Public Policy

Wow, it’s February first already. Clearly I haven’t kept to my new year’s resolution which was to write blog entries more predictably and consistently. I had the best intentions of writing a top eleven trends to watch for 2011, but never put fingers to keyboard on it. Had I, I would have been correct on one and way off on the one other, so let’s dive in.

My #1 trend to watch for 2011 was increased oil price volatility driven by upheaval in the developing world. However, I certainly hadn’t foreseen the melt-down in Egypt. I thought it might be economic or social turmoil in the over-heating economies of China or Brazil that would impact oil prices (they still may of course).

Brazil Talks Tough on Inflation

Inflation Concerns Persist as Prices Increase

But Egypt, while not a large oil producer, has strategic supply resources, the Suez Canal and Sumed pipeline, which, if disrupted, can greatly impact global oil flow and by consequence, oil prices.

Oil Prices Surge on Fears Unrest May Hurt Supply

Politically, the outcome in Egypt is far from evident and potentially far reaching throughout the major oil producing countries in the Middle East. For oil marketers and consumers, this is not simple “headline news”, this is a major geopolitical and economic event to monitor.

Changing gears, I was very encouraged by President Obama’s State of the Union address concerning energy policy. In this blog, I have consistently advocated increased governmental investment in research and development of energy sources that, at production scale, have lower cost and similar benefit as conventional hydrocarbon-based fuels. As opposed to the current governmental practices of subsidies or tariffs for wind, solar and conventional biofuels, or growth-retarding tax increases in the form of carbon cap and trade, Obama’s energy plans appears to be shifting towards good old American R&D…huzzah!

Obama's Breakthrough

I’d love to hear your thoughts concerning the start of the new year.

Cheers, Matt

I attended the Insight NACS Future of International Convenience & Petroleum Retailing 2010 conference, and it was an outstanding show. Besides being a well-run event in the heart of London, the speakers were excellent. Two of the presentations from Day 1 that were particular highlights for me were from Kate Smith Bingham, Offer Development Manager at Waitrose and Joe Barrett, Operations Director at Applegreen.

Waitrose, a large grocery chain based in the U.K., has recently embarked on a small and large convenience store strategy taking advantage of their late entry into the market by borrowing best practices from other market players. At the same time, they have re-imagined the convenience store concept incorporating key insights from extensive customer surveys. An example of this re-imagination is their new store layout. For the customer looking for fresh, ready-made meals and needing to move fast through the shopping experience, Waitrose dedicates space for those meals at the front of the store near the entrance and registers with a clear path to get in and out quickly. Fruits and vegetables, which have been traditionally at the front of grocery stores, are now towards the back where evening meal or less hurried shoppers can take their time.

Applegreen, Ireland’s largest independent forecourt retailer, was a fascinating study of a young, fast-growing convenience retailer with a strong focus on customer and brand. Embracing the green aspect of their name, Applegreen has adopted numerous programs in support of their community. They harvest rainwater at their stores for use in their car washes, they use LED technology to reduce their carbon footprint, they offer and brand “green” fuel, and they donate 1 cent to different charities for every in-store transaction (and there is more). Additionally, Applegreen is progressive in their business planning and execution taking advantage of outsourced technology and services as one example. Applegreen also has a strong maverick streak in that they are willing to act independently when conventional practices are viewed as sub-par to best-in-class service or are a detriment to their brand.

Over the last few years, Applegreen has grown aggressively during this economic downturn when others have bunkered down. An interesting contrast to the American market is that Applegreen customers utilize pay at the pump only 10% of the time in Ireland versus in the States where pay at the pump predominates. This presents unique challenges in terms of throughput as Irish sites are much smaller than those in the States. Applegreen is also expanding into new markets such as the UK where they have 13 sites currently. Joe even mentioned possible U.S. expansion somewhere down the road.

If I could relay one takeaway that really impressed me from the first day of the conference, it was that the European market – not surprisingly – is highly competitive and consequently spawning innovative ideas and best practices that U.S. retailers would do well to examine. This was surely evidenced by the presence of a number of U.S. retailers attending the conference this year.

A lot has transpired since my last blog posting; the BP well has been capped in the Gulf, the Baltimore Orioles have a new manager and have actually won a few games (thankfully the Ravens season has started), and, for now, the death of cap and trade.

