The Grand Carbon BargAIn: Energy Abundance + AI + Carbon Capture = Economic Prosperity and National Security

Two news items in the last 24 hours underscore the interconnectedness of energy and artificial intelligence (AI).  We can’t have one without the other—and we need both. 

AI is an unstoppable force.  Writing in Axios this morning, the buzzy Mike Allen observes of the billions pouring into AI, “This kind of investment tidal wave has come once every 15 years or so in Silicon Valley since the arrival of personal computing around 1980.  These waves have their own booms and busts. But none of them has ever been stymied.”

That’s surely correct.  AI is coming.  In fact, it’s already here; it’s just coming bigger and bigger and bigger. 

Yet there’s a complicating factor: energy.  However, it’s a complicating factor that will, in fact, soon enough be simplified. 

How so: The power of AI is going to force a solution to AI’s energy needs.  And the solution will not be turning off the machine. 

AI is going to need a lot of new energy.  Rep. Cathy McMorris Rodgers, chair of the House Energy and Commerce Committee, outlined the dimensions of this need at a Congressional hearing yesterday:

In states across the country, utility planners and regulators are confronting the hard truth that they need more reliable power to meet the needs of their communities and the growing demands from our digital economy. Some are projecting a ten-fold increase in the growth rate of new power demand, compared with the past decade. 

Just across the river in Northern Virginia, power demand is projected to increase from 2,500 megawatts in 2020 to over 8,000 megawatts by 2028. 

In Georgia, utility companies had to quickly update their plans to reflect a jump from 400 megawatts of future demand to 6,600 megawatts. 

To put that in perspective, Georgia would need about five more new Vogtle nuclear power plants to meet that level of demand. 

Driving this demand, in many cases, are the industries that process digital information, the data centers that process cloud services, AI, and the digital transactions that are increasingly essential to modern life. 

These services are critical to advancing our nation’s prosperity and will need more, not less, reliable baseload power—the kind of power that can be generated 24 hours a day, seven days a week, 365 days a year.” 

So there you have it: AI needs lots of energy.  McMorris added, it’s this tandem, AI and abundant energy, that we need to compete with China. 

Where will it get this energy?  Most likely, from the “all of the above” approach favored, loudly, by most Republican, and favored, more quietly, by many Democrats.  That is, energy from everything, from solar to nuclear. 

Yet predominantly, we’re going to be burning a lot of carbon fuels.  It’s where the energy is most easily found and distributed, because the infrastructure is in place; it’s been powering the world’s industrial economy for the past two centuries. 

But are we running out of what are often called fossil fuels?  No. Decidedly not.  In the recent words of mining engineer John Lee Pettimore,

In the U.S., the number of technically recoverable oil resources was estimated to be around 143.5 billion barrels of oil at the end of 1990, according to the EIA. That number has more than doubled despite rising production. So are we running out of oil? No we are not.

And he sources his assertion to the U.S. Department of Energy's Energy Information Administration, which tells us that as of 2020, oil resources in the U.S. totaled 373.1 billion barrels. By the way, if we were to assume an oil price of $80 a barrel, these are assets totaling nearly $30 trillion.  (Other estimates of oil resources, such as from the Institute for Energy Research, are much higher.)  

We can immediately note that this is just oil.  Natural gas, coal, and other carbon products are in addition. 

We might further note Pettimore undercuts the idea that carbon fuels are fossil fuels, which helps explain why we keep finding more carbon fuel.  He cites the work of Robin Menotti, who is among the many (going back, in fact, to the 16th century metallurgist Agricola) who argue that the earth is, in fact, making more carbon energy. That is, through volcanic action, originating in the earth’s molten core.   So carbon fuels are not fossil fuels at all—they could be called, in a way, geothermal fuels.  But why not keep it simple and just call them carbon fuels? 

Pettimore writes, “The truth is oil is actually the second most prevalent liquid on earth next to water, and regenerates within the earth faster than it can be depleted.” 

Okay, so even if we have a never-ending supply of carbon fuels, what about carbon dioxide in the atmosphere?  What about climate change?

Well, there’s an answer to that: If there’s too much CO2 in the atmosphere, take it out.  The science of carbon capture is zooming, although the pioneering work was accomplished eons ago, by the humble tree. 

