The Future of Energy

“Fossil fuel is dead,” declared CJ.

CJ likes to make those kinds of superficially profound statements. We were meeting after a long time. I was in Delhi for a conference and caught up with CJ at the Taj Mansingh Hotel coffee shop. We were discussing the spike in the gas prices.

“Dead or not, seventy dollars a barrel for crude was bad news for India considering that India imports about half of its energy needs. Will slow down the economy a bit, won’t it?” I said.

CJ is a contrarian. Never seen him see an issue the same way that prevailing wisdom indicates. You can count on him to prepare to make hay when the clouds come rolling in.

“I think it is a great deal of luck that oil is peaking,” he said. “That is one of the best things that has happened lately. It is good for the world, and it is going to be excellent for India. The only guys who stand to lose are the bad guys.”

“O yeah? The bad guys are making money hand over fist, aren’t they?” I said.

“That’s alright. It won’t last. In fact, it is a pity that the shock to the system came so late. Shocks are good. Makes things interesting. Every shock to a system makes it stronger. Neitzsche, you know. Everything that does not kill me, only makes me stronger.”

“You mean, that the oil industry will become stronger?” I said.

“No, the shock to the global economy will make the global economy more secure. More and better things will follow. The oil companies will morph into something else as they follow the dinosaurs. Fossil fuel is called so not without a reason.”

“Fossil fuels are not made up of dinosaur bones, you know. It was the carboniferous period that petroleum began its life-cycle,” I said.

“Doesn’t matter. It is the shock to the system that we need to focus on. Shocks make the world go round. The evolution and diversity of life is connected intimately with shocks. Shocks are what I call the Shiva Hypothesis,” said CJ.

“Shiva hypothesis? Isn’t that already taken? Shiva as the Creator and the Destroyer?”

“Let me explain this. At the end of the cretaceous period about 65 million years ago, a pretty big chunk of rock slammed into the earth. That shock killed off the dominant life-forms and cleared the stage for the little rodent-sized mammals to gain a foothold. Dinosaurs exit stage left, mammals enter stage right.”

“I know that. That is like a soft-reboot of a system. Lots of stupid processes running wild and hogging resources. So just kill off those and clean up the system,” I offered.

“Silly analogy,” CJ replied. “What you really need to consider is the economics of the situation. I suppose you have not forgotten Econ 101 now that you have been out of Berkeley for two years.”

“Shall we walk around the shops here?” I asked.

The Mont Blanc shop was right around the corner from the coffee shop. It was brightly lit and tastefully appointed and devoid of any shoppers. The sales lady brightly greeted us and came over to chat.

Here was a nice piece of luggage, a black carry-on. How much I asked. I suppose it was one of those shops where if you have to ask the price, you have no business being there. She said it was a new arrival and was modestly priced around $1000. Pretty good, pretty good, said I as if the idea of a carry-on costing about two years of the average Indian’s annual income was so ho-hum. I am as sophisticated as the next guy. The coin purse under the glass case with a magnifying glass mounted on rails was next on my list of price inquiries. It was an affordable $300. You would have to carry gold coins in it for the coins to match the cost of the coin purse, of course.

The case displaying pens and watches held a watch that I thought I fancied. Only $3,000. I had a thought. I realized that I could spend about $5000 in the shop and walk out without having to haul stuff away in a truck. Here was a place that was alien to me and to about 99 percent of the world’s population.

The economics, as CJ had said a little while ago, is what matters. But I wanted to get back to the oil shock discussion.

“So, CJ, how do you see the economics of the peak-oil business?”

“Simple really. Markets respond by increasing the supply of substitutes when the price of a good goes up. Suddenly the market for alternative energy forms will look pretty good and you will have a substitute for the polluting carbon-based fuels.”

“Yes of course. Solar energy will make a lot more sense if the price of oil is not the ridiculous $20 a barrel,” I said.

“OK, let’s get this thing straight. It is all solar energy. Carbon is just the working medium. Fossil fuel? Came from the sun through photosynthesis. Your own energy? Ultimately you are powered by photosynthesis. Wind energy? Powered by the sun. Tidal? Sun powered.”

“Ah but nuclear energy is not solar in origin. That is perhaps the energy source that originates outside the solar system.” I said.

