THE BOTTOMLESS WELL: Are We Running out of Energy?

Friday, February 11, 2005

Many petroleum experts predict that world oil production will peak by the end of the decade. Will the United States soon be entering a period of worsening energy shortages and soaring energy costs? And, if so, what should the government to do about it? Or will the ever-improving technological efficiencies of the free market provide access to virtually endless sources of new energy? Peter Robinson speaks with Peter Huber and Jonathan Koomey.

Recorded on Friday, February 11, 2005

Peter Robinson: Today on Uncommon Knowledge: is the gas tank half-empty or half-full?

Announcer: Funding for this program is provided by the John M. Olin Foundation.


Peter Robinson: Welcome to Uncommon Knowledge, I'm Peter Robinson. Our show today: two ways of looking at energy. According to the usual view, there's only so much coal, oil and natural gas and we're running out of them. Our economy and indeed the economy of the entire Western world will be in jeopardy unless we conserve energy, learn to use it more efficiently and begin to produce new and renewable sources of energy. According to the other view, there isn't any problem at all.

Joining us today, two guests. Jonathan Koomey is a scientist at the Lawrence Berkeley National Laboratory and a visiting professor at Stanford University. Peter Huber is a fellow at the Manhattan Institute and co-author of the book The Bottomless Well: The Twilight of Fuel, The Virtue of Waste and Why We Will Never Run Out of Energy.

Title: Out of Gas?

Peter Robinson: President George W. Bush in his 2003 State of the Union Address, "Tonight I am proposing 1.2 billion dollars in research funding so that America can lead the world in developing clean hydrogen-powered automobiles. Join me in this important innovation to make our country much less dependent on foreign sources of energy." Does the federal government indeed need to worry about developing new sources of energy to free us from our dependence on foreign oil? Jonathan?

Jonathan Koomey: Absolutely.

Peter Robinson: Peter?

Peter Huber: Not particularly.

Peter Robinson: Not par--thank you very much. Gentlemen, that's what I like, a clean division at the top of the show. In your new book, The Bottomless Well, you propound what you call, "great energy heresies." Take his heresies together and they represent a new way of looking at the energy problem if indeed you grant that his heresies make sense. Let's take a few of Peter's heresies. I'll state the heresy. We'll ask Peter to describe it and then you may tell us whether you accept it or you may knock it down as you choose. Heresy: "The cost of energy as we use it has less and less to do with the cost of fuel."

Peter Huber: We spend more every year on fuels themselves, raw fuels, but we don't use the fuels directly. We transform them into higher grade fuels, electricity most notably. And, I mean, in the actual dollars we spend on the energy as we finally use it, the raw fuel counts for less and less. We pay much more for the refining, the purifying, transforming it into other things than we do on the raw fuel as the prime mover.

Peter Robinson: You grant that? That's just sort of a mathematical, economic, mathematical observation.

Jonathan Koomey: People don't demand energy. People demand services. They want cold beer. They want warm rooms. And so what I think Peter is saying here is that the amount of capital and other costs associated with delivering those services is actually going up as a fraction of the total cost of the services being delivered.

Peter Robinson: And you grant that?

Jonathan Koomey: I grant that, yes.

Peter Robinson: Let me push you back then. Push back on this. I quote a report of the European Research News Center, "If externalities were to be taken into account, the price for kilowatt hour of fuel of petroleum origin would double." In other words, although we've achieved immense efficiencies in pumping and refining oil, driving down the cost of oil, we've barely touched the problem of the actual externalities, the pollution, health costs and so forth. And so to say that fuel as a proportion of the final energy product is dropping is to overlook a very important cost that we haven't done a good job of getting our arms around.

Peter Huber: That will always be an issue. What costs you ascribe to the environmental impacts and of course, as a threshold matter, what you think those environmental impacts are. But, of course, energy has external benefits as well. I mean, we increase life expectancy. We live more comfortable lives. Many things in our economy are not internalized. And once you go down that road, you can basically make numbers do anything you like. We do know in the above ground economy, where you actually look at the dollars flow, we now spend more on the hardware that transforms energy into purer forms than we do on the energy itself.

