An End to Fossil Fuels?

Francisco A. Laguna & Richard Shu

The G7 recently agreed to completely eliminate fossil fuel use by the end of the century, citing fossil fuel scarcity and the looming dangers of climate change. This decision may come as a surprise to many in America, where drivers have enjoyed low gas prices and the crisis of fossil fuel scarcity has mostly been pushed out of the national consciousness. However, continued fossil fuel use remains a pressing issue: not only are carbon emissions contributing to rising temperatures and sea levels, but the methods of extraction themselves are proving increasingly dangerous to human health.  Whether the G7’s goals can be met in 85 years and what negative impacts may occur in the interim are the unknowns.

"Frac job in process" by Joshua Doubek - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons - https://commons.wikimedia.org/wiki/File:Frac_job_in_process.JPG#/media/File:Frac_job_in_process.JPG

“Frac job in process” by Joshua Doubek – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

A major source of controversy and contention among big oil, the environmentalists and public and private health officials is hydraulic fracturing.  Otherwise known as fracking, hydraulic fracturing is a method for extracting oil and natural gas from shale deposits. It involves cracking the earth with pressurized water in order to bring the fuel deposits up to the surface. Before fracking, the fuel found in shale deposits was considered inaccessible. Post-fracking, America has enjoyed a glut of natural gas — mostly butane — released from shale. By 2010, the number of natural gas wells in the US had reached 510,000, nearly double the 2000 figure of 276,000. Every year, 13,000 new operations are begun, mostly in the Great Plains, the Great Lakes and the Marcellus Shale deposit that runs along the Appalachian basin.

Compared to coal and oil, butane burns relatively cleanly. Short-term, however, the fallout from the fracking boom has been disastrous for public health. The fracking process releases toxic chemicals like methane and benzene into the local groundwater, rendering the water unfit for human consumption. Images of water flowing from faucets and catching fire have done little to ease the mind of the public.  Roughly 15.3 million Americans, more than the entire population of New York City, are affected by this pollution.  Unfortunately, big oil has lobbied successfully to avoid legislative requirements to reveal the exact chemicals and other ingredients used in drilling operations.  Competing factors such as inexpensive energy and fuel, job creation and the sometimes large pay-outs to landowners for mining rights have done little to encourage legislators to act proactively.

"2011-2014 water use for fracking" by USGS. Licensed under Public Domain via Wikimedia Commons

“2011-2014 water use for fracking” by USGS. Licensed under Public Domain via Wikimedia Commons

The fallout from reckless fracking is immediate, much more so than the slow damage wrought by global warming. Groundwater contamination in Pennsylvania is unlikely to concern someone living in California, especially if Californians are enjoying inexpensive gas as a result. But, in due time, everyone will suffer the consequences of climate change. The only thing that the fracking boom has done is delay the inevitable, or at least put it out of everyone’s minds. In finding a nice-seeming short term solution in clean natural gas, we have forgotten just why fossil fuel dependency was so dangerous in the first place.  The new supply of oil from Iran soon to flood the market will further mask the problem and delay implementing new strategies for global fossil fuel independence.

The fracking case is interesting in that we see real time hazards being immediately challenged with legislative actions. As soon as methane was detected in the water, there were lawsuits and regulations aplenty, mostly at the local or state level. It serves as proof for our intuition: legislators and courts respond better to concrete, urgent threats than to long-term threats.  However, these responses are defensive, only reacting to an event that has already occurred, the total, possible negative impacts of which are often misunderstood.

"Barnett Shale Drilling-9323" by Loadmaster (David R. Tribble) - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons - https://commons.wikimedia.org/wiki/File:BarnettShaleDrilling-9323.jpg#/media/File:BarnettShaleDrilling-9323.jpg

“Barnett Shale Drilling-9323” by Loadmaster (David R. Tribble) – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

A larger problem is that every state approaches fracking differently.  In the same month that the Maryland General Assembly passed a moratorium on new drilling permits and tightened its scrutiny on existing fracking sites, an Ohio judge struck down a countywide fracking ban. These sorts of case-by-case legislative fixes and court decisions are nothing new for our legal system. However, they currently stand as one of the few places where the dominion of big oil is being challenged. If the United States is to begin a concerted movement away from big oil, it will need something more definite than a smattering of state-level decisions to do so. And until global warming is firmly established as a serious, urgent threat, we will make no progress.

TransLegal has worked in various countries, including Brazil and Colombia, on issues related to alternative to fossil fuels, including biofuels.  Call us with your questions.

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Brazil: Fallen Market or Bright Future?

Francisco A. Laguna & Joshua Hassell

2014 was not the best year for Brazil.  Last year, Brazil, the world’s seventh largest economy, suffered a major economic downturn that threatened to become a full blown recession. There are some promising signs for Brazil’s future. The question is whether these signs are promising enough to make the country a good choice for foreign direct investment.

