T. Boone Pickens is doing some outstanding work in the area of energy independence. We need innovators like Pickens to be engaged in this issue.
Once the United States achieves energy independence, policymakers in Washington will have the luxury of disengaging from certain regions of the world. Single commodity economies like Saudi Arabia should diversify because the day will eventually come when the United States no longer needs its oil.
The Future for American Energy Policy?
Introduction
If leadership truly grasps the enormous consequences of inadequate responses to global warming and national dependence on oil and fossil fuels, then it must shift into crises mode. Decisions on energy policy must be made to address three levels of urgency: Now, the short-run and the long-run.
How ironic is it that elected officials, policy analysts, investors and others are of late, pressing for “comprehensive” policies and strategies that will wean Americans from imported oil to energy created by more drilling for oil and natural gas; diversifying biomass options; expanding nuclear power capabilities; mining and cleaning coal and coal emissions; and harnessing the sun and wind on land and sea; when each in turn is nothing more than a problem switching alternative.
Governors of Maryland and Virginia recently announced that expanding nuclear energy capability would, in the long run, resolve much of the energy crunch in those states. Nothing was proposed for now or even the short run. T. Boone Pickens’s proposal is very appealing it promises to harness more natural gas through sun and wind energy as the workhorses to gain access and deliver natural gas to the surface. The Pickens Plan however, still requires enormous public subsidies for a so called set of “mature technologies.”
A problem switching alternative is for instance, reducing the amount of CO² emissions from coal fired plants by replacing them with nuclear plants. Nuclear waste not CO²; becomes the problem. Or, replacing a portion of petroleum with ethanol it takes more energy to produce ethanol for fewer miles per gallon compared to gasoline. Or, hydrogen fuel cells that release water vapor into clouds that then heat up exacerbating global warming. Moreover, sun and wind power are intermittent and require supplementation from traditional energy sources for 24/7 operations. How much CO² is released in the extraction of natural gas? What are the additional storage and refueling costs per mile when compared to electric motors for automobiles?
Not included in the above mix of alternatives, is ocean energy. Nor is ocean energy on the lips of policy makers or investors as is the case with more “mature’ energy alternatives including renewables. Not because it lacks merit, on the contrary, it will likely become the one source of energy that can replace all others. Ocean energy costs nothing to generate; the Gulf Stream for example is for all intents and purposes, eternal. While there are no
Clearly, there will be investments in all of the above forms of energy production. What leadership must determine is which form of energy production is the most efficient now, in the short-run and, in the long-run.
• The ‘most efficient’ means produces the highest level of reduction in CO² emission per dollar of public support and per kilowatt generated.
• It also means the least negative environmental impact.
• It is the least total cost solution, absent public subsidies when compared to alternatives.*
*If each alternative had the same mix and amount of public funding, apples could be compared to apples. However, the opposite is true, therefore production, and delivery costs for ocean energy cannot be compared to other renewables and non-renewables.
Alastair Fothergill, demonstrates in his magnificent production,” Planet Earth /The Blue Planet: Seas of Life”, that indeed the oceans were the beginning and will likely be the terminus for mankind. His BBC Production defines, without equivocation, the creative and destructive power and awesome kinetic energy of our oceans and seas. Their currents are predictable years in advance.
For instance, the Gulf Stream is a strong ocean current, transporting about 1.4 petawatts of heat, equivalent to 100 times the world energy demand. It transports water at a rate of 30 million cubic meters per second through the Florida Straits. After it passes Cape Hatteras, this rate increases to 80 million cubic meters per second. The volume of the Gulf Stream dwarfs all rivers that empty into the Atlantic combined, which barely total 0.6 million cubic meters per second. Harnessing 1% of that energy would light up the entire world and power all ground based transport. Is there an American made technology capable of delivering some of ocean’s energy? Yes, there is.
The Gorlov Helical Turbine
“This technology can be used in streams, rivers, tidal currents, ocean currents, discharge from conventional hydro-power dams and industrial plants. It consumes no raw materials to produce power. There is no waste of which to dispose. Building a dam is not required, therefore, there is no flooding, and only minimal obstruction of water flow. It is environmentally benign but not without problems that can be resolved for the protection of fish and fauna. The technology is scalable, durable and requires only minimal maintenance.”¹
There are over 55,000 sluiceways in the continental United States that can be used by this technology to create distributive, water driven system for electrical energy. Importantly, there are five major offshore locations that can be accessed by this technology to produce all of the electricity needed for a distributed system totally free of the massive problems associated with the electric grid.
