by Tom Friedman knocked me out with his book The World is Flat. The hard edge of truth has a way of doing that when it hits you between the eyes. But much as I admire his work, Friedman is not right about everything. Take his love and promotion of “energy technology” as the next great American industry and employment sector as an example.
…renewable energy technologies — what I call “E.T.” — are going to constitute the next great global industry. They will rival and probably surpass “I.T.” — information technology.
I don’t see that happening, at least not in the dramatic way that the IBM PC fueled a wave of I.T. development that is still moving forward, changing society, and making millionaires every day.
What’s important about energy isn’t whether it’s green or not – that doesn’t matter – but how much it costs and what form factor it’s delivered in.
Countries with low energy costs relative to residents’ income have the potential, if their social system allows it, to have better lives than other countries where energy costs are high. Employment, profits, and standards of living all increase in inverse proportion to energy costs.
Friedman says:
The country that spawns the most E.T. companies will enjoy more economic power, strategic advantage and rising standards of living. We need to make sure that is America. Big oil and OPEC want to make sure it is not.
Big oil may, for the moment, oppose E.T., but if they do it’s only because they anticipate bigger profits in the traditional energy space. Should technology reverse that equation, big oil will instantly re-invent itself to take advantage of the new paradigm. That’s what businesses – the ones that want to survive – do.
If there’s a new way to deliver energy at a lower cost of production you can bet they’ll be in on it, whatever the source. Until then it’s just as sure a bet that they’ll fight to keep the oil economy in place because it’s the lowest cost solution to the country’s energy demands.
We should absolutely invest in renewable energy sources. R&D in this field is essential to our future national security and sustained standard of living. But it’s a mistake to think that energy companies are going to invest in renewables beyond what they anticipate the ROI to be. Changing this behavior requires changing the P&L forecast on the horizon for these commodities.
Part of the problem with doing so is that the E.T. industry Friedman is advocating is not likely to be a breakout performer like many of today’s I.T. success stories. The reason is simple: all current energy demands are being met at a reasonable cost and renewables are unlikely to alter that situation in the next quarter-century at least.
Yes, there would be some non-financial rewards from changing to less-environmentally damaging energy sources. But these are difficult to quantify and do not make sense at the individual level, economically speaking. There’s simply no money in the business at the moment.
I.T. was and is fundamentally different in that it was a totally new business that solved problems that, for all intents and purposes, could not have been solved without it. Huge competitive advantages were gained by companies that used it to streamline their operations while those who lagged behind failed.
That won’t be true for businesses and homes that don’t partake of E.T.’s offerings because there’s no competitive/cost advantage for doing so. Everyone’s marginal cost per kilowatt is the same – what difference does the source make? None, at least for the foreseeable future.
That’s where the form-factor of energy comes in. If we can break the model of monolithic energy production and distribution and decentralize energy production so that homes and businesses are responsible for generating their own power through local generation stations, then we can change the way Americans think about energy.
When the cost of energy is a real factor in competition and home economics, then it matters how that power is generated and the E.T. industry that Friedman is talking about can begin to take shape because there is an open market in which to compete.
Perhaps Friedman is right after all. But what he and other green energy advocates are talking about is an energy plan that attempts the equivalent of making a baby in a month by putting a room full of women on notice that it’s to be done.
In other words, the problem is still one of science and engineering and not yet one of production, sales, and marketing. During the gestation period in between, oil, coal, and nuclear power production must be increased and must increasingly be derived from domestic sources. Period.
Therefore, Americans oppose drilling offshore and in Alaska and construction of new nuclear plants at their own peril. For the next couple of decades, that’s all we have.