The International Monetary Fund projects a 0.1% growth in Q4 over Q4 for 2015 and a 2.2% growth in Q4 over Q4 in 2016. However, the majority of this projected growth can be attributed to factors outside the Brazilian economy and beyond the government’s control, such as falling oil prices and the general increase in the global economy.  The systematic opening of Iran will put further strain on oil prices, and all oil-producing nations will feel the effect.

National Congress, Brasilia Photo Credit: Eurico Zimbres via Wikimedia Commons

National Congress, Brasilia
Photo Credit: Eurico Zimbres via Wikimedia Commons

Additionally, most of Brazil’s projected numbers for economic growth are derived from the potential impact of harsh austerity measures. One such measure was a bill known as Provisional Measure 664, originally slated to tighten access to survivor pensions and worker compensation.  The measure was passed by the Brazilian Senate with a vote of 50 to 18.  However, it was extremely unpopular.  To garner public support, a series of riders that could result in an increase of public spending by up to 40 billion reais (~ US$ 12.4 billion) were attached to the draft measure allowing workers to qualify for full pensions at a younger age.  Brazilian President Dilma Rousseff is expected to veto these addenda.

President Dilma Rousseff Prime Minister of China, Li Keqiang By Marcelo Camargo/Agência Brasil (Agência Brasil) [CC BY 3.0 br (http://creativecommons.org/licenses/by/3.0/br/deed.en)], via Wikimedia Commons

President Dilma Rousseff Prime Minister of China, Li Keqiang
By Marcelo Camargo/Agência Brasil (Agência Brasil), via Wikimedia Commons

A second austerity measure, Provisional Measure 665, was passed in May 2015 and was originally supposed to save the Brazilian government 9 billion reais (~ US$ 2.4 billion) a year.  Again, however, riders attached to the bill effectively cut the government’s saving in half to 5 billion reais.  Currently, Brazil appears hesitant to pass the level of austerity measure required, and this could make it difficult for Brazil to achieve the results projected by the IMF.

Additionally the IMF’s recent consultation regarding Brazil illustrates that as of April 10, 2015 Brazil’s current account deficit had increased to 4.2% GDP a huge increase from the 2.4% GDP figure from 2012. Non-financial public debt also increased to 71% of GDP from almost half of that.

Furthermore, Brazil’s markets are highly noncompetitive due to a massive increase in interest rates to a six year high of 12.75 in order to combat rising inflation. Much of Brazil’s previous economic growth had been driven through consumption, and thus, the interest increases have a potentially huge impact on not only Brazilian corporations but the overall Brazilian economy. Many smaller businesses have reported significant losses from 2013 to 2015, which has resulted in a historically low consumer confidence rating.

Topographic Map of Brazil by Captain Blood at en.wikipedia (Transferred from en.wikipedia) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], from Wikimedia Commons

Topographic Map of Brazil by Captain Blood at en.wikipedia (Transferred from en.wikipedia) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)%5D, from Wikimedia Commons

Despite all this, TransLegal clients continue to be drawn to the country because of its sheer size and potential.  This year, we have completed projects related to distribution agreements for animal feed, the registration of animal feed supplements, the sale of genetically modified products, the use of agricultural liming materials and a regulatory audit of a Brazilian company to be acquired by a foreign corporation to assure the company was in compliance with all regulations governing the manufacturing and sale of its products.

While Brazil may be doing better than in 2014, its short-term outlooks for 2015 and 2016 are not as bright as they might be.  Investors have to weigh for themselves whether the market is currently a viable candidate for FDI or, perhaps, whether they should use this period to establish their products in the market place and build brand recognition and in-country experience with conservative goals.

Call TransLegal with your questions concerning Brazil.  With offices in Brasilia and São Paulo, we are ready to assist you in Brazil.

Benefits of BRICS New Development Bank for Brazil

Francisco A. Laguna & Annapurna Nandyal

This week, we conclude our 4-part series on the BRICS’ New Development Bank (NDB), focusing on the potential benefits the NDB could offer Brazil, the only BRICS country in the Western Hemisphere.

The closest BRICS to Brazil is South Africa

The closest BRICS to Brazil is South Africa

Brazil is one of the world’s largest growing economies. In comparison to other BRICS, Brazil is seen as soft rising power rising, and it tends to be underrated: the country’s growth rate was just 3% in 2013, while China and India had 8% and 6%, respectively. Notwithstanding, Brazil is hot on the international stage: it held this year’s World Cup; it will soon be the home of the 2016 Olympics; and it hosted the 2014 Sixth Annual BRICS Summit this year. Heads of other South American states participated in the Summit for the first time, and the event turned out to be one of the region’s most significant geopolitical summits in recent history. Continue reading