But every day bring news items of new processes for carbon capture, often involving cheap and abundance raw materials.  So it’s easy to see a national and international strategy for reducing CO2, as I have been writing about since 2017.  And we can point to myriad other ideas in carbon capture; for instance, Aramco is finding new ways to capture capture in cement.  In fact, it's obvious that buildings and construction materials could serve as permanent carbon sinks.  

This is the Grand Carbon BargAIn, synthesizing energy production, consumption, and carbon capture into a pleasing green circularity.  And it means we'll have all the energy we need for AI. 

Directional Investment Is Coming to K-12 Public Education

Big money is moving around in K-12 education, and that means big investment opportunity.  Yet most media commentary is still looking at this flow of funds through a political lens.  For instance, this June 4 Washington Post article, headlined, “Billions in taxpayer dollars now go to religious schools via vouchers.”  The subhead reads, “The rapid expansion of state voucher programs follows court decisions that have eroded the separation between church and state.”   That’s the angle the MSM is fixated on.  

As the article details, vouchers of up to $16,000 are now available in some places.  From the Post: 

In just five states with expansive programs, more than 700,000 students benefited from vouchers this school year. (Those same states had a total of about 935,000 private school students in 2021, the most recent year for which data are available.) An additional 200,000 were subsidized in the rest of the country, according to tracking by EdChoice, a voucher advocacy group. That suggests a substantial share of about 4.7 million students attending private school nationwide are benefiting from vouchers—a number that is expected to grow.

More: 

The programs, popular with conservatives, are rapidly growing in GOP-run states, with a total of 29 states plus D.C. operating some sort of voucher system. Eight states created or expanded voucher programs last year, and this year, Alabama, Georgia and Missouri have approved or expanded voucher-type programs. Some recently enacted plans are just starting to take effect or will be phased in over the next few years.

The Post then runs through the familiar liberal critique of vouchers: that they unconstitutionally aid religion, and that they enable racial segregation.  Both of these critiques are debatable, and maybe even wrong-headed, and yet they are energetically rehashed by the Post readership in more than 11,000 comments.  

However, there’s another way to think about this flux, this disruption, in education.  According to Skillademia, “The landscape of U.S. Public Education Spending Statistics is shifting dramatically. In 2021, the spending per student surged by 6.3%, marking the largest year-to-year increase in over a decade.” 

In fact, total expenditures for public elementary and secondary schools in that year totaled $870 billion.  In the meantime, as this map from the Post suggests, voucherization is spreading.  

Notably, Texas is not highlighted.  But that could well change in the wake of the recent Republican primary elections, in which pro-school-choice Governor Greg Abbott purged many anti-school Republicans from the state legislature.  So it’s likely that the Lone Star State, the second largest in the country, will soon join the pro-voucher roster. 

One of the central arguments of my new book, The Secret of Directional Investing: Making Money Amidst the Red-Blue Rumble, is that the Republican-Democrat divide means that just about every policy issue will be cleaved into two: a red approach and a blue approach.  In public K-12 education, the red approach is choice or vouchers, while the blue approach is the status quo, including, of course, a heavy dose of DEI and transgenderism.  This blue policy mix is actually rather popular in blue states, so there’s no reason to expect education in those places to change much. 

However, as we have seen, the red states are in motion. Most Republicans look forward to abolishing DEI, and quite possibly also the teachers’ unions and the associated administrative state.   That further energizes voucher supporters—the thought of disempowering the institutional left and its favored party, the Democratic Party.

So that will be the split on education: roughly half the states, blue or purple, will likely stand pat, while the other half forge into new realms.  It’s the Brandeisian “laboratories of democracy” point.  So out of that $870 billion in K-12 spending, the red-state allotment is very much in play. 

And it’s also, potentially, laboratories of prosperity, because when money moves, there’s money to be made in the inflection points and new trends. 

Meanwhile, in the background, private investment and private equity.   There have been plenty of efforts at for-profit investment in K-12 schools, everything from the Edison Schools (now Edison Learning) to Amplify.  Some of these have been successful, carving out some share of the education pie.  Yet on the whole, their impact has been small.  

However, the full voucherization of K-12 really opens the door to a flood of investment and innovation. 