¹ http://www.gcktechnology.com/GCK/pg2.html
To get this energy to our toasters policy makers and leaders, would be wise to learn a great deal more about ocean energy technologies that have been around for a while and which work and are being deployed by other nations. S. Korea may be the first nation to actually shut down nuclear facilities as ocean energy replaces the power generated by nuclear and coal fired plants.² Scandinavian countries are combining wind, solar and ocean energy to eliminate dependence on energy imports. Ireland, Scotland and lately Great Britain have invested significant sums in the development and testing of ocean energy technologies.
Yet, the U.S., shackled to oil and particularly oil imports will remain far behind the knowledge/implementation curve. If only elections could be financed with renewable energy credits instead of dollars, we could get real change in energy policy.
²http://globalcoral.org/Tidal%20Energy%20and%20Low-Head%20River%20Power.htm
The Challenge
Change and Hope. If the next President treats energy policy as a critical, crisis issue then we can hope. If he doesn’t then we can only continue to despair.
It is highly possible that given the 55 years of proven benefits of tidal and ocean current technologies and the relatively short production cycle, the next President could promulgate a challenge mirroring that of Al Gore’s and implement an American energy policy, which mandates realistic objectives. Objectives such as:
1. Creating an environment for the rapid growth and deployment of renewable energy technologies where those technologies have a significant comparative advantage in optimizing the delivery of power to a given geographic area. This objective should not be a swap-out or switch which leaves more of a problem than existed in the first instance. Coal and nuclear are problem switching, not problem solving.
2. Embracing the criterion that for every dollar expended for the new technology there would be x amount of carbon eliminated. Rapid adaptation of new technologies should establish priorities amongst technologies based on this metric.
3. Time frames for achieving these adaptations and their deployment must be immediate, within the next two to four years, and not 10, 20, 50 years from 2008.
4. All alternative renewable technologies should be cost effective compared to legacy technologies and they must be,” in Wendell Berry’s words: The linchpin for security, economy, equity, and environmental quality. The cheapest, fastest, and smartest approach in the near term is energy efficiency.”³
5. Next, we need a distributed energy system based on renewable energy — not coal and nuclear. We do not know yet how to sequester carbon from coal-fired power plants or how to deal with the toxic byproducts of burning coal; nuclear amplifies the danger of terrorism and requires massive subsidies, and we still don’t know what to do with the radioactive waste, add to these the fact that taxpayers not the private sector bear the burden of failed plants because the U.S. Government provides a 100% guarantee on capital cost recovery if they do fail. Over 100 such plants have failed over the past thirty years and taxpayers were forced to pick up the tab. Hydroelectric grids and distributive systems are the models that need to be replicated as connections to ocean kinetic technologies.
6. Public and private sector capital investment and guarantees to expand the national electric grid to accommodate 4-5 Tw of power, and reduce the incidence of blackouts.
The Promise Deferred
It would have been truly enlightening if former Vice President, Al Gore, included ocean energy/ocean kinetics in his mix of renewable energy forms (solar, wind, geothermal, biofuels, etc.) when on (7/17/2008) he challenged Americans…” to become energy independent or, at least, shed a large share of dependence on imported petroleum within the next ten years through solar, wind, and biomass.” By excluding ocean energy he implicitly signals to the investment community its lower priority. While ocean kinetics may have been included implicitly there remains the impression that it was not an equal with other renewables. While the opposite may be true, he must hasten to correct the oversight. Since wind and solar are not price competitive with energy developed from ocean currents, public and private resources devoted to the former will not be optimized in the short-run.
Shortsightedness and special oil interests scuttled America’s fledgling steps toward freedom from imported oil in the early sixties, when JFK sought to fund and develop the tidal power of Passamaquoddy Bay. Studies then concluded that there was sufficient flow to power all of New England and sell excess power to Canada. The British Government made the overt decision to defund ocean energy research and demonstration projects in the early eighties; partly due to pressure from oil and fossil fuel interests.
John Kennedy’s efforts to build the tidal dam at Passamaquoddy ran concurrent with similar, but successful efforts by Russia, under Nikita Khrushchev ─ and France, under the administration of Charles De Gaulle. The French had the honor of completing the first tidal dam in the world in 1967. De Gaulle supported the La Rance tidal dam capable of an output of 240 megawatts, which, the site said, served 90% of Brittany’s three million people. It was paid for, required little interim maintenance, and produced electricity from a clean and free source. The same site this year serves only 600 thousand people; it is not a conspiracy. Both statements are true. The dam has been restrained, by nuclear power interests. The French dam, now forty years old, with minor recent retrofitting could be expected to run for another forty years or more, planning had run simultaneous with Kennedy’s effort. The dam took only four years to complete. Russia’s dam followed on La Rance’s heels and took about the same time to build.
In the early eighties, when President Reagan dismantled President Carter’s solar array at the White House he gave renewable energy its kiss of death, or at least a long undeserved coma.
