What About Energy?

Posted by: Michael Mandel on April 23

We all know that one of the biggest problems going forward is how to meet the energy needs of the world, while still reducing the emissions of greenhouse gases. This is the elephant in the living room, where our current course leads to disaster, one way or another, if nothing changes.

The question, then, is how optimistic should we be about the possibility of technological change bailing us out. On his blog, Paul Krugman writes:

Athabasca tar sands have finally become a significant oil source, but even there it’s much more expensive — and environmentally destructive — than anyone seemed to envision in the early 70s.

You might say that this is my answer to those who cheerfully assert that human ingenuity and technological progress will solve all our problems. For the last 35 years, progress on energy technologies has consistently fallen below expectations.

I agree with Paul on the past 35 years, and in fact the past 50 years—progress on energy technologies has been an utter black hole.

However, I disagree with Paul that the failures of the past 50 years necessarily imply failures in the next 50 years. Let me make one simple point: We simply have not been spending enough on energy R&D over the past two decades to know whether progress is possible.

Two facts: First, take a look at this chart.

fedenergyrdspending_18812_image001.gif

The share of GDP going for federal R&D on energy, environment, and natural resources has been steadily falling over time, under both Democrats and Republicans, despite our energy worries. And that little bump up at the end is mostly imaginary, since it represents Bush's proposed spending, not what will actually be passed.

Second fact: in the private sector, the situation isn't much different. The biggest energy companies are the oil companies, of course, and they are much more into exploration for oil and gas, rather than the development of alternatives.

Take ExxonMobil, which according to its latest annual report "invested $3.5 billion in research and development over the past five years." That sounds like a lot of money--but of course over the same period the company had $90 billion in capital and exploration expenditures, $160 billion in profits, and an absolutely stunning $1.6 trillion in sales. Compared to the size of the company, and the size of the oil markets, ExxonMobil's spending on R&D was tiny. To put it another way, Intel--a much smaller company--spent $26 billion on R&D over the same 5-year period.

To answer Paul, I will say that we are entitled to be pessimistic about the progress of energy technology after we've spent a few years boosting our investment in energy-related intellectual capital.

See also Tyler Cowen's response to Krugman here.

Update: According to the latest(!) data from the NSF, in 2003 private companies did $2 billion worth of energy R&D. (Table 10 here). That's out of a total R&D spend of $204 billion. Not much there there.

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Reader Comments

kurt

April 23, 2008 06:15 PM

What a pointless article. This is really just a graph, was the author too lazy to form an opinion around technology spending to find alternatives?????

fsb

April 23, 2008 07:17 PM

We Americans have been pretty foolish buying all those gas guzzlers,etc. over the years but what's worse has been our government who has not made the investments in alternative energy sources needed and is also afraid to go against " Detroit ".
Our government chose the wrong side, the manufacturers, over the public and we
are all paying the price.
Don't tell me money doesn't talk in Wash. D.C. !!!!

Martin

April 23, 2008 07:42 PM

Do you have the same graph that includes Federal, State and private R&D spending as % GDP.

Seperating government from provate can sometime be aliitle misleading if one picks up the slack for the other (which you can't tell here).


Paul

April 23, 2008 07:54 PM

So I guess the newly minted billionaires in the Solar and Wind industries don't rate a mention? Solar attracts large government subsidies around the world and many nations have set a 20% target for wind. How about the $10 Billion just announced for the worlds biggest wind farm in Texas or the several billion being invested in solar thermal? The hundreds of million invested in EV sized Li-ion battery development? None of these show up on the radar because it isn't presented in some neat public record like a company report of government stat?

Kartik

April 23, 2008 08:10 PM

I don't think the US cutting spending on Energy R&D is a showstopper. What about other countries spending more? Any successful product invented elsewhere can still be marketed in America.

What if China invents something that emits less GH gas? What if the EU makes better nuclear power plants? What if Japan makes strides in Maglev trains? All could be sold here.

We have to stop carrying the whole world on our R&D. It is time that other countries pulled their weight.

Kartik

April 23, 2008 08:15 PM

On both energy and healthcare, perhaps there is an answer to both.