Peter Robinson: Let's discuss Peter Huber's second energy heresy.

Title: Coal Mountain

Peter Robinson: Heresy--now this is a big one by the way, take a deep breath. "The raw fuels are not running out." Now here you seem, if I as a layman may say so, to have taken leave of your senses. Everybody knows that oil, coal, natural gas, all exist in fixed amounts, therefore, the more we use, the less remains.

Peter Huber: Fixed amount is a very elastic term. We have centuries' worth of coal in this country. That's what actually worries many people, I think John Koomey among them. We could burn coal for a century. We can make unlimited amounts of electricity with coal if we want to. We have tar sands in Canada and in South America that have a century's worth of oil locked up in tar. The issue isn't whether the planet itself is very limited in buried hydrocarbons. It clearly is not. The issue is do we want to get them out? Do we have the technologies to get them out? At what price can we get them out and what are the environmental impacts of doing so?

Peter Robinson: So you're attempting here to reframe the question that in the culture, there's a sort of nervousness that as the price of gas peaks, it's because we're actually running out of oil. You're saying that's really not the right way to look at it.

Peter Huber: Six years ago oil was at record low prices. It's at quite high prices today although by no means, record historical highs, certainly not in inflation adjusted dollars. But oil certainly isn't our only source of energy. I mean, we have enormous deposits of uranium on the planet and in North America alone. Gigantic deposits of tar sands and coal. I mean, if we begin tapping them, nobody disputes that there's these solar energy and the wind energy vastly exceeds current human consumption. The issues aren't whether it's there. It's can we capture it. At what price? With what environmental impacts?

Peter Robinson: You grant that, the raw fuels are not running out?

Jonathan Koomey: Most people worry about that. I'm less concerned about that particular issue but what I will add is that the externalities associated with consuming oil, I think on balance, are actually greater than--the negative externalities are greater than the positive ones. Peter was trying to make the case that there wasn't any issue there. But there is. There is an issue. We want to--we want to make sure that whatever services we're delivering with energy, we're doing it at the least total cost to society, including those external costs. We know what those are: air pollution, solid waste, nuclear waste. These are real issues that people need to think about.

Peter Huber: And there are more than those real issues. I mean, you put up windmills, you kill condors. You know, you put up solar cells, takes enormous amounts of real estate if you want to power New York. I mean, of course, there are externalities with living and with everything that humans do and you want to try and take them into account intelligently. As for running out of raw material, no, the planet's not running out of energy. There are other problems but just a resource limitation--the planet will not stop our energy consumption.

Peter Robinson: Which John grants.

Jonathan Koomey: Yes, with the proviso that we may run out of the environmental services that allow us to keep burning the fuels. If anyone's been to China recently, they know. Look at the air pollution there. It's terrible.

Peter Robinson: What you're saying is that there's plenty of coal but there's not that much clean air.

Jonathan Koomey: Yeah and there's a limitation there.

Peter Robinson: Now, Peter Huber's third energy heresy.

Title: Waste…Want Not?

Peter Robinson: Heresy: "The more efficient our technology, the more energy we consume."

Peter Huber: Look, for two centuries of industrial history, you cannot name a technology, a thermal engine, a motor, a generator, a bulb that hasn't been growing increasingly efficient. Our thermal engines today are much more efficient than they were 40 years ago and huge…

Peter Robinson: That is they produce more energy output, per fuel input.

Peter Huber: More power for that amount of heat. Our light bulbs are, our electric motors are, our refrigerators are. If you look at a two-century time span, we are vastly more efficient in our core technologies than James Watt when he invented his steam engine, than Nicolaus Otto with his first internal combustion engine. Over the long span, efficiency goes up and up and up. And you can track that right alongside rising energy consumption and it's a very interesting problem. Why? But the historical record is so unambiguous, I simply don't understand this delusion that says more efficient motors, more efficient engines and energy consumption will plateau or go down. The historical record is directly to the contrary.