Ocean KineticsThe Ultimate , Efficient Renewable
Thus, among the three most powerful sources of renewable energy available to this planet the most efficient of them has been throttled to near oblivion for over 55 years, primarily because it threatened a total systemic replacement of current technologies without the need for massive dams and other infrastructure despoiling the environment or multi-billions for capital costs.
There are embryonic efforts now, however, by venture capital and a few progressive governments; a number of the EC nations, Canada, Australia, South Korea, Brazil, and individual states within the U.S. are pursuing major wind, solar and ocean energy projects from tidal wave to hydrokinetics.
What makes ocean kinetics the better solution for not only our energy problem but hosts of other problems? Simply put, the oceans will always be there, night or day, fair or foul. Moreover, their energy is the most efficient source of power on the basis of cost per kilowatt hour delivered to your coffee maker.
The fossil fuel industry is desperately trying to maintain the lucrative refuel concept at the expense of true progress in eliminating global warming. The fossil fuel companies are toying with wild ideas like burying carbon dioxide. They are spending a goodly sum commissioning geological surveys to determine if it is safe. A small lake in Africa at the equator, the most stable part of earth, demonstrated that this is pure folly. The area collects CO² naturally from underground volcano activity. Something destabilized it, and it came up and killed everyone living around the lake.
Yet, as we legislate, authorize, organize and finance a myriad of commercially acceptable so called, ”win-win solutions” to ameliorate the known factors which are destroying the fundamental building blocks of life, we pay only lip service to the ultimate solutions contained in the power of the oceans. We don’t hesitate to champion and subsidize nuclear plants, oil exploration and new technologies to squeeze fossil fuels from tar sands, deep ocean recesses, corn and other cellulosic plants.
How Close To Collapse Must We Be?
At a point not too distant, reality will take a different turn. Because we are already far behind the knowledge curve, we have only a short while before we are overwhelmed with systemic environmental collapse in the West to say nothing about the calamities facing newly organized capitalistic-authoritarian governments, particularly ,in the East, Middle East, and the former Soviet satrapies.
Western consumptive-capitalism, pandemic now in China and India, forces significant inefficiencies in national energy-production functions. For these emerging, giant nations emulation creates a dependence on fossil fuels to maintain comparative wage/price advantages not wholly provided by currency manipulation. Moreover, these nations are “Johnny-come-lately” to the table of renewable and environmentally protective forms of energy. China builds hundreds of new coal fired plants each year. India will build ten to twenty nuclear plants over the next ten years. Former Soviet satrapies will rely on natural gas, coal and diminishing reserves of oil. In all, these governments will expend hundred of billions of dollars to maintain the status quo. They will follow the pattern dictated to national ‘leaders’ by the oil cartels in the U.S., Middle East and EC…i.e., no competing forms of energy will be tolerated as long as there remains a few barrels of oil, a few lumps of coal, and a liter of natural gas.
The Changing Tide of Public Concern
Lately, though, public opinion on climate change is at or just past a tipping point. Not on grounds remotely associated with the folly to be wrought through climate change, but rather, the decline in living standards due to the rising cost of fuel and, therefore, everything else that is purchased and consumed as a durable or non-durable in this world. Clearly, oil importing nations would support policies that reduce the cost of energy. Moreover, there would be unanimous agreement if those policies led to other benefits which improved the well being of their societies. Pollyannaish musings? It is highly possible that given these obvious, benefits of tidal and ocean current technologies a courageous leader from the Oval Office could promulgate a challenge mirroring that of Al Gore’s and actually implement an American energy policy, which mandates realistic objectives. Objectives such as:
Creating an environment for the rapid growth and deployment of renewable energy technologies where those technologies have a significant comparative advantage in optimizing the delivery of power to a given geographic area. This objective should not be a swap-out or switch which leaves more of a problem than existed in the first instance. Coal and nuclear are problem switching, not problem solving.
1. Embracing the criterion that for every dollar expended for the new technology there would be x amount of carbon eliminated. Rapid adaptation of new technologies should establish priorities amongst technologies based on this metric.
2. Time frames for achieving these adaptations and their deployment must be immediate, within the next two to four years, and not 10, 20, 50 years from 2008.
3. All alternative renewable technologies should be cost effective compared to legacy technologies and they must be,” in Wendell Berry’s words: The linchpin for security, economy, equity, and environmental quality. The cheapest, fastest, and smartest approach in the near term is energy efficiency.”
4. Next, we need a distributed energy system based on renewable. Hydroelectric grids are the models that need to be replicated as connections to ocean kinetic technologies.
