It's a Casino Out There

I’m flying over this country again to a client in Boston and I can’t shake out of my head a conversation I had last night with the President of a mid-sized company in the baked goods industry. His company buys millions of tons of flour, sugar, eggs, and other commodities every year. He knows the markets like a sailor knows the seas, and he’s scared.

“I used to be able to see the cycles, but its Las Vegas out there now.” He said. I asked him what he meant. “Well, last year the price of flour was about $13-14 a pound. Now it $26. Eggs have tripled in price since last year. It’s a disaster.”

“Why?” I asked. “Ethanol” he answered. The rush to look green and look like we are doing something about energy security has resulted in ethanol producers buying all the corn they can get. “There are 60 more plants on the drawing boards.”

He went on to affirm what I already know, that ethanol is just a shifting of the pea under the walnut of energy conservation at the political carnival that passes for mature public policy. Ethonol is a very inefficient source of energy. It takes a huge amount of water to process. It’s not very efficient when it’s produced. “Even if every available amount of biomass in the country was processed this way it would only provide 18% of our energy needs” my client said.

I’m not a researcher or an academic expert on these subjects, but I have a considerable amount of experience with actors in the energy industry. For four years I have been working with some four-dozen environmental organizations and eight foundations in the upper Midwest to clean up the energy system there. It’s a project called RE-AMP, and I’d just come back from Minneapolis where I was facilitating it’s steering committee meeting.

The RE-AMP Good News
The good news on that front was inspirational. We began back in 2004 with a goal of creating more attention for renewables and clean energy. The RE-AMP project was started by a couple visionaries at the Garfield Foundation, Rick Reed and Jennie Curtis, who thought that maybe if philanthropists and environmental organizations collaborated, and took a systems level view instead of the piecemeal, fragmented approach that was true at the time, that maybe something could be done. They chose the Midwest in hopes of tipping the country politically toward a saner energy policy. Illinois, Wisconsin, Iowa, Minnesota, and the Dakotas produced about 25% of the global warming pollutants in the country at the time. If their leaders got on the bandwagon and joined the coasts, then policy would shift. But the only thing that philanthropists in that part of the country were financing at the time was new kinds of renewable energy. In the upper Midwest, this meant wind from the Dakotas and biofuels in Iowa. The ethanol bandwagon was just hitching up it horses. Focus groups revealed that most average citizens thought the “climate change” was a fund raising campaign for enviros.

The systems diagram and behavior-over-time analysis that grew out of the first year funding radicalized the initial group, and led them to expand their mission well past the initial goal embedded in their name —the Renewable Energy Alignment Mapping Project. They realized that no amount of funding of renewables would result in any change until coal was addressed and energy conservation became a way of life. It would take a united thrust on four fronts – cleaning up the 70 old, dirty coal plants; stopping the 25 news ones being proposed; re-energizing energy efficiency and economy efforts; AND creating new sources of clean fuel. This needed to drop global warming pollutants by 80% by 2030 to have any impact. This was the first graphic I created to show the interdependencies dynamically, drawn from the work of
RE-AMPs consultant, Scott Spann. I actually had the impression of understanding it.

Understanding Grid Operations
This wasn’t my first encounter with the energy system. All during the early 2000s I worked with the California Independent Systems Operators (ISO). The ISO that runs the electrical grid in California. My work with their officers’ team coincided with the run-up of energy prices on the part of Enron and others, an event that plunged the state of California into a $30 plus billion shortfall.

I learned during this time that electrical energy, unlike other sources, can’t really be stored. The turbines on one end have to be running when people turn on their toasters in the morning on the other. If the proper amount of energy isn’t provided, the quality suffers, or the grid actually can go down. It’s an incredible responsibility. The people who run the grid are real public servants, a bit like the people who run the dikes in Holland. They know that EVERYONE depends on them doing their job. And they know that demand is growing every year.

How ironic to have this whole system dependent on spot market prices because some brainy, ideological economists thought that market forces could do a better job of balancing all this that seasoned grid operators acting as a regulated utility. “People will contract on the forward market and only 5% will be on the spot, or real time market” they claimed at the time the system was deregulated. Sure, they had all the software in place to run the market. But they didn’t understand politics, and the compromises and trade-offs that get crafted into public policy, and how people get paid a LOT of money to play the system. The market is free? That’s like saying speech is free when one side has a rock and roll scale sound system turned up full blast. The little voices don’t have a chance.

