A Slow-Motion Revolution That Is Changing the World

Daniel Yergin’s latest book, The Quest: Energy, Security, and the Remaking of the Modern World, would have been essential reading for energy industry insiders simply as a consequence of Yergin’s status as one of the field’s foremost commentators and analysts. He is, after all, the author of one award-winning volume on the subject, The Prize, not just a great history of energy but one of the best history books of any sort of the past quarter century or so. And he has built an important energy consultancy that every year convenes many of the industry’s most important leaders for a week of must-attend discussions.

But this new book is such an exceptional achievement, a work of scholarship that is full of compelling story-telling, an exploration of some of the most vital issues of our time that frames them in a sound history and penetrating analysis, that its publication has much greater resonance. Appearing at number four on the New York Times best-seller list in its first week on the market, showered with well-deserved critical acclaim, the book is essential reading for policymakers, business leaders, and anyone in the public who wants to understand forces that are transforming global politics, driving the rise of some nations and conflicts among others.

As someone who in his spare time runs a consultancy with a considerable energy practice, I was drawn to the book for professional reasons but I have to be clear, I’m going to recommend it to many people I know in Washington because not only does it address issues that link politics, economics, business, today and tomorrow — but it does so with unusual objectivity and wisdom. It’s rather long, but not only is it a read that offers plenty of rewards but it is likely to be a book to which readers will return over and over. (Which is why, if you want my unsolicited opinion, you should buy a hard copy. Easier to dip in and out of.)

I particularly was struck with its core theme — that while headlines blare of an energy revolution and great paradigm shifts, real change in this field happens gradually. The search for breakthrough technologies is not only not unique to our time; virtually everything that is buzzworthy and "new" today has roots that stretch back a century or so if not longer. That said, although a realist about the pace of change, Yergin is keenly aware of the profound shifts that are taking place as well as those that make take decades more to unfold. He proves the adage that the best guides to the future are those who understand the past well.

To get a better understanding of Yergin’s views as they pertain to the issues of greatest important to the readers of Foreign Policy — and because I always welcome the chance to discuss these issues with Dan — I sat down with Yergin for a conversation about the book, its key conclusions, and his views on the state of energy politics and economics at the moment. We covered a great deal of ground, highlights of which will be covered in two parts. Today, the discussion focuses on some of the core ideas in Yergin’s book, those pertaining to the search for new ways to provide the energy the planet needs. In Part II, the discussion turns to the geopolitics of energy in the century ahead.

David Rothkopf: Early in the Obama administration there was a sense that a new energy paradigm was going to be central to American growth, and the president himself was framing new approaches to energy as a primary driver of the next phase of U.S. growth. Yet more recently, expectations have been dramatically reset. What do you think is behind that change?

Daniel Yergin: We have gone through periods of great optimism about how quickly a transition to a different kind of energy system can come about. But our $65 trillion global economy rests on a very big and complex energy foundation. And it’s governed by two laws. One is the law of long lead-times. Because of the scale and nature of energy, it doesn’t change overnight. And the second is the law of scale. To be significant, it has to be large. And the renewable sector, the alternative sector, is still developing within those constraints. It’s certainly a lot farther ahead than it was a decade ago, and indeed it has become a big business and a global business in its own right. But, when you look out 15 or 20 years based on what we know, our energy mix won’t change too dramatically. It’s really around 2030 that we could see the really significant changes.

DR: Is that because 20 years from now we’re going to have great breakthroughs; 20 years from now we will have scaled up to the point that the breakthroughs are possible; or because 20 years from now, we’ll all be dead or retired?

DY: It’s because 2030, from an energy point of view, is almost here. You’d have to be pretty far along in the development of any technology or major project to have a really big impact that would be felt well before then. What we should expect is a kind of constant process of change. Look at shale gas, which some would say is the biggest energy innovation that’s happened this century. The work on it started in the early 1980s and it wasn’t until the late 1990s and the early years of this century that the code was broken, and it took several more years to get to where now 30 percent of that natural gas produced in the country is shale gas. It is changing the economics of the whole energy business. But it took a long time to get there.