Perhaps most obviously, there’s AI.   We’ve had distance- and video learning for a long time, and we had the massive experiment in Zoom education during Covid, and once again, these experiments, always controversial, have not been all that successful.  Yet the technology keeps getting better, and investors and visionaries never stop thinking.  

So the destiny is disclosed, and the light of investment shines the path ahead.  

Win-Win Investing: When the Irresistible Force Meets the Immovable Object—They Can Both Earn Returns

The headline in May 12 Wall Street Journal highlights an important direction in the energy economy: “There’s Not Enough Power for America’s High-Tech Ambitions.”  The article notes, the hunger for electricity has disrupted visions of a green energy transition: “One major source of disruption is data centers. The facilities are ballooning in size as people spend more of their waking hours online and companies digitize everything from factory processes to fast-food drive-throughs.”  

Focusing on fast-growing Peach State, the article continues, “Georgia’s main utility, Georgia Power, has boosted its demand projections sixteen-fold and is pushing ahead on a hotly contested plan to burn more natural gas.”

This is how the conflict between growth and the environment is often framed: The irresistible force(s) of tech growth and energy hunger, colliding with the immovable object of concern about climate change.  But maybe there needn’t be a collision.  Maybe the force and the object can actually be harmonized, for the mutual benefit of both.   This is what Directional Investing is all about: observing trends that can be made into friends.  

The Journal emphasizes that the energy surge is not just local, but national:

U.S. power usage is projected to expand by 4.7% over the next five years, according to a review of federal fillings by the consulting firm Grid Strategies. That is up from a previous estimate of 2.6%.

The projections come after efficiency gains kept electricity demand roughly flat over the past 15 years, allowing the power sector to limit emissions in large part through coal-plant closures.

So what will happen to energy production?  Some will say, of course, that we need “de-growth.”  That’s a fashionable thought in some academic and activist circles, but it’s not an acceptable answer for the nation—not many Americans want the U.S. wants to be Germany, let alone the Shire of Tolkien’s telling.  The cinematic Hobbits were cute, to be sure, but in real life, they would be desperately poor.  

Others will say greater efficiencies are possible, and that’s no doubt true.  However, efficiencies have a way of running up against Jevon’s Paradox—the more efficient things become, the more they consume.  

As for new energy sources, we’ll no doubt continue to dabble in wind and solar, but again, the German bad example is cautionary.  And nuclear power is making a comeback—including, as the Journal reports, in Georgia, where Plant Vogtle in Waynesboro has just been expanded.  (And the voraciousness for energy has gone international; they're even thinking about powering data centers in a volcano in El Salvador.) 

Yet the most obvious source of power is right in front of us: carbon fuels.  According to current thinking in the U.S., carbon fuel is mostly limited to oil and natural gas—coal is regarded as too dirty, and so American production has been limited, even as the world’s coal consumption is rising.  

However, if we were to apply ourselves to the challenge of cleaning coal, we could do so.  And that, in turn, would unleash the abundant power and wealth of coal—the U.S. possesses some 470 billion tons of usable reserves.  As the U.S. Department of Energy observed in 2022, the energy potential of that much coal (measured in British Thermal Units) exceeds that of American oil and gas. 

So it would really pay if we could figure out how to clean that coal; not only to get the energy but also to harvest the metals and other elements resources that make coal “dirty.”  We could discover, in fact, that “dirt” can be a resource.  For instance, coal oftentimes contains the element molybdenum, which in the larger environment can be a pollutant.  However, scientists at Northwestern University have just figured out how to use molybdenum to capture carbon.  Thus we can see the potential: The molybdenum in coal could potentially be used to pull out carbon from the atmosphere.  So a twofer: clean the coal, clean the atmosphere. 

In fact, properly thought through, every component of coal is valuable.  What’s said of animals in farms and stockyards—“use everything but the squeal”-- applies just as much to natural resources. 

Such circular-economy thinking is now being applied to carbon capture. 

For instance, on May 6, the Journal took note of an Illinois-based company, LanzaTech, that uses microbes to capture carbon.  We can step back and see that such organic carbon capture has the potential for near-infinite spinoffs into anything organic: food, fiber, fertilizer, and fuels, just for starters. 