“You are right, I think. The heavy elements which power nuclear fission reactors originated outside the solar system. But the rest are solar. In fact, fusion could be considered extra-solar as well. Anyway, perhaps now we will move beyond fossil energy. I think that the age of what I call the ‘Direct solar energy’ age is here.

“Instead of photosynthesis, a process which involves carbon dioxide and has its attendant problems of global warming and such, you have to go directly to solar energy. Photovoltaics is going to get a boost. I think the slogan I would promote will be ‘Photovoltaics, not photosynthesis.’ Get some t-shirts printed with that logo, will you?”

“I agree that cutting out the carbon from the middle and going directly to tapping solar energy is a good idea, CJ. But it will take too long. What happens in the meanwhile is what bothers me.”

“The meanwhile will not be a such a long time. The pace of technological change is accelerating at an accelerating pace. Second order acceleration, if you can get your mind around it. It boggles the mind. The smart money will be on developing direct solar energy solutions such as photovoltaics and a few somewhat indirect solar energy solutions such as wind energy. I would say that in the next few years, you will see a gradual shift to alternate technologies available commercially.”

“And that would be good for India?” I asked.

“Actually this is great for all economies that currently depend on imported fossil fuels. Indian movers and shakers don’t have the foresight to actually develop alternative energy solutions. India should have done so years ago. After all, India is a large economy with the energy bill annually running into several tens of billions of dollars. Imagine that India had invested massively in direct solar energy (DSE) research and development. Just a few billion dollars well spent on energy research would have paid enormous returns. A huge domestic market is a given, of course. And the conditions are such in India—280 sunny days a year on average—that direct solar energy makes a heck of a lot of sense.”

“I know what you mean. Investing in DSE research would make a lot more sense than ‘let’s send an Indian to the moon by 2010’. But I suppose Indians lack imagination, primarily. The US has cars and the US has highways and the US has sent people to the moon. So we in India have to have cars, and we have to have expressways, and we have to send a man to the moon. That we should have a good public transportation system instead of cars, a great rail system instead of expressways, a national goal of developing alternate energy source by 2010 instead of sending a man to the moon—that is not part of our thinking. Of course, if I say that I think Indians are collectively stupid, I get called names.”

“You call them names, and it is not surprising that you will get called names. But I wouldn’t worry about being called names. Just words, not sticks and stones, etc. Anyway, here is what I think. Because Indians are too stupid to imagine a different scenario and are fated to ape the westerners, now there is some hope for India.

“Basically, given the pressures of high oil prices, the US and other developed countries will develop the direct solar energy solutions. That is why they are called developed economies, by the way. They develop solutions. The developing economies merely copy the solutions that the others develop. They should be called the ‘me too‘ economies instead of developing economies.

“Then the developed economies will license the DSE to economies like India. Basically, India will import the technology, instead of importing the oil. And that I believe will be cheaper than importing oil and thus supporting jihad around the world. The world wins and except in the short run, even the developing countries win.

“So as I was telling you, fossil fuel is dead. It is direct solar energy that will rule from now on.”

We walked out of the airconditioned comfort of Hotel Taj Mansingh into the steam bath conditions of the midday Delhi sun. I look forward to the day that the smart people in the western world develop the direct solar energy solutions. Until then, we just have to sweat it out in the sun.

Bye, CJ, and have a good trip back home.

Postscript: For another conversation with CJ, see Choosing between WCs and PCs.

Author: Atanu Dey

Economist.

15 thoughts on “The Future of Energy”

  1. Ummm. Technology will save our skins.
    Post 71, the US oil production has come down from 11mbd to around 8mbd, with all the techology hoo-haa. Same with yemen, north-sea, you name it.

    The developed ones still seem to have the hots for oversized-tin-boxes. Maybe in coming days, they would be less developed in some ways, like the ablility to travel kms to get toothpaste. Closer home, we are getting this 1 lakh car and we can all drive away into the sun. (i.e. if you get past the traffic jam)

    Coal anyone ?

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  2. No, technology will not directly save our skins. Sun screen, developed through human ingenuity will save our skins. Seriously, the facile dismissal of the fact that invention is possible cannot be a compelling argument against what I claim: that given sufficiently high fossil fuel prices, the world will develop the technology for alternative cheaper energy sources. And the corollary to that is India will gain because India is located suitably to make use of alternate solar energies.

