Being a stock market investor, I've been toying with an idea lately:

In a lot of cases, investment capital winds up deciding which new technologies get developed, and how much industries wind up growing. And of course, the availability of these new technologies is good news for consumers, and more investment winds up driving down prices, which is also good for consumers.

I was thinking that at some point, the government might want to start thinking about crafting energy bills that involve picking up stock in companies, rather than involve big giveaways. For example, rather than giving companies grants to develop fuel cell technology, the government could use that money to buy stock in companies like Fuel Cell (FCEL). By either displacing other shareholders who might then go and invest in other alternative energy stocks, or by giving Fuel Cell more room to raise capital with a stock offering, we wind up using the free market to give the fuel cell industry the capital it needs to get its products into the hands of consumers.

What I really like about this, though, is that not only is it cheaper than handing out grants, a well-managed set of investments could wind up producing returns. That is to say, by carrying out energy policy, the government can actually get more money back than it puts in!

What if the federal government recruited top energy analysts and fund managers, had them manage a few billion dollars worth of investments each, and directed them to make as much money as they could investing in, say, fuel cells, hybrid technology, and renewable energy? If we're willing to get a little more economically realistic, we could even have them invest in coal hydrogenation, nuclear energy, and refining.

Money that would normally go towards energy grants, and maybe a 10-25 cent/gallon boost in the gas tax would bring in $10 Billion a year to invest. To incentivize our fund managers, we can give them bonuses when their funds beat the index averages of the industries they're investing in. And to keep the specifics of their investments out of politics as much as we can, we keep some of the details about their investments private, but have a few accounting firms run audits on them.

I think that this would be a great way to have the efficiency of the market carry out energy policy while allowing the government to be better stewards of taxpayer money.

I think your motivation is right. Money invested in an industry may lead to innovation and may lead to improvements that give lower prices and increased availability of the product for the consumer (me).

However, I wonder if this is the role of government. If government buys stock, won't this affect the stock price? Fickle stock buyers respond to the market. It seems that if they knew the government was going to buy into the energy business, it would cause the stock price to rise faster than gas prices did a few weeks back. This would not be a true free market.

There are some of us who have been slapped by Adam Smiths's invisible hand that don't quite believe the mantra of the free market. Stockowners are usually primarily interested in making money from their investment. They invest in energy if it looks like the return is good. If the return looks better in bagels, they'll invest in that. government investment in a given sector does not mean that other investors will remain in that sector. However, I like government involvement because it can set a long term positive direction for the country.

Isn't a long term positive direction part of what government is supposed to do?

I think the government should take a few of these billions that seem so easy for it to borrow and build and operate some energy facilities here. These facilities would use the "best available technology." The facilities may not be cost effective. They may not be an investment that has a great return. However, I believe new technology would be developed by this government undertaking. A world of innovation may open up. In addition, these investments would be providing a basic need, i.e. fuel, to the American consumer.

Other facilities that would be cost effective would follow from what was learned.

The idea of direct government ownership has some of the same drawbacks as the government pouring money into the stock market. The resources of government would be competing with private enterprise. As you pointed out, there are efficiencies to be gained from private enterprise. Government operated facilities may not be as efficient as those of private enterprise. Government is constrained by having to treat people more fairly than private enterprise and this would affect product price. Private enterprise would yelp about this unfairness to them. Let the prices be a little higher and let them yelp. The innovation is needed. Our fuel supply seems overly tenuous.



I like the idea of direct government ownership. These guys could hire the same talent that the private comapnies do and build the facilities for the government. Why not eliminate the "other managers" who work for the private companies whom the investors will be dealing with? Why let another private company skim from Uncle Sam? Build the facilities direct and the country will get what we think we need. Eliminate the middle men. Go out for bid and build it. We've found a need and we should fill it.



Other than the obvious thing that the government is giving out money, why are grants expensive? Seems to me it's pretty cheap to write a check.



I don't mind the socialistic approach at all in getting some return on taxpayer dollars to help pay for Social Security, etc. Based on the enormous debt that has been accunulated in recent years, we may be in a world of hurt if we don't do something. Otherwise, our country may need to have its debt "managed" like other countries that have seen great pain due to the lack of discipline on the part of their governments. These countries seem to remain poor when they receive the "help" from the experts.

I hope you get a lot of responses to this one. It is an interesting idea and fits the energy topic.

There are other ways for government to help in the development of energy sources; tax breaks for alternative energy companies, increased grants to university research facilities,and dare I say, even military based research projects that would change fuels used by military equipment (and no that is not an endorsement of the military industrial complex), rather having military science technologies look for other ways to fuel the jets and the trucks and tanks that we will not be getting rid of any time soon, instead of sinking tens of billions solely into bigger bomb projects.
Free market capitalism is running amok already. It is time for the government to work harder at new energy sources, working to understand the relationship between nature and development, and how much more economic development can the environment absorb while we still rely on petroleum energy sources; that is the challenge in my opinion.

