Posted 7/28/2008

ENERGY: WHAT'S IN? WHAT'S OUT?

The world has been arguing about energy for about three years now. What's in? And what's out? We must have some sense of the future by now.

After studying every energy and environmental report available, we have come to the following conclusions:

Oil. The world will depend on oil far into the future. But because governments are deliberately and inadvertently restricting exploration and production in the face of rising demand, prices will continue to rise. Prices will probably reach and exceed $250 a barrel. You will pay upwards of $8 a gallon, similar to the prices in parts of Europe now. If they can adapt, so can we.

Coal. Coal is dirty and nobody has found a commercial way to clean it up. But coal will become a more important energy source in the U.S. and China, which have abundant supplies. But development will be slowed by lack of infrastructure (railroads and coal cars) and lack of skilled labor and machinery.

Nuclear. More and more nuclear plants will be built worldwide. But the new plants will mainly replace old nuclear plants as they wear out. Nuclear plants with a lifespan of 40 years are now 30 years old in the U.S. Without new facilities, the U.S. will go backwards in nuclear energy production – increasing the need for coal-fired plants. (The folks in Ohio aren't about to give up electricity.) Even worse: no one has worked out a reliable way to store materials with a destructive half-life of 500 years.

Ethanol. This is one of the U.S.'s worst political, economic and foreign policy blunders of all time. Subsidizing the diversion of corn from food to energy has set up an inflation of world food prices for corn, wheat, soybeans and rice. Poor people all over the world are starving. Food riots are taking place from Nigeria (which hurts our oil supply) to India.

The energy ratio of corn is poor: 1 part energy input to produce 2 parts energy output. (Brazil, using sugar, has a 1-to-8, ratio which makes so much economic sense that Brazil can export unsubsidized ethanol profitably.) And the world blames and hates us for creating the kind of food inflation that creates unrest in much of the world.

Solar. Here we have one piece of solid upbeat news. Solar will be competitive with oil and other conventional energy sources by 2015, according to the new Utility Solar Assessment Study. The rising three percent cost of conventional energy will meet the declining cost curve of solar, which is expected to drop 18% in price with every doubling of global capacity. (To techies, it's known as the "learning curve.")

This is believable because solar has caught on with everyone - corporations, entrepreneurs and consumers. People are fitting solar panels to their houses. Entrepreneurs are creating solar-propelled machines and even solar-powered clothing that heats or chills on demand. This is the kind of interest that created the auto industry during the period from 1900 to 1915, when everybody on earth seemed to be spending Sundays in the garage attempting to build a car. (The airline industry languished because there weren't any people spending time in their garages trying to build an airplane ... apart from the Wright Brothers.)

Wind. This is one of the world's oldest forms of reliable energy. It powered the world's great explorations. It powered trading and military fleets from England to Spain to the Ming Dynasty's Admiral Sheng, who sailed mighty fleets of 15,000 sailors 90 years before Columbus sailed "the ocean blue” in three dinky little ships manned by a total of 87 men.

People from all over the world travel to Holland to see the tulip fields and windmills. But for some reason, there's tremendous opposition to windmills in the U.S. No one seems to want one in their back yard. In Fort Lauderdale, Florida, politicians resist offshore wind mills as "unsightly," even though you can watch chains of freighters up close as they slowly move South toward Miami and the Panama Canal. They actually make the ocean more fun to watch. So how can a shiny new windmill look worse than a rusty-bottomed freighter riding high out of the water?

Within five or six years, irrationality will disappear and we will get serious about building the kind of infrastructure which will facilitate building the cleanest of all energy forms.

Conservation. Energy conservation is coming in a big way. Companies and individuals which have bucked the trend will disappear. (Think GM and Ford.) New business people and old industries will reform to bring home conservation in a serious way.

Consumers are drastically changing their lifestyles. The trucking industry will decline as the rails stage a huge comeback. (Warren Buffett is investing in railroads, not auto companies.) Cities like Denver are moving successfully to light rail systems as developers build much-sought-after condos adjacent to the stations. (We're going back to the 1800s, when cities were built around the train station.) Cities with public transit will flourish as car-dependent cities diminish. (New York is an upper, while Los Angeles is a downer.)

At first we will work four 10-hour days. Soon we will simply move closer to our place of work.

We will live more as our grandparents did in the 1950s.

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