    Coal is not an option for India. India has very low grade coal and we cannot afford the burden of the resulting pollution.

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  3. > Seriously, the facile dismissal of the fact that invention is possible cannot be a compelling argument against what I claim: that given sufficiently high fossil fuel prices, the world will develop the technology for alternative cheaper energy sources. …..

    Everything is possible, 1 year, 100 years, 1000 years. Just that i do not feel great about the idea of getting lucky.

    just a few points

    1) Do we have efficient markets to bring about what you claim ?

    2) I dont think that we have or will have exact substitutes for many of the fossil fuels (with or without efficient markets). That would imply a change in the fossil-fuel based lifestyles.

    3) We do have vast reserves of coal, next only to china, US and australia. There are cleaner coal technologies. You can get results here as well if some of the money is diverted from sun-screen technologies.
    What is so special about solar ? There is wind-energy, bio-fuels, fission etc.

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  4. Kinda late on the bandwagon, aren’t you? The recent NYT report on peak oil pointed out that the OPEC’s number one policy objective was always to fix oil prices low so that alternates would not gain ground. They have given up on that, which means oil is gonna fizzle out soon.

    As for India, read up on biodiesel efforts happening across the country. goodnewsindia.com would be a good place to start. India is considered a model on policy initiatives to promote biodiesel, waaaay ahead of anyone else, except maybe Brazil. It is also the number one experimental market. If the policy, projections and the network effects turn out as expected, India will gain quite a bit from the fossil fuel crash.

    Incidentally, one driving force behind the initiative is Indian Railways, which is being used as a testbed for biodiesel. Railways could play this paradigm-shifting role because it is a “public sector sloth”. So much for blind privatisation arguments pushed by smart alecky economists and stupid journalists.

    As for the photoelectric slogan, there will be a fragmented market for all sorts of things before we hit direct solar. See this week’s Economist for a brilliant wind power project, developing as you read this.

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  5. “Instead of photosynthesis, a process which involves carbon dioxide and has its attendant problems of global warming…..”

    Some confusion here. Photosynthesis absorbs, not releases, atmospheric CO2 and protects the earth from global warming…

    That aside, none of the renewable energy sources – wind, solar – are capable of providing 24 x 7 solutions which modern lifestyle demands. Bio-oil alone holds some promise.

    Atanu’s response: Actually I should have written “Instead of photosynthesis using the products of photosynthesis of ages past for energy, a process which involves carbon dioxide …”

    Current products of photosynthesis (bio-diesel or bio-fuels) are technically carbon-dioxide neutral, of course. These I categorize as being solar energy sources albeit indirect.

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  6. Read through some of your previous posts and now this one. Don’t you think that the outcome (of whether rising oil prices will harm or hurt India) depend on the “imagination” (or failure thereof) of us Indians to perceive a different solutions.

    So far I see more signs of blindly replicating the US model (more cars running on gasoline and most recently more nuclear power) as a solution. There are of course attempts going on towards sustainable sources (especially biodiesel and wind in India) and also towards smaller independent grids etc. But as long as the majority of us can’t imagine a prosperous society based on an alternate model, I don’t think rising gas prices will do us any good.

    Like other problems this too may turn out to be a failure of imagination. No?

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  7. I have put my money where your friend CJ has his mouth. We run a company called alternate lighting (startup) which is focussed on LED based lighting and solar energy sources (among others). The key problem today is a world wide shortage of PV modules and the consequent premium pricing. The culprit appears to be the lack of vapour deposition capacity to make the actual PV cells. We are expecting this to ease in mid 2006 as there are a number of projects coming up world wide to address this. Significantly this shifts the power rich balance to the south countries in terms of availability of radiation. However there are caveats. Surface area suitable for panel mounting will be at a premium. We are already examining the possibility of leasing rooftops in urban high rises as a kind of “solar right of way”. The possibilities are mind boggling.

