The idea of a coal shortage is virtually unthinkable. We have roughly 275 billion tons of recoverable coal, enough for us to burn for the next two and a half centuries if we needed it. So while the next generation might not have the oil to run their cars and trucks, the lights at the house will stay on thanks to coal power.

If this were the end of the story, coal would be sitting pretty. But the black rock is under attack from governments, scientists and ordinary citizens throughout the world. And with no end in sight, our main source of electricity is in serious jeopardy.

The prolific use of coal as a power generating fuel is causing massive damage to the planet in the form of carbon dioxide emissions. This is not a political statement — it’s been proven over and over again by scientists and accepted by governments and the United Nations.

Today, oil we burn in our vehicles and use for power generation is the number one source of CO2 emissions. However, half of the excess CO2 civilization has contributed to the air is from coal. And as you are aware, oil use will most likely decrease from this point forward due to supply and pricing constraints.

It is clear that coal is the dirty, cheap energy culprit the world needs to fix. President Bush and both major-party candidates in the White House race have advocated the development and use of new coal technology that would reduce CO2 emissions. And politicians on both sides of the aisle have supported efforts to develop clean coal technology.

Unfortunately, a viable solution is decades away.

Take carbon capture technology, for instance. Carbon capture techniques are designed to take the CO2 emissions from power plants and inject them into the rocks or other geological formations. This process would keep the harmful CO2 emissions from entering the atmosphere.

While it looks good on paper, industry analysts believe this technology is at least 10 to 15 years away from commercial use. Others are questioning whether CCS will ever become viable. A New York Times article from earlier this year asks precisely that, describing the government yanking support from an Illinois site that was supposed to pioneer the technology.

The article continues, citing utility projects in Florida, West Virginia, Ohio, Minnesota and Washington State that have been canceled or postponed. The piece continued with even more evidence that questions the program’s viability:

Coal is abundant and cheap, assuring that it will continue to be used. But the failure to start building, testing, tweaking and perfecting carbon capture and storage means that developing the technology may come too late to make coal compatible with limiting global warming.

“It’s a total mess,” said Daniel M. Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley.

A total mess? This doesn’t sound promising at all…

Two important conclusions must be drawn from this evidence. First, we see no reduction in the volume of coal used to generate power in the foreseeable future. It is also clear that a truly viable CO2 reducing solution needs to present itself ASAP. Green laws sprouting up across the European Union and the United States will require a change.

Electricity demand in western states continues to rise. Power distributors are desperate to keep up with demand. Add to the mix strict environmental laws and you’re looking at a world of hurt for the Western United States.

Best,
Greg Guenthner
August 6, 2008

P.S.: While the technology is in its infancy, there is a company out there that is leading the charge toward cleaning up our coal supplies. We may be far off from seeing the full-scale effects of clean burning coal, but that doesn’t mean savvy investors can’t begin to take action. Readers of my small-cap service Penny Stock Fortunes have heard the name of this company and their investment is looking bright.

Clean Burning Coal was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

It was a Saturday in mid-April when I pulled up to the Miller Armstrong Building in the sleepy farm town of Waseca, Minn. Waseca is also home to a federal penitentiary and Jeff Skilling, former Enron CEO and allegedly one of the “smartest guys in the room.” Now he is a convicted felon, serving time.

I drove into town and watched the cattle grazing outside the prison. I wondered for a moment if those cows knew they had a famous neighbor. They didn’t seem to care. The cows seemed more concerned about where to find some food. It was certainly foreshadowing what I was about to hear from the farmers.

The High Price of Ignorance

I was greeted by my friend and Outstanding Investments subscriber Geb Singlestad. Geb escorted me to a casual meeting at the Armstrong hall building. Charlie Nedoss of Peak Trading and about 15 other farmers accompanied me. One reporter showed up. Everyone introduced themselves, and we all grabbed some coffee. I spoke with the reporter for a few minutes, and the meeting began.

The thing about small-town America is everyone is friendly, but cautious. Geb invited all these farmers to the meeting. Later on, we learned that most of them thought we were there to sell them something… We were not.

