Energy Drives both Food Prices and the Economy. And Politics.

Posted by PITHOCRATES - March 16th, 2011

The Left Promotes and Attacks Electrical Power

The Left wants to get rid of the internal combustion engine and make all cars green.  Plug-ins.  Cars with batteries that charge by plugging them into electrical outlets.  They say it will break our dependence on foreign oil.  And stimulate the economy with new green technology.  For the same reason they want to dot the landscape with high-speed electric trains.  They want to make everything electric.  Because electric motors don’t pollute.

At the same time there is an all out assault on electrical generation in this country.  The nuclear power industry (the closest to a ‘green’ useful source of electricity we have) has been stalled since 1979 thanks to The China Syndrome and Three Mile IslandHydroelectric dams (another ‘green’ source of useful electricity) kill fish and alter the ecosystem.  So we can’t build them anymore.  With two down they’re turning their sights onto fossil fuels.  And they’re locked and loaded (see E.P.A. Proposes New Emission Standards for Power Plants by John Broder and John Collins Rudolf posted 3/16/2011 on The New York Times).

The Environmental Protection Agency proposed the first national standard for emissions of mercury and other toxins from coal-burning power plants on Wednesday, a rule that could lead to the early closing of dozens of generating stations and is certain to be challenged by the utility industry and Republicans in Congress…

She estimated the total annual cost of compliance at about $10 billion, in line with some industry estimates (although some are much higher), and the health and environmental benefits at more than $100 billion a year. She said that households could expect to see their electric bills rise by $3 to $4 a month when the regulation is fully in force after 2015.

With the country struggling to come out of the greatest recession since the Great Depression they want to raise the cost of energy?  For what?  Health and environmental benefits they pull out of the air (there are no ledgers anywhere totaling these costs)?  To offset one of the highest regulatory costs to come down the pike in history?  This is insanity.  One has to ask do they want to push the nation into a depression?  Or are they that ignorant in things economic?

She said that installing and maintaining smokestack scrubbers and other control technology would create 31,000 short-term construction jobs and 9,000 permanent utility sector jobs.

Okay, we increase the cost of electricity forever but we get a few temporary construction jobs.  Construction jobs aside, if you do the math, each of those new permanent jobs will end up costing us over $1 million each year.  In addition to their wages and benefits.  All paid for by the electrical consumer.  The fact that they talk about this as a good thing shows their utter ignorance of things economic.  And contempt for the consumer.

The National Association of Manufacturers said the proposed rule would lead to higher electricity prices and significant job losses.

“In addition, electric system reliability could be compromised by coal retirements and new environmental construction projects caused by this proposed rule and other E.P.A. regulations,” said Aric Newhouse, the group’s vice president for government relations. “Stringent, unrealistic regulations such as these will curb the recent economic growth we have seen.”

Manufacturers use a lot of electricity.  The more they have to pay for it the less they can spend elsewhere.  The new utility costs will always be there.  To stay competitive in the market, they will have to offset that permanent increase with cuts in their operating costs.  Translation?  Layoffs.  Or they simply will not hire new people.  Instead they will make capital investments to increase their productivity.  And use fewer people.  This is how they do things when costs go up.  Either that or they will send manufacturing operations out of the country.

What Happens in Vegas isn’t much these Days

Economic activity is driven by disposable income.  That’s the money you have left after paying the things you have to pay for just to subsist.  Food.  Mortgage.  Gasoline.  Property taxes.  Those kind of things.  Once we pay these, we can splurge on economic stimulation with what’s left over.  Dinners out.  Movies.  Vacations.  And gambling (see The Penny Slot Economic Indicator by Douglas French posted 3/16/2011 on Ludwig von Mises Institute).

Those at the Fed and in the financial press are telling us that the economy is turning around. Corporate America is ginning up profits so prosperity on main street can’t be far away…

However, if gaming trends in Nevada are any indication the middle class is hurting. Tourism and gaming peaked in 2007, with middle America making the trek to the gambling city to sit down and play a little blackjack (or 21). Latest figures have blackjack revenue down 31 percent from 2007, the Las Vegas Sun reports.

Last year was the first time baccarat, a game favored by Chinese high-rollers, generated more revenue than blackjack. But the $1.2 billion in baccarat revenue pales next to the $2 billion that penny slot machines generated…

So Las Vegas is limping along dependent on high rollers from China and low rollers playing penny slots. “This is why Vegas got hammered,” Anthony Curtis, publisher of Las Vegas Advisor says. “It needs the middle market.”

Casinos worked in Las Vegas because people went to Las Vegas to lose their money.  It’s a destination city.  All the other cities who opened casinos to cure their budgetary woes saw no magic.  The middle class just spent their money at the casinos instead of at the movies or the restaurants.  And by taking staycations.  We spent the same amount of money in the community.  We just spent it at different locations.

The recession may be over according to Washington, but it’s not over for the middle class.  Because they haven’t returned to vacationing in Las Vegas.  Why?  They don’t have as much money as they used to have.  And prices are going up.  A double whammy.  They have less to spend and subsistence costs are on the rise.

