It started when a 26-year-old college graduate couldn't find a job and started selling fruits and vegetables without a license. When the authorities confiscated Mohamed Bouazizi's inventory, he despaired and set himself on fire, lighting a flame of chaos that's still reverberating around the world.
Bouazizi's suicide resonated with young Tunisians who suffered high unemployment (i.e., 52%) under an authoritarian regime and centrally planned economy that presented neither opportunity nor hope. The American press reported the uprising as a democratic revolution, but it was more about food than democracy.
Dissatisfaction with food prices is why Tunisian strongman Ben Ali slashed the price of commodity foods, such as bread and milk in an effort to remain in power. For citizens of the developing world, merely putting food on the table accounts for 70% of the typical income. Worldwide, food prices are skyrocketing.
The United Nations actually foresaw this. In December the U.N. Food and Agricultural Organization issued a policy brief warning of food price volatility and the threat to developing country food security.
Floods in Australia, drought in China, poor harvests in Argentina and Russia, and ethanol in the United States are all causing global food prices to set records.
Wait! Ethanol?
The Energy Independence and Security Act mandates the production of 12.6 billion gallons of ethanol (15 billion gallons by 2015), sucking up 24% of domestic corn production while receiving taxpayer subsidies of 45 cents per gallon. The subsidies are necessary because it takes more energy (and expense) to grow corn and convert it to gasoline than to drill for oil and refine it. The diversion of food to fuel may spark a spike in the price of energy.
Chaos Abroad. Partly responsible for the jump in food prices, ethanol helped create chaos in Tunisia. Facebook and Twitter ensured the entire world knew of Ben Ali's fall. Egypt, suffering similar youth unemployment, authoritarian government, and rising food prices, blew up. Groups unfriendly to the West in general and the U.S. in particular spotted the trend and lent encouragement, resulting in growing chaos in a region critical to global energy production, with the potential to affect world energy prices.
Chaos at Home. If that's not chaotic enough, North American electric reliability is looking increasingly suspect. Reserve margins have fallen from more than 30% in the 1990s to just over 15% today, which is the minimum threshold for reliable operation. While a poor economy reduces demand projections, capacity is still not being added as fast as demand will grow. Moreover, cheap, reliable base-load coal generation is being retired and replaced with more expensive, less reliable renewable energy, particularly wind.
Renewable energy may be important to our future energy mix, but poses reliability challenges. Fossil fuel generation supply can be ramped up and down to match demand. By contrast, renewables ramp up and down independent of demand, often rapidly and without notice. The strategy for renewables is to develop a smart grid to arbitrarily reduce demand when supply falls. But the grid isn't smart yet, which means the thinning reserve margins combined with uncertain renewable supply leads to more frequent brownouts and blackouts, not to mention higher prices.
Throw in the President's plan for a million electric cars and plug-in hybrids and the recipe for chaos is complete. It's chaos for the country, but it can be profit for you.
As events, foreign and domestic, drive up the price of energy, demand for higher efficiency heating and air conditioning will increase regardless of incentives. Further reductions in electric reliability will spur interest in standby generators. Reliability and pricing will increase the attractiveness of residential solar applications.
Of course, all bets are off should sanity infect the nation. Chaos would end if we started to become energy independent again by resuming offshore drilling, drilling in ANWR, drilling on off-limits federal land, extracting our abundant shale oil, and ceasing the growing resistance to hydraulic fracturing for our rich reserves of natural gas, the mining of our plentiful and cheap coal deposits, clean coal generation, and nuclear plant siting and construction.
If sanity strikes, against the odds, the HVAC industry's focus would simply shift from efficiency to comfort. That wouldn't be bad either.
Matt Michel is CEO of Service Nation, which operates the Service Roundtable, the Retail Contractor Coalition, and the Service Nation Alliance. For more information, call toll free 877.262.3341.