I grew up in the Chicagoland area, and was in school while the Bulls won their six championships in eight years. While Michael Jordan was definitely the dominant player in each series, the team of Jordan, Pippen, and other players including Kukoc, Rodman, Armstrong, Paxton, Longley, Grant, and Cartwright, among many others. And of course, there was Phil Jackson at the helm. All the players on each of those teams, when they were growing up, they had a goal - sure, they wanted to be the best player they could be, but the goal was to be on a team that won the NBA championship. No one player did that alone, nor has there ever been a one-man show winner.
Today, we live in an age of extreme individualism.
In recent news stories, some research panel suggested that there might be a decreased benfit for routine mamograms in the overall population for women in their forties. The researchers were immediately chastised for not caring for those few individuals who have benefitted from the discovery of an unpredictable tumor early in life.
In nutrition, people assume they can eat whatever they want - because each night is special, or for some other recently popular reason, but they ignore the larger effect this pattern of behavior has on societal health.
Families wait longer and longer to have children because of the impact they will have on the parents' young adult lives, with the result that many more children are being born into lifelong health problems today than in the past.
People in America are also feeling more entitled to a large car, a big house, or access to civic centers without fully realizing the economic, environmental, and social responsibilities that go along with these acquisitions.
In part, I feel many of these problems are rooted in the social movement of individual liberation from societal norms in the 60's, when the baby boomers started using their numbers for social change. While many great achievements came from that era - minority civil rights, women's rights, and a great change in social discourse and awareness of diversity, there is a price for the individualism that was used as a tool for this great progress.
I am a member of the generation following the baby boomers. Actually, I fall somewhere between the Gen X'ers and the digital children graduating college today. I was raised and am falling victim to the lack of social norms my generation has been taught. We were, by and large, overprotected, lest we risk our individual well-being:
We were not taught how to cook for ourselves (men don't cook, and now, neither do women),
how to manage money,
how to wait for the trappings of life (read: wait for 20% down on a house), nor
how to engage in civic responsibility (that reeks of The Man).
We are, however, adults now, and just as a new President begins to own the legacy situations from his predecessor, we cannot claim victimhood of our situation to any positive end. I believe our generation needs to embrace our role as leaders of the future, and to define what that will be for ourselves.
Just as no great sports achievement can be done alone, I believe we must reject the trap of individualism and the greed that has come to be a part of that way of life. We must instead strive for common purpose and raise each other up by working for the better of the community first.
- Every person, for the betterment of themselves and their neighbors, must work to provide for themselves and their families so as not to require assistance from the common welfare, except in dire circumstance.
- Traditional lending (20% down for a house or a car) should be desired above immediate desire for an unaffordable house.
- Proper sized (large enough for needs, but no larger so as not to be wasteful) houses and cars should be pursued for a better quality of life. Supply your needs, and save the excess for other areas.
- Personal health should be an imperative, both for personal benefit and for a reduction of the cost to society.
- Supporting neighbors with local commerce, community involvement, and at the very least, familiarity for caring communities should be of the utmost importance.
- Supporting the fair application of the law for all, not for individual rights, but for community justice is also a necessity. If we are to expect the same effort from all, we need to provide a fair set of rules for all.
- Collective investment in benefitting a common purpose - be it health care, environmental impact, access to energy, or whatever the large issue of the day is. The litmus test should be "is this going to benefit the community as a whole?" If so, the individuals as part of that community will see benefits, even if some see more than others, but the chance for future generations born into that community will be better overall.
A rising tide lifts all boats. Let us have goals worth reaching for - striving for community goals will make us all better.
