Monthly Archives: March 2009

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.