is, since he seemed to claim he wasn’t denying the science, just the policy, perhaps in a similar fashion to Bjorn Lomborg. But (it seemed to me whilst having breakfast) Lawson then went on to question the science.

Annoyingly, Lawson, an experienced politician (though disastrous economic policy-maker – stoking back in the 1980s the sort of boom-bust his party, the Tories are ironically criticising Labour for – so his track record doesn’t suggest a lot of faith should be put in his judgement of complex issues) and therefore used to media appearances, came across rather better than the scientist (whose name I didn’t catch) up against him.

I picked up a couple of points:

1. 1998 still warmest year

Lawson kept insisting it hasn’t warmed since 1998.

The problem here is that the scientists have picked the wrong weapon for the duel. The average surface temperature is highly variable. It varies by much more than the average annual temperature increase, so is bound to vary erratically over relatively short time periods.

The point is that the ocean will take many centuries – possibly millennia – to completely warm up. It only takes a larger than average amount (or strictly area) of cold water coming to the surface one year to reduce the average surface temperature of the planet compared to the previous year.

But the ocean gains heat (and ice melts) every year that the planet is out of thermal equilibrium (radiating less heat away than it receives from the Sun, because GHGs capture the energy). Perhaps the scientists should develop tools for measuring the total heat gain of the planet – or at least the oceans – rather than the average surface temperature. They could then tell us how many PWh (maybe the next up EWh, exawatt hours) we’ve gained each year.

But what really gets me is how much the scientists downplay another major prediction of their theory – that there will be more extreme weather. The rhetoric they use is bizarre. Normally you hear (and Hilary Benn the UK Government Minister said this sort of thing on Sunday) something along the lines of “you can’t attribute a single event to climate change” and “this is the sort of thing we can expect more of in future”.

I’d like to make a philosophical point here. I’d like to dispense with this ridiculous “can’t attribute a single event to climate change” business. Because you can’t not attribute it to climate change either! We do not have the luxury of what scientists would call a “control”. We have no other planet where we haven’t put GHGs into the atmosphere. When someone says “you can’t attribute a single event to climate change” people hear “it might have happened anyway”. No, it might not have happened anyway, because there is no “anyway”.

What I really don’t understand is why the scientists don’t make more of events that confirm their theory. Because that’s how science progresses. The prediction is “there will be more extreme weather events, such as flooding”. In the UK this week we’ve had such an extreme event. We’ve had the heaviest rainfall ever experienced in 24 hours.

Let’s just consider how big a record this is. The UK has been recording weather for a long time – centuries. And in all that time there’s never been as much rain in a 24 hour period. In fact, I’ve heard the previous record – the Martinstown Deluge of 1955 – doubted because of its implausibility!

If it was me I’d be crowing. The theory predicted this sort of thing. The Cockermouth event is strong support for global warming.

Consider other complex systems, the financial markets, say. You might hear predictions along the lines of “continued loose monetary policy will lead to further rises in the price of gold”. When the gold price rises do you think those who predicted it um and ah about how “it might have happened anyway”? You bet you don’t.

2. Datasets not in the public domain

Another point came out of the discussion on Today this morning. If I gathered correctly what was being said, the point was that the hacked emails included cases of data being wiped. And apparently it turns out this is because some of those who supplied the data considered it to be a valuable asset (in fact, it presumably is a valuable asset in that it can be sold). This is unacceptable.

It’s a fundamental tenet that scientific findings must be reproducible. And if the finding is an analysis of certain data, then others are unable to reproduce the findings. Perhaps the Copenhagen participants should spend a little of the $bns they’re throwing at the problem on paying data owners (meteorological offices) to put their data in the public domain. Scientific conclusions shouldn’t have to rely on the integrity of those with privileged access to measurements!

Part of the problem is the science seems so arcane to the general public. It needn’t be. We can all look at weather records and perhaps should be encouraged to do so.

You can, for example, download various historical records from the UK Met Office website and do your own analysis. Basically anyone can put together this sort of thing, from Joe Romm’s site.

My irritation should not, I suppose, be with “the scientists”. I know that’s what I’ve written. But it’s an oversimplification. The problem is partly the way science works. Detailed work is rewarded much more highly, in general, than high level explanation. We need more generalists who can bridge the gap between the nitty-gritty science and the public.