Thursday, December 10, 2009
Tuesday, October 20, 2009
Thought Experiment - Family 2
In our second case, the family again has a combined gross income of $50,233 per year (the national median income), and we'll ignore inflation and changes in income for this exercise. With no changes to any family's behavior, the take home pay is roughly $36,675, of which, $12,659 pays for their house and property taxes (10 percent smaller than the 28% or gross income often recommended). Electric, gas, and water utilities account for another $2,840, savings $5,000, and $3,059 for gas for two cars, leaving $13,117 for food, insurance, car payments, and discretionary spending. (Utility and gasoline expenses estimated from the EPA's average values, assuming $2.50 for a gallon of gas. $210/month for electric and gas utilities, split evenly between gas and electric; $320 annually on water; 240 miles per week in a 20.4 mpg car)
Now we consider our second family, who does things with government incentives. This will likely get them to do the following things - buy EnergyStar conditioning systems and appliances, use compact fluorescent lights in the house in the major cases, and drive a hybrid car. Appliances save approximately $178 per year (refrigerator ~ $60, washer ~$46, dishwasher ~$52, 2 TVs ~$10 each), although they cost an extra $209 (refrigerator ~$180, washer ~$129, dishwasher ~$0, TVs ~$0) up front. With a government policy in place to pay, we'll say $200 in this case, they only put up $9. An EnergyStar air conditioning unit will save them roughly $165 per year for an additional $556 up front, and an energy star furnace will save $280 for an extra investment of $320. Again, with incentives, we'll estimate they can get the government to pay $500 of this cost, leaving $376 for them. All told, they spent an extra $385 the first year to save $623 per year after that. Because we're assuming the government is providing this benefit to everyone, the tax money comes from their taxes, which will be amortized over ten years, raising their tax payments $70 per year, reducing their savings to $553 per year.
Lights are pretty simple - assume they spend 9% (EIA average) of their electric bill on lighting, and they can save 2/3 of that by switching to compact fluorescent lights. That would result in a $76 annual savings for an investment of roughly $100 to change out all the lights in the house. These are getting to be fairly common, so we'll assume no incentives are required here.
Their one hybrid car (assume they only upgrade one car) will be only slightly more complicated because it, like many cars, is assumed to be financed. A Prius starts at $22,000, as compared to a Camry, that start at $15,350. Assume the Prius gets a $3,000 tax credit, effectively reducing its price to $19,000. Over a 5-year, no-money down, purchase agreement with 5.99% APR, this family would spend $478 instead of $387, or $91 more per month, plus an extra $300 in taxes each year ($1,392 more per year) to save ($2.5 x 240 x 52 x (1/20.4 - 1/50) = $905) on gas in a year.
In the first year, this family would spend an extra $343, leaving $12,774 (97% of their original budget, remember our first family had 88% here.) for their food, etc. Each of the next four years, they would have $142 of net savings, leaving $13,259 (101% of the original budget, last time this was 97%) for those extra expenses. For years 6-10, they would save $1,534 per year from the gas and utility budgets, expanding their discretionary spending to $14,651 (111.7% of the original budget, this was just over 112% last time).
More likely than cutting into something like food, this family would save less in the first year, and would try to make up for it with the final five years. At 6% interest, only $51 of their surplus would be required each year to make up for the extra expenses in the first year. All told, then, this family breaks even, with four years of a surplus of $91, followed by five years of $1,483 per year at the end. This scenario poses little risk, as their savings are depleted for only one year, and they end up with a surplus of $7,779 (as compared to a net surplus of $3,815 with no incentives).
Environmentally, this family would save 28% of their energy costs (utilities and gasoline), which roughly correspond to source energy content. This would correspond to a reduction of 17,430 pounds of CO2 per year, based on the EPA estimate of 62,250 pounds per family of 3.
In the end, this is a greater net benefit to the family, who gains surplus income over a ten-year period, and a benefit to the environment due to reduced fossil fuel emissions. The overall economy is benefitted from the extra expense spent on the new equipment up front, and the utility providers reduce their distribution stresses - although this would result in a decrease in infrastructure maintenance and utility income, which would have an overall balancing effect. The economic impact would be to transfer financing from utility infrastructure and fossil fuels to innovation and manufacturing (Energy Star equipment) and production of other consumer goods and services (accounting for the $7,000-plus surplus).
Extrapolating this to the entire country taking part, we can come up with some large-scale impacts. Assuming the EnergyStar equipment takes no more energy than the non-EnergyStar appliances to produce, the expenditures of this family would increase by 12% in other areas during the final five years, which would increase corporate and other industrial production (and energy use) by 12%. The net effect on the environment would be a 28% reduction in residential and transportation use for 10 years (roughly 36% of national use) and a 12% increase in commercial and industrial use for 5 years (roughly 64% of national use), or the equivalent of a 6% overall reduction over the full 10 years.
Essentially, this scenario works because the government acts as a low or no-interest financing agent. A small low-interest bank loan to cover the up-front costs would have a similar impact on the end consumer and the economy as a whole. Because of the simplified scenario here, it makes little difference how the tax is imposed - if it is a direct tax, a utility tax, a cap-and-trade fee, etc. In any case, the funds are ultimately passed down to the consumer, although the more direct the tax is, the less hands are likely to take a piece of margin on top along the way. Hence, the least politically palpable is also the least costly.