Why doesn't someone invent an exercycle, where the rider's pedalling generates power that is converted to electricity (much like a windmill or hydroelectric dam), that feeds back into the home? Thus, the more a person exercises, the more their electricity bill gets cut, AND the more of their home power use is not generated by coal.

It solves :
1) Obesity/lack of exercise and related health-care costs in America.
2) Consumer spending, as the electricity bill is trimmed, and after-tax dollars are saved.
3) Greenhouse gas emissions.

Of course, some people won't exercise even if they were paid, but a lot would.

So why can't anyone invent such a useful, yet relatively simple device?

William Leighton

April 23, 2008 10:23 PM

I say tax the shit out of people who drive those big ass SUV's!!!! And about the article, it sucks!

views

April 23, 2008 10:24 PM

back to pessimism already, huh. that didn't last long.

logic

April 23, 2008 10:30 PM

The answer is "No, technology will not bail us out, not in time anyway."

It takes decades to adopt new infrastructure. We don't have that kind of time now. If we had continued President Carter's efforts to get America off oil, we might have made it. But Reagan came in, ripped the solar panels off of the White House roof (Google it) and we are now screwed.

Joe Cushing

April 24, 2008 12:10 AM

The reality is this. Why spend money looking for something you already have for almost free? I can't believe an economist is missing this point. We have been burned every time we have tried to replace coal, oil, and natural gas. Why? Because the stuff is just lying around. Would you spend billions of dollars to build a water reservoir in Detroit?*

I am not the least bit worried about energy. As soon as we are certain, and I mean certain; that all the easy fossil fuels are gone and that prices are going to be sustained at level of at least where they are now; then we build the next technology. Actually there are lots of technologies that make sense at our current prices.

The reason we don't proceed at record rates today is because all the people with real money know what I said a couple days ago--commodities are going to crash. They are going to crash just like they did last time we freaked out about energy.

The time will come when we do make heavy investments in new forms of energy. We already have ready technology, we just need a sustainable price high enough to begin large scale implementation.

I think everyone is just afraid of the unknown here. I'm not because I know long term energy prices cannot be much higher than they are right now. There can be a shock though.

* In case you aren't familiar with our geography, 20% of the entire planet's fresh water flows past Detroit. It's the world largest natural reservoir.

random

April 24, 2008 07:56 AM

Actually Paul, the billionaires in solar and wind were already billionaires who were using their cash to create new companies. Alternative energy gets grants of $10 billion to $12 billion per decade. Oil and coal can get up to $16 billion per year, or $160 billion in the same time frame.

Here's the big, important think that Mr. Mandel is talking about.

Old methods of energy generation get so much money and alternative energy gets so few, it no wonder that wind, solar and nuclear fission are pretty much all we have right now. No one wants to put major money into nuclear fusion which is the technology we really need to make nuclear energy safe and cheap. Why? Because it's hard to do. Putting money in oil and coal is much easier since commodity prices are through the roof and the government keeps giving grants and tax breaks and billions upon billions to old energy every year.

So much of the money that could go into helping scientists develop paradigm shifts in energy generation go to oil companies and coal mines in the form of grants, loans and tax breaks and then we wonder why we don't have cheap, clean renewable energy and reconcile our dissatisfaction with that by praising billionaires of the dot com boom who plow their cash into new companies and giving a pitiful wisp of funding every few years with no plan to distribute it.

Tamas Farkas

April 24, 2008 08:48 AM

Great article, but I have a few words to add. The basis year of the graph is 1981, which is a little bit misleading. After the devastating recession of the 70s, the GDP production was quite low at the beginning of the 80s. But in the 80s and the 90s the US experienced a high GDP growth: this graph doesn't indicate that Federal energy R&D decreased in absolute terms. On the other hand, in 1979-1980 the US was hit by the most severe oil shock in its history, meanwhile the economy was much more reliant on oil than it is today. That rate of 0.16% was pretty much caused by panic, and this overstrained increased rate should have not necessarily been maintained for the long run. By the way, that current 0.04%-0.06% is really too low, the author is right about this. (http://stores.lulu.com/the_investors_guide)

