Gift To The Future
We, the people of the 20th Century and the beginning of the 21st are bequeathing our descendants a grim legacy: too many people, many resources running out (crucially and perhaps declining already: oil), and environmental damage (including a significant increase in atmospheric CO2 with unknown consequences that might be very serious).
We would like to fix these problems, but realistically many will get worse rather than better. The loss of resources has many people fearing a significant collapse of our civilization, perhaps in the form of a serious and ever worsening Depression. Rather than just aiming to solve all the problems, we need to also make a gift to the future which will help them cope with the problems that we don't completely solve.
For old folk like me, the Gift to the Future is for our grandchildren and for the preservation of our civilization. For younger readers there is an extra good reason to make a Gift to the Future: You'll be there.
The detailed justification is provided in more technical sections below. The plan itself is very simple.
In the energy business, as in many important businesses, we can divide the costs of running a particular bit of that business into the initial up-front costs (mostly construction costs), and then on-going, marginal, costs. In a normal way money is borrowed to cover the initial cost, then revenue is used to cover the resulting interest payments and the ongoing costs. For the business to be profitable, and not go broke, the price has to be high enough to cover both. However the energy business can't typically set its own price, which is dictated by the market: by the amount of demand at each price point, and by the actions of other sellers. For the seller it is better to sell whenever the price at least covers the on-going costs, but normally that will send the seller broke if it doesn't cover interest payments.
It is very difficult for business to build energy infrastructure in the current and near future environment. Interest rates are uncertain, energy prices are uncertain and if the declining production of oil leads to economic decline then demand may be low. Yet failing to build energy infrastructure guarantees economic problems.
We need to cut this disastrous loop by making the initial up-front cost of new energy infrastructure as a Gift to the Future.
For America this will be a radical proposal, but for most countries it is just a return to normal. Most countries have traditionally run their energy infrastructure as a socialist part of a mixed economy. Energy infrastructure has been built by the central (or regional) governments from tax revenue and national borrowing. The radical aspect of the proposal is to get well ahead of obvious demand growth, to be ready to cover for reduced energy from fossil fuels.
There are however tricky aspects of the plan that are considered in the following technical sections.
The Energy Market
In the natural world, species are never content to enjoy a comfortable existence. If things are comfortable then the population increases until things aren't comfortable any more. Capitalist energy is like that. The most marginal oil producer is walking a fine line and can't afford any increase in costs or decrease in price. Consider an electricity supplier that owns its plant outright and is making a nice profit on the electricity sold over the marginal costs. In those circumstances modern management feels compelled, by threats of takeover, to mortgage the production facility, pay the cash to the owners (and managers) and continue on the edge with revenue having to cover interest as well as on-going costs.
Having the energy industry on a knife edge is worrying. There is no spare capacity at the current price. It is hard to know whether a rise in demand will be met in time by increased production. Indeed it is hard to know whether any significant increase in production is possible for some energy types. Occasionally we get a clue. The 2008 price spike in oil failed to bring significant extra sources on stream. It is very easy for electricity production to not be ready for rising demand, as we've seen in Pakistan, South Africa and many other places down the years.
Government intervention in Energy
Outside of America, government intervention in energy has been common. In European-style mixed economies, electricity and natural gas supply have been seen as natural monopolies and core infrastructure, and so have been commonly run as government services. In recent years governments have sold off energy infrastructure and most places are now in a similar situation to America.
Once infrastructure is in private hands it makes government initiatives tricky. If the government becomes a participant in the market, this is going to damage the private participants. Presumably compensation should be paid. This is particularly the case where the government has recently sold its previous infrastructure.
The straightforward way to proceed with the Gift to the Future is to (re)nationalize the electricity and natural gas industries. Then the addition of substantial non-carbon generating capacity can be done without consideration of the impact on other businesses. When the energy crisis is passed then governments may choose to privatize energy infrastructure again.