Now we consider our second family, who does things with government incentives. This will likely get them to do the following things - buy EnergyStar conditioning systems and appliances, use compact fluorescent lights in the house in the major cases, and drive a hybrid car. Appliances save approximately $178 per year (refrigerator ~ $60, washer ~$46, dishwasher ~$52, 2 TVs ~$10 each), although they cost an extra $209 (refrigerator ~$180, washer ~$129, dishwasher ~$0, TVs ~$0) up front. With a government policy in place to pay, we'll say $200 in this case, they only put up $9. An EnergyStar air conditioning unit will save them roughly $165 per year for an additional $556 up front, and an energy star furnace will save $280 for an extra investment of $320. Again, with incentives, we'll estimate they can get the government to pay $500 of this cost, leaving $376 for them. All told, they spent an extra $385 the first year to save $623 per year after that. Because we're assuming the government is providing this benefit to everyone, the tax money comes from their taxes, which will be amortized over ten years, raising their tax payments $70 per year, reducing their savings to $553 per year.
Lights are pretty simple - assume they spend 9% (EIA average) of their electric bill on lighting, and they can save 2/3 of that by switching to compact fluorescent lights. That would result in a $76 annual savings for an investment of roughly $100 to change out all the lights in the house. These are getting to be fairly common, so we'll assume no incentives are required here.
Their one hybrid car (assume they only upgrade one car) will be only slightly more complicated because it, like many cars, is assumed to be financed. A Prius starts at $22,000, as compared to a Camry, that start at $15,350. Assume the Prius gets a $3,000 tax credit, effectively reducing its price to $19,000. Over a 5-year, no-money down, purchase agreement with 5.99% APR, this family would spend $478 instead of $387, or $91 more per month, plus an extra $300 in taxes each year ($1,392 more per year) to save ($2.5 x 240 x 52 x (1/20.4 - 1/50) = $905) on gas in a year.
In the first year, this family would spend an extra $343, leaving $12,774 (97% of their original budget, remember our first family had 88% here.) for their food, etc. Each of the next four years, they would have $142 of net savings, leaving $13,259 (101% of the original budget, last time this was 97%) for those extra expenses. For years 6-10, they would save $1,534 per year from the gas and utility budgets, expanding their discretionary spending to $14,651 (111.7% of the original budget, this was just over 112% last time).
More likely than cutting into something like food, this family would save less in the first year, and would try to make up for it with the final five years. At 6% interest, only $51 of their surplus would be required each year to make up for the extra expenses in the first year. All told, then, this family breaks even, with four years of a surplus of $91, followed by five years of $1,483 per year at the end. This scenario poses little risk, as their savings are depleted for only one year, and they end up with a surplus of $7,779 (as compared to a net surplus of $3,815 with no incentives).
Environmentally, this family would save 28% of their energy costs (utilities and gasoline), which roughly correspond to source energy content. This would correspond to a reduction of 17,430 pounds of CO2 per year, based on the EPA estimate of 62,250 pounds per family of 3.
In the end, this is a greater net benefit to the family, who gains surplus income over a ten-year period, and a benefit to the environment due to reduced fossil fuel emissions. The overall economy is benefitted from the extra expense spent on the new equipment up front, and the utility providers reduce their distribution stresses - although this would result in a decrease in infrastructure maintenance and utility income, which would have an overall balancing effect. The economic impact would be to transfer financing from utility infrastructure and fossil fuels to innovation and manufacturing (Energy Star equipment) and production of other consumer goods and services (accounting for the $7,000-plus surplus).
Extrapolating this to the entire country taking part, we can come up with some large-scale impacts. Assuming the EnergyStar equipment takes no more energy than the non-EnergyStar appliances to produce, the expenditures of this family would increase by 12% in other areas during the final five years, which would increase corporate and other industrial production (and energy use) by 12%. The net effect on the environment would be a 28% reduction in residential and transportation use for 10 years (roughly 36% of national use) and a 12% increase in commercial and industrial use for 5 years (roughly 64% of national use), or the equivalent of a 6% overall reduction over the full 10 years.