Here, again from Joe Romm’s blog is how the issue should be presented. K.I.S.S. Keep it simple, stupid.

November 22, 2009

Beware Proxy Problems and Correlation Cons

Filed under: Complex decisions, Global warming, Healthcare, NHS, Politics, Reflections, Science — Tim Joslin @ 7:48 pm

I receive email notifications of new posts on the Realclimate blog, a forum for discussion of the science of climate change, run by real climate scientists! Usually there is one post every few days, so I was slightly surprised to be notified about a second post last Friday (20th).

I was stunned when I saw that the second post was on the topic of the release of internal emails from the Climate Research Unit (CRU) at the University of East Anglia (UEA) in Norwich, England.

A single passage in tens of megs of emails has become the focus of the mudslinging. The Realclimate guys have this to say:

“No doubt, instances of cherry-picked and poorly-worded ‘gotcha’ phrases will be pulled out of context. One example is worth mentioning quickly. Phil Jones in discussing the presentation of temperature reconstructions stated that ‘I’ve just completed Mike’s Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) and from 1961 for Keith’s to hide the decline.’ The paper in question is the Mann, Bradley and Hughes (1998) Nature paper on the original multiproxy temperature reconstruction, and the ‘trick’ is just to plot the instrumental records along with reconstruction so that the context of the recent warming is clear. Scientists often use the term ‘trick’ to refer to a ‘a good way to deal with a problem’, rather than something that is ‘secret’, and so there is nothing problematic in this at all. As for the ‘decline’, it is well known that Keith Briffa’s maximum latewood tree ring density proxy diverges from the temperature records after 1960 (this is more commonly known as the ‘divergence problem’–see e.g. the recent discussion in this paper) and has been discussed in the literature since Briffa et al in Nature in 1998 (Nature, 391, 678-682). Those authors have always recommend [sic] not using the post 1960 part of their reconstruction, and so while ‘hiding’ is probably a poor choice of words (since it is ‘hidden’ in plain sight), not using the data in the plot is completely appropriate, as is further research to understand why this happens.”

I’m afraid the explanation of the use of the word “trick” makes me squirm! And to say the data were manipulated “to hide the decline” is unfortunate to say the least. The Guardian notes that “[t]he scientists [sic] who allegedly sent it [the ‘trick’ email] declined to comment on the email.” Well, if you ask me, they ought to be commenting, PDQ.

The ought to comment, because it’s important to get to the bottom of the issue. I have no doubt we are seeing spectacular climate change. What bothers me, though, is how little we know about past climates.

A couple of weeks ago I mentioned my puzzlement that the scientists are now saying that temperatures were considerably (3-4C) higher than at present during the last interglacial. Then, last week, I read this in the Telegraph:

“Louise Sime, lead of the British Antarctic Survey study, looked at ice cores to see how temperatures changed during periods of high carbon dioxide[.]

She found that during the last period of high CO2, 125,000 years ago [125 kya], temperatures were up to 6C higher than present day levels.

Such a hike in temperature could lead to a rise in sea levels of between 4 to 6 metres over hundreds of years as the ice sheets melt.

‘We didn’t expect to see such warm temperatures, and we don’t yet know in detail what caused them. But they indicate that Antarctica’s climate may have undergone rapid shifts during past periods of high CO2.’

Dr Sime said the study suggests that current high levels of CO2 could also cause a rise in temperature. She said further research could predict the affect on sea level rise.

‘If we can pin down how much warmer temperatures were in Antarctica and Greenland at this time, then we can test predictions of how melting of the large ice sheets may contribute to sea level rise.’ “

It might be worth pointing out that the “high CO2” 125 kya was nowhere near as high as it is now – 300ppm tops, compared to ~390ppm today (and the other greenhouse gases [GHGs] we’ve emitted make the present situation even worse).

The point is that if the climate system is more sensitive to elevated CO2 levels than we think, we have to revise our targets, as I’ve pointed out before.

If the more recent Medieval Warm Period (MWP) and Little Ice Age (LIA) were real events then we need to find out exactly what caused them. I suspect changes must have been triggered in the ocean circulation. Maybe we simply haven’t yet been cooking the planet long enough to disturb the system, or maybe, as I suggested before, the continued warming counteracts the planet’s normal negative feedback response to a period of warming.