5. Public and private sector capital investment and guarantees to expand the national electric grid to accommodate 4-5 Tw of power, and reduce the incidence of blackouts. When Kun and Mathews (Luis Kun, Senior Research Professor of Homeland Security at National Defense University in Washington, D.C., and Professor Robert Mathews, Distinguished Senior Research Scholar in National Security Affairs and U.S. Industrial Preparedness at the University of Hawaii) think about expanding the grid and instituting reliability, especially in terms of the systemic interdependencies and interconnections of the national power grid, they lay bare that no black-box solution can simply be patched into the system. Instead, they acknowledge that reliability is a characteristic of comprehensive planning and engineering excellence. And, because so many elements of the grid and its greater system are riddled with unknowns, time and money combined with the precise knowledge and expertise must be invested to expand the grid and investigate all aspects of the system to prevent further failures.
To further bolster their point, Kun and Mathews explain the cost of these failures. They cite an Electric Power Research Institute (EPRI) report that says among commercial customers nationwide, employees were idle a total of 37.3 million hours in 1991 due to power-quality problems. They also call attention to a 1998 U.S. Department of Energy study, which estimated that the cost of reliability to the U.S. economy stood at $150 to $400 billion per year. More recently, say Kun and Mathews, the EPRI stated the U.S. economy loses between $104 billion and $164 billion a year just in outages, and another $15 to $24 billion per year in power-quality-related events. As stunning as these numbers are, they have not yet translated into new policies or laws. IEEE Life Fellow and distinguished electric power utility veteran Jack Casazza states that, “We have to ask ourselves what’s good for the country in the long run, and are we doing all that is right and possible, and is the government being accountable to the taxpayer? The answer is clearly no.”
On the matter of unknown variables, Kun and Mathews say that the National Regulatory Research Institute’s (NRRI’s) 2001 study states that only 23 out of the 40 states it surveyed required any annual reporting of reliability statistics. Consequently, they say, the prospect of aggregating usable national reliability data appears sketchy at best.
Kun and Mathews contend that state public utility commissions (PUCs) have little authority on matters systemic in so far as ensuring the national electric power grid quality or reliability. Further, they note that basic scientific research into systemic interoperability is practically non-existent at every level. The authors also conclude that U.S. government agencies, laboratories, advanced research organizations and American industries are dangerously deficient both in staff with the requisite cognitive skills and analytical prowess to adequately mount the required challenge to this critical and costly national problem.
(NOTE)
A Proven, Renewable Energy Technology
Back in 1992 Prof. Alexander Gorlov won the Edison Prize for inventing the Helical Turbine. In tests on the Merrimac River in 1995 his invention demonstrated that electricity can be easily, and inexpensively generated and fed into the grid to power just about anything. According to Prof. Gorlov and Verdant Technology of Virginia, “With the development of the GHT technology, which eliminates the need for dams for extracting power from tidal currents, the major obstacles to developing electricity from these tidal currents have disappeared. One or more tidal power farms using these Helical
Turbines can now be justified economically.”4
“The mass of water carried by the Gulf Stream in the Atlantic Ocean is many times greater than the water flow of all the Earth’s rivers combined. The energy potential of the Gulf Stream at this location is greater than any imaginable requirements for America.”² The conceptual design for a large-scale floating power farm in the Gulf Stream using GHTs is described by the author in the article “Helical Turbines for the Gulf Stream” Alexander Gorlov, “Gulf Stream Magazine”, 1998.
Employing the approach described in this article,”…. a moored modular power farm with 320 standard twin GHTs could harness about 210 megawatts from an ocean area of only 0.16 square km. Construction costs for such a marine power farm is estimated to be about $1 billion (in 2008 dollars), with an installed cost of about $1950 per kilowatt. This estimation was made using GCK Technology‘s new experimental industrial size twin GHTs, which are 2.5 meters tall and 1.0 meter in diameter. Once installed, the power farm could be expanded as needed in the future, since the potential of the Gulf Stream is practically unlimited. For example, one square mile of ocean surface in the Gulf Stream could generate about 5,500 megawatts using the described design.”5
4. Gorlov, Alexander, “Helical Turbines for the Gulf Stream”, “Gulf Stream Magazine”, 1998.
5. Ibid
Estimates of the worldwide economically recoverable wave energy resource are in the
range of 140 to 750 TWh/yr for existing wave-capturing technologies that have become fully mature (ETNWG 2003). With projected long-term technical improvements, this could be increased by a factor of 2 to 3 (Thorpe 1999). The fraction of the total wave power that is economically recoverable in U.S. offshore regions has not been estimated, but is significant even if only a small fraction of the 2,100 TWh/yr available is captured (For further information contact, GCK, Inc. with offices in San Antonio, Tx, Edward L.
Kurth President & General Counsel, kurth@gcktechnology.com, puts the technologies potential on the line, stating “…we only need 1% of the available power from ocean currents to light up the world.”)