Tamas Farkas

April 24, 2008 09:04 AM

When it comes to oil and natural gas exploration and production, forget about the "technology will save the day" campaign. For example take Chevron's Jack field in the deepwater Gulf. It's a technological marvel. They drill as deep as the height of the Mount Everest is. They might have lots of crude down there. But will it help to decrease oil prices? No way on Earth! Those ultra-deepwater rigs must be space-technology like. Literally. That oil formation is located under deep salt which is very hard and expensive to drill through. One geologist noted that it's cheaper to send space probes to Mars and Saturn than to drill beneath the deep salt. Or maybe the Arctic will save the day? There are lots of oil there, but I hardly believe that the production and transportaion costs at an icey 1,000 miles far-off-shore deepwater field could help on oil prices. The fact is that the era of cheap oil is over forever. http://stores.lulu.com/the_investors_guide

Joe Cushing

April 24, 2008 09:04 AM

Random.

The difference between oil and alternative energy subsidies:

Oil makes money. It makes so much money that governments stick their fingers into it in ways they don't other businesses. So Oil companies are taxed like other large companies. On top of this many oil companies pay royalties. Then the government comes along and says, "ok, if you are looking for more oil, well give a bit of a break"

Alternative energy on the other hand doesn't make huge amounts of money. Much of it needs to be propped up by handouts from the government in order to compete with fossil fuels. When you buy alternative energy you are paying for it twice. First at the pump or however it is you are buying it, and again in your income taxes.

So here is the bottom line. Fossil fuels pay taxes and alternative energy spends them. As I said above, this won't last forever.

Mike Mandel

April 24, 2008 09:16 AM

Tamas,

I would agree with you on the initial drop in the early 1980s.But the percentage has continued to slide (except for that little bump at the end)

Tamas Farkas

April 24, 2008 09:23 AM

Technology can't bail us out from this problematic oil-situation, but it's totally different with alternative energy sources or fuel efficiency. But without a stricter regulation, big automakers would not even use the existing fuel-saving technologies. Over the last two decades, there were only minor increases in CAFE standards. Moreover, automakers can easily fool these efficiency requirements with the help ot the 1988 Alternative Motor Fuels Act. This act allows them to gain extra credits toward their corporate CAFE standards if they build vehicles that are able to run on E85 - 85% ethanol, 15% gas. However, they get those credits even if these flex-fuel vehicles don't use a drop of ethanol. For example in Florida, there is one public E85 filling station - and more than 200,000 cars that are able to run on ethanol. Thes cars are very fuel efficient - on paper. So why automakers build flex-fuel cars that don't even use ethanol outside of the Corn Belt? Because it's much cheaper to make cars fuel-flexibe than to redesign engines to squeeze out more miles from one gallon of gas. As I see such dirty tricky loopholes in the legislation are bigger problems than the actual Federal dollar amount that goes for energy R&D. Read more: http://stores.lulu.com/the_investors_guide

JeanK

April 24, 2008 12:49 PM

Here's why America needs alternative energy research. The fruits of the IT revolution went to the countries that could 1) develop the technology first 2) bring the technology to market and manufacture it first and 3) Use it to its best advantage due to longer experience with the technology than other countries. With IT, that country was the US and it brought us over 20 years of great prosperity. However, the next 'bubble', the next technology that will change the world, will be the use of energy, whether oil runs out now or in 10 years. The fruits of the energy revolution will go to the country that gets there first.

Thanks to the choices of our government, that country will not be us.

Heather

April 24, 2008 04:24 PM

How about instead of using regular oil for household heat. We use "BIOheat", it's still oil but blended with biodegradable materials (soybean oil, avocados, nuts, etc.) therefore helping reduce greenhouse gases. Plus, it's domestically grown. So, we won't have to "outsource" our energy solutions. Working with NORA has helped me realize, that if everyone who currently uses oilheat switched over to the B5 blend we would save over 400 million gallons of oil. Just imagine how much more we could do in other oil areas.

Check this link out: http://oilheatamerica.com/index.mv?screen=bioheat

That's where I found out about BIOheat.

