Dar & Company

It’s a Coal and Nuclear World After All
(Reprinted from Year End 2007 issues of The Desk, The Risk Desk, New Power Executive)

There are two parallel energy worlds today -- The world as seen from Eucaliyork (EU, California, New York) and RealWorld. Included in the former are New England, Eastern Canada and Japan while the latter embraces most of the U.S., India, China, much of the Pacific Rim, part of Eastern Europe, much of Latin America, Russia, Africa and the rest of Asia. About 600 million people live in the former world and about six billion in the latter. 

The RealWorld has 10 times as many people as Eucaliyork; it accounts for 100% of the world’s population growth and, perhaps, 90% of the world’s economic growth; it has almost 100% of the world’s reserves of conventional and unconventional oil and natural gas, coal and uranium, and much of the world’s agricultural land.

Eucaliyork believes that it designs and enforces the globe’s energy and environmental policy.  The media uniformly support this belief.  Eucaliyork holds conferences and symposia, issues declarations and spins out draft treaties and declarations that consume enough paper to denude entire forests. It is a world where the right pose and the correct attitude is vastly more important than the right deed. It is a world whose currency is the approval of peers and the adulation of network television.  It is a world of theory and assumption.  For 50 years it has confidently and repeatedly predicted calamities that did not occur and crises that failed to materialize.  For 50 years its world view has been deeply pessimistic and narcissistic.

At first, the RealWorld was much impressed and braced itself for calamity and crisis; then it became less impressed; now it is politely attentive but no longer impressed.  Soon it will be contemptuous. 

Eucaliyork is deeply anti-coal and (except for France) pathologically antinuclear.  Its energy vision is orthodox, collectivist and intolerant of dissent from the intellectual fashion of the moment.  It believes that the planet is running out of resources, a static physical environment is greatly preferable to a changing one (i.e., all change is bad, dynamism is bad, all surprises are fraught with downside risk) and people in Eastern Europe, China, India, Philippines, Indonesia, Brazil and Africa have no business aspiring to a material level of comfort and security that it enjoys.  It does not much like RealWorld.

Eucaliyork is convinced that energy efficiency and renewable energy supply are the complete and aesthetically elegant solution to all real or imaginary energy and environmental challenges. 

Certainly, the energy efficiency of, for example, the U.S. economy has doubled per dollar of real GDP over the past thirty years but the economy has far more than doubled so that total energy use has expanded considerably.  Of course, the metal efficiency, the wood efficiency, the cotton efficiency, and the building materials efficiency of the U.S. economy has increased even more impressively than energy efficiency over the past thirty years though there was no public policy to impel such efficiency increases, indeed, quite the contrary.  Increased energy efficiency is not a consequence of public policy but a by product of good business management (more productivity means more profits), technological innovation and most importantly, the changing mix the U.S. economy from being heavily reliant on matter to becoming increasingly reliant on the electromagnetic spectrum, on software and on biology for economic growth.

As energy efficiency increases, so total use increases.  The faster efficiency increases, the more likely it is that total energy use will increase.  We have observed this phenomenon in the increased digitization of the home.  The more efficient digital appliances and applications become, the faster they proliferate and even 50% to 80% increases in energy efficiency are swamped by 300% to 500% increases in the population and use of digital appliances.  The trend continues and may accelerate.  Electricity use per residential consumer is increasing, not decreasing and will continue to increase noticeably over the next few decades even as consumer electricity efficiency per appliance or device or transaction increases.  Increased consumer energy efficiency means reduced unit costs which stimulates increased consumer use which creates the need for more, not less, supply.

As for renewable energy to meet electric needs, the preferred technology for Eucaliyork is always one that is not commercially ready and as soon as it is ripe, it is no longer favored.  The ideal project is an invisible windmill transporting power via buried, non-existent, superconducting cables.

RealWorld knows well the penchant, indeed addiction, of Eucaliyork for elaborate energy and environmental management pronouncements, treaties and regulations.  It is generally willing to nod and smile politely, make soothing noises and even sign many pieces of paper.  It knows there is no downside and some upside.  There is no downside because Eucaliyork has neither the will nor the strength to enforce its regulations even within its own domain much less impose enforcement on RealWorld.  There is some upside because these treaties usually involve a flow of money, technology, and jobs from Eucaliyork to RealWorld.