Change That Really Matters
Since ocean energy is infinitely renewable, costs nothing to generate its flow, is pristinely clean, and cheaper than coal in terms of production and deliver/usage costs it ought to be the government’s first choice and highest priority for development given the crises the world now faces on so many levels and so many fronts. We have a global warming crises, which many wish to respond to by more of the same, i.e. drill for oil and natural gas everywhere, build coal fired plants, and develop more efficient nuclear facilities. Environmentalists want more wind and solar as well as geothermal, and the latest, expensive and perhaps one of the leading inefficient forms of energy, ethanol.
“Oil has always been a bad choice for energy conversion. If you put a barrel of oil into a refinery, run around the other side of the refinery, and put your barrel in front of the output spigot, your barrel will only be one third full, when the conversion completes. If you then take your barrel of gas and dump it into your car, two thirds of that gas goes up in the air in the combustion required to power your car; therefore, today, when you say 130 dollars a barrel, you really need to say three hundred and eighty-nine dollars a barrel, to effect the Colbert Report’s ‘truthiness’ about the real cost of oil. Coal is a much better use for energy conversion, but coal is the biggest offender when considered as a Global Warming contributor.”7
Wind and sun will also be subsidized even though they are an unreliable source, as wind and the sun are not always in evidence. Moreover, it is unlikely that there will be unanimous agreement on the systemic deployment of wind turbines due to the “not in my backyard” syndrome. An ancillary problem then is how to distribute wind energy on a broad scale.
__________________________
7. Silverthorne, Andrea, “THE DREAM OF PASSAMAQUODDY”,09/06/07
While we now suffer from the ethanol boondoggle with astronomical food price inflation, knowing full well that ethanol energy, and its energy coefficient is even worse than gasoline; it takes one and half times the amount of ethanol to go the same distance as gasoline. Yet the Government plans on subsidizing ethanol at the annual rate of $25
billion over the next 5 years and nuclear industries will receive $25 billion in guarantees, while renewable will get the princely sum of $50 million, but none is likely to be allocated to ocean energy.
For instance, hydrogen fuel cells are the worst option because they emit water vapor. Scientists have discovered that as an unexpected result of global warming, the water vapor in our atmosphere is increasing, which in turn is making the problem worse. The more water in a cloud, the more heat it can hold. You do not have to be a scientist to see if you converted all cars to output water vapor, you might have a problem worse than our current one.
The renewable but inefficient alternative fuel suggestions that are being offered now are ruses, to placate the public’s rising awareness of the warming problem. Politicians and the powerful, unrelenting, global, fossil fuel interests won’t let a viable price competitive alternative deploy because it signals instant replacement for these inefficient technologies.
“These very same companies are now slowly pulling the ocean-power-option-rabbit out of the hat, to make it look like it is a new technology, not one that has been obstructed and buried for fifty five years. They know that the ocean option is a government application. They are positioning themselves to have the right to tap into the government’s supply as free enterprise players; that is —if, and when, the government decides that the atmosphere just might possibly be collapsing, and they can either convince fossil fuel companies to give up their ship, or be wrestled to the ground by the rest of the world. The press is going along, printing small stories here and there, but not doing any in depth stories, on what should be jumped on as a very big story the minute they saw it. The company Ocean Resource Group, with offices in Miami, and New Brunswick, puts the technologies potential on the line, stating we only need 1% of the available power from ocean currents to light up the world.”8
“Time magazine’s comprehensive cover story on global warming, done in the spring of 2006, does not mention the huge potential of this option, just like their story, so long ago, in their sister publication Fortune, did not mention the JFK’s dream of using tidal power in the Passamaquoddy Bay. Some things never change, including journalism complicity with political positions. Of course, since the government is in the clutches of fossil fuel interests, as Vanity Fair magazine says it is, then we will watch them fiddle while we burn.”9
8. Silverthorne, Andrea, “THE DREAM OF PASSAMAQUODDY”,09/06/07
9. Ibid
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Part 2
Realistic Economic and Social Benefits Supporting Immediate Transition to Ocean Kinetics
The Issue
What fundamental national objectives must Americans embrace to transition from the culture of fossil fuels and petroleum to ocean kinetics?
Background In Brief
During and immediately after WWII America’s industrialists and financiers convinced political leaders of the necessity to accelerate the expansion of the wartime developed manufacturing base and make it second to none. They saw as the primary lubricant for this industrial modernization the unfettered use of petroleum, government guarantees and subsidies, tariffs, and controlled competition. The latter was required to ensure optimal and unfettered development across a broad range of high value industries. Government guarantees and subsidies would be coupled to venture capital to bootstrap exploration, drilling and refining. Tariffs would ensure high employment and stave off competing petroleum products. This strategy, with the exception of tariffs survives to the present.