Jonathan Koomey: Absolutely not. And I think what's going on here…

Peter Robinson: Your contention is that if all the devices that use energy and produce energy did so more efficiently, we could actually use less oil, less coal. Is that right?

Jonathan Koomey: Let me see if I can define the issue carefully because what you have here is a conflation of two things. One is there's a set of trends that cause people to use more energy. There's more population. There's increasing wealth. There's a whole series of other things that over the course of human development, has led people to use more energy. And then there's the question of, if you improve efficiency, does that increase energy use? The way that claim is written, it makes it sound like improving efficiency increases energy use when, in fact, it's the population growth, it's the wealth increase, it's all these other factors. What I object to is saying that efficiency must lead to increases in energy use. That's just plain false.

Peter Huber: Let me just take on one little phrase you slipped in there, John, the wealth increase. More efficient engines make us wealthier. In fact, they're a core that drives our prosperity. Let me reverse the picture. If our car engines, rather than being 20% or 25% thermally efficient today, if they were only 5% efficient, do you seriously think we would be using more fuel on our highways? You couldn't drive. We wouldn't have this infrastructure. You wouldn't have a hundred million cars on the highways. What got us there was a technology that grew so efficient that you could basically get a car in every driveway and people driving all these miles.

Jonathan Koomey: But efficiency is not…

Peter Huber: That's what created the demand in the first place.

Jonathan Koomey: Efficiency is not the only thing leading to that wealth increase.

Peter Huber: Of course not. It's one of them.

Jonathan Koomey: Okay. But the point is…

Peter Robinson: John, let me quote you, something you've written, "If new devices--" and this, as one reads this, it seems to be a statement that falls in the large category of common sense--"If new devices are much more efficient than their predecessors, electricity demand and growth from these devices could be modest." Now I live here in California and during our energy crisis of a couple of years ago, there were one story after another about more efficient washing machines, more efficient air conditionings and it all seemed to make sense. Right? You have more efficient consumer goods and you use less energy. What's wrong with that?

Peter Huber: Well, let's look at specific examples of how consumers actually respond. Let's look at our car engines. Look at the engine in your much-maligned SUV if that's what you're driving. It is an extraordinarily efficient engine compared with what was driving your mother's Pontiac 30 years ago. It is really very good at taking raw thermal power and turning it into motive power which is what an engine is designed to do. Are you driving less? Are you using less fuel? No, I'll tell you what has happened. Three or four things. First of all, you're driving twice the car. It's loaded with gadgets. You…

Peter Robinson: And you need two cars…

Peter Huber: You've upscaled your car. Secondly, all those advances in technology have given us a plethora of new combustion driven things. We have Sea-Doos and Ski-Doos and better lawnmowers and leaf blowers and a constellation of other powered things. Honda got better and better and better at making motors and now you put them on your boats and in your yard. Technology has this habit of metastasizing and proliferating and permeating our society. Take computers--first computer--one of them, ENIAC, 175,000 watts in Philadelphia. Today you can buy that much computing power a thousand times over in a PlayStation, okay. And you get a thousand times more electric efficiency. Do you think the PlayStations of this world are using less power than the ENIAC? We have a PlayStation for every teenager now.

Peter Robinson: So what he's saying is look, you have a historical trend. The better we get at making efficient devices, the more such devices we want and that just is borne out by history. Your contention is that need not continue.

Jonathan Koomey: My contention is that there are other things driving this. Yes it's true that technology increases wealth but energy efficiency does not increase consumption.

Peter Robinson: On to Peter Huber's last energy heresy.

Title: All is for the Best in the Best of All Possible Worlds

Peter Robinson: Another big one here. "America's relentless pursuit of high grade energy does not add chaos to the global environment. It restores order." Now in the first place, explain just what you mean by that. Chaos, order in the environment.

