The Italian political philosopher and pragmatist Niccolo Michiavelli once wrote about the difficulties of change. An English version of his much quoted aphorism is as follows:
There is nothing more difficult to plan, more doubtful of success, more dangerous to manage than the creation of a new system. The innovator has the enmity of all who profit by the preservation of the old system and only the lukewarm defense of those who would gain by the new system.
This time I look at a prescription for a new system for dealing with the world's energy needs.
Hot, Flat, and Crowded: Why We Need a Green Revolution and How It Can Renew America by Thomas L Friedman (Farrar, Straus and Giroux, New York NY, 2008, 448pp, ISBN 978-0-374-16685-4, $27.95)
Tom Friedman has been with the New York Times since 1981, when he signed on as an energy reporter. He is now a foreign affairs columnist. His first two books deal with the Middle East. His third, The World Is Flat (see Micro Review, May/June 2005), deals with globalization. In this, his fourth book, he returns to energy, bringing to bear his broad understanding and experience of global issues and the Middle East. Though the book is about global systems, he has written it as an American and addressed it to Americans.
Friedman uses the phrase "hot, flat, and crowded" to refer to the three themes that are pushing the world into what he calls the Energy-Climate Era:
- Global climate change.
- The emergence of new, globally connected middle classes in China, India, Russia, and elsewhere.
- Worldwide population growth.
He calls it the Energy-Climate Era, because energy and climate are the principal issues that the world will face for many years to come. These issues underlie and manifest themselves in the following big problems:
- Increasing population and the rise of middle classes have led to a sharp increase in demand for natural resources and energy.
- The huge amounts we spend on crude oil and natural gas have strengthened dictatorships in Russia, Venezuela, and the Middle East and funded some of our worst enemies.
- Vast emissions from energy production have overwhelmed the mechanisms that kept the level of carbon dioxide in our atmosphere relatively constant for a long time. Increasing levels are causing worldwide climate change.
- Access to energy has become increasingly important, but more than a billion people are not attached to a power grid. Many of these "energy poor" are using inefficient, dirty, ad hoc methods to obtain electricity.
- Flattening and crowding have led to destruction and disappearance of critical ecosystems. Species are disappearing at an alarming rate.
Because many people contend that human activity is not a major factor in climate change, Friedman addresses that issue -- first with a lot of science and then with a Pascal bet. The mathematician/philosopher Blaise Pascal argued that even though you might not be able to prove it, you should live as if God exists. Such a lifestyle, he contends, is intrinsically good, regardless of whether God exists or not. Applying this reasoning to climate change, Friedman says that changing our economy to use energy efficiently and to generate it from clean sources will benefit us greatly, even if "global warming" is a hoax. Of course, getting to that changed economy is not trivial, despite the proliferation of articles with titles like Seven Easy Ways to Save the Earth in Fifteen Minutes a Day. Friedman impresses us with the magnitude of the task.
The current level of carbon dioxide in the atmosphere is 270 parts per million (ppm). If human activity stops tomorrow, the level will continue to rise because of mechanisms already in motion. Friedman believes that a workable goal is to manage the unavoidable and avoid the unmanageable. He translates this into slowing the growth of the carbon dioxide level, so it reaches a maximum of less than 550 ppm around 2050. Robert Socolow and Stephen Pacala of Princeton University have computed the scale of the necessary programs, assuming that those programs start now and are completely in place by 2050. Some of their programs overlap or are alternate approaches. Here are some of the key programs:
- For two billion automobiles, double the fuel efficiency to 60 miles per gallon, halve the number of miles per year to 5000, or change the fuel to ethanol or hydrogen.
- For 800 to 1600 large coal-fired plants, sequester all of the carbon emissions, increase efficiency from the current 40% to 60%, or fuel them instead with natural gas.
- Replace all coal-fired plants by generating twice as much energy as currently from nuclear plants, 40 times as much from wind, or 700 times as much from solar.
- Cut by 25% the electricity used by homes, offices, and stores.
There are more, but these give an idea of the scale of the problem.
Friedman explains the current power distribution system. It is a loosely connected network (called a grid) of power companies (called utilities), all regulated by the states in which they operate. The utilities all participate in the following bargain: they can operate as monopolies as long as they provide a cheap, reliable, ubiquitous source of electrons. Unfortunately, the grid provides little support for the kind of innovations needed to reduce power use. The grid is huge, unintelligent, decentralized, unregulated, and poorly integrated. Its main defects are that it has no two-way communication, and there is no way to vary the price by load or time of day. Furthermore, the utilities operate under a business model that rewards them for generating and selling more power but not for promoting or facilitating efficiency. Friedman sees a smart grid and a new business model as essential to a sustainable energy system. The question is how to get there. Friedman's answer is to encourage innovation.
Near the bottom of page 243, Friedman buries the following:
If you take only one thing away from this book, take this: We are not going to regulate our way out of the problems of the Energy-Climate Era. We can only innovate our way out, and the only way to do that is to mobilize [the marketplace].
This is the essence of Friedman's proposal for replacing our current unsustainable energy system with a sustainable one: shape the marketplace so that this is the inevitable outcome, then let the free market system work. For those who don't consider this an example of a free market, Friedman has an answer: our current free market isn't free either. He points out that what he calls the fraudulent hiding of the true costs of resource extraction and consumption shapes the current market. In addition he cites regulatory anomalies like the difference in import tarrifs between Brazilian ethanol (54 cents per gallon) and Saudi Arabian crude oil (3 cents per gallon).