On May 8, CNN reported on the opening of a direct air capture (DAC) plant in Iceland.  Interestingly, the plant, dubbed “Mammoth,” is powered by Iceland’s plentiful geothermal energy (another good “all of the above” energy source).  The new facility will capture the carbon and insert it into the earth, where it will soon bind into rock   When fully operational, the Icelandic plant looks forward to capturing 36,000 tons of carbon a year; to be sure, that’s a tiny fraction of the approximately 10 billion, and  tons of carbon emitted into the atmosphere each year, and so if the DAC vision is scaled up, we would need many such plants, even if each plant grows more carbon-consuming. Such carbon-consuming, we can add, brings with it the prospect of captured carbon being repurposed into building materials, and, over time, just about anything else. 

To some, that will seem a daunting prospect, and yet the proliferation of DAC sites could prove popular, as a tool for rural economic development (as I argued here, back in 2019), and of course, among investors. 

Because there’s so much energy, and wealth, involved that it’s impossible to see that we will obey the greens and leave it in the ground.  According to the Institute for Energy Research, total resources of oil in the U.S. amount to 2.8 trillion barrels.  (We can pause to note that resources is the total in the ground, or under the sea, as opposed to reserves, which is the amount that’s recoverable under current prices and conditions.)  By the broader measure of resources, at the current price of around $80 a barrel, that’s a total value of oil in the U.S. of $224 trillion.  As for natural gas and coal, the numbers are similarly astronomical. The truth is, the total ultimate value of carbon fuels in the U.S.—including methane hydrates offshore—is properly measured in the quadrillions of dollars.  To put that another way, that’s millions of dollars, per American.  Repeat: millions of dollars.   If it’s a shame to not use it, chances are there won’t be anything to be ashamed about. 

These mega numbers suggest that for all the talk about the energy “transition,” we’re not likely to transition away from carbon fuels—instead, we are transitioning our understanding of them, and how they can fit into an enlightened understanding of the circular, renewable, economy.  Carbon fuels burned  become carbon captured becomes carbon repurposed. 

The concept of the circular economy is another way of expressing this idea.  Indeed, once we establish circularity, the specifics of the climate-change debate matter less, because circularity means efficiency, and efficiency is a virtue beyond any externality.  

To put this another way, carbon capturing and repurposing offers a positive feedback loop of positive returns for investors—they can make money at every bend in the wheel.   With apologies to Simon & Garfunkel and their famous song, “Hello carbon my old friend/ I’ve come to talk with you you again.” 

The Directional Investor is happy to hum along. 

The Next Wave of Directional Investingt: The Military Industrial Complex Becomes the Military AI Complex

Maybe we should call it the Military IndustrAIl Complex.  On May 7-8, the mammoth Washington Convention Center played host to the AI Expo for National Competitiveness.  It was sponsored by the Special Competitive Studies Project, the brainchild of former Google CEO Eric Schmidt.

So for sure, all this has a good tech pedigree, and yet the Expo had a specific purpose: To encourage AI innovation, and AI-related investment, to go into the defense and national security sector.  And that, in turn, sends a clear signal to Directional Investors: This trend can be your friend. 

In tech circles, linkage to the “military industrial complex’ is not without controversy.  To be sure, the origins of tech are closely entwined with the Defense Department, including the legendary DARPA, and yet at the same time, the Bay Area culture that helped give rise to the unique vibrancy of Silicon Valley has long leaned left, hostile to what it sometimes called “the war machine.”  Back in 2019, Google rejected working on the Defense Department’s AI-based Project Maven.  (By then, Schmidt was long gone from the CEO position at Google, he served from 2001 to 2011.) 

Google’s departure from defense work was in keeping, of course, with the rise of “wokeness” in Silicon Valley and Big Tech overall.  Such wokeness opened cleavages across all of corporate America and American society.  Yet the separation of cutting-edge tech and national defense was perhaps most acute, as it posed a threat to American national security. Whatever the political sensitivities of techies, the United States, and its allies, needs to be defended. 

Happily, some tech companies, notably Palantir, stepped in to fill the breach.  Palantir chief Alex Karp has been outspoken in his championing of American interests, including, recently, support for embattled Israel.  Along the way, he has derided wokeness as the “central risk” to the United States, and offered his company, now based in Colorado, as a positive counter-example. 