Essentially, this scenario works because the government acts as a low or no-interest financing agent. A small low-interest bank loan to cover the up-front costs would have a similar impact on the end consumer and the economy as a whole. Because of the simplified scenario here, it makes little difference how the tax is imposed - if it is a direct tax, a utility tax, a cap-and-trade fee, etc. In any case, the funds are ultimately passed down to the consumer, although the more direct the tax is, the less hands are likely to take a piece of margin on top along the way. Hence, the least politically palpable is also the least costly.
Thursday, August 6, 2009
Thought Experiment - Family 1
Let's conduct a thought experiment today. The goal is to find out what happens with different behaviors related to energy use. I'd like to conduct this experiment on a family level, a corporate level, an industrial level, and a societal level. First, let's focus on family matters.
I want to consider three alternatives - first, what happens if a family is self-motivated to use more efficient technology and practices. Second, I'll think what happens if they rely on government incentives to change what they buy. Finally, I'll think what would happen if they're cost-motivated, and make choices with no incentives, but assuming costs go up for electricity, natural gas, and gasoline. Each of these experiments will run 10 years to see how these changes will affect the reasonably near future.
In each case, the family has a combined gross income of $50,233 per year (the national median income), and we'll ignore inflation and changes in income for this exercise. With no changes to any family's behavior, the take home pay is roughly $36,675, of which, $12,659 pays for their house and property taxes (10 percent smaller than the 28% or gross income often recommended). Electric, gas, and water utilities account for another $2,840, savings $5,000, and $3,059 for gas for two cars, leaving $13,117 for food, insurance, car payments, and discretionary spending. (Utility and gasoline expenses estimated from the EPA's average values, assuming $2.50 for a gallon of gas. $210/month for electric and gas utilities, split evenly between gas and electric; $320 annually on water; 240 miles per week in a 20.4 mpg car)
Now if we consider our first family, who does things for their own accord. Let's assume they do simple things - buy EnergyStar conditioning systems and appliances, use compact fluorescent lights in the house wherever possible, and drive a hybrid car. Appliances save approximately $178 per year (refrigerator ~ $60, washer ~$46, dishwasher ~$52, 2 TVs ~$10 each), although they cost an extra $209 (refrigerator ~$180, washer ~$129, dishwasher ~$0, TVs ~$0) up front. An EnergyStar air conditioning unit will save them roughly $165 per year for an additional $556 up front, and an energy star furnace will save $280 for an extra investment of $320. All told, they spent an extra $1,085 the first year to save $623 per year after that.
Lights are pretty simple - assume they spend 9% (EIA average) of their electric bill on lighting, and they can save 2/3 of that by switching to compact fluorescent lights. That would result in a $76 annual savings for an investment of roughly $100 to change out all the lights in the house.
Their one hybrid car (assume they only upgrade one car) will be only slightly more complicated because it, like many cars, is assumed to be financed. A Prius starts at $22,000, as compared to a Camry, that start at $15,350. Over a 5-year, no-money down, purchase agreement with 5.99% APR, this family would spend $554 instead of $387, or $167 more per month ($2,004 more per year) to save ($2.5 x 240 x 52 x (1/20.4 - 1/50) = $905) on gas in a year.
In the first year, this family would spend an extra $1,585, leaving $11,532 (88% of their original budget) for their food, etc. Each of the next four years, they would have $376 extra coming out-of-pocket, leaving $12,741 (97% of the original budget) for those extra expenses. For years 6-10, they would save $1,628 per year from the gas and utility budgets, expanding their discretionary spending to $14,745 (112% of the original budget).
More likely than cutting into something like food, this family would save less in the first five years, and would try to make up for it with the final five years. At 6% interest, $865 of their surplus would be required each year to make up for the extra expenses in the first five years. All told, then, this family breaks even, with five years of a surplus of $763 per year at the end. Unfortunatley, this scenario poses a risk, as their savings are depleted for the first five years.
Environmentally, this family would save 28% of their energy costs (utilities and gasoline), which roughly correspond to source energy content. This would correspond to a reduction of 17,430 pounds of CO2 per year, based on the EPA estimate of 62,250 pounds per family of 3.