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  8. One thing that i see as a undercurrent in all your writing is a strongish right wing bias. In fact even in this Direct Solar post i find snippets on Jihadists, commies and snipes at them. Is this something consious or just a fad ? In my opinion it detracts from the content and focusses on stuff that (i personally) think you neither understand nor want to. For instance describing CPI (all flavours) as communists (irrespective of what they call themselves) is kind of imprecise and unfair both to the CPI and more so the the concept of communism. Anyway like all opinions this is mine. It would be a pity to dilute the content in making a peripheral point about something most people do not understand or have historical biases about.

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  9. Shiv,

    I don’t subscribe to any wing, right or left. Yes, I do hold strong positions on many matters. Yes, I have very strong opposition to monotheism, to communism, to general idiocy. I am very “pro-market” in the sense that I do believe that markets solve information asymmetries more efficiently. I believe that people should be free to do what they please as long as there are no externalities, etc. I am against violence against people, I am against coersion, against blind unquestioned faith. I am against the exploitation of the poor by the rich; I am against the exploitation of the weak by the powerful.

    I think the best summary of my position is that I am against stupidity. I am sure that I have acted and reasoned stupidly myself in the past and I will no doubt fall into the trap occassionally in the future–I am against that as well. Fundamentally we humans suffer to a large extent as a result of our stupidity. I reason from experience: most of my suffering is the result of my own stupidity.

    So to conclude, I am guilty as charged: I am seriously biased against monotheism, communism and all other forms of extreme stupidity.

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  10. Does that imply that polytheism or for that matter any form of theism is “non-stupid” (for lack of a better word) ? Is the green revolution “non-stupid” ? On one hand it made india an agriculture surplus country on the other hand it has gifted us with an unsustainable population and destroyed our environment.Is the market the best way to address social imbalance ? Then why is the very market oriented FCI (Food corporation of india) feeding rats with the procured grains than raise nutrition levels in areas of need at the right price? As Obi wan kenobi notes “Only a sith lord talks in absolutes”! All acts are within a framework that is relevant at that time and can easily appear stupid in a different context. Hindsight is after all 20-20. You have every right to your opinions, my comment was on the tone and presentation.

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  11. I maintain that monotheism leads to evil compared to polytheism because polytheism does not lead to the kind of intolerance that monotheism leads to. I am not saying that polytheism is perfect. I maintain that in degrees of stupidity and malevolence, monotheism wins.

    Green revolution, good or bad? Food is a good. So anything that increases food sustainably is good. Was the green revolution sustainable? If not, then it is not as good as the superficial understanding may lead one to believe. Population excessive because of the green revolution? Availability of food is a necessary but not a sufficient condition for the population problem. The rich countries do have lots of food. That does not mean that their population numbers are out of whack. So pinning the problem of population explosion on the green revolution does not make sense to me.

    BTW, I do believe that the per capita consumption of rich economies is also not sustainable. Excessive (suitably defined) consumption is as immoral and stupid as forcing people to live below a poverty line.

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  12. Strictly speaking, monotheism does not lead to evil, exclusivist montheism does. It is the exclusivism (one God, and by God, that’s my God) that breeds evil political structures which seek to protect the One God, such as the church and the umma and Israel. Exclusivism is a thinking disorder, it has nothing to do with theism, it exists in Marxists, extremist Hindus & Buddhists, economists and even scientistic scientists. Montheism just happens to be the currently high-profile version of this disorder.

    The strict distinction between polytheism and monotheism you are trying to make is hard to maintain. Most polytheists are montheists who support multiple channels to one God. And by definition, polytheism supports monotheism, because many includes one.

    They are better seen as different strategies: one tries to brand itself as different from everything else, and then seeks to convert everything else in its own image (American style), the other tries to wipe away all distinctions and create a goo similar to itself (Indian style). I suspect the latter will win out in the long term, as it is more energy efficient.

    Polytheism does lead to significant evils, like a form of absolute relativism that encourages the anything-goes/chalta hai attitude characteristic of India. That too kills people and babies, though not as spectacularly as the shock-and-awe folks.

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  13. Sameer, most problems also represent opportunities. Converting a problem into an opportunity requires imagination, of course. Failure of imagination could lead to a deepening of the problem, of course.

    Is India smart enough to make use of the opportunity? I don’t know for sure. The problem of energy is not directly amenable to a “market alone” solution.

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