Green Energy = Subsidized Energy

The political world is all abuzz about “alternative energy” and “green energy” – which actually means “subsidized energy.” Otherwise it would just be called “energy.” Companies that make their living providing natural resources and energy are struggling to understand this brave new world, a major challenge for many. The world’s most prosperous economy is now run by a government apparently determined to completely change the way we have powered our lives for more than a century.

America’s economy is driven by energy, especially from fossil fuels. Every year we use 750 million barrels of oil, 23 trillion cubic feet of natural gas, and 1.2 billion tons of coal. Only six percent of our energy comes from all the “alternative” sources combined. Our new government is spending hundreds of billions of dollars to change that, and seems determined to use its regulatory power to stop further advances in the exploration and production of traditional fuels. Natural resource providers can fight this dramatic shift in national priorities, or they can embrace it, but they probably can’t change it.

In my firm, we talk frequently with companies trying to digest this new direction, determine how successful it may or may not be, and strategize how to react to it. Some have trouble adapting their thinking to the new green reality, and they may be left behind. Those that go beyond survival and actually thrive will be the ones who embrace both views – traditional energy in a green package. Companies that used to provide timber can now subsidize that operation by using the “waste” to generate biomass energy, for example – and government will help pay for the addition. Coal mines can now capture the methane gas (the worst greenhouse gas) formerly vented into the atmosphere, and turn it into energy – and government will help pay for the required equipment. Utility companies can add important new generation capacity from new sources – and government will help pay. Even oil and gas companies have new options for greener approaches to their traditional work – that government will help pay for.

The recurring theme is government money, and leaders understand that “he who pays the fiddler calls the tune.” It leads to a fairly simple conclusion: producing greener energy is the business to be in. Does that mean no more fossil fuels? Of course not. No Administration can change the world that dramatically or that quickly (if we manage to triple the amount of alternative sources, fossil fuels will still provide 82 percent of all our energy). So the survivors, and the winners, will be the companies that can produce not only clean energy, but plenty of it. In many cases, whether the current political leaders admit it or not, that means greener ways to produce oil, gas and coal.

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14 responses to “Green Energy = Subsidized Energy

  1. Great post! Great insight with a unique and important perspective. Thanks,

  2. Great stuff! Very interesting.

  3. The question has to become how sustainable is a product that does not make economic sense without a public subsidy? If renewable energy made sense in the marketplace, no public support would be required. The long term effect is a higher cost of living and higher taxes for a source of energy that has been estimated to provide a maximum of 14% of our total energy needs. Is it premature to pursue this course or does the technology need to improve? Will we put our country at an economic disadvantage by increasing our cost of living while other economies use lower cost forms of energy? Is this why the current administration is saying that we have to lower our expectations?

  4. I think that you hit the nail on the head when you say, “Those that go beyond survival and actually thrive will be the ones who embrace both views.” Take Exxon for example… what will they be delivering in 100, 300, 500, etc. years from now? Will they exist in the future if we power our human mobile transport devices by plugging in directly at our homes (because they acquired a battery business), or will they corner the market with their highly optimized “energy” stations providing a hydrogen elixir, or some sub-atomic cocktail to power our vehicles? Regardless, until we reach the “Eureka” moment(s) along the way, I expect that we will realize both positive and negative outcomes no matter who’s driving the ship. Hopefully, these subsidies will expedite the process at a much greater pace. Particularly so I don’t have to keep going to McDonalds to keep filling up the station wagon with used cooking oil… I’m beginning to smell like a french, oops I mean freedom, fry.

  5. Bill Armstrong

    Bravo, Greg!

    This is terrific stuff. And a voice of sanity is very much needed on this subject.

    Bill Armstrong

  6. Tom Blickensderfer

    Congratulations to The Resource Guy from The Sage Grouse Guy…………

    TB

  7. greg, i appreciate your clear thinking here. energy folks need to jump on the alternative energy bandwagon, whether they like it or not, and follow up this government spending opportunity. greener is better.

  8. Thanks for incuding us on yourE-mail list. It’s a shame that indusrty and our goverment officials have not worked together for the past 40 years to develope and introduce new and healthy ways to provide energy for our planet in a gradual and benificial way for the worlds citizens. Unfortunatly Corp. greed and the lust for political power(know as election contributions) has benifitted the interests at the top of the economic model, leaving the masses to pay for billions and trillions of dollars for falsey priced (market priced ?) energy comodities.
    The sham to deregulate public utilities ( a scheme to collect transaction fee’s on units of gas and electricty) faltered early and saved the public from one major energy cost disaster. Unfortunately it was replaced by a scam to drive up our fuel cost for transportation and allowed billions to be sent oversea’s for falsely price oil.(and somehow many USA Corp. managed to make a lot of money??) All of this happened as these suposedly regulated markets ran wild and took billions from the many and rewarded the few. The public has spoken loud and clear in two elections, ” we want it fixed, we want it controled, and we don’t want ripped off again.
    This change will come slower than many expect, it will change many of our life style habits and how we live. In the long run it will give us quality of life, a fair shake against the greedy, and an economic boost. Doing nothing, again, about these problems is the only proven unworkable solution. Keep up the good work Greg it was good to hear from you.