Joe Cushing

April 24, 2008 09:25 PM

Tomas,

The auto industry already knows how to build fuel efficient cars. They can do it for less money than gas guzzlers. The reason they often don't is because we choose to buy the gas guzzlers. Keep in mind that cars continue to get heavier and heavier as we load them down with safety equipment and electronic gadgets. The engines are more efficient. The companies have put that efficiency into horsepower at our request. Today a minivan with the large V6 is faster than a lot of the muscle cars of the 70s. Look it up before you say it's not so. When you compare Japanese cars to American cars in the same class, what you find is that when the Japanese cars have better fuel economy, they have lower horsepower.

There are fuel efficient cars available today. People choose not to buy them in large numbers. Make no mistake, the new increased cafe standards are not a regulation on the auto industry. They are a regulation on YOU. They take away your freedom to choose the vehicle you want to drive.

1975 Ford Mustang with 302 V-8 0 to 60 in 9.6 seconds

2001 Dodge Grand Caravan (grand means it the longer and heaver version) with 3.8L. V-6. 0-60 9.5 seconds

1977 Dodge Charger with 400 ci V-8 (that's a big engine in this sports car) 0-60 11.8 seconds

2004 Chryslwer pacifica 0-60 9.3 seconds

1973 Ford Thunderbird with a monsterous 460 ci engine 0-60 9.0

2004 Jeep Grand Cherokee Limited/Overland with a 4.7L engine 0-60 in 6.7 seconds.

http://www.carforums.net/showthread.php?t=10251

http://www.edmunds.com/insideline/do/Drives/FullTests/articleId=45861

random

April 25, 2008 07:46 AM

Joe,

True, oil makes money and a lot of it as does anything which had a lot of investment and a good infrastructure behind it. But at the same time, oil didn't just appear in pools so it could be siphoned off. People had to drill for it, develop special tools and spend a lot of money in upfront investments before their efforts became a profitable business.

Alternative energy doesn't make any money and it never will if no one makes a commitment to invest in it. The stuff we can dig out of the ground and burn is something we understand. Even nuclear fission is done with stuff we dig out of the ground (U-235) and bombard with neutrons. New energy sources require that we get a better understanding of how to produce and capture energy from different sources on a commercial scale. And for that research there needs to be cash. If we gripe about how alternative energy is being propped up by handouts and is of no practical use in the next few years, our myopia will make it much more expensive and painful to catch up when we really need it.

Don't we already have enough of an incentive to work overtime on solar and fusion? Don't we want to stop being dependent on OPEC and have oil dictate foreign policy? Don't we want clean air and cheaper, more abundant energy? isn't actual, real energy independence a good thing? If you said yes to these question, we're going to need to keep giving scientists money.

Brandon W

April 25, 2008 09:56 AM

Ultimately, we have two energy sources: the Sun and gravity. Solar energy is obvious. Wind is caused by the heating and cooling of the planet in relation to the Sun, and waves are caused by the wind. The flow of water - due to gravity - creates hydro-power. Human existence will end before the Sun dies, so we can assume it's unlimited (and if it doesn't, it won't matter the moment the Sun burns out, anyway). Gravity won't end.

All other energy sources are very limited, depleting resources. Knowing this, we are preparing our civilization to self-destruct by continuing to rely upon them.

Tamas Farkas

April 25, 2008 12:07 PM

Joe,

You are right, American customers have quite different taste in cars than Japanese ones. It's not that Ford and GM are pointing a gun at people's head to get them to buy their large SUVs. They build what people demand. But a stricter fuel-efficiency regulation would not necessarily limit the freedom of choice for auto-buyers.

The average fuel efficiency of vehicles is much higher in Europe and the gas costs about $6-10 per gallon, depending on location. But even so, there are people who drive large gaz-guzzlers. These cars are "just" more expensive than in the US. It's kind of luxury thing there, driving large SUVs.

But with rising energy and gas prices, it could become a luxury thing in the US, too. But having a large SUV would not be the matter of freedom - "only" the matter of money. In the long term the question is whether Americans are ready to sacrifice a bit of the American Way of Life in order to make the country energy-independent (and therefore more secure). Or for example they will demand a suspension on gas taxes - which would not solve anything for the long run, just increase the huge budget deficit.