In the end, this is a net benefit to the family, who gains surplus income over a ten-year period, and a benefit to the environment due to reduced fossil fuel emissions. The overall economy is benefitted from the extra expense spent on the new equipment up front, and the utility providers reduce their distribution stresses - although this would result in a decrease in infrastructure maintenance and utility income, which would have an overall balancing effect. The economic impact would be to transfer financing from utility infrastructure and fossil fuels to innovation and manufacturing (Energy Star equipment) and production of other consumer goods and services (accounting for the $566 surplus in the last 5 years).
Extrapolating this to the entire country taking part, we can come up with some large-scale impacts. Assuming the EnergyStar equipment takes no more energy than the non-EnergyStar appliances to produce, the expenditures of this family would increase by 12% in other areas, which would increase corporate and other industrial production (and energy use) by 12%. The net effect on the environment would be a 28% reduction in residential and transportation use for 10 years (roughly 36% of national use) and a 12% increase in commercial and industrial use for 5 years (roughly 64% of national use), or the equivalent of a 6% overall reduction over the full 10 years.
The other cases will follow another day.
I want to consider three alternatives - first, what happens if a family is self-motivated to use more efficient technology and practices. Second, I'll think what happens if they rely on government incentives to change what they buy. Finally, I'll think what would happen if they're cost-motivated, and make choices with no incentives, but assuming costs go up for electricity, natural gas, and gasoline. Each of these experiments will run 10 years to see how these changes will affect the reasonably near future.
In each case, the family has a combined gross income of $50,233 per year (the national median income), and we'll ignore inflation and changes in income for this exercise. With no changes to any family's behavior, the take home pay is roughly $36,675, of which, $12,659 pays for their house and property taxes (10 percent smaller than the 28% or gross income often recommended). Electric, gas, and water utilities account for another $2,840, savings $5,000, and $3,059 for gas for two cars, leaving $13,117 for food, insurance, car payments, and discretionary spending. (Utility and gasoline expenses estimated from the EPA's average values, assuming $2.50 for a gallon of gas. $210/month for electric and gas utilities, split evenly between gas and electric; $320 annually on water; 240 miles per week in a 20.4 mpg car)
Now if we consider our first family, who does things for their own accord. Let's assume they do simple things - buy EnergyStar conditioning systems and appliances, use compact fluorescent lights in the house wherever possible, and drive a hybrid car. Appliances save approximately $178 per year (refrigerator ~ $60, washer ~$46, dishwasher ~$52, 2 TVs ~$10 each), although they cost an extra $209 (refrigerator ~$180, washer ~$129, dishwasher ~$0, TVs ~$0) up front. An EnergyStar air conditioning unit will save them roughly $165 per year for an additional $556 up front, and an energy star furnace will save $280 for an extra investment of $320. All told, they spent an extra $1,085 the first year to save $623 per year after that.
Lights are pretty simple - assume they spend 9% (EIA average) of their electric bill on lighting, and they can save 2/3 of that by switching to compact fluorescent lights. That would result in a $76 annual savings for an investment of roughly $100 to change out all the lights in the house.
Their one hybrid car (assume they only upgrade one car) will be only slightly more complicated because it, like many cars, is assumed to be financed. A Prius starts at $22,000, as compared to a Camry, that start at $15,350. Over a 5-year, no-money down, purchase agreement with 5.99% APR, this family would spend $554 instead of $387, or $167 more per month ($2,004 more per year) to save ($2.5 x 240 x 52 x (1/20.4 - 1/50) = $905) on gas in a year.
In the first year, this family would spend an extra $1,585, leaving $11,532 (88% of their original budget) for their food, etc. Each of the next four years, they would have $376 extra coming out-of-pocket, leaving $12,741 (97% of the original budget) for those extra expenses. For years 6-10, they would save $1,628 per year from the gas and utility budgets, expanding their discretionary spending to $14,745 (112% of the original budget).
More likely than cutting into something like food, this family would save less in the first five years, and would try to make up for it with the final five years. At 6% interest, $865 of their surplus would be required each year to make up for the extra expenses in the first five years. All told, then, this family breaks even, with five years of a surplus of $763 per year at the end. Unfortunatley, this scenario poses a risk, as their savings are depleted for the first five years.
Environmentally, this family would save 28% of their energy costs (utilities and gasoline), which roughly correspond to source energy content. This would correspond to a reduction of 17,430 pounds of CO2 per year, based on the EPA estimate of 62,250 pounds per family of 3.
