Cornell University Johnson at Cornell University

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Solving the Energy Crisis One Small Step at a Time

By Doug McInnis

Page 2

Some experts involved in alternative energy research and development think agriculture will help power the future: fuel made from corn, soybeans, and grasses. "Agriculture has been seen only as a food producer," says Norm Scott, professor of biological and environmental engineering in Cornell's College of Agriculture and Life Sciences and College of Engineering. "But it is ready to be a major player in terms of replacing not just oil, but oil-based plastics.

"We can become totally free of foreign imported oil in the long term," asserts Scott, who is running experiments with New York dairy farmers to produce power with gas generated from manure. Scott believes that half the oil demand can be eliminated through conservation and through technological advances that reduce fuel consumption, and the remaining half can be replaced by growing alternatives.

America could also follow the European model, which has permitted the price of gasoline and electricity to rise high enough to reflect the real costs of fossil fuel. For instance, Germany has allowed its electricity prices to hit 26 cents a kilowatt hour, two-and-a-half to five times what Americans pay.

Professor Alan K. McAdams
"The Germans recognize that pricing energy at approximately its real cost will encourage conservation and stimulate development of alternative energy sources."
Professor Alan K. McAdams
"The Germans recognize that pricing energy at approximately its real cost will encourage conservation and stimulate development of alternative energy sources, such as biomass, wind, and photovoltaic power," says Alan K. McAdams, professor of economics. "It is no accident that Germany already leads the world in each of these alternatives."

In the long run, the law of supply and demand may force prices high enough in the United States to resolve the problem. "Perhaps the best solution is to let the price of fossil fuels go up and let conservation take place," says Jerry Hass, James B. Rubin Professor of Finance, who served as chief economist for the Federal Power Commission in the 1970s. "That's a painful solution because it's evolutionary rather than immediate. It may take 50 years."

Or it may not. Renewable Choice Energy, of Boulder, Colo., has found a growing market for green power from wind, solar, biomass, geothermal, and hydroelectric. It matches sources of green power with customers who are willing to pay a premium to encourage green energy production. The company's customers include several dozen Fortune 500 corporations, universities, and a growing number of homes.

It's a small step. But Cameron Brooks, MBA '03, Reliable Choice's vice president of resource development, believes that in coming decades the green power movement will boom as individual homes turn to the sun or other green sources for power. "Instead of one central coal plant pushing its power out to 10,000 customers, you will have 10,000 power plants sitting on customers' homes," he says.

"There is a growing demand to see clean energy developed in this country," says Brooks. "And people are not willing to wait for government or utilities to take steps to make that happen."

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Chipping Away At The Energy Crisis One B.T.U. At A Time

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A Few Words About Oil

Sources: Scientific American, BusinessWeek

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The Emerging World of Alternative Energy

Source: Wells Fargo Bank, Scientific American

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Feeling the Squeeze: In suburban Milwaukee, a small manufacturer feels the pain of high oil prices.

Most plastics are made from oil or natural gas; that's unlikely to change in the near future. As oil and gas prices have risen, so has the cost of plastic resin, the feedstock used by plastics manufacturers to make products that range from lightweight automobile parts to children's toys.

The problem: Manufacturers can't pass on the full cost of more expensive resins to the companies that buy their products, and that has created a classic squeeze on profitability. One of those feeling the squeeze is Dan Lyons, MBA '75, owner and president of Production Plastics Corp., of Saukville, Wisconsin.

Lyons bought the company in 1988 after a career as a U.S. Navy officer. His company makes plastics components for the finished products of other manufacturers – things like component parts for snow blowers and lawn tractors. But in recent years he has been hit by the same forces that have rippled across American manufacturing with chilling impact – the soaring cost of oil and the rise of China as an industrial power.

"We're fighting not only the cost of raw materials," he said. "We're also fighting the China threat – the low-cost labor environment and the under-evaluation of the Yuan." To survive, he has adopted a multi-pronged strategy. To hold down labor costs, he has embraced robotics and is engaged in a lean manufacturing transformation. He has also picked markets with higher profit margins. For instance, he avoids making auto parts because the major auto companies – themselves in an oil-related profit squeeze – are putting a lid on price hikes from suppliers.

And he tries to pick markets in which the Chinese don't compete well – larger plastic components such as refrigerator crisper drawers and lawn tractor grilles. The freight costs for large items are sufficiently high that it isn't economical to ship them from China.

Neither threat to the plastics business was on the horizon when Lyons bought the company. "Back in 1988, it wasn't evident that China and India were going to come on strong or that oil was going to go to the levels it has," Lyons said.

While he can automate and pick his customers, he can't do much about oil. In the long run, plastics companies hope to use plastics made from plant fiber or wood. Technically it's possible to do so today, but it isn't cost-effective. Although the price of plant-based plastic resin has been falling, it still costs approximately five times as much as conventional plastic resin, Lyons said.

So, for now, he's stuck with oil, and that isn't the only energy shock the company is facing. The cost of shipping has jumped, as has the cost of electricity used to heat the resin to 450-500 degrees so that it can be molded into finished parts.

In order to survive, many American manufacturers have moved their operations to China, accelerating America's transformation to the post-industrial age. Lyons wants to avoid becoming part of that transformation. A lot of people are banking on his success, including his 75 employees and the banks that hold his loans.

"I'm not sure that people understand what a post-industrial economy truly means," says Lyons. "It may sound cool. But it has far-reaching implications, and not just for the manufacturers closing their doors. There will be broad-based economic dislocations and real pain involved."