If Energy Costs Rise Food Costs Rise

In the summer of 2010 the Obama administration was touting their summer of recovery.  Declaring that their stimulus spending had ended the recession.  They were a bit premature.  Unemployment is still close to 9%.  Despite all of their quantitative easing.  They printed a lot of money.  Didn’t help.  Worse, on top of stubborn high unemployment, prices are going up on almost everything (see Wholesale prices up 1.6 pct. on steep rise in food by the Associated Press posted 3/16/2011 on Yahoo! Finance).

Wholesale prices jumped last month by the most in nearly two years due to higher energy costs and the steepest rise in food prices in 36 years. Excluding those volatile categories, inflation was tame…

Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose.

Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.

Separately, the Commerce Department said home construction plunged to a seasonally adjusted 479,000 homes last month, down 22.5 percent from the previous month. It was lowest level since April 2009, and the second-lowest on records dating back more than a half-century…

Food costs, meanwhile, are rising. Bad weather in the past year has damaged crops in Australia, Russia, and South America. Demand for corn for ethanol use has also contributed to the increase.

Prices rose 1 percent for apparel, the most in 21 years. Costs also increased for cars, jewelry, and consumer plastics.

Some would love to see $4/gallon gasoline again.  It would push people into electric cars and mass transportation.  But there’s a downside.  A big one.  Higher energy costs make everything more expensive.  Even our vegetables.  Because those vegetable don’t appear by magic in the grocery store.  They travel long ways on trucks that burn diesel fuel to get to the grocery store.

Food and energy are tied at the hip.  If energy costs rise food costs rise.  And when you siphon some food off to make low-energy ethanol that no one wants that just increases food costs more.  We should use food for food.  And oil for fuel.  It’s more cost efficient.  And consumers will have more money left over to stimulate the economy with.

The Left Makes a Very Poor Argument Against Nuclear Power

And speaking of energy, nuclear energy is in the news these days in a big way.  But not in a good way.  Japan has some reactors that were hit with a one-two punch of earthquake and tsunami.  The tsunami took out the cooling systems.  So there’s a little trepidation over these plants right now.  And absolute glee as anti-nuclear people exploit this for all it’s worth.  They’re saying, “See!  That’s what could happen in America right now.  And in Europe.  We need to stop all nuclear power.”  I’m paraphrasing, of course.  But you get the gist.  Why, some are even playing loose with facts.  Even lying.  And some are writing top 10 lists why nuclear power is bad and why solar and wind are good (see Too Cheap to Meter: The Top 10 Myths of Nuclear Power by Michael Rose posted 3/15/2011 on The Huffington Post).

The best way to generate new power for the long term is not to build nukes but to invest in large scale solar and wind, coupled with natural gas as a transition in the short term.

The problem has been coordinating the power produced when the wind blows and the sun shines, distributing the power and storage. There are solutions to all of these. “You need to link up the disparate sources to compensate for when the wind is blowing and the sun isn’t shining,”

Coordinating the wind and the sun?  Really?  That should be our energy policy?  And how will that work during a major blackout?  Like the Northeast Blackout of 2003?  Can solar power really run all our air conditioning systems during the dog days of summer?  Our fossil fuel-fired plants can’t always do that.  Can you imagine a hot summer without those high capacity plants?  The inevitable blackouts won’t be rolling.  They’ll simply be scheduled daily during air conditioning weather.

The nuclear industry has asked for loan guarantees from the Federal government because the banks looked at the risk and took a pass. With the loan guarantees in hand the companies can get financing and if they default, or walk away from the projects (which is what happened before) the taxpayers will be stuck with the bill. “It’s the same as if you defaulted on your mortgage and the Federal government had to step in to pay the banks back,” said Hirsch.

We saw above how new regulations are going to cost the coal-fired plant operators.  The new regulations will probably force some plants to shut down.  This is the fear of regulation.  Uncertainty.  If you change the rules midway through the game there’s a good chance you’re going to end up losing in the end.  Power plants are costly.  They are difficult to build because of the regulatory hoops you have to jump through.  It is a very high-risk game.  And nowhere are the risks and regulatory hoops greater than nuclear power.  These plants take even longer to build.  Are far more costly because of the regulatory compliance costs.  And have by far the greatest uncertainty because of the length of time from drawing board to operating on line because of these regulatory hurdles.  This is why banks don’t want to invest.  Because the government can change the rules and prevent a plant from ever going on line, leaving the bank to eat the construction costs.

It’s true that building the reactors does create jobs, but these disappear when the reactor is complete. And there are staff positions for running the reactors, providing maintenance and security but not enough to warrant the high costs and risks…

Ironically some fear that building new nukes will chase jobs away because electric rates will have to dramatically increase to pay them off. “No state ever created a net increase in jobs by raising electric rates to commercial and industrial customers. Such a policy drives jobs out of many businesses to create relatively few permanent jobs at the new reactor,” said Bradford.