The Energy Crisis
The culture and prosperity of the modern world stems from the exploitation of fossil fuels, starting with coal in the Industrial Revolution. There is a limited quantity of these fossil fuels (coal, oil and gas) and naturally we have been using the best quality and most conveniently located first. So increasingly the fossil fuels we use are more expensive to acquire, and deploy. As the cost goes up we see a narrowing range of uses to which fossil energy can be cost-effectively deployed. And as a simple mathematical fact, as you use up a finite resource there must be particular months and years which represent the highest points of production. Whether you perceive this as peak demand or peak production doesn't matter. The world economy has expanded on increasing use of these fuels and must contract as use of these fuels contracts. That's the medium and long term crisis, but there is a more immediate problem.
Liquid fuel is the most convenient form and so oil has been the most important fossil fuel. The experts are unanimous that the days of easy cheap oil are past. Indeed 2005 was a recent peak of production of oil as it came out of the ground, though 2008 was slightly higher when you include liquid hydrocarbons obtained more indirectly. What we did see in 2007-2008 was that a massive run up in the price of oil was not able to induce significant extra production. Subsequent lower prices have seen the postponement of some exploration and development. It is not unlikely that the plateau from 2005-2008 will be the peak of oil production, and the practical impossibility of obtaining higher rates of flow represents a cap on world economic production for as long as so much infrastructure, particularly transport, is oil dependent.
Burning fossil fuels also creates a wide variety of serious pollution. One inevitable part of burning carbon-based fuel is the creation of CO2, and since it is a trace component in the atmosphere we have been able to make a significant change to the amount of CO2 in the air: from 280 to 380 ppm (parts per million). Most scientists think that it would be wise to stop increasing the level of CO2. Consequently significant sections of the populations of Western countries oppose the expansion of the coal power industry. This political fact is another part of the Energy Crisis.
The Electric Society
Non-carbon energy sources only produce electricity. You can do a lot with electricity. You can split out the hydrogen from water: and possibly use hydrogen as a portable fuel. Perhaps more sensibly one can make more manageable fuels like methanol. Or we can do a lot more things electrically: such as battery (plus capacitor) powered vehicles; railway electrification; heat pumps for heating and cooling.
Whether one generates fluid fuels or uses batteries, there is a substantial loss of energy compared to the magic of oil-derived fuel. So it is not going to be good enough to add electricity supply with equivalent energy to current fossil fuel energy. We need to add much more. We need to generate about triple the amount of electricity that we currently do.
It is crucial that we start this massive build up of carbon-free electric generating capacity as fast as we can. We don't have time to spend agonizing over whether the returns will cover the interest payment. If they do, that will be good. If they don't, that will be because the future is in even greater need of our gift.
Nuclear, wind and solar
Nuclear, wind and solar meet the criteria for the Gift to the Future. The majority of the expense is up-front. Once they are built they provide cheap power. Wind and solar have additional deployment costs associated with energy storage (since they are not always available) and an improved electric grid to cope with the level of variability.
The decision of how to implement the Gift to the Future is an engineering decision. Nuclear has to be in the implementation options for the Gift to the Future, because without that option it will be seen by a significant proportion of the population as yet another Green fantasy.
When individuals save for future problems they might save money. Society as a whole can't do that. Taking money out of the economy would cause deflation and force the central bank to create more money. Similarly if a substantial amount of money were brought back into circulation it would only cause inflation, it wouldn't deliver wealth to the future. Sometimes one country can try to save money in the currency of another, as China has by investing in America, but we can see that that has put them in a difficult position having lost control of the value of their savings.
We also note that the Gift to the Future would discourage private companies and individuals from investing in energy research. This is something that needs to be addressed, guaranteeing inventors that successful research and development will be well rewarded.
The Gift to the Future cuts through a lot of the argument about predicting the future. It is an insurance policy. You don't have to believe the climate computer models to worry about the significant change in atmospheric CO2 and other gases. You don't have to subscribe to the theory that Peak Oil is here now to believe that we need to prepare for an electricity-based future with energy security.
The worst that can happen is that we are unnecessarily poor now, as we construct more electric power generation than is immediately needed. The decision to be poorer now to save for the future is one that we all make at times in our lives. Society as a whole can't do that through saving money. We need to actually invest in core infrastructure. Energy is the most important infrastructure for our modern society. The Gift to the Future is a gift to ourselves. This is something everyone can understand.
For more information go to www.gifttothefuture.org.