Because the energy HAS to be there when the toasters turn on, the ISO needed the ability legally to buy energy in real time if they ran short. They had contracts with “ready to run” operators who kept turbines spinning, and would turn them on at a signal from the grid operators. But when this ran out they needed to buy on the open market, from anyone who could sell, right then. It might be Bonneville to the north. It might be a gas turbine plant in Nevada. But it would only be 5%!

It didn’t take energy providers long to figure out the new game. They would just withhold from contracting on the forward market, create shortages, and sell for a windfall on the spot market. Some even diverted energy into out-of-state resources in order to sell it back across the borders at a stiff price. Most of it was technically legal. Was it ethical? If hurting a whole lot of people for a few to gain is ethical, then maybe. But that isn’t the way my value system is oriented. A few years later the shock wave hit my wife and I directly. Her professional organization, California Poet’s in the School, lost all it funding from the California Arts Council when every available dollar was squeezed out of the budget to respond to the deficit challenge!

At the time of the crisis, our state Governor, Gray Davis, didn’t have the political will to put a cap on the prices when they soared. He had the power to ask the Federal Energy Regulatory Commission to do this. It’s been done before. But the ideological rivers of free market capitalism run strong, even for Democrats, and he did nothing. Energy folks contribute a LOT of money to campaigns. The crises got completely out of control, and of course they tried to blame the public servants, the ISO. It was sickening to see all this first hand, with real information I could trust.

So when I first connected with RE-AMP and the group told how they came to realize that handling the base load demands for energy was an imperative, I knew what they meant. Renewables simple couldn’t scale to meet that demand, and wind isn’t “ready-to-run” like gas turbines.  There had to be energy conservation. And coal had to start paying the price for its carbon in order for there to be a renewable market. Research has shown time and again that energy efficiency is the most cost effective way to get new energy, but at the time there were “0” organizers working on energy efficiency in any of the six RE-AMP States.

Sea Change
Things have changed. Since RE-AMP started in 2004 awareness of global warming has gone mainstream. Al Gore’s film, the UN reports, waves of new observations, and the direct experience people are having of hurricanes, ice melting, and the hottest summers they can remember have convinced most people we are indeed in a change of historic proportions. It has not convinced people of what to do about it, however.

I found out at this last Steering Committee meeting that four of the RE-AMP state governors have impaneled special task forces on Global Warming in their states. Minnesota just passed a four-bill energy act that sets aggressive goals for conservation and cleanup. The foundations have come forward with millions that are now being spent to fight the new coal plants. Utilities are starting to talk conservation. RE-AMP has expanded to include Michigan and the transportation energy sector. And the RE-AMP leadership is convinced that creating carbon caps and an auction system is the public lever that could make a real difference. There was no consensus on this several years ago. So the sea is changing.

I also found out that the Rockefellers have put a million dollars into a new initiative called “1Sky” working nationally to network faith groups, youth, labor and other activists working on global warming. (http://stepitup2007.org/article.php?id=443). Its Step It Up campaign is gaining momentum, has the same goals as RE-AMP, and wants to partner in the region. With a Presidential election coming, this next year will be a turning point, I feel.

Ethanol Sidetrack
And into this flow of attention move the special interests and the energy industry, carrying the flag of ethanol. It hurts my heart to see it. Growing up the gold rush culture of San Francisco, I know what a greedy rush to profits does, and I don’t think a green rush will be any different, especially if it’s not really making a net difference.

My client friend said that for the first time he’s seeing hedge funds active in commodities. Apparently this hasn’t been true in the past. If that’s the case, then commodities can start bubbling just like stocks and housing.


The consequences are going to be real, for someone has to pay. It will be the people dependent on food that contains corn products—torillas, breads, cookies, and eggs. It turns out the price of eggs is a function of the price of feed.

I asked my client how the cycle might be broken.

“I don’t know,” he said. “I used to be able to look you in the eye and make an educated guess. Now I can’t.”