So it was not surprising that Palantir was the most prominent exhibitor at the AI Expo in D.C.; Karp himself was a featured speaker.  No doubt some tech types are still hostile to DOD, and yet the plethora of exhibitors—including local-area colleges, such as American University, the University of Virginia, and Virginia Tech—suggests a useful closing of the cultural chasm.  Here, to mix a metaphor, the woke wave is definitely ebbing. 

Indeed, the underlying theme of the whole Expo was that American national security rests on a foundation of tech competence, including, of course, AI.  As Politico’s Mohar Chatterjee observed on May 9, “The gap between Silicon Valley and DC is shrinking, in no small part due to Schmidt’s matchmaking efforts in the name of an international AI dogfight.” 

The words “international AI dogfight” are a clear reference, of course, to rival countries—most notably, China—that have their own ambitious AI programs, as well as international objectives that might run counter to those of the United States.  

The U.S. is the clear world leader in AI—the most innovation, the most investment, the most prominent companies.  So now, if that tech capacity can be smoothly integrated into national defense, the nation can face the future with confidence.  Guarded confidence, to be sure, but still, confidence. 

And along the way, investors should see a clear path: Since it’s true what they say: The trend is your friend, we can see a clear trend: A bull market in the AI-defense sector.  And given the overall size of AI as it burgeons in the 21st century, that’s bullish, indeed.  

But of course, for every trend, there’s a counter trend, including bearishness.  And so I can report, after spending two days at the conference, that the big-name “prime” defense contractors were at most a minor presence. 

Buy The Secret of Directional Investing:Making Money Amidst the Red-Blue Rumble

Here's the link for Amazon. 

And here's Barnes & Noble

Blurbs for Directional Investing: 

Like others I’ve met who worked in the Reagan White House, Jim Pinkerton has a sharp mind and is an independent thinker. Directional Investing is full of great economic and historic anecdotes and frameworks that are helpful to understand and think about the past, and also how to understand—and shape—the future. — Joe Lonsdale, Founder of Palantir and 8VC

You can’t control the outcome of American politics, but you can still make money. That is the message of Jim Pinkerton in The Secret of Directional Investing. Don’t believe the doomsayers: America’s divisions create profit opportunities. It’s all about “being in the right place at the right time” insists Pinkerton—a Washington insider who helps you position yourself in today’s battles between Red and Blue. Perhaps most important, he shows how you can, indeed, should shape as well as spot money-making trends. — Doug Bandow, Senior Fellow at the Cato Institute. 

“Where the business climate and the political climate come together, opportunities are to be found—and when the subject is political and economic climate change, James Pinkerton knows which way the winds are blowing.” — Michael Lind, author of Land of Promise: An Economic History of the United States.

“Jim Pinkerton, widely reputed to be the smartest man in Washington, has always had an uncanny ability to see around corners. Now future-minded readers can profit from Pinkerton’s boundless curiosity, voracious reading, brilliant synthesis, and visionary insight. And despite the book's unflinching prediction that Red America and Blue America are becoming opposed and incompatible tribes, there’s comfort in the conclusion that the country ultimately can live with its differences -- and that wise investors will reap benefits from the new national arrangements.” — Geoffrey Kabaservice, Vice President for Political Studies at the Niskanen Center

“If America remains in a hopelessly polarized Blue State, Red State American condition today, is a rapid destructive decline inevitable? In his new book, Directional Investing, Jim Pinkerton boldly demonstrates how America remains a land of unique opportunity—as a result of its diverse opinion, population and unique constitutional system.  If we direct our divergent perspectives toward more creative entrepreneurial targets. Our differences may actually uncover dramatic, exponential breakthroughs in healthcare, energy, education, longevity and prosperity instead of wasteful destructive debate.”  — Clara Del Villar, Founder, CEO Schola Labs

“Drawing from an entertaining mix of popular culture, history, technology, and public policy mayhem, Jim Pinkerton's new book will shock and delight its readers. Pinkerton delivers an insightful, forward-looking view of the forces shaping America and its future. You don't want to be the last person to read this book!” — Jim Carter, past appointee to senior positions at the  White House National Economic Council, the Departments of Treasury and Labor, and the Senate Budget Committee 

"James Pinkerton is one of the most creative analysts I've encountered in my career in public policy. The Secret of Directional Investing will make you consider larger trends you haven't thought about before. " — Avik Roy, Policy Editor, Forbes