Funny.  The same arguments work for other federal stimulus spending.  Those short-term construction jobs are good when they’re trying to pass a stimulus bill.  But it’s not good if it will stimulate nuclear power.  And they say here that increasing the cost of electricity will kill jobs.  Meanwhile, increasing the cost of electricity by adding new regulations for coal-fired plants will increase jobs.  Costs are funny that way.  Sometimes they’re bad.  Sometimes they’re good.  Sometimes they’re rooted in reality.  Other times, in fantasy.

France is pointed to as demonstrable proof that nuclear power can be affordable and safe. While it’s true France gets about 75% of its electricity from nuclear power and that it has avoided a large scale disaster but we don’t know very much about their accident record since its industry is nationalized and run behind a veil of secrecy…

It also adds to the costs of the producing nuclear power which is one reason French electric rates are 20% above U.S. rates despite subsidies, according to Bradford.

So, yes, France has energy independence.  And they haven’t had a nuclear disaster.  But that doesn’t mean anything.  They could.  Just because they didn’t doesn’t mean they can’t have a China syndrome next week.  Or tomorrow.  So we should proceed as if they will.  Despite their safety record.  And the cost?  Interesting.  Because the source they cite paints a little different picture.

The present situation is due to the French government deciding in 1974, just after the first oil shock, to expand rapidly the country’s nuclear power capacity. This decision was taken in the context of France having substantial heavy engineering expertise but few indigenous energy resources. Nuclear energy, with the fuel cost being a relatively small part of the overall cost, made good sense in minimising imports and achieving greater energy security.

As a result of the 1974 decision, France now claims a substantial level of energy independence and almost the lowest cost electricity in Europe. It also has an extremely low level of CO2 emissions per capita from electricity generation, since over 90% of its electricity is nuclear or hydro.

In mid 2010 a regular energy review of France by the International Energy Agency urged the country increasingly to take a strategic role as provider of low-cost, low-carbon base-load power for the whole of Europe rather than to concentrate on the energy independence which had driven policy since 1973.

Energy independence?  Low fuel costs?  Almost the cheapest electricity in Europe?  Extremely low CO2 emissions?  And the International Energy Agency wants them to be the provider of “low-cost, low-carbon base-load power for the whole of Europe…”  I don’t know.  These sound like good things to me.  Talk about being a bit disingenuous.  And by a bit I mean a lot.  Clearly they are cherry-picking some facts to forward an agenda.  Speaking of which, back to the HuffPo.

All civilian nuclear programs create spent fuel that can be reprocessed into weapons grade plutonium. This is what Iran, North Korea, India and Pakistan have done.

It doesn’t take much. At first you needed a chunk of plutonium about the size of a softball now it’s down to the size of a golf ball. “If a country has done its engineering, it can take about a week to go to a bomb,” said Gillinsky. “Safeguard inspections are too late.”

And here we come to why we use the energy we use.  Because it’s concentrated.  A little bit of nuclear fuel goes a long way.  Just like our fossil fuels.  That’s why our cars run on gasoline.  Because it’s easy to store and it’s highly concentrated.  With a small tank of fuel you can drive a very long way.  While carrying your whole family.  And a lot of your stuff.  That’s why we don’t drive electric cars.  You can’t do any of this in a battery-electric car.  The battery takes up too much space.  And you just can’t go very far on a charge.

Solar farms and wind farms are not concentrated sources of energy.  The very term we use to describe these generating ‘plants’ tells us this.  You need so many of them that we call them ‘farms’.  Not ‘plants’.  And even with a large footprint their electricity output won’t come close to what the power plants using concentrated-fuels can produce.  A couple of reactors on a small site can power a large city.  It would take a very large plantation of solar panels and windmills to produce the same amount of electricity.  And they will only produce when the sun is shining or the wind is blowing.  Our concentrated fuel-fired power plant will be there 24/7, day or night, rain or shine.

Will the Great Recession turn into the Great Depression II?

Never before has our energy policy been in such a mess.  The children have taken control of policy.  They’re promoting fanciful solar panels and windmills no doubt while dreaming of unicorns and sugar plum fairies.  They don’t understand energy.  Or economics. 

Energy costs.  Construction costs.  Fuel costs are recurring.  While construction costs are one-time.  Therefore, the best economic policy would be to minimize fuel costs.  And coal, natural gas, oil, and nuclear do just that.  You get huge amounts of energy from small amounts of fuel.  Especially nuclear.

Yes, sunshine and wind are free.  And you can’t minimize fuel costs more than free (except with nuclear that can use some nuclear waste to produce more fuel).  But the infrastructure cost to make solar and wind provide meaningful amounts of energy are staggering.  A nuclear plant can sit on a small footprint out of the way.  While solar and wind farms will take acres of land.  Or water (for offshore wind generation). 

While they play with energy and economic policies, consumer costs rise everywhere.  And will continue to do so.  As a direct consequence of their policies.  Consumers pay more.  And the greatest recession since the Great Depression drags on.  Perhaps turning recession into depression.  Could the Great Depression II be around the corner?  I hope not.  But one can’t rule it out with the current administration.

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