Saturday, November 15, 2008

Can nukes save us?

The people have spoken and we have a new government. A new government means a new energy policy. President Elect Obama is less warm to nuclear power than was John McCain. Therefore it is doubtful we will build scores of thermonuclear power plants in the next decade. The new administration has two very important appointments to make. These are the Secretary of the Treasury and the Secretary of Energy. I believe energy policy will either support or break our economy and that the secretary of energy will be possibly the single most important appointment that the new President will make.

Barak Obama has committed to increasing funding for alternative energy and has pledged to wean the country off of oil imports from unfriendly countries. This is all election talk and now the real work has to begin. Bio-ethanol is a bust and just this week Verasun, a NYSE traded ethanol company, entered into Chapter 11 of the thermodynamics text book. Many of the other ethanol producers are teetering on bankruptcy and only survive on government subsidies and high tariffs on Brazilian ethanol imports. Had the present Secretary of Energy Dr Sam Bodman heeded my sage advice that Mother Nature did not intend photosynthesis to propel 250 million vehicles in the good old USA we may have embarked on a real and appropriate energy policy a while back and not have to have endured the disaster we are experiencing.

Ethanol, whether corn based, cane based or somehow miraculously cellulose based is a dead end and not the solution to our energy needs. The government should focus on rebuilding a new “Detroit” with auto companies engineering, producing and selling efficient smaller vehicles that are also profitable for the manufacturer. A good way to help kick start this would be for the Feds to provide a $3,000 subsidy to the automakers for each vehicle they produce and sell that achieves more than 35 mpg. The subsidy could be a direct grant or a subsidy toward the pension and medical expenses these companies are liable to their workers by contract. The foreign automakers rely on their governments for national healthcare for their workers, and US automakers suffer a significant cost disadvantage.

My one concern is that the UC Berkeley based academics led by one Prof Kammen are the President Elect’s energy policy gurus. These misguided academics have been on the wrong side of the argument in many instances and in particular on ethanol and hydrogen. Their academic publications have erroneous and often non-thermodynamic claims of how ethanol and hydrogen were the saviours. They have already caused much more harm than good and much money, time and human effort has been expended on these dead ends.

I do feel confident that there has been a sea change in our fellow Americans attitude toward energy and the environment, and that we will not return to the misguided belief that there are inexhaustible and abundant energy and natural resources to drive around in behemoth SUVs. I do hope that we can succeed in mass production of lithium battery systems for hybrids and plug in hybrids and by the end of President Obama’s first term, and that we have a couple of vibrant US based auto companies who can compete on the world stage. As for the Secretary of the Treasury, that person will have to understand the color green as it relates to money.

11 comments:

  1. I agree with your comments on ethanol. But why should the government provide a $3,000 subsidy to the Detroit automakers for producing cars that get only moderately good gas mileage? It is not as if they don't already know how to make them. Both Ford and GM already produce cars in Europe that get that kind of mileage. People are already voting with their wallets and buying cars from manufacturers who are offering cars with good fuel economy. Detroit made a decision to push SUVs and pick-up trucks; let them now live with the consequences.

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  2. Linday, you write: "The foreign automakers rely on their governments for national healthcare for their workers, and US automakers suffer a significant cost disadvantage." I don't know WHICH foreign automakers you're talking about, but here in Europe, the automakers -- like other companies -- have to pay huge social charges for each employee, to cover, among other things, the contribution that has to be made to the healthcare system. These social charges increase the cost of hiring an employee by at least 60%.

    From where else did you think the money that European governments spend on the healthcare for their workers comes from?!

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  3. Ron

    Great comments. The US needs an auto industry for employment and national security so an inducement to produce fuel effcient vehicles within the borders of the US will have a positive overall effect on the economy. yes European companies do pay more for social security of their workers but then the workers retire and the cost is born by all taxpayers. Also healthcare is more rationed than here so as a fraction of GDP it is far lower. All I was saying is that we have to have a general pool for healthcare costs and in the end retired autoworkers need to be on a national system or we will not have an auto industry.

    Thanks for your comments and glad you read the blog Lindsay

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  4. Dear Anonymous,

    Let's look at your assertions in detail:

    "The US needs an auto industry for employment ..."

    It gets that no matter who owns the vehicle manufacturing plants. Letting Detroit fail will not mean an end to production in the United States, but it WILL mean that those assets that are worth anything will be picked up by companies with a better strategic vission.

    " ... and national security ..."

    How so? See above comment.

    "... so an inducement to produce fuel-effcient vehicles within the borders of the US will have a positive overall effect on the economy."

    Why a production incentive? That has to come from somewhere -- meaning other productive sectors of the economy. If you want to talk about what would make a good macro-economic stimulous package, fine. But if you want to target this particular industry for bailing out, I am sure that many reasonable minds would disagree that it is a good first, second or even third choice.

    "Yes European companies do pay more for social security of their workers but then the workers retire and the cost is born by all taxpayers."

    Is that any different than the USA? Both sides of the Atlantic offer combinations of private health insurance (yes, even here in France) and Public Health. But that public health system, even for retirees, is financed by worker contributions.

    "Also, healthcare is more rationed than here so as a fraction of GDP it is far lower."

    Be more specific. It is rationed in the UK (not a major competitor in the automobile manufacturing business anymore), but not in most other European countries. The high share of GDP spent on health care in the USA is due mostly to the high cost to practitioners of liability insurance, and the extra medical tests that go along with that, the monopoly power of the AMA, and inefficiency of the government-run part of the system. ... Hardly good reasons to continue to subsidize the automakers.

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  5. To Ron Steenblik...

    Your points have merit and I agree with some but take issue with others...

    First, a domestic auto industry is essential to our national security because auto production forms the basis of all heavy-duty manufacturing. A nation without a domestic auto industry will quickly (10 to 20 years) lead to a nation without domestic companies that produce aircraft, tanks, large trucks, construction equipment, etc. We can't be the worlds' police dept. and rely on foreign-based companies to provide us the tools. Now, you may argue we shouldn't be the WPD but that is a different discussion...

    Second, automakers and other corporations are finally realizing that they are terrible at managing health care. Yes, the government is bad but private companies are worst. Why? It's not their business. Captains of industry always feel they can manage anything with a profit motive but a vibrant, responsive health care system can't be run strictly for profits. It's not sustainable. We should create a national health care system like our national defense system. Yes, it will be expensive and inefficient but it will be national...

    Lastly, I completely agree with your desire to let Detroit suffer because of their poor strategic decisions. But I wouldn't let them suffer to the point of bankruptcy. The problems with Detroit are not centered in their manufacturing or engineering. The "big 3" produce cars that are fuel-efficient, stylish, and made of good quality (though quality remains the competitive advantage of Japanese automakers). The problem of the big 3 stems from their foolish decisions in finance and marketing. Ford buys Volvo (good) and Jaguar (horrible). GM buys Saab and Hummer (both horrible). GM requires 6,400 dealers to sell as many vehicles as Toyota's 1,600 dealers. That's nuts. So, the government should force the big 3 to make the tough decisions they should have made before the credit crisis and give them some money until the credit markets thaw. Good money after bad? Maybe.

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