Kartik

April 25, 2008 05:32 PM

Brandon W,

Consider the Kardashev Scale. When we are able to use all the energy on the Earth (Solar energy hitting the earth, fossil fuels, gravity, etc.), then we are a Kardashev Type I civilization.

When we are able to use ALL the energy that the sun emits (of which only 1/200 millionth hits the Earth), then we are a Kardashev Type II.

Type III = Using the whole galaxy.

Since it is a logarithmic scale, humanity is currently, as of 2008, at 0.71 on the Kardashev Scale.

Brandon W

April 27, 2008 10:30 AM

Kartik,
I would argue that the Kardashev scale is science fiction. It is based on premises that are pure fantasy. Our energy sources still come almost entirely from fire (burning stuff), we probably won't get back to our own moon until 2020 (which isn't even out of our back yard), and I suspect the automobile will be an infeasible form of transportation - due to energy costs - before we figure out how to plant a flag on Mars.

What I am optimistic about is that the planet will force us to develop a sustainable economy and infrastructure - or else - sooner rather than later, and people will re-learn to enjoy their brief blip of life on this planet by spending time with their family and friends instead of an iPod and the mall.

D

April 28, 2008 10:47 PM

Brandon,
But I love my iPod! How could I live without such a portable and affordable jukebox?...On one hand, I do agree with your ideas regarding gravity and solar energy. What is the current efficiency of solar energy capturing cells? ~6%?...I know that's off. Nano is where "it" is at.

Kirk

April 29, 2008 02:53 AM

To 'Random' who posted here: "Actually Paul, the billionaires in solar and wind were already billionaires who were using their cash to create new companies."

-You haven't read a newspaper for a while have you? There are several recent self-made solar and wind billionaires.

Brandon W

April 29, 2008 05:33 PM

If you have an hour, listen to this from Feb 2008 (RealPlayer streaming):
http://netcastdaily.com/broadcast/fsn2008-0202-2.ram

If you don't have an hour, I suggest you find one.

random

May 1, 2008 01:19 PM

"You haven't read a newspaper for a while have you? There are several recent self-made solar and wind billionaires."

Actually I have and environmental media agencies aren't aware of billionaires who made their fortunes entirely on wind or solar. They simply made their way into these fields after making a fortune with other business ventures or high yield investments.

http://www.off-grid.net/2007/10/04/green-billionaires/

Mike Mandel

May 1, 2008 04:59 PM

Brandon

I would add nuclear (fission or fusion), which is just another variant of the reactions powering the sun.

Brandon W

May 2, 2008 06:54 AM

Mike,
Yes, we are using nuclear fission and perhaps one day we'll figure out fusion. We use it minimally at this point. Here I see a problem. The radioactive materials necessary to have it are extremely rare, compared to oil, and the waste is tremendously toxic and dangerous. I don't see how it is a long-term solution, even though it's the one a lot of people are relying on. Personally, I think we will have to reduce our energy consumption dramatically, move to small electric vehicles and public transit, and install solar and wind energy collectors to generate most of that electricity. Particularly, I believe each home will need to create it's own energy as the aging power grid crumbles. Maybe homes will have a power gauge telling a family how much energy they have stored so they can read it and determine how they'll ration their energy between charging the vehicle, cooking, and watching TV.

Tim Jones

November 18, 2009 09:02 AM

For an interesting open view of the future of energy from within the oil industry, I recommend a look at Leo Roodhart's perspective on the future of energy on the futureagenda.org site. (http://www.futureagenda.org/?cat=5) Some sample views include "The global energy system sits at the nexus of some of the deepest dilemmas of our times: prosperity versus poverty; globalization versus security; and growth versus the environment." and "One of the main uncertainties is around global reserves of hydrocarbons: Nobody really knows how much oil and gas Saudi Arabia or Russia has." as well as "Gas will become more dominant and technologies to liquefy gas through cooling or by chemically turning gas into diesel will require massive investments for the years to come." and also "Because CO2 capture and storage adds costs and yields no revenues, government support is needed to
make it happen quickly on a scale large enough to affect global emissions."

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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