Interesting reporting in Greenwire by Annie Snider (worth the few pennies a day to subscribe). The level of discussion of biofuel is moving beyond the concern for the price of corn; the Federal government is recognizing our dependence on a commodity we do not control. The President is considering invoking the provisions of the Defense Production Act.
The Act, passed in 1950, gives the President the authority to order business to sign contracts or fulfill orders determined to be necessary to national defense. It also allows the President to issue orders allocating materials, services and facilities to promote national defense. Finally, it allows the President to requisition property, force industry to expand production and the supply of basic resources, impose wage and price controls, settle labor disputes, control consumer and real estate credit, establish contractual priorities, and allocate raw materials to aid the national defense. The President will have to declare the technology to produce biofuels (which one(s)??) as critical to the national defense. If you are a fan of small government, you will love this! Sounds a little scary; but, then the days around the Korean War were a scary time.
According to the Department of Agriculture press release, the Navy and the DOE and will design a program to provide in the neighborhood of $500M to the biofuels industry to try to bring production facilities up to commercial scale. The provisions of the Act are administered by the Department of Commerce. The intent of the Act is to provide the military the critical material necessary for the national defense.
Normally, I am a fan of market forces and sink or swim in the economic area. Biofuels are a special case. If unusual efforts are not undertaken, biofuels will never get to a commercially competitive range. In case you have not heard, the top five companies for 2011 in America according to Fortune Magazine are:
- Wal-Mart Stores
- Exxon Mobil
- Fannie Mae
You may note that 2, 3, and 4 happen to be oil companies. I would surmise that they probably have the cash reserves to beat biofuels on price for a very long time.
The other argument you often hear against this is that the government shouldn’t pick winners. If you think that is the case, go talk to a contracting officer. The government picks winners all the time! Usually, in free and open competition. Presumably this program will select among the various contenders for performance (JP8 identical), sustainability (not food!), price, etc.
The bottomline is that we and our trading partners are vulnerable to oil depletion or denial. Biofuels are a step on the path to the final revolution in transportation…..flying cars! Or electric. Or whatever sustainable energy source can provide us the mobility we require without the vulnerability. Dan Nolan