Rebalancing the World's Energy Portfolio

The major difference between the financial world and the energy world is that our primary energy capital is NOT replaceable; fossil fuels are non-renewable by their nature. We are responsible for the future of this planet and must manage its “energy portfolio” by creating an “energy balance sheet,” with the proper mix of fossil fuels and renewable energy sources to allow for sustainable growth for generations to come.

We should not be using our limited energy capital for jobs and processes that can be completed by unlimited renewable assets.

For example: fossil fuels should NOT be utilized for applications such as heating and lighting for homes or commercial buildings.

Does it seem logical to burn something at thousands of degrees to heat your hot water? This task can be efficiently accomplished with a simple solar panel that heats water to 160 degrees, pays back in three to four years, continues to pay you “free money” for the next 20+ years and -- as an additional benefit -- has zero emissions.

Does it seem logical to use incandescent light bulbs that are terribly inefficient at producing light (5%) and great at generating unnecessary heat, instead of LED lights that are much better at producing light and hardly create any heat?

The main macro problems, as I see it, are a lack of leadership, especially from those in Congress, and lack of widespread dissemination of knowledge to the public – people cannot make informed decisions without more detailed and accurate information.

Lack of Leadership

America has failed to assume its leadership position – to organize and lead the world in solving this problem.

The world cannot address a problem of this magnitude without cooperation from the United States. We are the world’s richest country and consume nearly 25% of the energy on Earth. What we need is a Long Term Energy Plan, and in the short term, a “Marshall Plan” (the U.S post World War II economic plan to reconstruct Europe and get it back on its feet) for energy. The current U.S. administration, although far better than the previous, has made some progress in the right direction. But it has been constantly hamstrung by a dysfunctional, borderline incompetent Congress whose goal appears to be to make compromises that can only result in failure.

Our leaders must unite (or resign), put the welfare of the country first and tell the American people the true magnitude of the problem at hand.

As one of the great men of the 20^th century and one of our most distinguished Presidents once said:

“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 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 writing on the wall in 1907, why is it so difficult for Congress to see it now? In light of the current situation in the Gulf of Mexico, it seems impossible to miss the ramifications of our current course of action. If we cannot see the dimensions of this issue now, when will we be able to? America must start to think proactively and NOT reactively, as we have for the past 40 years. To inadequately prepare for an inevitable situation such as energy depletion is a colossal failure of leadership of historic proportions. 

Lack of Widespread Accurate Information

I truly believe that people will do the right thing if they are apprised of the facts and true costs of all of the alternative actions. However, the American public is not getting nearly enough information on this crisis and the media in general puts little, if any, serious focus on this subject.

Most articles I have recently read seem to indicate that the top concerns of the American people are the following: Economy, Jobs, and Terrorism

What we need to make clear to the general public is that before a solution to a problem can be applied, it is important to understand the “true cause” of the problem. The true underlying cause of all three of these problems is the world’s dependence on fossil fuels. As a result, this dependence is really our number one problem.

1. The Economy – The economy is currently growing at a limited rate, with the actual growth resulting from recent government spending. However this is NOT a long-term solution, real growth must come from the private sector, not the government. To cause a major problem in our economy all you’d have to do is limit or cut off our oil supply. Our economy literally runs on oil. Almost everything in our economy is dependent on fossil fuels and oil is now more limited, much less secure and the margin of error today is razor thin. This is a very dangerous position for our country and it is a major threat to our national security.

2. Jobs – Jobs are directly related to how much our economy grows. It is tough to properly allocate scarce resources when we are spending hundreds of billions of dollars each year importing oil and spending additional huge annual sums protecting the foreign oil infrastructure with our military forces.

3. Terrorism - Terrorism is rooted in the Middle East, where most of the oil is located. We are there because of oil; we spend hundreds of billions per year “protecting” our oil supply and have been executing this massive cash drain for decades. There is nothing logical or rational about these actions. They are the actions of an addict who only wants one thing, to get his fix.

All of this is the result of the U.S. failing to properly balance our worldwide energy portfolio and not understanding how to properly structure our energy balance sheet. We are presently trapped in an upward price spiral that will not 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. We must learn how to shift from nonrenewable resources to assets like solar, wind, geothermal, biomass etc. We all have to recognize the fact that there are major problems in the energy area and we must move to solve them now.

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

Our thinking in the U.S. is to use as much as we want, based upon the false premise that there will always be enough or we will just find more. But the facts are clear: There has not been a major oil discovery in 30 years, we are using far more oil than we are discovering and prices have fluctuated from below $10 to just about $150. The “market will take care of it” idea simply doesn’t work. There is little serious thought given to conservation or the welfare of future generations. This is precisely the thinking that got us here and will certainly not be the thinking that will get us out.

As long as we insist on being dependent on non-renewable energy sources and refuse to recognize the true cost of fossil fuels we will continue to face price increase after price increase. It is like building a house in a valley that floods every time it rains. Complaining about the flooding will do nothing to solve the problem. You must take initiative and rebuild on 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. This transition will take decades and the longer we wait the more severe the penalty we’ll pay.

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

We must change the current path we are on, take responsibility for our situation and move to a financially stable and environmentally sustainable path, or suffer the consequences of our shortsighted and financially irresponsible actions. It is “our” problem, we caused it and we need to fix it now.

J. Peter Lynch has worked, for 33 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 and is regarded as an expert in this area. He is currently a financial and technology consultant to a number of companies. He can be reached via e-mail at Solarjpl@aol.com.