There’s a great example of lead-time in the book: it was in 1905 that Albert Einstein found a job, after a very depressing period of unemployment, and in 10 weeks wrote five papers that changed the world. One of them was on the photoelectric effect, for which he received the Nobel Prize. It took a half-century to get the first solar cells up on an early American satellite in response to Soviet Union’s Sputnik, and we’re now seeing the cost of solar continuing to come down. It is competitive in some situations now. But it still has to come down more to be competitive on a large scale.

DR: There are three main areas where you can have transformations with regard to energy. You can have it in terms of supply. You can have it in terms of demand. Or you can have it in terms of transformational technology. A lot of the buzz has been around transformational technologies — new batteries or new solar or whatever. But the big changes that we’re seeing right now over the next few years too on the supply side seem to be in what might be called "risky energy" — shale or tar sands or deep offshore drilling. On the demand side, the area of biggest opportunity is efficiency. And, it seems, if what you suggest is true, the technology side is likely to be slow moving and incremental. What’s your view of each?

DY: With regard to the demand side, you’ll find a major argument in the book about the role of efficiency, that the United States today is twice as energy-efficient today as it was in the aftermath of the oil crisis, and that innovations in this area, actually, have had a very profound impact. It’s just not very visible because it’s embedded in processes, it’s hidden inside the way buildings are constructed. As the former EU energy commissioner said, there’s a big problem with energy conservation, energy efficiency. There’s no red ribbon to cut. There are no great photo ops. But I think that’s an area where there is consensus and substantial progress, and its importance is evident in countries of all types worldwide. You see it in China where it’s the top energy priority for a very good reason.

The supply side has continued to surprise. On the one hand, you have wind which really has gained scale. I’m not sure it’s "alternative energy" anymore. It’s a kind of conventional energy source now. It’s not exotic, but it’s still relatively small. We’ve also seen significant innovations on the supply side in terms of conventional energy. There are three big breakthroughs that really count in the Western hemisphere. The first is the Brazilian pre-salt, which can make Brazil into an oil powerhouse — more important than say, Venezuela, which used to be the South American leader in oil production. The second is the Canadian oil sands, the production of which is equivalent to Libya’s exports before the civil war, and is our largest single source of imports. The third is what’s just getting attention: new U.S. oil production is up 10 percent from 2008. You see areas that were not in the game before suddenly quite important — North Dakota, which is now the fourth-largest oil-producing state in the country. And I think you’re going to see, over the next year, that a very important state in terms of new energy development is going to be Ohio, which is of critical importance in the 2012 presidential election.

DR: And it’s the neighborhood where it all started with John D. Rockefeller…

DY: Exactly. Ohio, western Pennsylvania, that’s where the whole story began. Rockefeller started Standard Oil in Cleveland. Just down the street from his house, by the way, the first large windmill for electric generation was built in 1887. There’s a great photo of it in the book. And now, that region is back at the center of the new story.

The theme that ties the whole book together is the phrase that was used by the French scientist Sadi Carnot in 1824 to describe the impact of the steam engine — what he called "the great revolution." He was not only interested in the steam engine as a scientist, but also as a soldier, because he thought that the command of that technology had given the British an advantage in the great geopolitical struggle of the day between France and Great Britain. He talked about a "great revolution" in which we had gone from energy being animal and human labor to harnessing it through technology. When I look at the whole book, it’s really about the unfolding of this great revolution over more than two and a half centuries. That’s what I’m convinced will continue. That’s why a strong consistent commitment to research and development is so important.

DR: In some ways, what you’re saying is that what we’re experiencing and what we should expect is not a revolution but an evolution. Yet, there are areas you cite as being especially promising and already having a rather important transformative effect. Perhaps the most important of these has been efficiency.