But one very interesting battle that has generally gone un-noticed is the defiant stance taken by the Texas Committee on Environmental Quality (TCEQ) and the state of Texas concerning unprecedented encroachment by the U.S. Environmental Protection Agency into the issuance of greenhouse gas permits in the state under new rules recently imposed by the EPA. In an open letter to EPA administrators Lisa Jackson and Alfredo Armendariz, Texas Commission on Environmental Quality Chairman Bryan Shaw and Texas Attorney General Greg Abbott stated the following, "In order to deter challenges to your plan for centralized control of industrial development through the issuance of permits for greenhouse gases, you have called upon each state to declare its allegiance to the Environmental Protection Agency's recently enacted greenhouse gas regulations -- regulations that are plainly contrary to United States law”. Wow, heady stuff.

Much has been written about the current administration’s attempts to federalize areas like health care that heretofore have been within the states' domain. And, from a business owner’s point of view, you definitely start getting the feeling that we’re headed toward a patronizing, “we know better than you” centralization of power.

But, does a central political apparatus really know what’s better for local business? As a staunch advocate for R&D investment in clean energy, I was dismayed by the recent decision to “borrow” $1.5 billion from a U.S. Department of Energy Department renewable-energy loan program to help pay for emergency education and Medicaid aid for states. The rationale was that the money wasn’t being allocated fast enough due to governmental bureaucracy. Instead of streamlining the process, we’ll just take the money. Huh? Only Voltaire’s Pangloss could put a positive spin on that logic.

Personally, I fear the centralization of power in a free market democracy because, fundamentally, its ability to execute will never be as good as a centrally planned and governed economy. Juxtapose this example, the Chinese government mandating the closure of 2,000 energy inefficient manufacturing plants by September 30th with the current TCEQ vs. EPA fight. How much time and how many millions of dollars will be spent to resolve the permitting issue? I am certainly not advocating more central planning; quite the contrary. I am most worried about the U.S. stagnating somewhere in the middle with an increasingly burdensome and costly central structure disrupting the normal flow of markets and the ability of businesses to execute.

Just food for thought. I’d love to hear your opinions.

As always, feedback welcome.

Matt

The EPA recently revised downward ten-fold its forecast for the production of cellulostic ethanol next year from 250 million gallons to 25 million gallons.

Why should you care? Because it’s symptomatic of the lack of coordination between the national energy policy and the governmental bureaucracies tasked with implementing it. According to a recent Biofuels Digest story, in the last six years, not one U.S. Department of Energy loan guarantee was issued for the production of a cellulostic ethanol plant.

This example gets to the heart of the clean/green technology dilemma facing us. R&D investment is not the issue (the U.S. stills leads to world in clean tech invention), its investment capital for commercialization and production that’s woefully lacking. Why? because the typical venture capitalist does not want to invest in building a plant with a large initial capital outlay, in a new technology area, with returns likely more than 5 years in the future. That’s where government investment is critical. A great example, is the excellent progress FuelQuest founder and former CEO Rich Cilento is making at his new endeavor, GlycosBio. Given the difficulty in securing funds for building a production scale facility in the U.S., they looked to Asia, where the Malaysian government is backing the build-out of the first plant using their technological process invented and proven here in Houston.

From an economic viewpoint, the U.S. certainly gains much less in the long run from inventing than commercializing, a fact well understood by the Chinese who have now surpassed the U.S. in virtually all areas of clean technology manufacturing.

Climate-driven carbon regulation in the U.S. will not make us more competitive in the long run. Investment in clean technology and low carbon energy sources will. The recent Bechtel and Babcock & Wilcox partnership to drive commercialization and adoption of small footprint nuclear reactors is a step in the right direction. The new emissions trading scheme implemented in New Zealand is not. Although I do like the accuracy of the new regulations protestor’s slogan “Extra Tax Sucks”.

Of course, none of this may matter at all if you believe the author of this story: Doomsday How BP Gulf Disaster May Have Triggered A World Killing Event.  The darn Mayans were only off by a year!

Stay informed and give your elected officials your feedback on the need for governmental investment in clean technology commercialization in the U.S.

As always, feedback welcome!

Cheers, Matt