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There has been much discussion about the contribution of increased ethanol and bio-fuel production to the recent rise in global food prices, which have sparked riots abroad and threaten to reverse the progress towards ending world hunger. While there are clearly connections between the developed world’s demand for these fuels and global food prices, there are other significant factors at work including, higher energy costs, increased global demand and water shortages abroad. However, as C. Ford Runge, an economist at the University of Minnesota told the N.Y. Times, “Ethanol is the one thing we [The U.S. Government] can do something about. It’s about the only lever we have to pull, but none of the politicians have the courage to pull the lever.” The inconvenient truth is that when Oil is $116/barrel, it is economics and political lobbies, not the environment, that are driving developed countries, like the U.S., to divert a 1/5th of their corn harvest towards inefficient ethanol production. Ironically, the effects of higher food prices disproportionately felt abroad, have been blunted at home by the nature of American consumerism, which provides a “branded” cushion between the farm and the single-sized products (and prices) that we see at the grocery store.
The Fuel-Food Price Connection
The global prices of corn, soybeans, wheat and rice are all interconnected (see graph below) – they create the base of a dynamic food pyramid upon which prices of all food staples that lie above (meat, poultry, pork, farmed fish, dairy and egg products) are dependent. Trade policies, domestic subsidies & taxes and numerous other factors distort these connections, but basically, when corn prices double in the United States (the largest grain exporter in the world) due in part to increased demand for ethanol, other food prices around the world shudder.
Corn, Soybean and Wheat Prices (last 10 years)
Other Factors Contributing to Food Price Increases
The mandates in Europe and the United States for increased mixes of ethanol and bio-fuels in transportation fuels and a $.51 U.S. subsidy for ethanol production have helped drive up the prices for corn and soy beans, which in turn have helped push other food prices upward. However, there are also other important factors driving up prices that cannot be neglected:
- Increased demand for meat in the developing world, most notably China, where a greater substitution of grain for meat has meant 700 grain-based calories are being used to generate 100 beef-based calories.
- Water shortages abroad (most notably Australia, historically the second largest exporter of wheat) has meant less grain harvested and traded.
- Increased costs of oil and energy which has contributed to increased fertilizer, farming and transportation costs.
- The steady depletion of global grain stocks (the carryover stocks from the years before), which usually helps alleviate shortfalls.
Ironically American Consumerism Has Blunted the Domestic Blow
While food prices have doubled in various places throughout the developing world, the average bundle of groceries in the U.S. increased only 5% in 2007 (though milk and eggs have increased 29% and 36% , respectively) – It is important to note that these are record increases, and for many Americans on the margins, backbreaking and bank-breaking. Still, the discrepancy between skyrocketing global commodity prices and the smaller relative increases in U.S. stores is important and deserves explanation.
Only a portion of the prices we see at the grocery store (varying on the type of product) are dictated by cost of a product’s actual raw ingredients. In fact, “farm value” of the commodity raw materials accounts for only 1/5th of total food costs in the U.S. (down from 2/5th’s in the 1970’s), while processing, packaging, marketing/branding, transportation and warehousing account for the rest. Ironically, it is the “soft” value of products and the nature of our advertising-based consumerism that has protected Americans from feeling the full force of these global price increases. It is in part the money spent on marketing those leprechauns and bunnies, which has provided distance from farm to shelf and some cushion to soften the blow. If not for that, Americans would be asking a lot more questions about the connections between ethanol and food prices and wondering about the box of $10 cereal they just pumped into their tank.
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Reinventing the wheel is a difficult task. Katie F. recently posted an interesting article on Earth2Tech (subsection of uber venture blog GigaOm) titled “10 Green Social Networks You Should Know”. We were definitely honored to be selected as one of the ten, although a little disappointed when Katie said only ZeroFootPrint had a viable business model. We do have a viable business model, and unlike ZeroFootPrint, it does not revolve around selling much-debated carbon offsets. (See my recent post on Carbon Offsets and their validity).
However, most importantly, we do not see ourselves as a social network. If you have had an opportunity to sign up and test the site, you will see MakeMeSustainable’s primary emphasis is on the carbon management system we’ve developed to help people calculate and track their carbon reductions and financial savings based on daily lifestyle actions. We are a social software with some social networking features, but we have not emphasized our networking capabilities over our footprint reducing tools.