In the end, this is a net benefit to the family, who gains surplus income over a ten-year period, and a benefit to the environment due to reduced fossil fuel emissions. The overall economy is benefitted from the extra expense spent on the new equipment up front, and the utility providers reduce their distribution stresses - although this would result in a decrease in infrastructure maintenance and utility income, which would have an overall balancing effect. The economic impact would be to transfer financing from utility infrastructure and fossil fuels to innovation and manufacturing (Energy Star equipment) and production of other consumer goods and services (accounting for the $566 surplus in the last 5 years).
Extrapolating this to the entire country taking part, we can come up with some large-scale impacts. Assuming the EnergyStar equipment takes no more energy than the non-EnergyStar appliances to produce, the expenditures of this family would increase by 12% in other areas, which would increase corporate and other industrial production (and energy use) by 12%. The net effect on the environment would be a 28% reduction in residential and transportation use for 10 years (roughly 36% of national use) and a 12% increase in commercial and industrial use for 5 years (roughly 64% of national use), or the equivalent of a 6% overall reduction over the full 10 years.
The other cases will follow another day.
Thursday, July 30, 2009
The Tipping Point
The principle behind this is simple - modern economies operate on the exchange of money for goods or services. Previous systems (and some modern systems, but to a lesser extent) used bartering, or exchange of goods and services directly for other goods or services, with no standardized currency as an intermediary.
In this system with money as an agent of economic activity, there is a capacity for wealth to accumulate. On the micro-economic scale, if a person is able to spend less than they earn, they will accumulate wealth. On the macro-economic scale, if a country imports less than it exports, it similarly accumulates wealth.
This simple principle is argued in many talk shows, with the result that most people believe the trade deficit should be reduced, although the possibility of protectionism, which many believe will result in retaliatory policies by competing nations is often offered as a counter-argument.
I tried to break down the general economic picture by looking at which parts of the economy relied on others to see if there was an intuitive or counter-intuitive nature to this problem. In looking at a sector, I used simple relationships of exchange. i.e. in food production, agricultural goods are sent to a facility; the facility owns or rents the land and building it houses its processing and storage; energy and labor are put into the processing of the raw goods; and some level of machinery processes, packages, or moves the raw goods along the line, resulting in a final food product ready for consumption by end consumers.
Breaking this down, inputs are:
Agricultural raw materials
Transportation
Energy
Labor
Real Estate
Machinery
and the output is Food sent to the consumer.
Accounting would necessitate that the cost of the food sent out is greater than the cost of the combined inputs. Competition limits the excess of this balance, resulting that the money spent on food is distributed to other parts of the economy, namely Agriculture, Transportation, Energy, Labor, Real Estate, and Machinery. What excess is left pays dividends to the owners, who accumulate that wealth.
Cascading through the economy through finance, health care, pharmacuticals, leisure, consumer goods, etc. some patterns arise.
The first pattern is that Labor, Travel, Real Estate, and Energy are required for nearly every part of the economy to function. These are what I would call a nation's ultimate source of wealth. This emphasizes the requirement for policies supporting proper training and health of the labor force, investment in transportation and energy infrastructure, secured sustainable energy sources, and a limiting cap for a country determined by the usable land available.
A second note is that in some areas payments do not directly pay for the services that are supplied. For example, in public education, workers pay taxes to the government, and the government pays the costs of education, which is supplied to the existing and next generation of workers.
The other large pattern, however, is that there are a few sectors which are ultimate suppliers of goods and services. Manufacturing of machinery, mining natural resources, and financing development are the three areas that have no costs other than the four primary national sources of wealth.
These collection points of wealth point to two other policy requirements.
First, within a country, the owners of these areas must not be allowed to exploit the rest of the economic workforce, or the country will face mass poverty, civil unrest, and unrepresentative influence of the owning class. Minimum wages for workers and regulation of these sectors are required for this balance to be met. The inclination of every individual is to work in their best interest, which, in the case of the owners of these sectors is not the better interest of the country as a whole; therefore these sectors will not self-regulate.