For people in RealWorld facing present facts as they are and not as they wish them to be and taking action are daily requirements.  In the world view of RealWorld these things are accepted as truths:

1.       We live on a very energetic planet, teeming with life.  Compared with the natural energies unleashed  by the planet every day, made visible especially through storms and tsunamis, earthquakes and volcanic eruptions, flowing water and moving clouds, thunder and lightning, the amount of artificial energy released and consumed by humanity is negligible.  Moreover, human life processes constitute a vanishingly small amount of all planetary life process.

2.       Compared with human society, nature is very large and complex and changes every day, every season, every year.  Natural planetary change is only dimly understood by human beings.  It has cyclicality, hierarchy, diversity and unity beyond the ability of human science in the 21st Century to even observe, much less catalog or explain.

3.       Models, whether they be of risk or credit, markets or economies, cities or societies, weather or the carbon cycle are, at best, weak representations of what is.  Moreover, the model determines what data are collected and used not the other way around.  Observing the behavior of models is much less useful than observing what really is.  Action based on models is much less useful (and often harmful) compared with action based on observing what really is.  Models are a poor substitute for experience, wisdom and the ability to distinguish true from false, i.e., a moral compass.

4.       The oceans and the sunlight falling on the planet are sources of energy so vast that they are limitless compared with any conceivable human requirement.  The oceans provide three forms of energy through thermal temperature differences, tides and offshore winds.  However, these energies are diffuse and remote.  Spray-on solar films and solar towers are ways of obtaining very large amounts of solar energy.  Unfortunately, the technologies to collect and concentrate ocean and solar energies in scale are not on the commercial horizon and the infrastructure to get this energy to great numbers of people is not in place. Ocean and solar energy are 50 years away from providing even 10% of humanity’s energy needs and perhaps 100 years away from being the major source of energy supply for human needs.  Onshore wind is an accessible source of electricity but even a ten fold increase in generating capacity won’t do much; the unreliability of onshore wind and the growing difficulty in siting large wind farms means that onshore wind is and will remain a decidedly niche business in the global energy economy.

5.       Great demographic changes are occurring globally and their impact will be profound.  Globally, fertility rates are falling in every part of the world; several parts of the planet have fertility rates below or well below replacement levels.  Several important nations have reached or are reaching peak populations.  Russia and Japan are already in absolute decline, to be joined shortly by Spain, Italy, South Korea and Germany.  Other European nations (except the U.K.) will join this trend within ten years.

·         Among the significant nations of the world today, only the U.S. and India will have growing populations within 25 years.  China’s population is less than 20 years away from peaking

·         By 2050, the U.S. population will exceed the combined populations of the U.K., France, Germany, Italy, Spain and Russia

·         By 2050, India will have as many people as the U.S. and China combined

·         By 2050, Vietnam will have more people than Japan; Nigeria will surge to become the world’s fourth most populous nation (from 9th place today) with a population about that of Brazil and Mexico put together while Ethiopia will have as many people as Russia.

·         The population of Eucaliyork will shrink to 6% of the world’s population by 2050 compared with 10% to day.  Demographically, politically and economically, Eucaliyork will be marginalized.  Moreover, the population of Eucaliyork will be substantially older than RealWorld, which means that Eucaliyork will have far fewer workers to support its older citizens than RealWorld.

·         Within the U.S., among the big five states today, the populations of Texas and Florida will surge, California will continue to grow while New York and Illinois will fade in demographic importance over the next 25 years.  Furthermore, in the next 30 years the U.S. South will add more people than the rest of the U.S. put together.

6.       As people rise out of poverty and attain even a lower-lower middle class status, they demand the following:

a.        Greater physical comfort and less physical drudgery at home, which entails using more manufactured energy in the form of heat and light

b.       Access to public sanitation and clean drinking water, which means treatment plants and pumping stations

c.       Much greater consumption of digital communications, information and entertainment which sharply increases electricity use

d.       Access to better healthcare and treatment of injuries

e.       Greater mobility both through public transportation systems and via personal, motorized transportation

f.         Literacy for their children, which requires at least four to five years of formal schooling

g.       More animal products in their diet, which raises the energy intensity of the local economy since animal protein is more energy intensive than vegetable protein

7.       It is desirable, indeed, imperative to find substitutes for conventional oil as a transportation fuel.  The only feasible alternatives are other liquid fuels, GTL, and, in the medium term, electricity.  Other liquid fuels are crude from bitumens and shale, biofuels from corn and sugar cane and from non-food grasses, and liquids from coal.  Turning food into fuel is not a satisfactory solution and not scalable beyond twice current levels globally, which are very modest.  The technology to turn non-food grasses into biofuel is not commercially ready.  The first new commercial coal-to-liquid plants are a decade away.  Bitumen and shale based crude is promising but developing production capacity takes a long time so that it will be about a quarter of a century before crude from shale and bitumens accounts for even a sixth of world crude supply.