Peter Huber: The environment in North America overall is improving, getting better, faster than anywhere else on the planet. The environmental problem areas are the third world, the developing countries. They are living the way we were living a century ago. They're still deforesting. They're ruining their landscapes. They're emitting their net emitters of carbon. We are almost certainly a net carbon sink, almost certainly because we're reforesting rapidly now. And the transition away from the carbohydrate economy, which is the primitive energy economy of the third world, to the hydrocarbon and then I hope beyond hydrocarbons to nuclear and other fuels is a very positive trend for the environment. Albeit, the rest of the world should go the same way.

Peter Robinson: Jonathan?

Jonathan Koomey: That statement is basically dependent on climate change not being an issue. If we keep burning as much coal as we're burning and going in that direction, we're going to be increasing the global temperature of the earth. And…

Peter Robinson: When you say that we're--you said carbon sink…

Peter Huber: North America as best these things can be measured directly today is a net carbon sink.

Peter Robinson: That is to say that we absorb more greenhouse gases than we produce. Is that the correct way…

Peter Huber: That is correct and these are directly measurable.

Jonathan Koomey: No, that's not true.

Peter Huber: Yes, we emit about 1.6 billion metric tons over North America. You can measure carbon dioxide levels atmospheric on the West Coast. The winds blow west to east and the best direct measurements available today are that they are lower off the East Coast and almost certainly, the result is because of reforestation of North America. We are rapidly reforesting...

Peter Robinson: Trees are sucking up the carbon dioxide?

Peter Huber: ...and the rest of the planet is not reforesting.

Peter Robinson: That argument?

Jonathan Koomey: I don't think we're reforesting nearly as much--1.6 billion tons is huge. It's one quarter of all the carbon emissions in the entire world.

Peter Robinson: By the way, if trees--I'm just trying to remember the arguments here. When a tree absorbs carbon dioxide, doesn't it ultimately reemit it all when it falls to the earth and decomposes?

Peter Huber: No. On a mature forest, that happens.

Peter Robinson: In other words, isn't this notion of a carbon sink temporary?

Peter Huber: It is--while you're reforesting, that's right. If you have deforested as we did in the 19th century and then you get away from a carbohydrate economy and begin actively reforesting, you are sinking carbon. I mean, the net weight of the tree is carbon that's not in the air. Then what happens to the tree is the question--a mature forest is essentially a wash because stuff then falls down. If it goes down the river…

Peter Robinson: Which is a state of equilibrium…

Peter Huber: Yeah, but it can still wash down rivers and get deposited in oceans, which is probably a quite major factor. But North America is now rapidly reforesting. It has been for about 60 years.

Peter Robinson: Next, a little energy policy advice for the Bush Administration.

Title: I'll Take the Manhattan Project

Peter Robinson: John, here's the situation. Three decades after the Arab oil embargo of 1973 to 1974 quadrupled oil prices and wrecked havoc on the economy of the United States and indeed of the entire Western world, we are now more dependent on oil from the Middle East as a proportion of fuel and the Middle East is more unstable and more anti-American. What should President Bush do about that?

Jonathan Koomey: R&D is one of the big answers to this. And the President has…

Peter Robinson: You like this hydrogen project?

Jonathan Koomey: Well, I'm not sure whether hydrogen or hybrids will ultimately be the best end result but doing research and development to develop new cars and other forms of transportation is the key to the oil problem.

Peter Robinson: Okay. So you want lots of R&D to develop alternative sources of energy and your view would be that you do not feel patient enough to let the market produce this on its own. You want the government to lead the effort?

Jonathan Koomey: Well, but look at what's happening with the trade deficit. A large part of the increase in the U.S. trade deficit is because oil prices are up and we use a lot of oil. And so if you figure out ways to displace oil using alternative fuels and use that oil more efficiently, then the society's going to be better off.

Peter Robinson: So the government should take this role?

Jonathan Koomey: Sure. The government…

Peter Robinson: The government should take a major role…

Jonathan Koomey: …should be supporting R&D and should be changing the misplaced incentives that exist throughout the economy that lead people to use more energy than it really costs.