Second, with regard to foreign policy, these sectors must not be allowed to move disproportionately overseas, or wealth (and influence) will leave the country weak and unable to sustain itself from outside threat - military, economic, or otherwise. Fair competition will result in certain industries and specialties locating in one area over another. Geologic locations of natural resources will determine the flow of that portion of economic activity. However, if multiple mechanized industries move overseas, it must be due to lower costs in either Labor, Energy, Transportation, or Real Estate Costs, or more than one of these. Energy and Real Estate costs should be relatively self-regulating, and transportation costs should favor local production over foreign. Labor costs are most likely to affect trade imbalances. In this case, tariffs should be used to equalize the competitive situation, balanced with measured controls on the domestic minimum wage. Alternatively, currency manipulation by foreign powers will result in a trade imbalance not tied to any obvious natural cause. In this case, tariffs should be used without question as a protectionary measure. Long term, negotiation may bring down aggressive economic policies of other countries, but capital, once spent, takes a long time to change - manufacturing policy must have a long-view.
Wednesday, June 17, 2009
Energy Supply
I recently completed an exercise I suggest more people do themselves. This exercise estimates the remaining resources in the global energy supply chain, and compares this amount with the current demand. I referenced the following websites for primary information:
http://www.eia.doe.gov/emeu/international/reserves.html (existing global proven oil and natural gas reserves)
http://en.wikipedia.org/wiki/Coal (existing global proven coal reserves)
http://www.eia.doe.gov/emeu/international/electricityconsumption.html (existing global electricity consumption)
http://www.eia.doe.gov/emeu/aer/pecss_diagram.html (breakdown of energy use in the US)
Following an analysis based on equivalent energy, I came up with the following observations:
- There are nearly equal amounts of oil and natural gas reserves in the world, but nearly twice as much coal as both oil and natural gas combined.
- 86% of the world's reserves are divided between North America, the Middle East, Eurasia, and Asia/Oceana. There are relatively few resources in Africa, Western Europe, and Central and South America.
- Oil accounts for the largest portion of energy use in the US, followed by Natural Gas, then Coal (85% of primary energy between those three). The remaining 15% is supplied by nuclear power and the full collection of renewable energy sources.
- Shale Oil could expand the world's oil supply to over 3.5 times the current amount, primarily from sources in North America, although at significantly increased environmental and economic costs.
- At current consumption rates, all world oil reserves will be exhausted by 2047, and all natural gas reserves by 2067. Coal would not run out until 2191. Accounting for the shale oil listed in the previous point, oil would last until 2156.
The above points obviously leave out many dynamics of energy supply. First, demand has never been stagnant. In all periods of recorded history, energy use has increased. This pattern would exacerbate the situation. Also, as supplies run low, by basic economics, prices can be expected to rise. Depending on the degree of the price increase, supply could potentially decrease.
I explored a couple policy actions to see what the results would be if implemented in the US. Increasing CAFE standards to 35 mpg would eventually reduce oil use by about 15%. Doubling renewable energy electricity generation, increasing lighting efficiency across the board, starting an aggressive industrial energy efficiency program, promoting and expanding public transit and intercity rail, and expanding building insulation programs would also contribute greatly to reducing national energy use. Overall, all these measures combined (including the CAFE standard) would reduce national energy use by 35%. Fossil fuels would be reduced by 46%.
While these types of numbers are encouraging, keep in mind that these are very aggressive policy proposals compared to anything that is currently in place. These numbers also unfortunately point to another disheartening point. Keeping the rest of the world's energy use constant only extends the "end date" for oil, natural gas, and coal by 3, 5, and 29 years, respectively. Acting alone, we only move from running out of conventional oil sources by 2047 to running out by 2050.
These numbers point to a few key points, in my analysis.
- Energy policy needs to expand conservation measures much more aggressively in order to have a significant impact. With or without these measures, I would guess that inertia in any progress will result in a dramatic, sustained rise in energy costs, focused in oil and natural gas costs, in 10-20 years (2020 to 2030).
- Any energy policy must be enacted in partnership with other countries, with the US as a leader in efficiency and conservation to tie in with our leading consumption of energy (at least 20% of the world's fossil fuels are consumed in the US). No policies will have the desired effect without US participation, nor without global participation beyond the US.
In short, it is time that energy policy caught up with the approaching conflict of the realities of resources and demand. Beyond policy, individuals and organizations that invest now in long-term projects (those that will last over 10 years) will see much greater benefits than traditional analysis might otherwise show, due to the likely unprecedented rise in price approaching in the near future.
This is a great opportunity to take bold actions that will greatly benefit quality of life and economic and environmental sustainability long into the future.
Carry-Over
This is a continuation of a previous blog I had started (http://sustainableforum.blogspot.com/), although, due to an email change, I can no longer update the old forum.
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