Friedman says that the market is like a garden to be shaped into an ecosystem for energy innovation. The shaping takes the form of an intelligently designed system of policies, tax incentives/disincentives, and regulations. He doesn't want to pick winners, but the entrenched interests are like kudzu. Uprooting them might be the hardest part of the job.
Friedman believes that the simplest way to shape the market is to provide a price signal, and he quotes from his interviews with the chief executive officers of General Electric and DuPont to support that view. A price signal can take many forms, but in essence it is a fixed target that developers of alternative energy sources can shoot at in their long term planning. To understand why this is important, consider the price of crude oil, which is largely controlled by a cartel, the Organization of Petroleum Exporting Countries (OPEC). The price tends to rise and fall by substantial amounts. Its rises stimulate development of alternative energy sources. Then it falls, and the companies developing the alternatives go out of business.
One price signal would be a government guarantee of a minimum gasoline price. For example, when gasoline prices exceeded $4.00 per gallon in the summer of 2008, the government could have said that for each dollar the price dropped, the tax would increase 95 cents. This would have told alternative fuel developers what price to shoot at. Instead, as autumn gasoline prices dropped to below half of the summer levels, alternative fuel developers were forced to change or abandon their plans.
Another kind of price signal, applicable to all energy production, not just vehicle fuel, is a carbon cap-and-trade regime. In this approach a controlling authority sets a limit on the total emissions of carbon from all sources in an upcoming time period. It then distributes individual limits to all possible emitters in the form of credits. The credits add up to the total emissions limit. Emitters who do not have enough credits to cover their emissions must buy them from someone else or pay a severe penalty. At the end of the covered time period, the authority sets a new, presumably lower, emissions limit for the next period and issues new credits accordingly.
An alternative to a cap-and-trade regime is a carbon tax. Emitters pay an amount that depends on the amount of carbon they emit. This is simpler than a cap-and-trade system. Each has advantages and disadvantages, which Friedman explores. Although the cap-and-trade system gives "environmental certainty" by limiting total emissions, Friedman prefers the carbon tax because it is more transparent.
A price signal that some countries (and Texas) already use is a renewable energy mandate. The controlling authority specifies a percentage of total power generation that must come from sources (for example, windmills or solar cells) that do not emit carbon. The authority then increases the percentage over time. European countries have done this to varying degrees, which is why the US company First Solar finds more business in Germany, Spain, France, Greece, and Portugal than in the United States.
Regardless of the form it takes, a price signal requires our leaders to make a long term commitment to a complex plan. This is why Friedman asks whether democracy can survive complexity. He envies the Chinese government's ability to dictate policies and have a reasonable expectation that all levels of the society will implement those policies. "If only we could be China for a day," he says, "but not for two days." In earlier crises, leaders took control to enable them to act decisively. Lincoln asserted power over the states, and Franklin Roosevelt expanded and strengthened the Federal government.
US energy policy, like our system of government, is designed to make inaction easy and transformational action hard. Among the cooks stirring this broth are state regulators, the Environmental Protection Agency, the Department of Transportation, the Department of Energy, the Department of Agriculture, the Army Corps of Engineers, and the Federal Energy Regulatory Commission. Friedman characterizes the resulting policy as follows: maximize demand, minimize domestic sources, and make up the difference by borrowing huge sums of money to pay to those who hate us. To centralize energy policy, Friedman proposes a real Department of Energy. He points out that the current department with that name is concerned mainly with watching over our nuclear weapons.
Friedman provides many success stories of green projects. For example, US troops in Iraq used diesel-powered generators to provide electricity for a remote desert base. Transporting diesel fuel to the base exposed them to the danger of attacks that were hard to defend against. By insulating their tents, they were able to reduce their air conditioning power needs to a level they could provide from wind and solar sources. They even had power left over to give to a nearby village. This example shows the power of a price signal. Considering the costs of transporting and defending shipments of diesel fuel, the Army found it easy to justify the costs of becoming energy self-sufficient.
Another example is the conversion of 7.5% of New York City's taxicabs to hybrid vehicles. This example shows the effects of regulation. The city had to remove regulations that forced taxis to be large and heavy. Moving forward from this success, New York is trying to achieve similar increases in the efficiency of limousines.
A main thesis of the book is that transforming our energy system is a key to remaining a world leader in the years to come. If we do not lead, other countries will, and we will fall behind. If other countries, particularly China, try to follow the same path we followed, we have little hope of averting catastrophic climate change. If we lead the way to a green revolution, other countries will follow, and we will remain a world leader. In other words, as Friedman puts it, green is the new red, white, and blue.
Friedman examines what is happening in China. As the world's most populous country and the one with the fastest growing economy, China is the key to successfully transforming our energy system. The Chinese government seems to have recognized the problem and committed themselves to producing cleaner energy, but they have competing priorities. The bargain between the Chinese government and the Chinese people is "we rule, and you rapidly become more prosperous." This means that they can't afford to stop the bus. They have to swap out the dirty engine and replace it with a clean one without slowing down.
This review focuses on a few key points, scratches the surface of others, and completely ignores parts of the book. Friedman is a thorough and careful reporter. As he showed in earlier books, he is good at understanding how issues interact. He tells compelling stories to illustrate his points. If you want to understand the workings of the worldwide energy system and how it interacts with population growth and climate change, you should study this book.
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