An explicit objective of the Roosevelt, Truman and subsequent administrations with the exception of President Carter, was that petroleum would be “King.” Today, about 90% of vehicular fuel needs are met by oil. Petroleum also makes up 40% of total energy consumption in the United States, but is responsible for only 2% of electricity generation.
While controversy abounds over the issue of “Peak Oil,” ample evidence exists from environmental studies that continued reliance on oil and fossil fuels would be folly in terms of economic efficiency and climate change impacts. Whether or not there is enough oil is no longer an issue. Rather, to what alternatives, and how quickly does the world transition from oil to alternatives in time to significantly ameliorate the negative effects of escalating prices and environmental impacts?
While oil became “King of the Hill,” the dollar became its handmaiden. As entrepreneurs entered the risky business of oil exploration, banks were eager to lend, as well as foreclose on properties of failed ventures. Witness the current debacle in housing and financial markets.
Concurring in Fed Chairman Bernanke’s proposal to serve as the overlord of financial institutions in America, the White House and Congress have abdicated their Constitutional responsibility and placed management of the currency in the hands of the private sector. At this juncture, however, neither Branch of government knows how to manage a dysfunctional economy teetering on the brink of absolute bankruptcy. Then again, based on recent and past performances, neither does the Fed. The Fed can manipulate the economy but can’t, through monetary policy alone, resolve systemic structural issues. Oil price “shock and awe” is in part due to Fed policy which today weakens the dollar and makes crude oil imports more expensive, due to the voracious appetites for oil in China, India and other emerging nations.
What the Administration and the Fed confront is their worst nightmare, rampant inflation, created in part by profligate fiscal policies; creating record setting debt; and inadequate monetary policies; dumping billions of dollars to save failed private banking along with the bail out of the housing industry. The Feds failed attempts at stimulating consumption in reaction to the double edge sword of rising cost of energy feeding rapid inflation in food prices. The “official” rate of inflation is now at 5% or double the rate in 2000. Experts now put the real unadjusted rate at 10%.
A quick perusal of consumption patterns over the past six months, excluding exports, shows a downward trend for durables, and medium to high priced non-durables. Since there are very few Americans with savings, and median real income and job creation remain stagnant or declining, any shortfall in tax receipts is exacerbated by recession and the fact that only 1/3 of corporations pay tax on income. And there you have it. Any growth is illusory in an economy 70% dependent upon consumer consumption and corporate capital formation. The balance is government spending and exports. Stagflation is just around the corner for major sectors of the economy. Import prices on consumer products have risen, on average, 65% since the beginning of the year due primarily to higher transportation costs.
Now, add to the above the budget deficit, massive borrowing from foreign banks and unfunded domestic safety net program liabilities in the current fiscal year. The result is an economy that has a 2:1 ratio of liabilities to assets. Assets of $40-$50 trillion swamped by $70-75 trillion in the above mentioned liabilities. And, an economy that will experience more inflation while the Fed holds interest rates below the rate of inflation.
Why is it that countries in Europe and other parts of the world are actually increasing their interest rates? They’re doing it because inflation is more than a threat, it’s real. It’s there, affecting everybody’s lives. Yet, our Fed continues to stimulate the economy by dumping dollars into it in the hopes that consumption (panic buying for fear that prices will rise higher) will serve as the driver of growth. The Fed is also counting on foreign demand to boost American exports which, fortunately, has occurred given the dollars decline against most currencies.
However, so long as emerging economies like China continue to grow as fast as they are, inflation here and in importing nations will continue to be a threat. And the reason why is simple. Because as these emerging economies modernize, they will need more food, more gas, more wood, more metal, more of everything per capita than what they use today.
To what wizardry, then, can the next President turn to restore the economy during his four year term? What grand strategy must he employ to reduce energy prices, the rate of inflation and the extraordinary debt burden, and at the same time increase employment and average income? Real change will emerge if the next President simply dethrones the “King”—-Imported Crude Oil.
The Real Culprits Also Lead to Strategic Crises Management
As one Chinese proverb said: If we don’t change course, we’ll end up where we’re headed.
During the NAFTA debate Ross Perot made famous the phrase “the sucking sound you hear will be jobs going into Mexico, China and the Subcontinent.” The 21st Century modification is “the sucking sound of dollars flowing to Iraq.” By the time we end the full scale occupation of Iraq, it will have absorbed directly and indirectly $5 trillion which does not include the opportunity costs of denying the same amount to America’s needs.
During the first four years of his presidency the next holder of that office will have the opportunity to face the spending crises with an equally critical set of solutions. In the absence of scaling back current subsidies for non-renewable energy producers and ethanol not much can be done for fuel and food prices. Simply put, the next President will have a two front challenge on domestic economics at the most basic level: Leading Americans to a less expensive way to get to work, and at the same time feed their families.
