A Rose by Any Other Name

| July 22, 2022

We spend an awful lot of time talking about the need for new sources of energy. The words we use are imprecise and often contradictory. We say renewable and clean energy as if they are the same thing. Wood and ethanol are renewable, but neither are clean in either particulate matter or carbon emissions. Sometimes we use the word sustainable to describe preferred sources of energy. The European Union recently voted to classify some types of nuclear energy and natural gas as “sustainable.” Yet, prices of commodities and natural resources are declining in what seems like a contradiction too.

I pondered the energy and resources challenge during my stay in France. The “canicule” (heat wave) topped the news every day. The canicule, along with wildfires, continues to make the news. While in some places the heat is truly horrific, what counted as a deadly heatwave where I stayed is normal in Florida from June through the middle of October. Florida’s population growth after 1945 is the result of adaptation. Air conditioning is almost universal here and electrical capacity has been sufficient to keep schools, hospitals, and long-term care facilities open. So far.

That is not the case in Europe and elsewhere, which is why I think that the need for copper, steel, aluminum, and many other basic materials will remain robust for the long term. Whatever our energy sources, we will need to increase infrastructure to keep people alive, even in the United States. Wherever we use wind power, transmission lines will be required to get the power to the consumer. Windmills themselves use large amounts of basic materials. The same is true for any source of power and any means of connecting to it. Globally, we will not be able to wait for new power supplies before we adapt, which means a lot of infrastructure buildout and a lot of materials consumed.

The decline in the price of many commodities today is the result of short-term factors. Commodities are dollar assets. When the Federal Reserve raises rates aggressively, it pushes the value of the dollar higher and makes commodities cheaper. War in Europe also drives money into the dollar, just as it did during World War II. At the same time, rising rates are slowing the economy and reducing the short-term demand for oil, copper, and other resources. Does anybody think that this is a permanent condition? I don’t. So, I am going to torture Shakespeare. For years to come, the energy rose will smell the same regardless of what we call it, at least as far as our need for basic resources are concerned.