Friday, May 06, 2005

Catching the Next Wave
The latest issue of The Economist includes a special report on oil. Their lead editorial (subscription may be required) discusses the problems of high oil prices for all parties involved, and it's well worth reading. What caught my interest, though, was its opening anecdote citing Winston Churchill's momentous decision as First Lord of the Admiralty to convert the Edwardian-era Royal Navy from coal to oil. That was hugely risky, since Britain had no indigenous oil at the time, but it paid off as a key strategic advantage in World War I. This story illustrates nicely how energy, which we seem to be conditioned to consider a problem, can be turned into a great opportunity, as I suggested yesterday concerning climate change.

Politicians like to remind us that the US is the world's largest consumer of energy, despite having tiny reserves of remaining oil. Out of the world's annual energy budget of 412 quadrillion BTUs (quads), we consume 100 quads per year. At the same time, when you consider not just oil, but also natural gas, coal, nuclear, and renewables, we produce about 70 quads, equal to the entire energy consumption of Western Europe.

Now, you can conclude from this that if we were as efficient as Europe, we would be self-sufficient in energy, and all the current problems would abate. There's some truth to that, but it's an over-simplification in our market-driven, globalizing world. What is clear, though, is that at the scale at which this country uses and produces energy, we ought to be the world leaders in this area. We certainly were in the past, when America's tremendous natural endowments of coal and oil helped turn an agrarian country into the world's industrial giant within two generations. There's no reason it couldn't be true in the future, if we can marshal the vision and patience to invest now in the forms of energy that would create a comparable advantage for the next several decades. And while climate change might compound the problem, it also multiplies the potential opportunities.

In the late 19th Century, oil was clearly the next wave in energy, and catching it early paid dividends for at least 50 years. Agreeing on what the next wave might be is more difficult today, because energy is much more complex. There's no single obvious choice. But rather than looking at renewable energy, which is one of the obvious contenders, and seeing a road to potential self-sufficiency, shouldn't we regard wind, solar, and biofuels as the seeds of the great global energy empires of the next half-century? And while an objective assessment might suggest we are behind in some of these areas, compared to our global competitors, the US was behind at the turn of the 20th Century, too. That didn't hold us back then, nor should it now.

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