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Tuesday
Feb262008

The Future of Energy

As winter drags on I'm reminded that the old paradigm of relying on warm weather to offer relief from high energy bills just doesn't work anymore. Energy costs, of all types, are going up. Some of the increased cost can clearly be the result of increased, worldwide demand but other increases are due to rising taxes, regulation and fees.

As a consumer of propane I have been amazed at the rising cost of propane, an increase of 300% in 5-years. Propane doesn't provide as much energy as natural gas (Btu's per CCF) adding injury to the insult. Propane is much less expensive to produce that refined petroleum products. It is a by-product of oil drilling. It requires no refining or processing. It is shipped (transportation costs) and stored. I've been told to expect the peak high from this winter past to be the average price next year. The reason, as explained to me by the CEO of one of Michigan's many propane suppliers, is increased demand for propane in petroleum production. Normally, petroleum producers use waste crude oil by-products for this process but when those prices rise it makes propane more affordable so that industry switches to propane, driving up the cost to the residential customer.

On the regulatory side politicians are looking at increasing taxes on energy. In Michigan a variety of special interest groups (road builders, Chambers of Commerce, etc.) are suggesting a $0.9/gallon added tax phased in over three years. This tax is supposed to rebuild our roads and infrastructure and keep these groups happy (employed and profitable). On a grander scale you may have noticed that every (viable - sorry Mr. Paul) remaining political candidate (except Mike Huckabee) has endorsed a carbon tax. This tax could be a dagger in the heart of our economy. In the early 1990's the EPA floated a 50% energy tax on fossil fuels and 30% on electricity. If this were enacted your $400 monthly heating bill would have a $200 tax added.  The tax is designed to punish energy consumption.

I don't see real leadership, on any political level, that has the courage to say enough is enough. Taxes keep them in power so they aren't likely to put national interests above their own personal agenda. I don't hold out any hope that Americans will ever stand up to government in revolt of high taxes like our forefathers did against England. We'll continue to blame Big Oil/Energy rather than the political powers that regulated the current system of supply into existence and taxes/regulates us (and Big Oil/Business) into submission.

I don't know if my bleak mood is simply a reflection of the February sky or if it is something else. I am concerned that life in American will get a lot worse before it gets better. The poor will be more adversely affected than the middle class but higher energy costs may move more middle class to poor.

Energy conservation has never been more important. As professionals associated with the housing industry we've got to toll the bell of conservation. Not for the benefit of the global community but for the survival of the family budget. While it might be possible to reduce your gasoline consumption by 10% you can save 50% or more on residential energy consumption. You'll need to make an investment to do so but the paybacks are relatively short (2 - 7 years depending on strategy).

Several years ago my wife and I began the process of weatherizing our house. We live in a 50-year-old ranch, about 1500 square feet. We dropped out propane use from 2100 gallons per year to 480 gallons, a reduction of 73%. In dollars (at a fixed cost based on our last fill) we went from $6069.00 per year to $1387.20. The total investment to achieve these energy savings was $7,000 over 30years. A return on investment of less than two years and enjoyed every year since. When I look at propane fluctuations over the years the actual payback period was just under 4-years  but has now accelerated to a repeated payback every two years. An added benefit was the improved comfort level of our home - no personal thermostat lowering sacrifices here.

If I sound bleak I hope it is an encouragement for you, your families and clients to take a stand at home and stop using so much energy. Once you've begun the process of conservation you'll find it addictive and eventually you may become energy independent. Would't that be a glorious day?

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