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BTU overdrive / April 30, 2009
First rule for countering groupthink: When everyone else agrees on a plan of action, that’s when you should become suspicious. Conventional wisdom now says the path to a healthy Southside economy begins with the development of alternative energy technologies. By harvesting our natural resources in innovative ways, so we are told, Southside can become the Saudi Arabia of wood scrap, corn cobs, chicken poop or whatever.

The presumptive Republican nominee for governor, Bob McDonnell, this week rolled out his plan for promoting Virginia as the “Energy Capital of the East Coast.” McDonnell gave a requisite nod to green jobs but also called for increased drilling off the coasts and greater emphasis on coal and nuclear power (there was nothing specifically in his plan about uranium mining in Pittsylvania, but presumably McDonnell is favorably disposed). On the Democratic side, all three candidates for governor have touted various plans to transform Southside into a national corridor of biofuels production. Terry McAuliffe has expressed such enthusiasm for chicken waste as a potential energy source that he hired someone to wear a chicken suit, complete with diaper, at the Shad Planking to dramatize his commitment to the cause. And people complain that politicians don’t know how to create jobs.

Meantime, in the midst of this official celebration of the emerging alt-energy economy, the New York Times ran an article on April 7 entitled “Oil Giants Loath To Follow Obama’s Green Lead.” The gist of the piece was that the oil companies are sitting on the sidelines as private investors, startup companies and their government partners jump wholesale into new markets for wind, solar and biofuels. On the one hand, you can view this as yet another example of Big Oil exerting its malign influence over potential rivals. On the other hand, whatever else you may think of the oil companies, presumably they know a thing or two about energy production — anyone who has ever watched five minutes of “Meet the Press” knows that Big Oil long ago moved beyond petroleum and all that. In this light, perhaps it’s worth asking if the industry’s evident lack of interest tells us anything about the viability of a broad-based green economy.

Wading all the way to the end of the Times piece, you get your answer: MIT professor and former CIA director John Deutch argued that “there was little point in criticizing oil companies without first establishing federal rules that set a price on carbon dioxide emissions. Once that happens, he said, companies will adapt their strategies.” Deutch is quoted as saying: “What role will oil companies play in the future in alternatives to conventional hydrocarbon? The correct answer is nobody knows …. The important thing is for the government to establish a carbon policy. You can be absolutely confident that oil companies will pursue that, as will any other companies.”

This is exactly right. Like lots of folks, I believe we need to press headlong into the development of new energy sources. Yet any serious movement away from hydrocarbons towards solar, wind and other green energy sources will ultimately depend on the underlying economics. When gasoline costs $3.50 at the pump there’s considerable profit to made by building an ethanol plant (not really green energy, in my opinion, but let it suffice as an example). And when gas drops below $2 a gallon? The return on investment with most types of alternative energy falls into the “not so much” category.

Environmentally-minded people may be willing to differentiate among various energy sources based on their fervor for saving the planet, but to most folks one BTU is as good as the other and the only question is which comes cheapest. That’s why a carbon tax, or a tough cap-and-trade regime that drives up the price of carbon-based fuels, is so critical to developing the long-promised green economy. Without a framework for pricing the external costs of carbon energy (in plain English: the pollution) it will take quite some time for a true green energy economy to emerge. Eventually the technology and the infrastructure (“smart grids” and such) will get there, but even that’ll depend on market incentives that are pretty wan at the moment.

But ah, you say: Oil could easily return to the $150-a-barrel price levels of a year ago. And so it could. But if there’s anything worse than not trying, it’s starting on a task and then having the rug pulled out from under you. Thankfully, the Obama Administration gets the importance of capping carbon emissions, not only to combat climate change but also to create the necessary market conditions for green power. Unfortunately, recognizing something needs to be done and actually doing it are two very different things. We are, after all, talking here about making oil and coal much more expensive. With everything else the president has on his plate, what are the chances that Washington will pass a game-changing, paradigm-shifting, anger-inducing carbon tax amid an already bad economy?

I wouldn’t bet the kerosene stove on it. But, hey, the absence of favorable market conditions never stopped some folks. The Tobacco Commission is touting plans to spend $100 million on alternative energy ideas, without letting on as to what those ideas may consist of. Carole Inge has been flogging the Riverstone Modeling and Simulation Center as the next great thing in alternative energy development, but color me skeptical. Meantime, in Danville plans are afoot to hugely expand the Institute for Advanced Learning and Research to include biofuels research. The problem with the Tobacco Commission, of course, is that it leaps into all kinds of expensive projects without taking stock of the success (or lack thereof) of existing initiatives. I mean, really: What goes on at the Institute now? Is the record sufficiently impressive to merit tens of millions of dollars in additional R&D spending? Research and development constitute a crucial investment for any growing business or region, but it would be nice to think that the public’s money is going to an entity with a track record of success.

Which brings us to another recent New York Times piece, published following the spring NASCAR race at Martinsville Speedway: “A Longtime Racing Town Shifts Its Focus” (March 30, 2009 edition). The Timesmen visited Martinsville and talked with community leaders who “sought to transform Martinsville into a miniature Charlotte, the hub of the racing industry,” the newspaper reported. “But despite the creation of two educational programs and statewide economic incentives for the motorsports industry, the effort has largely failed. Economic development officials say that they have shifted their attention to other pursuits and that motorsports are no longer a priority.”

If you had to sum up the piece, the message might be: Beware economic development strategies that are based around comparative advantages that don’t actually exist. Martinsville Speedway was supposed to be the draw around which a regional motorsports economy would arise, but it turns out people were deluding themselves in thinking that Martinsville would supplant Charlotte as a base for NASCAR operations.

Returning to the question of the new energy economy, what is Southside Virginia’s comparative advantage? A surfeit of chicken waste? Well, um, maybe, but certainly we’re not as well endowed in that category as some places. A pile of uranium under Walter Coles’ house? No thanks. That leaves as our great comparative advantage having a bunch of politicians with $100 million in free money to burn through, which indeed would generate some BTUs but otherwise might not work out so well. Ironically, there is an alternative investment we could make that would capitalize on the strengths of Southside’s rural economy: It’s called growing food! By the time the swine flu scare plays out — for better, hopefully, and not worse — we no doubt will have a deeper appreciation for the shortcomings of our industrial food production system, including its capacity to serve as an incubator for the rise of these new viruses. You could go a long way in reviving the Southside farm economy with one-tenth of the $100 million that the Tobacco Commission wants to spend on chimeras like clean coal technology, but unfortunately these kinds of investment aren’t especially sexy — bring on the chicken poop! — and they don’t have the same hold over the public consciousness that renewable energy currently has. Plus, a lot of them would be relatively cheap to do. And where’s the appeal in that?

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