Dow Chemical Finds Free-Market Religion

27 07 2010

I was going to talk about sane solutions for ground transportation this week and I was going to lead with a tidbit, but that snowballed into the entire rant of its own.

Last week I was reading The Wall Street Journal on my 1994 organic cotton-stuffed futon when I had a “Ha!  You scheming, scamming, shysters!” moment.    In Law of Gravity Repealed, I accused for-profit corporations who are in favor of carbon caps of essentially getting in bed with the political hacks in Washington to form the rules of the game such that they come out ahead of their competitors.  First off, this is a really stupid and naïve strategy that has been demonstrated time and again.  The saying goes if you’re not at the table, you’re on the menu.

Companies have three choices when a bill that will deeply affect their business is being debated: (1) fight it with everything they’ve got, (2) help form the legislation whether it will be good for them or not, and (3) ignore it and hope for the best.  I would say that most times when they cede power to the government and think they can come out ahead, they get burned badly.  This happened with big pharma and the insurance industry with the recently passed healthcare bill.  Big pharma thought they could greatly increase their sales with 30 million new customers.  What idiots.  Hello?!!  And they suppose Washington is going to let them charge “market” rates for these 30 million new customers carried entirely by the government.  What morons.  With perhaps the exception of utilities that will be able to more easily recover costs due to their monopoly status, other large corporations will get burned in the same way with any cap and trade bill that is passed.  The exception may be General Electric where the pathetic CEO Jeffrey Immelt is putting all the company’s chips on successfully bribing a majority in Washington to save the company.  Otherwise tell me, how is a HUGE energy consumer like Dow Chemical or producer/user like Exxon Mobil going to come out on top.  Don’t mess with Washington.  You’ll get the horns.

To get back on track regarding last week’s WSJ –  [reprinted in this news source because it is no longer available on the WSJ’s website]  Dow Chemical, one of the companies I mentioned a couple months ago has seen the political light, which is actually the dark side because there is no bright side in Washington.

Suddenly when cap and trade was shelved last week and Harry Reid started talking instead of a wimpier policy to encourage the use of natural gas, Dow found free-market religion.  Using natural gas in place of nearly any other fossil fuel will reduce CO2 emissions.  But wait!  Dow is suddenly opposed to reducing greenhouse gasses.  In a letter supported by many companies and other “special interests”, they write to call on the Senate “not to include any provisions in energy legislation that would ‘artificially’ increase demand for natural gas in the power and transportation sectors.”  Let’s see.  Cap and trade; artificial pricing pressure and market manipulation.  Nope, I’m not seeing any difference here.  I don’t understand Dow’s reversal.  What happened to the do-gooder spirit?

Purely guessing, Dow probably has millions of carbon credits that are worthless without cap and trade.  They may also think they can increase their insulation sales with its passage.  I would also like to see the other corporate signatories on that letter.  T Boone is most likely not a signatory.

In another non-irony, the National Corn Growers Association also opposes the “artificially” high priced natural gas.

[Courtesy pause here while you finish laughing out loud]

I cannot think of more manipulated markets than the ones for corn and ethanol.  First, federal programs to pay farmers to NOT produce crops have been around for decades.  I recall as a kid, we had to “divert” xx% of baseline corn acres.  So what did we and everyone else do – diverted the acres where nothing grew (sandy patches) or acres that were at high risk of being flooded.

Second, there is the fattest sacred cow of them all: ethanol.  The ethanol lobby that includes weaklings like Archer Daniels Midland along with the Corn Growers Association has bagged a permanent 50 cent per gallon subsidy courtesy of me and a few million other Americans, the taxpayers.  In addition to this handout, it may be the most trade-protected industry in the country, save for maybe sugar.  Imports would be slapped with an insurmountable 54 cent per gallon tariff so we can’t import cheaper ethanol from places like Brazil where cane-sugar-derived ethanol has allowed them to be energy independent since 2006.  A 50 cent subsidy plus a 54 cent tariff on imports: more than a dollar a gallon direct artificial price manipulation.  I can’t think of a more favorably manipulated market than the one the corn industry has.

To demonstrate the damage heavily manipulated markets wreak, many ethanol companies went bust starting a couple years ago as the price of their feedstock, corn, soared to record highs.  Nobody saw those prices coming.  Maybe they should have hedged against the risk of soaring feedstock prices  – whoop!  Can’t do that anymore because of the recently passed financial overhaul.  More manipulation and interference…

Epilog:  I’m practically from Iowa and my family has grown a lot corn for many years.  Even though it is all fed to livestock, the artificial upward pressure on the corn market would seem to help because it makes growing livestock more expensive, driving down meat and poultry supply and improving prices.  But like the tobacco industry that was strictly controlled with government quotas, farmers would benefit from the trashing of government manipulation.  Income rises and surprise!  Farms get smaller – just what everyone seems to want!

written by Jeffrey L. Ihnen, P.E., LEED AP





Law of Gravity, Repealed

18 05 2010

Yay!  I’m outside working on my computer for the first time this year.  Alright, who cares?