Peter Robinson: Okay. National Review Online, a conservative website, Mark Krikorian, a conservative journalist, argued that indeed the time has come for a kind of Manhattan Project applied this time not to weaponry but to energy. That's the kind of major federal undertaking, harnessing national morale as well as resources. That's the kind of thing you'd be in favor of?

Jonathan Koomey: Yeah, because our economy is hostage to not just dependence on imported oil but dependence on oil. The world market for oil will affect us even if we're not importing any oil. And so it's important that we, in the course of the next 50 years, figure out a way to get off of oil.

Peter Robinson: All right. Let me quote Mark Krikorian to you and John Koomey's point as he has just said, "This--" that is reducing our dependence on foreign oil--"This is something that simply cannot be left to the market to solve. Making oil economically irrelevant needs to be accelerated by the government through much higher gas taxes, nuclear plants, powering electric cars and a Manhattan Project level of commitment to alternative fuel research." I put that to you, Peter Huber, who told us at the top of the show that he didn't think the government particularly needed to worry about this kind of thing.

Peter Huber: The first thing to understand is oil is not the dominant fuel of our modern economy. Electricity is. Now electricity isn't a primary fuel.

Peter Robinson: Primary. Okay. I'm just trying to follow.

Peter Huber: The United States burns 100 quads of energy a year roughly. Forty of those quads, okay, roughly are oil, 40% oil. All the rest is not oil. It is coal, uranium, gas and hydroelectric by and large, right. The ascendant fuel of our economy is electricity and then by implication, the fuels we use to create electricity. The shift is decisively away from oil. Now 30 years ago, the ratios were the opposite. We were much more oil dominant, much less other fuels.

Peter Robinson: Sixty-forty roughly?

Peter Huber: Yes, that's right. And it's shifting progressively. We are electrifying every sector of our economy. The thermal sector, which is about 30% of our energy economy, is going electric quite rapidly.

Peter Robinson: You say thermal, I think of heating the house.

Peter Huber: Yeah, well that's probably the last of it but our factories are very big users of heating systems to process chemicals, to weld, to solder, to dry paint and so on and microwaves and lasers and so on are encroaching there. If we go to hybrid cars and we go to plug in hybrids…

Peter Robinson: Hybrid cars are a hybrid between one part gasoline and one part…

Peter Huber: They have hybrid drivetrains. They have an onboard battery pack of several kilowatt hours which will only get you a few miles but once you have that infrastructure, you have a plug-in hybrid potential so you can begin topping off on the grid, you have the potential--I think it's very long-term--to begin dropping other systems in there, fuel cells or hydrogen if we get that far, a long way off. Okay. The electrification of our economy is the most important trend and that's what ought to be facilitated and welcomed. Okay. As for oil, you know, our principle objective ought to be to promote investment in politically stable countries which is to say North America, some parts of South America that are oil producing and to promote political stability in oil producing countries that are politically unstable. Oil is still important. The winds are shifting away from it and that's a good thing.

Peter Robinson: Let me try to nail Peter Huber down on exactly what he thinks the government ought to be doing about energy.

Title: More Power To You

Peter Robinson: You say the government ought to do what the government already does which is to engage in diplomacy, attempt to foster economic stability in the Middle East and to…

Peter Huber: Domestically, electricity is the thing that requires government policy because you can't make gigawatt-scale power plants and transmission lines without some sort of government acquiescence. They're too big. They require public spaces.

Peter Robinson: The policy departures would be…

Peter Huber: Policy should be to facilitate building new power plants again. California pretty much shut down that process and lived to regret it.

Peter Robinson: Scale back the regulatory overhang?

Peter Huber: …to rebuild our grid and to make it much more robust and to encourage electrification which means more rational pricing of electricity, peak load pricing and off-peak pricing and investment in the grid.

Peter Robinson: Sir?

Jonathan Koomey: Okay. Developing new technology is important. The government has a big role in that. All economists agree. We can choose where we want to put that effort. We should be focusing on things that will displace oil. And electrification is not necessarily the fastest or the cheapest way to do that. There's a number of misstatements…

Peter Robinson: How do you discover what is the fastest and cheapest way? Don't you have to listen to the market primarily or not?

