Montreal, January 15, 2010 • No 274

 

Harry Valentine is a
free-marketeer living in Eastern Ontario.
 

 

 THE EMPEROR'S DERRIΘRE

The Fading Promise of the Green-Tech Economy
 

by Harry Valentine
 

          A news story recently emerged from Spain announcing that youth unemployment had surpassed 40%. Spain is also a hotbed of economic activity related to the "green-tech" revolution that was supposed to have created thousands of new jobs. Its location and geography provide it with ample opportunity to generate large amounts of clean and renewable electric power. Youth in Spain and in many other countries are enrolled in courses of study that are related to green-tech. They hope to secure employment in that sector following graduation, based on what their governments have been telling them.
 

          Powerful winds blow off the North Atlantic over the mountains of Northern Spain, and equally powerful ocean waves surge off both the northern and southwestern coasts. A strong tidal current flows through the Strait of Gibraltar, and Southern Spain is drenched in hot summer sun. There are companies demonstrating technologies all along the Spanish coast that can convert the energy of the ocean's waves into electric power. In Southern Spain, solar reflectors heat up a demonstration solar tower that resembles a giant chimney. Heated air flows through the tower and drives a turbine that generates electric power, but at extremely low efficiency.

Blame It on Brazil

          Many of the green technologies being demonstrated in and around Spain have the potential to operate viably and feasibly in a market that is free from state subsidies. In Brazil, the sugarcane fuel ethanol industry is now being touted as one that is able to operate free from state subsidy. That formerly subsidized industry had previously endured several years of ongoing debacles, all related to political interference. The rising world price of oil, when measured in energy unit per weight unit, eventually exceeded the price of sugarcane ethanol based on the same measurement.

          The Brazilian government took advantage of a situation that could best be described as a lucky fluke. Without ongoing political upheavals in the Middle East and Afghanistan, the world price of oil might have remained below US$35 per barrel and Brazil's sugarcane ethanol program might have remained a state-subsidized basket case. Nevertheless, there are now claims that attest to the wisdom and brilliance of state economic planning with regard to Brazil's foray into green energy. It is now being held up as the model by which government can facilitate the transformation of a nation's economy.

          Following the international upheavals of the previous decade, most western governments have in fact implemented policies and programs aimed at transforming their national economies using green-tech to generate new jobs and create new industries. Brazil provides the model upon which to base the formulation of such policies and the administration of such programs.
 

"While many governments may intend to emulate Brazil's sugarcane ethanol program, Spain illustrates the alternative result of such politically inspired programs."


The Commitment to Corn

          But while many governments may intend to emulate Brazil's sugarcane ethanol program, Spain illustrates the alternative result of such politically inspired programs. For example, there has been an ongoing debate about whether or not corn ethanol can actually provide the same amount of energy in liquid form as went into the production of corn and its transformation into fuel. It seems that for every unit of energy expended to produce corn and convert it into ethanol, the addition of solar energy results in the production of 1.5 units of energy in liquid form. In Brazil, sugarcane fuel ethanol returns an estimated 8 units of energy for every unit expended in the production and transformation of sugarcane.

          But politically, governments in Canada and the US could risk serious opposition should they begin to phase out their corn ethanol subsidies. There are many industries that have come to benefit from corn production, including the fertilizer and pesticide divisions of major pharmaceutical companies. Pest- and drought-resistant switch grass is a potentially viable alternative to corn that can produce up to 8 times the volume of ethanol per acre, but governments are committed to corn as the major source for ethanol.

          The corn-ethanol precedent indicates the commitment of western governments to subsidize the development of green-tech, just as governments subsidized the development of the "high-tech" sector during the 1990s. Government sponsorship of high-tech development in the form of ultra-low interest loans and grants gave rise to the high-tech boom that saw the development of thousands of new product and service concepts. But the market could only sustain a few hundred of those products and services. The result was the high-tech meltdown and the dot-com bust.

          Spain's green-tech sector is certainly starting to reveal some ominous signs of overblown hype in the green-tech economy.