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State of the Union, Oil Addiction and Action verses Words

By J. Peter Lynch
February 08, 2006

After hearing President Bush give the State of the Union speech the other night I came away thinking that at least he has recognized that there is a problem. It may not sound like much, but it is a step (a very small step) in the right direction. Unfortunately, these initial “words” must be followed by significant “actions” and this is precisely where every U.S President since Richard Nixon has failed miserably. In fact, since U.S. Presidents first started talking about “getting off oil” the amount of oil we import has DOUBLED, not a particularly promising trend.

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So now that we have taken our “first small step”, what America and the world needs now, is a plan. A short term plan and a long term plan (50years) that lays out the problem and what we have to do go get the planet off of oil and other fossil fuels and on to various renewable sources of energy – solar, wind, biomass etc.

Unfortunately, it is becoming quite apparent that the current administration does NOT have a plan and is therefore taking a very shortsighted approach to “financing” our energy future. We are depleting our “energy capital” (oil, gas and coal) by utilizing them at a far greater rate every year, with very little thought given to the long-term (50+ years) consequences.

The major problem in the current energy focus is that our current primary energy capital (fossil fuels) is NOT replaceable; it is by its very nature “non-renewable”. As a result, our responsibility as managers of our planets future and its energy portfolio is to create an “energy balance sheet” that has the proper mix of fossil fuels and renewable energy sources to allow growth for all the world’s inhabitants over the long term.

It should be obvious that we should not be using “limited” fossil fuel assets for jobs that can be done by “unlimited” renewable assets.

A simple but accurate example: fossil fuels should NOT be utilized for applications, such as home or commercial building heating. Does it seem logical or a “good idea” to burn something at thousands of degrees to produce heat at 75 degrees for your house? This task could be much more efficiently accomplished with a simple solar panel that produces 160-degree heat, with zero emissions as an additional benefit.

The main problems, as I see it, are: lack of leadership and lack of education.

1.    Lack of Leadership - America’s failure, to assume a leadership position to organize the world’s resources to address and solve this problem.

Obviously the world cannot address a problem of this magnitude without the assistance and cooperation of the world’s richest country and consumer of 25% of all the energy on the earth. What we need is a well thought out Long Term Energy Plan and, in the short term, a new “Marshall Plan” for Energy. To date the current U.S. administration has done virtually nothing to give the impression that they consider this to be a serious crisis. Yes they do say a few “key” words every now and then, but to date I have seen no commitment and no real action. There is a growing feeling that much of the rest of the world sees a problem and the U.S. does not. This has to change and hopefully the current administration or perhaps the next will awaken to the critical nature and magnitude of the problem we are facing.

As one of the great men of the 20th century and one of our greatest Presidents said 99 years ago:

“We have become great because of the lavish use of our resources and we have just reason to be proud of our growth. But the time has come to inquire seriously what will happen when our forests are gone, when the coal, the iron, the oil, and the gas are exhausted, when the soils shall have still further impoverished and washed into the streams, polluting the rivers, denuding the fields, and obstructing navigation…The natural resources I have enumerated can be divided into two sharply distinguished classes accordingly as they are or are not capable of renewal…The minerals do not renew themselves. Therefore in dealing with the coal, the oil, the iron, metals generally, all that we can do is try to see that they are wisely used. The exhaustion is certain to come in time”. Theodore Roosevelt

If Theodore Roosevelt saw the handwriting on the wall in 1907 what is the problem with the current administrations vision? To not tell the American people the full story and to not move forward with a well thought out long term plan to effectively address this approaching crisis is a colossal failure of leadership, which could result in a series of cascading economic problems worldwide.

2.    Lack of education - I truly believe that people will “do the right thing”, IF they are apprised of the true facts and costs of all the alternative courses of action.

 However, the American public is not getting nearly enough accurate information on this crisis and the media, in general, puts little, if any, focus on this subject. As a result, the public is very poorly educated on this critical subject.

For example, current polls tell us that the three top concerns of the American people are:

  1. Terrorism
  2. Iraq
  3. The Economy

I would agree that this is a fairly accurate picture of what Americans are concerned about and that these are all valid concerns and pressing problems. But are they the KEY problem that Americans should be focused on and concerned about?

1. Terrorism - Terrorism is rooted in the mid-east (where most of the OIL that is left remains). We are there because of OIL and we spend hundreds of billions per year “protecting” our oil supply.

2. Iraq - Iraq is the third largest producer of OIL in the world. I realize that Saddam was a dictator, but so are half of the rulers in the third world and we are not “liberating” their countries, because they have no OIL.

3. The Economy - The economy is growing at this time. But if you want to cause a major problem with the US economy just cut off its supply of OIL. Everything in our economy is dependent on fossil fuels and our supplies of oil are much more limited, much less secure and the margin of error today is razor thin. This is a very dangerous position both economically and strategically for our country to be in.

Before a solution to a problem can be applied, I think it is very important to understand the “true cause” of the problem. It is my opinion that the “true underlying cause” of all three of these problems is: the world’s current total dependence on fossil fuels. As a result, this dependence is really our number ONE problem and the most serious by far.

All of this is the result of us failing to properly understand how to balance our worldwide energy portfolio and how to properly structure our energy balance sheet to include assets that will grow (renewable sources of energy) and not only assets that will decline (fossil fuels). We all have to recognize the fact that there are major problems in the energy area and we must face them directly and move to solve them.

These “natural” resources are finite in nature and by their very definition are NOT renewable. As a result, we are presently trapped in an upward price spiral which cannot cease unless the basic laws of supply and demand change (unlikely) or we shift our strategy and thinking to one of energy capital preservation, rational energy utilization and developing renewable assets.

Our thinking in the U.S. is to use as much as we want, based upon the FALSE premise there will always be enough or we will just find more. There is little thought given to conservation or the welfare of future generations. This is precisely the thinking that got us into this tenuous situation and it will certainly NOT be the thinking that will get us out of this predicament.

“We can’t solve problems by using the same kind of thinking we used when we created them”. Albert Einstein

As long as we insist on being dependent on a non-renewable energy sources we will continue to have price increase after price increase. It is like building a house in a valley that floods every time it rains. When it rains, the basement floods (big surprise), complaining about the flooding will do nothing to solve the problem. It is a much better idea not to build your house in the valley, but to move to higher ground. We must take immediate steps to preserve our energy capital and rapidly expand and develop our energy assets from renewable sources such as solar energy, wind and biomass.

We must “wake up”, face reality and change the current path we are on. If we do not take responsibility for our current situation, and move swiftly to a financially stable and environmentally sustainable path we will suffer the consequences of our shortsighted and financially irresponsible actions.

“To each generation comes its allotted task; and no generation is to be excused to perform that task.” Theodore Roosevelt

I think it is abundantly clear what the current allotted task is the current generation and I am also sure that it is equally clear that the problem will NOT be solved magically by mere “words” but that focus, sacrifice and committed action will be required.

The ball is in our court and the whistle to start play has just sounded.

J. Peter Lynch has worked, for 29 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977. He is currently a financial and technology consultant to a number of companies, among them Daystar Technologies, Inc., which is listed in the article. He can be reached via e-mail at Solarjpl@aol.com.

Disclaimer
Peter Lynch is an independent columnist for this web site and may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not directly affiliated or compensated by the companies mentioned in this article. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.

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