  9. Fully agree with your points. In today’s — and tomorrow’s — world, conventional energy sources remain vital and heavily dominant. Today’s new political scene, though, demands all energy policy be viewed through a new “green” prism. It’s deeply ironic — as one who labored in GE’s power systems sector and championed nuclear power — to now hear today’s reformers tout clean, green, nuclear power. U.S. nuclear power currently provides 20 percent of America’s electricity needs. Were it not for the 1970s shutdown initiatives, we today might have far more efficient nuclear plants and new advanced breeder reactors. As with other technology examples, we’ve ceded our nuclear advantage to Japan, France and other nations ……………. As for popular alternative energy sources, let me mention wind turbines — and an emerging caveat. I recently attended a Chicago science conference, where a compelling global report on fruit bats and reforestation around the equator was given. I previously did not know about this link — bats are essential to dropping Shea tree seeds in Africa and restoring forests. Shea trees are indigenous there (West Africa on eastward to Uganda). Shea fruit consists of tart, nutritious pulp around oil-rich seeds from which derives shea butter. This shea fruit helps nutrition, boosts food security, fosters rural development, repairs woodlands, etc. U.S. Peace Corps volunteers, in western Mali and elsewhere, are involved in planting more shea trees. Currently, fruit bats — like bees and frogs — are in major trouble worldwide. The whole equatorial forest ecosystem (Amazon, central Africa, SE Asia, etc.) needs many more fruit bats for reforestation efforts. At the same time — given the world’s growing demand for energy — many more wind-turbine farms are being built. The emerging caveat? Across the world, fruit bats flying near the wind turbines literally are “exploding.” The wind turbines create massive air pressures that are killing these vital fruit bats, along with many birds. So — clearly, “exciting” green sources of energy require careful study and, sometimes, re-consideration. Nothing comes easily — there’s always a price!

  10. Great article.

  11. Hi Greg. I can only imagine the incredible restraint you had to exercise in order to not begin your first blog on the endangered species act. LOL. Of course we all know subsidies aren’t new and most biz models take them into account (largely via tax advantages). My goal in public policy is usually to make sure my folks get more subsidies than the other folks. Good managers then build those new economic realities into their biz models. However, businesses that chase immediate opportunity without a plan and diversify too much tend to end up losing focus. Others reinvent themselves but most just muddle along. There is an interesting article in a recent Harvard Business Review (April 2009 “Are ‘Great” Companies Just Lucky?) about this. The fact that social values (which are the drivers of economic policy) are embracing green or clean energy suggests that your analysis of the trendline is correct. Although we are very, very far from the tipping point leading us away from fossil fuels it is nice to see that you are anything but fossilized in your perspective. But then again being a farmer you have lots of experience with subsidies. Please say more about windfarms and nuclear power in the future postings. And be nice to the fruit bats and their very distant cousins the jumping mice.

  12. Greg Williams – Thanks for the great comment. I can’t resist pointing out, though, for the benefit of others who lack your refined and subtle sense of humor, that there are no government subsidies in our peach business. Sometimes we long for disaster payments, crop insurance and especially guaranteed price supports. But then we lie down ’til the feeling goes away.
    GW

  13. Gerry McDaniel

    Greg: Where does one begin in this debate? The beginning is the premise that man is ruining the planet. We could certainly do things better and greed will corrupt not only politicians but companies and individuals… and has. Our Founding Fathers somewhat understood that when they fashioned our charter… a covenant of and by the people with their government. In that covenant relationship they did not in any way contemplate government making value choices. But now that we have arrived and have abdicated to our government the responsibility to solve all our problems and make our value choices, we are stuck with “green” everything and media and businesses are now exploiting that the the nth degree.

    T-bills are green too and China inter alia owns a mess of them. The direction we are going now has and will continue to suck all valuable capital into the black hole of government choices with only inflation lurking around the corner as a monster second only in size to the evil energy companies which made immoral “profits”. We can only hope that the collective American spirit wakes up in time to establish an energy policy which aggressively embraces cleaner energy in the future, including aggressive development of renewables, but which returns America to producing her own resource to the fullest extent possible. I have not seen one scholarly report predicting when we can wean ourselves from fossil fuels, but I do have confidence in the market and technology to make that transition without CAP and TRADE.

    Let China worry about its own balance of payments and buy energy from foreign markets, and maybe we can bribe China into cleaning up their air under a threat of bankruptcy of the US Treasury.

    There is capital in the energy industry and the only clear direction for an energy and foreign policy in America is to ramp up production, create new jobs without one dollar of govt. assistance, reduce dependence upon foreign sources of energy, reduce this country’s debt, broaden our energy footprint with nuclear, traditionals and renewables and put this country back on solid footing. We are dangerously close to a point of no return.

  14. This is wonderful. I don’t understand why every intellengent human being doesn’t totally agree with every word.

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