BioCycle February 2009, Vol. 50, No. 2, p. 45
Economics is complicated and confusing. The daily litany of bad economic news is difficult to ignore. Without a doubt, the next year or two will be challenging. However, in the midst of last year’s economic dream rubble, lays the foundation for renewed economic growth.
Economics is generally considered all about supply and demand, and maximizing profits. That certainly is part of it, but there is much more. Economic growth is more specific. That is what happens when individuals and businesses get more value for less cost. Economic growth means the pie gets bigger for everyone. Conventionally this has meant more dollars or greater profits. In the bioeconomy though, this means that the quality of life goes up using fewer resources, which is pretty exciting.
Last year, there was a real concern about inflation – that’s when the index of prices increases. The inflation of food prices had increased over 5 percent. Prices go up more easily than they come down. When the price level decreases, we have a recession. While the prices for most goods began declining in August 2008, December was the first month to have a decline in food prices. This is the first decline in the food price index since April 2006, according to the Bureau of Labor and Statistics.
During 2008, the dollar was very weak relative to other currencies. Then without warning, the equity in home ownership appeared to lose value. This was bad news to investors. They like to make money. The current crisis does not mean that there is no value in the U.S. economy anymore. It is more a reflection that people and investors do not want to invest money and lose it. Fear is pulling investment assets out of circulation. This crisis in confidence has caused the price levels to drop (i.e., the recession).
One impact that has yet to show up is the near-term contraction of government revenues. Income taxes and sales taxes are all based on growth in incomes and sales. When those are not happening, cities, counties, states and nations have more difficulty fulfilling their commitments.
WHERE DOES THIS LEAVE THE BIOECONOMY?
When the price of crude oil was marching up to a price of $150/barrel, investors could not throw enough money at energy and energy projects. Then six months ago, when the price of oil began to drop, investors large and small could not pull their money out of the markets fast enough. Fear and panic spread as more money was pulled out of investments. That has subsided a bit, but there is still reluctance to invest in new projects.
What is the government’s position at this time? The economic functions of our government only work properly when the economy is growing faster than the government. The billions of dollars of the tax stimulus package are intended to lower the risk of new investment. New wind and biomass tax credits along with billions of dollars in grants and guaranteed loans are all intended to lower the financial risk of new investment in renewable energy and strengthen environmental programs. There are also billions of dollars intended to beef up our failing infrastructure (roads, bridges, Internet access). These policies borrow against the future to provide jobs and encourage economic growth.
If infusing billions of dollars into the economy is the right choice, then the bioeconomy is ahead of the curve. Billions of dollars have been set aside for biomass energy development over the last several years from the U.S. Department of Agriculture, Department of Energy, EPA and many other federal and state programs. This money is only now beginning to be administered. In January, for example, Range Fuels received $80 millionin the first ever commercial cellulosic ethanol guaranteed loan for its 20 million gallon project in Soperton, Georgia. A mini-bioenergy economic stimulus package is just beginning to be implemented.
It is true that far too many of the ethanol and biodiesel plants started in 2007 and 2008 have been idled or sold. Even so, in January, EPA announced an increase in the ethanol blend standard from 7 percent to 10 percent ethanol. This will boost demand for locally grown ethanol.
While the existing bioenergy capital stimulus programs were created during the previous administration, the Obama Administration is even more supportive of climate and renewable energy issues than its predecessor. The intent of the current $825 billion stimulus package is to advance economic growth, create new jobs, enhance the environment and provide locally-grown energy. In short, enhance our quality of life while using fewer resources. In theory it should grow the bioeconomy.
Mark Jenner, PhD, operates Biomass Rules, LLC and has over 25 years of biomass utilization expertise. Burning Bio News is Jenner’s scorecard of bioenergy project adoption, available at www.biomassrules.com.
February 17, 2009 | General
Biomass Energy Outlook: Fueling Growth In A Shrinking Economy
BioCycle February 2009, Vol. 50, No. 2, p. 45