Every week I plow through news-clipping services to see what is going on, to build my topic list, which is piling up faster than the weeks pass.  This week I had to shelve 4-5 great topics to again take on the recently arisen climate bill.

Many huge utilities and other giant energy users and associations are lauding the Kerry-Lieberman-Graham bill.  These institutions include the American Wind Association, Duke Energy, Dow Chemical, Florida Power and Light, T. Boone Pickens, National Resources Defense Council, Steelworkers Union, Shell Oil, and Westinghouse. 

Support from some of these groups is obvious.  What stinks to high heaven though is the for-profit giants who support this bill.  Company motives are driven by profit.  Per news accounts, I’ve read Dow has done a fantastic job at reducing energy consumption.  My guess is they are stockpiling carbon credits, like AEP has been doing.  Buy low and sell high.  A climate bill will greatly increase the value of carbon credits.  Rest assured, I would say these companies are positioning themselves to make a killing, not save the planet.

Florida Power and Light is a major wind power company.  You may not realize it, but a huge portion of the wind energy generation in Iowa, Texas and all over the place is owned by FPL – probably by their unregulated arm.  They aren’t building wind farms in Iowa and Texas at a loss so they are jockeying for more of the same.

Westinghouse is poised to tee off on the nuclear power business.  I support nuclear power as it is the only realistic ultra-low carbon source of electricity.  Did you know Westinghouse is 77% owned by Toshiba of Japan?  I didn’t think so.

General Electric ditto both FPL and Westinghouse.  T. Boone’s mind changes direction with the wind.  I’m not sure whether he thinks or talks first.  He was going to invest a bazillion dollars in wind power and then reneged for some reason.  Perhaps it was because it costs more to produce than it costs from conventional plants and he realized there aren’t enough Volvo/Subaru/Prius driving boutique energy buyers.  I.e., not enough demand.  Or maybe he thinks cap and trade isn’t going to happen anytime soon.

I have no idea what the steelworkers are thinking.  Actually, most likely it isn’t the steelworkers that are behind this.  The union bosses are probably peddling this and it looks like a pure political play.  Like many environmental groups, unions are political first, and serve their members second.  Why in the world would they want to raise the cost of making steel in the U.S.?  It’s not good for the steelworker.  It IS good for crony politics.

The common thread in all this is: if we just enact this federal bill it will generate millions of jobs and the land will flow with milk and honey.  I can see water running uphill again.  Washington now has power to repeal the laws of gravity.  I was always skeptical of Mr. Newton.  He is Gordon Gekko with long hair.  Just look at them.

I can’t disagree that it will create jobs.  We would have thousands of workers building and installing wind turbines and a bunch of other junk.  But on the macro level, capital will be pouring into these projects rather than real wealth-generating enterprises.

Alternative energy costs more than conventional energy sources, but an electron is an electron.  It doesn’t taste better, look better, do more work, last longer, or drive better.  People will be paying more for energy, which takes spending money out of their pockets.  Artificially making a commodity more expensive cannot increase net prosperity.  Why don’t we just turn off all the aqueducts and canals that feed California and drain the reservoirs?  Instead, build desalination plants to make fresh water.  Creates jobs right?  Just ask the pecan and almond farmer in the valley.

At least with energy efficiency, even lousy projects, consumers pay less, not more.  And the same “benefits” of “creating jobs” exist because somebody somewhere is making stuff for and implementing these projects.

Here is something 99% of the populous probably doesn’t know: the free market has done an amazing job with energy efficiency.  From 1990 through 2005, the U.S. economy has increased energy efficiency to produce an equal quantity of goods and services using 44% less energy!  Energy intensity in Btu per dollar of gross domestic product dropped 44%.  You may be thinking, “Well duh, half our manufacturing has moved overseas and we’ve become a service economy.” Moved where overseas?  China, you may be thinking?  China’s economic energy  efficiency has increased by 66%!  Of about 150 countries reporting, only 4 became less efficient over the period: Congo, Haiti, Saudi Arabia and someplace I can’t pronounce.

The world as a whole has increased economic energy efficiency by 39%, in just 15 years.  That’s about 2.2% per year.  Real demand for power isn’t rising that fast (in the US).  I don’t think there’s an energy efficiency program in the country that saves that much.  There’s no question programs contributed to this, but I know of no programs driving savings in China.

Competition with some nudging from utility programs seems to be doing a fine job driving energy efficiency.  We don’t need a bunch of clueless Washington bureaucratic hacks who wouldn’t survive in the private sector for 6 months telling us what is good for us.