Jonathan Koomey: Well we know from history that developing more efficiency technologies and developing mass-produced supply-side technologies is faster and cheaper than the large-scale site-built technologies such as nuclear. And so you have a learning that comes from manufacturing, from having mass-produced devices. And that's something that on the efficiency side can happen very, very rapidly.

Peter Robinson: In your heart of hearts, wouldn't you like to see a bunch of nuclear plants built?

Peter Huber: I think nuclear is probably the best, the greenest option we have there. The only practical way to generate electricity on the scale we need, there are only really two practical choices today, one is coal, the other is nuclear. Thirty years ago people were having exactly this conversation. People talked about big programs, government subsidies, get efficient, develop renewables and 30 years later, the one thing we are doing for sure is burning 400 million tons more of coal every year. That is what the energy policies of the '70s gave us. After all the promises of efficiency and wind and solar, 400 million tons of coal more every year today than 30 years ago.

Peter Robinson: On account of what, the government…

Peter Huber: On account of paralysis of nuclear facilities after TMI, nobody would build…

Peter Robinson: Three Mile Island.

Peter Huber: …and completely false promises that we could conserve and be efficient and we didn't need the new plants and the net result was they took the old plants, they re-skinned them and they burn 400 million more tons of coal in them every year.

Jonathan Koomey: That history is because we made relatively modest efforts on efficiency and continued massive subsidies for coal, for nuclear, for oil production. And if you change those subsidies, if you change the way that the incentives are structured for the more conventional technologies, you would have had a very different outcome.

Peter Robinson: Nuclear technology as I understand it has changed quite a lot, at least in theory. We don't know in practice because people aren't allowed to build plants. You disagree fundamentally with Peter about the building of new nuclear plants?

Jonathan Koomey: I don't actually have a position on whether…

Peter Robinson: He called it…

Jonathan Koomey: …on whether or not...

Peter Robinson: … the greenest option we have.

Jonathan Koomey: I don't know that it's the greenest option. I don't actually disagree with building nuclear plants if they are able to compete in the marketplace. But right now, they…

Peter Robinson: Can I just say that's quite a breathtaking statement. Do you represent a new openness among environmentalists to the nuclear option?

Jonathan Koomey: I'm not speaking for environmentalists. What I'm saying is that nuclear option has been damaged in part by the regulatory issues that Peter talked about but also by market forces. They can't compete or they haven't been able to compete with gas-fired cogeneration. They can't compete with wind generation. They can't compete with coal. They can't compete with…

Peter Robinson: Under the current regulatory regime, they can't, right?

Jonathan Koomey: Well, in almost any scenario that you can imagine, every time the Department of Energy does its forecast for the future, they look into what would happen in terms of new technologies coming in and nuclear--it's expensive.

Peter Robinson: It's television. I have to wrap it up. This is the last question. I'm going to set it up with a longish quotation but it gets to what people worry about. The Economist magazine, "If the supply of oil is cut off for even a few days, modern economies come to a halt. Geology has granted two-thirds of the world's proven oil reserves to Saudi Arabia and four of its neighbors and Saudi Arabia's share of the world oil market will actually grow over the next two decades. The risk of a disruption to oil flows will continue to be a threat and may even rise and an additional cost of oil is the damage it does to the environment and human health." Continuing to quote the Economist, "The only long-term solution to this connected set of problems is to reduce the world's reliance on oil." Ten years from now, will--not should but will--the United States be more or less dependent on Middle Eastern oil? John?

Jonathan Koomey: Probably more if we don't do anything. If we don't change what we're doing.

Peter Huber: We are electrifying across the board. We will be less dependent on oil year by year.

Peter Robinson: Well gentlemen, ten years from now, we'll reconvene this panel. Jonathan Koomey, Peter Huber, thank you very much.

Peter Robinson: I'm Peter Robinson for Uncommon Knowledge. Thanks for joining us.