There are no mega bucks laying around to tax at high marginal rates that will do us any good in the short run given the enormity of the dollar need to not only sustain this economy but to ameliorate systemic damages created by the massive transfer of funds to Iraq/Afghanistan, OPEC, and other oil producers. Something has to drop out of the expenditure stream. First, and very near term, is funding the U.S. occupation of Iraq.
Phase out of Iraq $100-$300 Billion/yr
In the short run, the next 12-36 months, relief is likely where reductions in expenditures for phasing out of Iraq are not then transferred, dollar for dollar, to Afghanistan or some other Defense Department “priority”. The current Administration wants a long term presence in Iraq as “guardians of the peace”, and to “ensure access to oil and gas”. The Iraqi’s may, after Regional Elections this Fall, scrap plans to even negotiate with the new President “this quite” approach to occupation. A much harder line will be announced if the Iranian backed Muqtadur al Sadr gains a significant majority of seats in the Iraqi Parliament. Nonetheless, when the Iraqis tell us to leave we will have to leave. They could invoke “Persona non Grata”, forcing the U.S. out under accepted International Law. It is more likely that there will be a negotiated phase down allowing the next President to submit a Budget that reflects funding for domestic priorities from a portion of the funds that would have been allocated to the full scale occupation of Iraq.
Since occupying Iraq and energy costs are the major culprits in squeezing to the bare bones, the quality of life for Middle Class Americans, real outlays in the form of block grants to the states should be budgeted for the revised, soon to be current FY09 and FY10 budgets. These outlays would be directed to infrastructure rehabilitation and maintenance. An infusion of new funding, for capital and labor expansion, ameliorates some of the economic impact of past negligence of our infrastructure. Nationally, new jobs conservatively estimated at 3 to 4 million over two years would save billions in unemployment subsidies, welfare and other transfers to states and local areas that rely on federal relief for distressed areas.
Deploy Renewable Technologies— $300-$500 Billion/over 4 yrs
Renewable sources of energy are the answer. Furthermore, if history is our guide, we can see that every industrial and technological revolution in history inspired an economic boom. Building an infrastructure for next-generation energies would generate millions of jobs around the world, and revolutionize the automobile industry as well as other industries. Researching, developing, and introducing new transportation technologies that are cleaner, safer, and less enviornmentally destructive should be, our top national security and economic priority. However, to exclude ocean kinetics is a monumental mistake. T. Boone Pickens and others have a stellar idea to use wind and solar to free up natural gas thereby replacing imported oil. Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment. The Department of Energy estimates that each $1 billion of trade deficit costs America 27,000 jobs.
Yet, we are surrounded by water which is 600-800 times denser than wind and infinitely more available than either wind, natural gas or solar. And the government, including Congress, and prior administrations have paid lip service to this form of renewable energy. The importance of ocean kinetics is that just 1% of the energy from our oceans can light the entire world; this fact posses a significant financial and economic threat to businesses and governments tied to the oil culture. However, the benefits of self sufficiency, security, and efficiency clearly outweigh profit motives, or at least they should.
As prices for traditional energy climb renewables become more viable. However, even at pre-oil price escalation (2003), the kwh cost of wave energy was equal to or below the kwh cost of coal and natural gas.
For instance global commercial transportation costs under our current oil dependence could be reduced by trillions of dollars with a combination of renewable electricity, natural gas, and domestic oil. Particularly, in the U.S., where approximately 65% of all goods are delivered by truck, light and heavy, and rail expenditures could be reduced by 60% to 75% for fuel costs alone. The cost of securing our access to Middle East oil – deploying U.S. forces in the Persian Gulf, patrolling its water and supplying military assistance to Middle East countries – is estimated at $750 billion per year, which adds additional dimes to each gallon of gasoline we purchase. Just reducing that amount and allocating it to deployment of renewables, saves conservatively, $100 billion over four years. According to the National Defense Council Foundation, the economic penalties of America’s oil dependence total $297.2 to $304.9 billion annually. If reflected at the gasoline pump, these “hidden costs” would raise the price of a gallon of gasoline to over $10.28. A fill-up would be over $205.
Ocean kinetic technologies are not new technologies. What is new is that a number of countries have energy policies that require transition to renewable technologies weaning these nations off imported crude oil. Recent press reports indicate that the S. Koreans may be the first developed nation to adopt ocean kinetics and eschew construction of more nuclear and coal fired plants, relying instead on helical turbines placed in rapid currents that flow on the east and west sides of the Korean peninsula. Other nations are also deploying technologies that extract energy from the oceans not because it is competitive with other forms of energy but because it is a sensible strategy for the long run.
