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.cb THE CASE FOR ENERGY COMPLACENCY OR APATHY


	Maybe all the excitement about energy is unproductive, and the
rest of us should leave the business to the energy professionals, i.e. the
companies in energy businesses and put our efforts into our other work.
The price of energy is going up, and everybody is complaining, and the
politicians are showing their concern, but it seems to me that if we leave
the problem alone, we will have to adjust to increased prices all right,
but we'll manage.  Here's what I think will happen.

	Different parts of the energy problem will behave differently.
Because of nuclear energy, the most straightforward part of the problem
is the supply of electricity for the present applications of electricity.
The countries that don't have coal will replace their use of oil
for generating electricity by nuclear generation.  There will be some
accidents but no worse than those involved in other industrial
activities.  At some point the breeder reactor will have to take over
from the present light water reactors.  This will contribute slightly
to the danger of nuclear war, but not much, because the danger is
mainly political.  Any country that can divert plutonium from power
reactors can also make a plutonium production pile which is much
simpler to make and operate than a power reactor.  The United States
has coal as an alternative, but will end up with a mixture.  The timing
of these events will depend on the politics of nuclear energy and
on the rate of increase of price of oil, but the outcome isn't in
doubt.

	The problem of vehicle fuel will be solved in the U.S.
by synthetic fuel from coal and/or oil shale.  Other countries,
such as Japan may have to go directly to liquid hydrogen.  The
timing of these events will depend on prices.  The other solutions
are apparently still considerably more expensive than the present
price of oil.  However, it isn't generally realized how much the
basic price of fuel can rise without forcing any of the drastic
changes in way of life that some have advocated.  The point is that
fuel is only a part of the cost of operating a vehicle, and the cost
of oil is only a part of the cost of gasoline at the service station.
The international price of oil is now about α$14 per barrel, and a
barrel is 42 gallons.  That's 33 cents per gallon, and the present
price is about 70 cents.  The rest of the costs are refining and
delivery.  Suppose oil or its substitute goes to α$160 per barrel.
This gives gasoline at α$4 per gallon.  A car getting 20 miles per
gallon would have a fuel cost of 20 cents per mile.  This would
approximately double the cost of operating a car.  Many people
would be greatly affected by this, but I'll bet that the pattern of
automobile usage would remain about the same, especially if the
rest of the economy became more productive.  Actually, oil shale,
oil-from-coal, and even hydrogen will probably come in at far below
α$160 per barrel.  Therefore, it seems to me that there will be
a lot of screaming, but our way of life will be preserved.

	If the CO2 problem is serious, which seems unlikely at present,
then liquid hydrogen will have to replace gasoline.  It will be a
dangerous and exacting new technology, whose development should be started
soon.  So far, only the Japanese have experimented with liquid hydrogen in
a car, although gaseous hydrogen has been demonstrated many times in
internal combustion engines.
It seems to me that compressed gaseous hydrogen and storing it in
metals are not serious attempts at a solution, since they can't
possibly lead to vehicles with an interesting range.

	The most serious economic problem may be presented by the
cost of home heating.  Before low cost coal, oil, and natural gas,
heating a house was a major limitation on people's lives.  A supply
of firewood was an essential perquisite of the job of a nineteenth
century rural teacher or minister.  Old people had to move out of
their houses when they could no longer heat them.  It was customary
to seal off several rooms of a house in the winter, and the ability
of young people to operate a house of their own was seriously
dependent on the costs of heating it.  All this could happen again
if we couldn't solve the heating problem.
α$160 per barrel oil would mean α$15,000 per year heating costs
for many present single family houses, so we see that the cost
of heating is much more of a threat to our living standards than
is the cost of gasoline.  The contrast is made sharper by the fact
that much travel is discretionary, while heating one's house is
not perceived as such.

	Insulation as a solution works best in new small houses.
It would be a great blow if the stock of fine old houses had
to be abandoned because they couldn't be heated.  It seems like
the best bet for heating is the electric heat pump.  At increased
capital cost they can be made more efficient, and nuclear energy
can produce the electricity.  A lot depends on whether increased
experience can reduce the effective cost of nuclear electricity.
Environmentalist ratcheting of costs is a temporary phenomenon;
in the long run there will be a learning curve reducing real
dollar costs.

	The apparent cost of nuclear energy and other capital
intensive sources of energy is much affected by inflation and
regulation.  Past capital intensive investments look great, and
new investments look terrible.  The
Sacramento Municipal Utility District's Rancho Seco reactor
is generating power at 5 mills per kilowatt hour, but new plants
cost 30 mills.  The problem is that the allowed return on capital
refers to the old dollars with which the plant was built, while
new plants have to give a return on capital counted in inflated
dollars.  Looked at in dollars of constant purchasing power, the
past investments aren't so great - electric rates should be higher,
and the new ones aren't so bad.  The projected prices won't look
so bad in terms of our 1980s income.

	Commercial use of energy is mostly electrical and space heating.
New commercial developments can afford to insulate well.  I
don't know how to make even approximate computations, but my guess is
that commercial operations won't be much affected.  Commercial transportation
will be affected by increased vehicle fuel costs - helping the railroads.
It is interesting to ask whether high fuel prices could possibly
bring air fares up to the level of rail passenger costs.  It seems
unlikely to me.

	The final important user of energy is industry.  Some industries
such as aluminum production and steel are very dependent on cheap
energy.  Some industries use fuels both as an energy source and
also for their chemical properties.  Some industries have located
themselves near cheap sources of energy which they are likely to
lose.  E.g. New York City will probably succeed in getting the
inexpensive electricity away from the industries that have been
using Niagara Falls power since the beginning of the century.
While there are many special energy situations in industry, we can
take comfort from the fact that all these industries exist on a very
large scale in Japan which has no substantial indigenous sources of
energy.

	I used to worry very much that environmentalist politics
would prevent solving the energy problem and lead to a stagnant
technology.  My present opinion is that environmentalism will lose
whenever it succeeds enough to cause substantial pain in some locality.
If they could produce the lower standard of living everywhere simultaneously,
they might succeed in claiming it was inevitable, but when people
can compare their situation with that of others that have adopted
different policies, they will have the information necessary to
make correct decisions.

	If the foregoing analysis is correct, then much of the
agonizing over energy is wasted.  The slogans that "top management
must devote its attention to the energy problem" are wrong.  Top
management should devote its attention to innovation and labor
costs as always.  The energy specialists should devote their
attention to energy.  Every diversion of human effort into a
faddish concern has serious but usually unknown costs in missed
opportunities.
.nofill

John McCarthy, Stanford University

%7This draft of ENERGY.2[S79,JMC] pubbed at {time} on {date}.