What bothers me about the CRU leak is that it makes no sense at all to me to use a proxy for the temperature record when you actually have an instrumental record (or can even construct a record from historical documents). The instrumental record should be used to determine which proxies are valid for dates earlier than you have records for. It sounds as if the link between one possible proxy (Briffa’s tree-rings) and temperature doesn’t hold, so that particular proxy should simply be discarded altogether, not just for the period from 1961.

Lots of proxies have been used to reconstruct past temperatures, which is clearly a seriously complex and difficult exercise. Maybe the scientists need to explain a little more clearly exactly what these “temperature” series tell us.

The CRU hack controversy is a bit of a shame because it’s completely overshadowed the earlier Realclimate post on Friday. A Problem of Multiplicity currently has just 28 comments compared to 913 and counting for The CRU Hack, but in fact makes a much more important point.

If I interpret it correctly, A Problem of Multiplicity basically points out that if you compare enough sets of data you’re bound to find some correlations. This is not entirely disconnected, of course, from the problem of reconstructing past temperature records, though the area of research being criticised is the persistent attempt (often associated with a global warming scepticism agenda) to identify possible effects of solar cycles on climate.

I remembered A Problem of Multiplicity when I read Ben Goldacre’s Bad Science column in yesterday’s Guardian. It’s obvious, now Realclimate has pointed it out, that just by chance any drug is going to be associated with some side-effects. What’s needed is to use this initial detection as a hypothesis, and examine an entirely different set of patients to see if a statistically significant correlation is found. Tricky business. Maybe the NHS (or other organisation representing patients, not Big Pharma) should provide a website detailing exactly how possible side-effects have been determined. Because if you worried about everything listed on the leaflet in the packet you’d never take anything.

Back to climate. I don’t envy the scientists their job in trying to get their message across. I’m beginning to suspect the message needs to be a lot simpler. Especially when they’re up against this sort of thing from David Bellamy:

“I’m sceptical about man-made climate change. There’s absolutely no proof that carbon dioxide will kill us all. It’s not a poison, it’s the most important gas in the world. Carbon dioxide is an airborne fertiliser. How can farmers grow increasing amounts of food without a rise in CO2?”

Quite easily. Plant growth is rarely limited by CO2 availability, since they have adapted to the level that’s been in the atmosphere for the past 20 million years or so. Much better ways of improving plant growth are to improve the availability of other factors, e.g. water and mineral nutrients.

As I see it, responsible citizens have a choice. They can either accept the scientific consensus or they can delve deeply into the science themselves. I’m afraid I don’t see a lot of middle ground.

If people do decide to get to grips with the science they won’t be unduly alarmed by the dumb things scientists sometimes do. Just like the rest of us. Let alone the myriad mistakes regularly made, just as a random example, by economic policy-makers, their political masters and, of course, bank executives.

Informed responsible citizens will also realise that science is never the finished article, but continually evolving. Quite interesting really.

Unfortunately, as the science gradually changes, so must policy. And it seems to be becoming fairly clear that our targets for safe CO2 (and other GHG) levels are far too optimistic.

November 20, 2009

China’s Energy Profligacy

Filed under: Economics, Energy, Energy policy, Global warming, Markets, Regulation — Tim Joslin @ 6:31 pm

It’s incredible what you see if you keep your eyes open. This AP story about Chinese electricity prices popped up on my screen today, courtesy of Yahoo!

The article begins:

“China raised electricity rates for businesses and industries Friday, part of a long-term effort to adjust prices to reflect costs and promote energy saving as the country struggles to meet soaring demand.

The 5.7 percent increase was the first rate-hike since July 2008, when electricity tariffs for nonresidential use rose 5 percent. Residential electricity rates have remained stable since a 1 percent hike in July 2006, but a residential rate increase is planned for early next year, China’s main planning agency said in a notice late Thursday.”

So far, so good.

The story even goes on to report that:

“Rates for residential users will be adjusted to charge more to heavy users, while keeping the costs for those who consume little more or less unchanged.”

Amazing what an all-powerful state can do! And sensible, I suppose, if you’re into social engineering.

But there’s a kicker:

“Friday’s hike raises the tariff for industrial and commercial customers to 0.522 yuan (3.4 U.S. cents) per kilowatt hour. That compares with rates averaging about 10.4 U.S. cents in the U.S. and 12 U.S. cents in Japan, according to figures from the U.S. International Energy Agency.”