GTL projects have become very expensive and GTLs may not make much impact on world oil markets for another two decades.  Thus, liquid fuel substitutes for conventional oil will be slow in reaching appreciable scale.  For the next 10 years they will be more a novelty than a serious supply source and after that it will take another 10 years before such fuels start becoming important and it may be 30 years from now before such liquid fuels could account for even 25% of world liquid fuel use.  That is a long time to be held hostage to tyrants and terrorists.

A more strategic alternative is electricity but it is not in hand.  A commercial electric vehicle industry that secures the acceptance of consumers is still nascent.  By the middle of the next decade, attractive electric cars could be available but scaling production to where millions of electric vehicles could be produced annually is unlikely for another 10 to 15 years after that.  In any case, there is not enough electricity to fuel millions of electric cars even if, magically, they appeared in show rooms today.  There are only three practical options for producing large amounts of electricity to fuel scores of millions of electric cars.  These are natural gas, coal and nuclear.  Sadly, there is not enough natural gas in or near the major automotive markets of today (North America, Europe, Japan) or tomorrow (North America, China, South Asia, Africa).  Until large new gas supplies are developed, natural gas is not a generating option. This leaves coal and nuclear.  There is nothing else on the horizon.  The practical way to substitute for gasoline is to build advanced coal and nuclear plants in large numbers.  Outside Europe and Japan, these plants will be built; there is no alternative.

For RealWorld the great omnibus theme is not energy or climate management or credit quality or commodities and emissions trading, but rescuing billions of people from poverty, disease, hunger, homelessness, fear and exploitation by tyrannical elites and bringing them liberty and dignity, i.e., extending to another four billion people what 2 billion in the RealWorld and what most of the 600 million in Eucaliyork already have and take for granted.  It is the globalization of personal and property rights; of freedom and prosperity.

At the same time, over the next three decades another net two billion people will be added to RealWorld and 1 billion people currently alive in both worlds will become too feeble to support themselves economically or physically:  all of these must be provided for in some decent fashion.  To achieve this over the next 30 years, global economic output must, at a minimum, triple; global energy use, quadruple and global electricity consumption, quintuple.  Freedom, prosperity and compassion need a lot of electricity.

For RealWorld, the globalization of freedom and prosperity and oil substitution are among the major tasks it has set for itself for the next 30 years.  As it acts to fulfill these tasks, RealWorld will need to generate, transmit, distribute and use electricity on a scale unimaginable even a decade ago.  Much, perhaps 75%, of this increased production of electricity will have to come from the only two technologies capable of generating thousands of gigawatts of power within this time period at a cost billions of people can afford:  advanced coal and nuclear.  Everything else, for the next three decades, is a footnote in comparison.

In about five years, RealWorld will need to begin construction of one coal plant every few days, one nuclear reactor every week and one major new transmission system every month for years to come.  The relevant questions, thus, become:

  1. Will there be enough sites?  Yes
  2. Will there be enough capital? Yes
  3. Will there by enough equipment?  Not without substantial price increases
  4. Will there be enough engineers, operators, craftsmen, project managers and field supervisors?  Not without a significant increase in the pay and social standing of such people
  5. Will corrupt politicians and bureaucrats steal billions of dollars from these projects?  Yes, of course
  6. Will there be enough fuel?  Yes, at prices considerably higher in nominal (but not real) dollars than today
  7. Will the nominal price of advanced coal and nuclear electricity be much higher than at present?  Yes, but real prices will not be much greater
  8. Will electricity from advanced coal and nuclear plants be competitive?  Yes, compared with major alternatives 

Big Oil and Big Gas will thrive and grow for many more years but their era of domination is nearly over.  We are now entering, for at least the next 30 years, the age of Big Coal and Big Nuclear.  The bridge to ocean and solar energy will be built on coal and nuclear.  That’s the reality of our world.