At SXSW Interactive last month I saw Facebook CEO Mark Zuckerberg’s keynote address. Zukerberg stressed that Facebook wanted to provide a widespread platform for others to use in developing their own applications to access the millions of Facebook users. Later at the Facebook party I had the opportunity to talk with Zuckerberg about Facebook’s environmental standing and whether the site had any plans to develop an environmental plan or strategy. His response was rehearsed and to the point…Facebook wants to give other’s the tools to develop the environmental tools that can change the world. In essence, Facebook is going to socially and ecologically responsible by making it easier for you and I to do so. Of course, Google through OpenSocial (Orkut, LinkedIn, etc), MySpace and others are close on Facebook’s heels in opening their own API’s to achieve global paradigm shifts.
What implications does this little dialog have for MakeMeSustainable, CarbonRally, Care2, Greeniacs, and every other green leaning burgeoning social networks? I think it shows that people will increasingly be loyal to one or two social networks for pure networking and you will have to provide value other then simply being a green network that cares. We will be working within the frameworks of MySpace and Open Social (we’re already on Facebook here) and continuing to increase the carbon and financial specific tools differentiates MakeMeSustainable from other green social networks and carbon calculator websites.
In closing, I support the open API trend. I don’t think there will be another Facebook, MySpace, Friendster, LinkedIn, etc. However, I don’t support Facebook’s hesitancy to scrutinize what types of applications are allowed on the site. Socially conscious applications and those that provide significant value should be highlighted and supported. Otherwise, they can not claim to be changing the world, but rather, they are lubricating the process by which trivial and preying applications can access huge numbers of people. FacebookGreen? MySpustainability? I’m all for it.
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Lately I’ve been asked by numerous groups of people, from friends to reporters about whether or not I support carbon offsets. In the process of answering these questions, I’ve found that most of people do not understand the nuances of carbon offsets, the risks and rewards, and/or the difference between a carbon offset and its sub-category the renewable energy credit (REC).
First, a carbon offset defined at the broadest level is: a financial tool designed to help reduce the total amount of CO2 in our atmosphere. When you and I purchase an offset, it goes to funding a project that (in theory) reduces the greenhouse gas we emit today or emitted in the past.
Secondly, offsets originate primarily from three types of projects.
- Industrial energy efficiency projects: In this case offsets are direct subsidies to an entity retrofitting, upgrading or installing equipment to reduce their total energy use. In layman’s terms, a large factory wants to install all new lighting and machinery, but fears it will be too expensive without additional capital. They work with a third party (like the EPA) to certify the equipment they install will reduce the plant’s total energy, therefore the total emissions, and allocate the number of offsets that corresponds to the difference in carbon emitted before and after the equipment installation.
- Carbon absorption projects: Here an organization plants trees, grows algae or other organic material (could be artificial I suppose?) which absorb greenhouse gases from their surroundings. This of this as the re-forrestration rather then rain forest clearing. The principle issues which arises is whether these projects are accurately measured. Questions regarding the albedo effect (albedo = the level of reflection/absorption of the sun’s rays by an object), or on the subject of additionality (additionality = whether the project would have happened regardless of the subsidy, e.g. trees replanted after hurricane Katrina are not additional).
- Renewable energy credits: REC’s are subsidies that go to renewable energy producers (wind, hydro, solar, etc) to cover the gap between the cost of producing the energy and the price at which the electricity grid purchases the energy (this is a flat rate set by the government and power distribution companies). In this case the reasoning is, that every unit of energy produced from a renewable source corresponds to a unit of energy that does not have to be produced from a traditional fossil fuel source. One of the largest issues with REC’s in the U.S. is that there is no single certifying body, and REC’s from power installations can be falsely or poorly measured.
Which of these offset sources is the most reliable? None are perfect, each having its flaws. Furthermore, the entire offset market within the U.S. is traded on a voluntary, unregulated market, which leaves room for error and dishonesty.
However, if we have to choose, I feel the REC’s provide the most advantage for the consumer and the environment. Each REC corresponds to a unit of energy and therefore reduces the energy demanded from traditional fuel sources, while simultaneously increasing the amount of renewable energy supplied.
Finally, do I really support offsets in general? Yes, but only after purchasers have actively reduced their individual energy demand and done everything possible to reduce wasteful energy behavior. Offsets are not indulgences for our eco-sins. They are not a permit to pollute, license to drive a gas guzzling car or permission act carelessly with our earth’s precious resources and environment. Offsets are simply a way of raising awareness, helping develop a consumer mindset of eco-friendly action and a method of funding alternatives to the status-quo dirty energy. Offsets are only a compliment to the larger solution of responsible actions, environmental awareness and significant government intervention.