News, notes, and observations from the James River Valley in northern South Dakota with special attention to reviewing the performance of the media--old and new. E-Mail to MinneKota@gmail.com

Friday, January 5, 2007

There goes the beef

A participant on a recent panel on national energy independence went through a mass of statistics to support his claim that we have the resources to replace foreign imports of oil with our own energy right now. And it is in forms of energy that do not pollute. The only things lacking are the plan and the will.

In short, he pointed out that wind-power is now making substantial contributions at this time to our electrical needs and can do more if support is given to the development of the grid. Ethanol is being produced in amounts that are making it available throughout the country, and bio-diesel fuel is being produced in quantities that make it cost-effective. Plants are being built and scheduled to come on line this year that will add billions of gallons to the supply.

Solar technology has advanced to the point that it is affordable and can pay for itself in the savings it will create for users.

The panel participant pointed out that if tax breaks now given to petroleum companies could be diverted to other energy producers, the weaning away from foreign oil could be swift.

The problem is in the bureaucracies--both government and corporate. Major energy companies are looking for ways to insure that they will have control of energy distribution in whatever form it takes. Global corporations are jockeying to take control of energy production and distribution in the U.S. as they look at the profit potential of newer forms of energy.

In our own area around Brown County, two developments are in the works. Northwestern Energy, which supplies electricity and natural gas to Aberdeen, has been purchased by an Australian company. When Northwestern went bankrupt, Aberdeen and some other cities explored the possibility of operating municipal utilities, but that has been abandoned. So, now any profits garnered from the Northwestern operation will go to another country. Not all customers in Aberdeen are serviced by Northwestern. Northern State University and some businesses are served by the rural cooperative, Northern Electric Cooperative headquartered at Bath.

To the north of us, a wind energy farm and power transmission line is under construction by a company called Tatanka. However, it is a wholly owned subsidiary of a Spanish firm whose American operation is Acciona Wind Energy USA. Again, any profits from this operation will be channeled out of the country.

American companies are not involved in these developments, except as customers.

The ethanol boom, if it fulfills predictions, is not all sunlight.

In fact, some of the new plants being constructed will be power by coal. The emissions from coal-powered operations are a grave concern to the people who are monitoring the sources of pollution and greenhouse gases.

Another complication is the use of corn as the primary ingredient from which ethanol is made. If all the planned ethanol plants go on line, some states which have been exporting corn, such as Iowa, will have to import corn from other states to meet the demand. There will be no corn left over for international export.

However, corn is not the only ingredient from which ethanol can be made. Other bio-mass crops which have little use as animal or human feed can be used, and they can be grown and harvested more cheaply than corn.

The diminished corn supply also has the potential for affecting the livestock industry. Livestock requires high-quality, nutrient-laden feed grains. If corn production is diverted to ethanol, livestock feeders will either have to be able to produce their own feed or pay premium prices for contracted feed. Now that South Dakota is producing corn used for livestock feed, packing plants are in the works to make use of the regional supply of cattle and hogs. A shift in agriculture to biomass and cheaper grades of corn could change the economic feasibility of processing plants.
That could mean that beef production from other states and even other countries could undercut regional supplies.

The biggest problem with energy independence is that corporations have been dictating what is feasible and shaping plans to their benefit--not to the benefit of the nation. Even university researchers find themselves beholden to special interests.

We need the testimony and advice from energy experts. But we need people who are not tied to corporate and special interests to do the analysis and planning. As matters sit now, we are headed for chaos and a huge energy disaster.

We need a commission like the 9/11 Commission and the Baker-Hamilton Commission on Iraq to look at our energy situation. It is another of the huge problems our legislators, national and state, should be taking the lead on. But there are other items on the political agenda that will displace energy--like the 2008 election campaign.

3 comments:

Jake said...

Professor,

Can you explain why we need complete - or at least substantial - independence from foreign energy deposits? Are you aware that we import more oil from Canada than any other country?

Next, you reference impending doom and chaos if some sort of government planning commission is not immediately set to the task of coordinating national energy supplies. Where do you get such faith in central planning? The market for energy is not foreign policy per se. It is doubtful (at best) that markets can be guided by a team of technocrats in the same way the Baker Commission has attempted to guide certian elements of our foreign policy.

You may suggest we need government to help foster cleaner energy sources because the market undervalues certain public goods (e.g., the air), but suggesting the market will not find the cheapest and most cost-effective resource available is IMHO inconsistent with historical economic analyses.

Thank you for your time and posts.

JAM

David Newquist said...

Much of our nation's wealth, meaning the industry and enterprise of its people, is being diverted to other countries. They are in a position to manipulate our ecomony. Energy is one area, but the biggest area. Globalism does not mean abandoning self-sufficiency and self-reliance.

In regard to some unified attempt to sort through our energy policy, my first concern is to obtain some coherent information as to what is going on. The problem is not a matter of setting up a bureacracy to do central planning, but to establish a clearing house so that the people who do make plans regarding energy have some fairly reliable information to work with. It is not a matter of a centralized government, but of a functioning community. I have more faith, however, in commissions than in private meetings between the vice president and energy company CEOs.

You make some misrepresentations as to what the post actually poses. But as to your last point, a market which finds its own levels of efficiency is a free market in which the consumers and sellers have equal powers, and for which consumers have alternatives. In energy, there is no free market. National energy independence will provide a strong measure of such a free market.

Jake said...

Professor,

What is your view on trade in general? You seem to think inclusion of foreign firms in the U.S. economy is negative. Perhaps you could explian that a little more.

I know I do not have to explain trade theory to you, but I will at least caution not to wholly dismiss Ricardian comparative advantage.

Further, your claim that the US economy might some how be 'manipulated' by foreign interests is contradictory if we assume they are seeking to maximize profits. If they hold such a great share of American wealth - as you imply - then how is it in their self interest to negatively affect our economy?

I realize some of these firms are nationalized industries of governments, but mainly the operators are businessmen. If CEO's and Vice Presidents are really as greedy as you imply in your last paragraph, we have much less to worry about than you think. They will attempt to maximize profits. Will this be done with perfect efficiency? Of course not. Will it be more efficient than central planning? Undoubtedly.

And I realize you did not specifically state that you wanted central planning. However, what would a government commission's proclaimation on the future of energy do if regulation was not drawn up along with it? Would you be providing information so that CEO's and Vice Presidents of energy firms could use it? I don't think so. Or at least I don't believe that's all that would come from such a commission.

Finally, I do not understand the last two sentences of your post. Voluntary exchange is the principle element of a free market. Allowing parties within the market to exchange and interact free from the forceful intervention of a third party is required.

Whether or not the elasticity of demand is greater than supply or vias versa (I'm assuming thats what you mean by "power")has nothing to do with the classification of a market as free.

Thank you for your response.

JAM

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