Most of the farmers showed up out of respect for Geb, because he is a sort of patriarch in the community. He had just had knee surgery and was already getting around just fine. Amazing, don’t you think? The meeting was scheduled to last about 45 minutes, but once it got going, we covered so much ground and there were so many questions that we ended up being there for two and a half hours.

The questions came fast and furious. One farmer asked, “Do these people in Washington or in the cities know how much we are paying for our input costs? Do they have any clue how much the farmer is being squeezed?”

The best question of all, in my opinion, was asked a few times. “What will it take? How high will prices have to go to get people to change?”

I said that I think prices will have to go much, much higher before urbanites even consider switching off American Idol and protesting in the street. The farmers realize that most people in the country have no idea about either the process or the cost of what it takes to get their dinner from field to fork.

One farmer belted out, “As long as they have groceries on the shelves, lights on, the ATMs working and their jobs, then all is well. They don’t have a clue.”

Ethanol Rolls Along

There has always been a line between city and suburb dwellers and their rural counterparts. Most people in urban areas have little understanding of how much work goes into generating our food supply and then transporting it to each and every city.

Just the volume of diesel fuel usage to grow the crops is astounding. Agriculture is a very fuel-intensive undertaking. With diesel prices topping $5 and rising, the costs continue to climb at the grocery store.

After our meeting with the farmers, Geb took Charlie and me to see the newest ethanol plant being built in Janesville, Minn. This new structure is a 110 million-gallon ethanol plant. It has several rail lines being built to run directly into the plant. The outside of the building itself is huge. The towering cranes were working full tilt while we were there, and the parking lot was full of workers’ cars. The one thing that neither Charlie nor I saw was a water supply. An ethanol plant uses a huge amount of water, so where will it come from?

It seems with ethanol, as with so many things, the answer from the government often comes after a major project is already well under way. For the last eight years, the Bush administration has seemed to be more likely to do first and fix later. What’s the old saying?: “Better to ask for forgiveness than permission.”

Anyway, the ethanol plant has provided many good jobs in the area and is slated to produce a real boom for the local economy. That’s all well and good, but is it sustainable?

The High Price of Low Living

With egg prices surging 26 percent and milk prices near record levels, consumers are making very difficult choices. My own aunt leaned into me at dinner recently and said, “Ya know, I bought a container of whipping cream and it was $7. That’s crazy.” Yes, it is crazy, and the even more insane thing is that prices may well have much further to go.

The farmers I met with are struggling with some of the highest input costs they have ever faced, and for some, it means that with all the massive expenses of running a farm, their margins are shrinking fast. Most of the farmers wondered what I think would happen if food stopped showing up on shelves in the city and the power went out and the ATMs shut down. You know what would happen? Panic.

The divide between the food source and the end-users is wide. As costs continue to skyrocket, we better begin to appreciate and support our farmers, because the long emergency is here and time is running out.

As I said my goodbyes to the farmers, Scott walked with me on his farm and showed me all his new farm equipment. One tractor, a John Deere, looked brand-new. He told me that Deere simply has no equipment in stock, because sales are so red-hot. He said it’s much the same for Caterpillar and others. So even as the farmers complain about higher input costs and consumers in the cities complain about higher food costs, the beat goes on.

The solutions are not at all clear, but it is obvious that we need to begin to think locally. Food sources will need to be closer to the final consumers. The old way is simply not sustainable anymore.

In the brave new world, we will all likely have to become “locavores.” A locavore is someone who eats food grown locally. That would be a major shift difficult for most of us to fathom. But like it or not, it’s a change that is not going to be a choice. It will happen regardless of how much we fight it. Really, the question is how high of prices are we willing to pay in the meantime.

Regards,
Kevin Kerr
June 25, 2008

P.S.: Of course, we wouldn’t all be forced to consume only locally grown food if the price for fuel wasn’t so astronomically high. Until we can figure out a way to produce more oil domestically, we’ll be forced to depend on imports from overseas. In most industries that isn’t such a big deal, but with oil it can be a tricky situation. We’re not really dealing with the most savory characters.

Rising Food Costs was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.