He went on to speculate that with the price of wheat also high, that farmers might shift over and here would be an oversupply. But when that might happen was anyone’s guess.

I wonder what all this speculation will mean for attention on the more basic challenge, how we can transform our way of life so there aren’t so many pollutants, and we live in a more balanced and respectful way with the Earth.

Facing The Beast
Three years ago I was bothered by all this and took the question with me on a vision quest on Mount Shasta. I thought of the market forces as a kind of beast and built a stone monument to it, thinking through all the elements. I decided that the head of the beast was greedy extractive industries, with the claws of their legal and PR forces. The crown rock was unsustainable agriculture, offering a dead branch out in front like one of those angler fish in the deep. The body was government policies supporting extractive wealth, and the arms and legs of banks and other agencies that thrive on this system. A tail of military-industrial companies that live on “shock economics” and “defense” went out to a tail of demagogs who play on our national, repressed memory of being here by virtue of genocide of the American Indians. The beast was surrounded by a small stone fence, inside of which lived the workers forced to cooperate with this system.

The beast was scary to me. I felt like one of the workers inside my virtual, stone fence. But as I worked with the monument in my meditations I came to realize that the beast I was really facing was the beast of a lifestyle that I had absorbed and was a part of. It was a way of thinking and a set of assumptions that led to continuation and perpetuation of the problem. It was a huge, blind system of interdependencies.

I asked what could stand in front of this beast? What could possibly make a difference—and the answer I got from the mountain and my prayers was that being conscious, and being the light, and living the change was what could face the beast.

It was that winter that I accepted the RE-AMP job, to facilitate the four parallel strategy teams facing old coal, new coal, energy efficiency, and new clean energy. 

I still remember at my first meeting, when Scott Span was presenting a complex, PowerPoint version of the graphic at the start of this post, and turned to the group and said.

“Remember, this system is an unconscious beast!”

Comments

[Amy Lenzo]

Dear David,

Thank you! for this clear explication of several complex issues that have been rather obscure in the mainstream media reportage.

I love your analogy of market forces as a blind systemic "beast" created out of our collective lifestyle choices, and your positivity and optimism in affirming our ability to make a change by facing it with conscious intention.

I was especially grateful for your description of the constellation that created the energy crisis we experienced in California a few years ago, and the resulting devastation of our state's economy. I had a general sense of what went wrong but I've never understood the dynamic so clearly before.

I can't believe we let it happen, that we are letting all this happen. Having access to simple clear communications like your blog post today must make a difference; it certainly has to me.

[Amy Lenzo]

Dear David,

Thank you! for this clear explication of several complex issues that have been rather obscure in the mainstream media reportage.

I love your analogy of market forces as a blind systemic "beast" created out of our collective lifestyle choices, and your positivity and optimism in affirming our ability to make a change by facing it with conscious intention.

I was especially grateful for your description of the constellation that created the energy crisis we experienced in California a few years ago, and the resulting devastation of our state's economy. I had a general sense of what went wrong but I've never understood the dynamic so clearly before.

I can't believe we let it happen, that we are letting all this happen. Having access to simple clear communications like your blog post today must make a difference; it certainly has to me.

[River]

“Well, last year the price of flour was about $13-14 a pound. Now it $26. Eggs have tripled in price since last year. It’s a disaster.”

“Why?” I asked. “Ethanol” he answered. The rush to look green and look like we are doing something about energy security has resulted in ethanol producers buying all the corn they can get.

I remember believing that biofuels were an answer to global warming. We did not think about the impact they would have on the poorest people in the world.

If the price of flour has doubled, and the price of eggs has tripled, this will have a big impact on companies that make cakes, and an even bigger impact on the majority of the world's population, who are living on less a day than we spend on those cakes.

You are right that "I came to realize that the beast I was really facing was the beast of a lifestyle that I had absorbed and was a part of. It was a way of thinking and a set of assumptions that led to continuation and perpetuation of the problem."

There are a lot of powerful people and organisations with a vested interest in keeping us all absorbed in that lifestyle and believing those assumptions.

Human beings though are different in that we are capable of taking purposeful action. We do not need to be the victims of the blind beast if we can learn it's true nature and find ways to purposefully create an alternative pattern of connections that works for us and our planet, instead of against us.