Those are all good ideas. With the volatility in fuel prices and environmental concerns something must be done. The idea of alternate fuels for the military is a good one. The US having cheap and available gasoline was a contributing factor to the success in World War II. The napalm thing didn't help us much in Vietnam though.



I'd really like to see an expansion of the multiple ideas in the last paragraph. If you could elaborate on the basis for your opinion, I'm sure all who read it would find some thought provoking ideas.

Interesting point, but all of this costs the government money. If the government got a return 1/3 as good as energy investments have gotten over the past 20 years, it could currently issue bonds, invest in energy, and wind up having more from its investments than the money it has to pay back when the bonds come due.


I think the challenge is much scarier if we want to keep anything close to our current lifestyles; how do we find the energy to keep things running, period? Never mind continued economic development or worrying about what limits the environment might eventually set on us- how do we avoid going back to the 1700s in terms of energy usage? We're running out of oil, and production might "peak" in anywhere from three to ten years. After the peak in oil production, any improvements in the economy will have to come from energy efficiency, and eventually be offset by an average of 10% production declines per year.

Having the government help push things along will make it easier for us to answer these questions- and make it easier for us to do it in an environmentally responsible way.

Improvements may also come from alternatives to petroleum. Since it appears that the supply is finite, plans should be made for the diminishing supply. As the supply of petroleum wanes, isn't it possible to have new alternatives at the ready to give us essentially a "bumpless transfer" to the new sources?

Planning now will allow us to include some of the factors noted by poetpj such as environmental issues. If we ran out of oil, I'll bet you dollars to donuts that environmental rules would be waived for alternative fuel sources. I'll bet a lot of platforms would go up very quickly in heretofore forbidden areas such as areas of the California coast and national parks. There would be a scramble to construct dirty, but functional, coal gassification facilities.

I've heard the "market" doesn't prevent chaos, but thrives on it. I don't think we should allow our energy supply to be left entirely to market forces. The government should be involved. We've seen three varying opinions now. Poetpj wants to increase more of the same, I want the government sledghammer approach and to build and operate facilities and you (Illini) want a middle ground of using existing industry expertise.

I wonder what other varying options are out there.

Oh, I think there will be a bit of a bump. The place that I know of that has the most people who are more knowledgeable about the oil industry than I am has people claiming that there will be an economic period that will trump the great depression as we try to switch. Then again, the site's name is PeakOil.com, and it also has a lot of sustainability nuts mixed in with the energy analysts, so go figure.

I'm a bit more optimistic; I see a '70s style supply-crunch economy for a period of ten to fifteen years as the market spends a few hundred billion on switching our infrastructure to coal, nuclear, and renewables.


Absolutely. That scares me. If it really comes down to it, I'm not opposed to letting a CTL plant with the same environmental safeguards as one put up in Nazi Germany into my backyard, and I'm not sure if it would be the end of the world. However, the more work we do now, and the more we're willing to compromise a little in putting these plants up, the better we'll be in the long run.

IMHO, possibly one of the smartest places, economically, for a CTL plant might be directly adjacent to an existing refinery. Building a CTL plant on a brownfield might help minimize incremental environmental degradation.



That's a really wise concern. But you have to remember that if the government owns a decent share of the energy production, consumers are, in effect, hedged. If gasoline prices go up, the government's investments appreciate, or it gets more in dividends. The government can then pass this appreciation on to taxpayers in the form of tax breaks, if necessary, to help offset higher energy costs. (Hopefully we can avoid the partisanship early on by setting the rules for how these tax cuts happen before we make our investments.)

Naturally, the ideal situation would be to have the price of oil at a fixed price- but that leads to shortages and surpluses which make it difficult for consumers to find energy at any price. Having government owned oil companies and implementing modest gas rationing might be one answer. Failing that, the solution I've been toying with does offer some modest protection for consumers in the U.S.


I'm sure there are hundreds of good ones. The trick is to keep things incredibly simple so voters can understand things and so things don't get messed up when politicians toy with minute details.

We've been running out of oil since we took the first barrel out of the ground. Peak Oil and running out are not the same thing. We'll still produce a lot of oil for many decades after the peak hits. The problem is, there will be a little bit less produced each year. As Matthew Simmons put it's like saying I'm slowly starving vs. I have three minutes to live.

You guys have an interesting conversation going here. I would suggest that both of you read the book Natural Capitalism: The Next Industrial Revolution by Paul Hawken, Amory Lovins, and L. Hunter Lovins.

This book speaks directly to the relationship between the environment and our economy and how through energy efficiency, radical resource productivity, service and flow business models, and investing in natural capital we can build a sustainable economy from which everybody would benefit (the so-called triple bottom line). You can download the book for free at www.natcap.org . If you buy it, however, it supports the work of the Rocky Mountain Institute.

The websites www.sustainablebusiness.com, www.wbcsd.org, and www.greenbiz.com do a pretty good job of tracking sustainability trends in business and posting current news articles related to the subject.