Of major concern to the deployment of ocean energy technologies is the regulatory process. Jurisdictional uncertainty between and among federal and state agencies creates substantial regulatory risk. That risk makes financing close to impossible to secure. Funds are not released by public or private investors where regulatory hurdles are seemingly insurmountable. The next President will need to create a lead regulatory entity with the mission of collaborating with scientists, local communities, and industry to produce comprehensive and predictable rules. The jumble of agencies and rules that now cloud jurisdiction makes the task of deploying renewable technologies and particularly ocean technologies a Herculean task at best.
$7-10 Billion over two years— Phase out Subsidies, Tax Credits and Allowances to Traditional Energy Providers
Verdicts have been entered as to the guilt or innocence of ethanol as a long term solution/problem for American energy policy. By and large ethanol production is a solution that only contributes marginally to the energy problem. It’s a quick fix. We would have to plant every acre of arable land in the U.S. to corn or some other cellulosic crop to achieve a 1% replacement for imported oil. The C/B does not favorably compute for the American consumer/driver. Escalating food prices here are not the reaction to shortages abroad. Our prices are reactions to the cost of transporting goods and the demand for the short run fix…ethanol. Corn prices doubling heralds in similar increases for just about every other grain crop and for just about all feed crops and, therefore, meat, fish and poultry prices.
Eliminating ethanol is not likely in the next 36 months. Instead, $20 billion in ethanol subsidies should be phased out and transferred allowing competition among renewables to determine the survival of the most efficient producers. Or, conversely, subsidize equally ocean, wind and solar so that all are playing on the same level ground. Where would we be on this issue now if, in 1934, 1964, 1981, 1993 and 2003 occupants of the Oval Office hadn’t scuttled development of energy from ocean power?
The major types of largess, transfers to the energy industry can be characterized as follows:
Tax expenditures. These includes tax goodies such as the renewables production credit; oil and coal depletion allowances; the subsidy for phony coal “synfuels,” produced by drenching raw coal with fuel coal; coal-bed methane gas (which many in the business refer to as “moonbeam gas”); and the like.
* Federal R&D, directed at the labs and elsewhere in the DOE firmament, including its myriad and unaccountable contractors. These taxpayer funds, says EIA, “do not directly affect current energy production and prices, but, if successful, they could affect future production and prices.”
* Targeted electricity subsidies. These include the federal power marketing program (TVA, Bonneville, WAPA) and federal “preference power” sales to public power utilities. This category also includes the Rural Utilities Service in the Department of Agriculture.
The increase in subsidies – again, we’re talking real dollars, adjusted for inflation – over the past ten years, says EIA, reflect an increase for renewables (from $1.4 billion to $4.9 billion, none of this for ocean kinetics), an increase in coal pork fat (from $567 million to $932 million), and a big hike in nuclear bacon ($740 million to $1.3 billion).
The biggest gainer in the subsidy machine has been tax expenditures, growing from $3.2 billion in FY1999 to $10.4 billion in 2007. Direct expenditures rose from $1.7 billion in 1999 to $2.6 billion in 2007. R&D spending was up from $2.5 billion to $2.8 billion, while federal electricity subsidies rose modestly from $753 million to $767 million.
The subsidy count is likely to climb in the future, according to EIA. “Recent federal legislation, including the Energy Policy Act of 2005…and the Energy Independence and Security Act of 2007…suggest that certain energy-related tax expenditures are likely to increase.” Nuke subsidies are likely to push the federal pedal to the metal, says EIA, noting the generous subsidies in the 2005 law, including generous loan guarantees, $25 billion for the first generation of new plants.
What’s the result of generous subsidies? In the words of EIA, “Notwithstanding the doubling of federal energy-related subsidies and support between 1999 and 2007, and a significant increase in most energy prices over that period, U.S. energy production is virtually unchanged since 1999.”
Econ. 101 suggests that higher prices, along with hefty government subsidies, would lead to more production. But the U.S. energy economy doesn’t mimic the market models, notes EIA.
State and federal limits on oil and gas exploration, uncertainty over greenhouse gas policies, and natural declines in production from existing oil and gas fields, says EIA politely, “may have impeded growth in energy production despite modest growth in consumption.” In other words, current U.S. energy policy – the product of successive Republican and Democratic maladministrations – has distorted the U.S. energy economy and rendered it increasingly dysfunctional.
The U.S., over many years has concocted a policy of limits to production and increases in subsidies that is intellectually and physically bankrupt.
To effect real change that matters the next President will need to change energy policy. Oil the “King” must be replaced. In the absence of such a change there is little reason to have hope. We will have demonstrated to the world that because we have sacrificed our freedom by bowing to oil, we have also sacrificed our progress as a creative nation.