Biofuel Debate Rages On
Record fuel prices and soaring food costs have intensified the debate over the role of biofuels in U.S. energy policy.
One camp claims dedicating farmland to fuel snatches food from the mouths of the world's hungry in favor of American gas tanks. Ethanol, they argue, is little more than a political mechanism for lining the pockets of farmers and special interest groups with taxpayer money. Its production uses more energy than it saves and only marginally reduces our dependence on foreign oil.
In opposition are those that believe biofuels are just one of many factors contributing to the inflation of food prices. High energy costs and booming demand from China and India are the chief culprits, they argue, because oil touches every aspect of food production and plays a much greater role in determining retail food prices.
Certainly stock investors in companies related even tangentially to biofuels - Archers Daniel Midland (ADM), Bunge (BG) and Corn Products International (CPO) to name a few - are increasingly concerned about the outcome of this growing debate.
Absent from the debate, however, is discussion of why we're in this predicament to begin with.
Let's start with the premise that the so-called mortgage meltdown is a symptom, not the cause of, our current financial crisis. Bad mortgages are indicative of an economy too dependent on credit and lacking enough real cash flow to support the debt service.
Reliance on foreign oil, often imported from unstable foreign states, is a symptom of an economy whose wants and needs outpace its ability to produce. True energy independence is only possible if our economy demands less of it.
Taking the analogy a step further, the solution to the credit crisis isn't more regulation or government intervention. Market-driven deleveraging has begun and must continue. It will be a painful -- but necessary -- process for those accustomed to living beyond their means.
Likewise, more subsidies and government programs are not the answer to our energy woes. The deflation of asset prices and a reining in of consumption of material goods is the only long-term solution to our dependence on foreign oil. This is the path to sustainable consumption, one that will eventually bring our propensity to consume back in line with our means to produce.
This readjustment is inevitable. Behind the scenes, beneath the headlines, a much broader and slow-moving migration toward the belief that less is, in fact, more has begun. This concept should be paramount in our pursuit of energy independence. Ironically, the credit crunch has put us well on our way.
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The solution is an energy source, other than petroleum, with sufficient energy density and portability. Clearly this is already being worked on. Given that, energy independence is simply achieved. I don't have a price tag yet, but it is do-able.
It does seem clear that corn-likker Ethanol is not the answer.
For a proposed regulation, then, the first question to ask is "Is it practical to enforce?". The second is "What is the timing relative to the issue addressed by the proposed regulation?" If a dishonest or incompetent person can do a lot of harm in a short period of time, especially harm that cannot be easily remedied, then government regulation is appropriate. Requiring doctors to have licenses is a good regulation. Prohibiting dumping of raw sewage into rivers is good regulation.
atomic bombs (both fission and fusion) had been successfuly produced, but fusion as a source of electricity is WAY behind schedule, because of the cheap oil
there is a massive resource of methane hydrates on the ocean floor, but that still leaves the problem of greenhouse gasses
some think the comet that blew up in siberia years ago was made of antimatter. too bad we can't find and use some of that stuff
Set up a system for companies to swap employees with other companies or government agencies so that people who live closer can trade jobs. Let's face it; in a 'service' economy, we could eliminate a lot of companies and not miss anything. Pay people to stay home. Stop creating jobs for people to have something to do while they pay for their cars to drive to work to pay for cars. Last one out of Detroit, turn off the lights.
Ditch the entire USDA budget and hand it to the Farmers Markets and small organic farms to reduce pesticide, fuel and fertilizer use.
Organic yields are now as high or higher than conventional, and more reliable and sustainable.
Bring the troops home and let the quagmire go to the Chinese. Put the military technicians to work building windmills and electric vehicles.
Drop the speed limit back down to 55 and enforce it by setting the price point of a ticket high enough to deter speeders, not low enough to generate revenue.
Ban all advertising outside 200 miles of the point of production. If someone needs something, they will go looking for it.
Nationalize the health care industry and send all the insurance employees home. Turn out those lights and furnaces and see how much our fuel use drops. Send the unemployed insurance people to work on the organic farms.
Cut airline traffic to 1/10th (if the economy doesn't do it first). Nobody really NEEDS to fly anywhere.
Great ideas - while I think we can all agree not all of them are terribly likely, you hit on a great point. There are small - but realistic ways we can address this issue in ways that benefit pretty much everyone. (Some of what you suggest certainly is not 'small' but not any less relevent)
Take your speed limit concept - I recently went on a long drive in a not terribly fuel efficient car and it hurt my wallet pretty badly. The legs I drove 60-65 there was a noticeable difference when I filled up. And you know what? the 30-60 minutes longer it took did not kill me.
Expensive gas may actually force people to make these changes, but I like the idea of punitive speeding tickets to push things along.
Deflation deflation deflation ....
Andrew
Second - ethanol is not the way to go. Bio-diesel yes and corn is not the medium, Hemp is. The "greatest generation" used hemp during WWII for the oil as well as the textiles and it can produce 4 times the energy of corn with much less land utilization.
Third - Big Oil - they keep proposing ridiculous concepts. Diesel from natural gas is the current Shell nonsense. Before is was use oil to produce hydrogen in a fuel cell. The point is we are trying to get away from fosil fuel and finding new ways to usa it doesn't help. Using a precious fuel to produce another precious fuel makes no sense or non-sense.
Europe also has more nuclear. the trains are electric, even freight. Freight trains are much shorter and therefore require smaller yards and clear crossing quicker.
It took less than 10 years to go to the moon BUT it will take 12 years for the US car companies to boost CAFE standards to those currently in Europe.
Top this dynamic and accident-prone primordial soup off with the idea - which is all it remains at this point - that Saudi production has been in the period of its final peak over the past four or so years, and things start to look Shakespearean. The idea is chiefly championed by Matthew Simmons (a venerated 35-year industry participant) and has been, to perhaps his eventual credit, since at least 2004. His book “Twilight in the Desert” is a very timely read in 1H08.
It's a hard idea to swallow, chiefly, I believe, because of its implications. I have a hard time digesting it.
But the situation with crude oil prices gives me pause. I cannot fathom why we are at $126. I don't have many models that support this price absent a distinct exogenous force, e.g. hurricanes, further wars, Martians. So, this is either the much heralded (it's been passionately forecasted for 4 years) final arrival of the Bubble In Oil or some folks have it on good word that the boogey man is here. Namely, that Mr. Simmons is correct and the magical Saudi production machine is out of magic. Caution: this is not “the world is running out of oil” argument. Not at all: go buy Petrobras at market and come back in 10 years. Best advice you'll get all year. This is the world is losing its first and only known global swing producer in the most ubiquitously demanded product since love, argument.
If it's true, then it doesn't take much imagination to understand what Act 2 will likely be composed of.
For money flow, and thereby the Bubble argument, to be the answer for the tremendous, yes parabolic spike from $90 we would really like to see some response in open interest on the futures exchanges, even knowing that for every $10 new dollars in this market, $8 to $9 are going into OTC instruments. We don't see it. While this doesn't kill the Bubble thesis, and believe me I know bubbles are around us, it certainly would make it a distinct occurrence in history.
It's going to be interesting to see what plays out. If it isn't a bubble (and me questioning if it is is probably the best bubble argument of them all) then this will simply act as an accelerant on your argument. I think we'd have to throw in a dash of social stress and protectionist fervor, but if asked about what things look like in 20 years, I cannot see the marginal unit of demand (any demand) costing the end user as little as it has over the past 20 years. Unless productivity and efficiency come swooping in for a late 10th-hour game-changer, I believe less is more is it.
Thanks for the great article.
Best
Minyan Mitchell