So let’s see… An American company could have its widgets manufactured in China and exported to the US (or anywhere else for that matter) and, denominating everything in dollars, save nearly 70% (67.3% to be more precise) on electricity costs alone!

AP goes on to report that:

“China’s power consumption [presumably “power” is synonymous with “electricity” here] rose nearly 16 percent in October from a year earlier, to 313.4 billion kilowatt hours, the fifth straight month of increases as the economy recovered from a slowdown early this year.

Earlier this week, Shanghai and other major cities reported brief shortages of power and natural gas due to surging demand due to dropping temperatures.

The government is on a long-term campaign to reduce energy waste, especially by industries. While cost-conscious families tend to skimp on electricity use, overall China uses four times as much energy as the U.S. per dollar of economic output, and more than 11 times that used in Japan.” [my stress]

I included the first couple of paragraphs for other interest – 313.4 billion kilowatt hours (why, oh why can’t journos use units in a sensible fashion? – what next? “million MWh”?) is 313.4TWh, i.e. about 10 times the UK’s electricity consumption (around 400TWh/yr, according to the source I used in a previous post).

I wrote yesterday that:

“…let’s suppose France succeeds in reducing oil consumption. What else might they buy? If they buy manufactures, the ’embedded carbon’ in each $1bn worth will very likely be higher than in $1bn worth of oil! Why? Because manufactures require energy which will likely come from cheap indigenous (or Australian) coal, in China, say. Oil has a scarcity value because it is so useful. $1bn worth of oil might therefore contain less carbon than $1bn worth of manufactures!”

I remember thinking I should tone this down. I can’t remember exactly what I changed – I guess I put the “might” in the last sentence – but I obviously missed a “very likely”. Now, though, I’m beginning to wonder if I shouldn’t have been more committal!

November 19, 2009

Defying Gravity Lost in Space?

Filed under: BBC, Media — Tim Joslin @ 7:03 pm

It’s said that, despite twin obsessions with central planning and the economies of scale, the Soviet Union would always build at least two facilities to produce any given product. Otherwise they had no benchmark for efficiency. With two plants they could at least tell which set of factory managers was diverting more goods to the black market.

The UK would have been well advised to have followed a similar approach when it set up its national broadcaster. Because, with the guy in charge of the stationery cupboard earning more than the country’s Prime Minister, the BBC just might possibly be hideously inefficient.

What I want to know today is what’s happened to Defying Gravity?

I watched last week’s episode on video last night, so could swear it was on after The Restaurant, which incidentally is racing The Apprentice downhill as the BBC seemingly chooses candidates not on the basis of any aptitude, but because they fill its criteria for diversity and supposed entertainment value. Not only would I rather see the best candidates who applied to be on these programmes, I would also have thought the BBC’s funding method was intended to ensure chasing ratings took second place to preserving objectivity. I guess they’ll be applying the same policy to Mastermind soon.

Anyway, I would have thought it would be simple and obvious for the BBC to put a web page for each programme so that when I type for instance “Defyi” into Google I am at most two clicks away from a clearly expressed summary of when the series is screened. Instead, I find this mess of a page, which tells me only that episode 7, Fear is coming up on Saturday at 22:50 on BBC 2. Nothing to warn me that I might not yet have seen episode 6. I could easily have failed to discover on a poor data-driven rather than hand-crafted web-page that I have 4 days left to watch the 6th episode, Bacon on iPlayer or could catch it at 01:25 on 24th November, whatever day of the week that is.

The Beeb has obviously spent a fortune of our money on Defying Gravity. You’d think the overpaid wallies would at least make sure we can quickly and easily find out when we can watch it.

Trawling the rest of the web, I find a suggestion that the series has been quietly moved from its sensible midweek slot.

Wikipedia tells us that the series was halted after 8 (of 13) episodes on ABC before it even began on the BBC. But the fact that ratings declined doesn’t mean it’s rubbish. The history of TV shows that series like Defying Gravity can have a small but dedicated audience, and sometimes a growing cult following years later. And, if the BBC knew the series was going to lose its appeal to a mass audience, why didn’t they put it on at an obscure time from the start? Then at least those of us who are interested might have had the benefit of a regular slot.

Is Defying Gravity going to drift aimlessly in space? Or will it keep my interest? I’d like the opportunity to find out. Better fire up that iPlayer…

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