DY: Energy efficiency is a big theme. The United States and Japan are about twice as energy-efficient as they were 30 years ago — although obviously with different levels of energy usage. Imagine where the world would be without all that "energy" from efficiency!

DR: And there’s no sign of that slowing down, is there?

DY: No. From the viewpoint of an automobile maker, 2025 is not far away. In 2025, an average new car in the United States is supposed to get 54 miles to the gallon, as opposed to about 30 miles per gallon in 2011. The energy saved is a major resource. That’s one of the main reasons why in the developed world we have a peak. It’s peak demand for oil. And that demand is going to be coming down in the United States and Japan and Western Europe — not up.

DR: A couple of years ago in the run up to Copenhagen, for a moment the world thought climate change would be addressed. We thought we’d get global standards for emissions; we’d get to have global trading, and so on. And although that didn’t happen, reports of the death of that discussion are premature. The conversation has been quietly going on. You’ve got different kinds of carbon trading programs being explored; you’ve got different kind of caps and taxes: climate is not off the table. What’s your outlook over the course of the next 10 years in terms of climate change?

DY: The section on climate change in the book was really an effort to answer a question I had, which was how did this thing that interested a few scientists in the 19th century who were worried about another Ice Age become such a dominant energy and political issue? In Europe, you have explicit climate policies, which are very ambitious in terms of what they want to achieve. And they’re making it based on a technological advance and efficiency. But you also have implicit climate policies which is what the United States has. That is when you have the 54-mile-per-gallon mandate, when you have a renewable portfolio standard. The state of California now says that, by 2020, somehow it’s going to get a third of its electricity from renewables. Those are climate policies. They’re regulatory climate policies. But that seems to be the way the U.S. is going about it.

And as to what happens, I think that given the economic circumstances we are today, we are unlikely to see any major new explicit climate policies soon. The focus through the 2012 campaign is going to be on jobs and economic performance.

DR: Why do you think the U.S. doesn’t have a coherent energy policy even though we have been talking about the demand for one since Barack Obama was in knee pants?

DY: One thing we don’t have a shortage of is energy policies. We just don’t have one grand, overarching, general unifying theory of energy policy. But we have lots and lots of energy policies.

DR: Why? What accounts for that?

DY: We’re a big, regionally diverse country, with a lot of different interests. There are some generally embraced objectives such as importing less oil from the Middle East, or having cleaner air. That’s what we hear from presidents — Democrats and Republicans — but once you go beyond that it becomes more complex. What we have are coalitions of energy policies.

Since 2005, U.S. oil imports have declined from 60 percent to 46 percent on a net basis. We’re still importing more than we did at the time of the 1973 crisis. We’re still at the early phases of seeing what the impact of shale gas will be on the overall energy market. It affects not just gas; it affects the competition among conventional fuels and renewables because the gas is so competitive.

DR: What is the post-Fukushima outlook for nuclear? The Germans pulled back. The French and the British said they would continue on with it. The U.S. has vacillated. And recently, the new Japanese prime minister has said nuclear had an important role to play in Japan.

DY: That’s very interesting because of course what Fukushima shook was not only confidence in nuclear power but also confidence in the Japanese governing machinery decision-making and its commitment to nuclear power. But whether nuclear expands or not in Japan, it’s certainly an important part of Japan’s energy mix, and it’s also recognized that this terrible, tragic accident happened not because of the earthquake but because of lack of preparation for the tsunami. Otherwise none of this would have happened. There was much discussion of a global nuclear renaissance prior to Fukushima. I think it’s now going to be more of a "patchwork-stance".

DR: But you would agree that you can’t really get to lower emissions targets without keeping nuclear in the mix?

DY: That’s right. In place of nuclear, Germany will substitute imported gas from the Russia, imported nuclear-generated electricity from France, and then their big next step for them is to see if they can really build a big offshore wind business.   The EU in general is saying that offshore wind is going to be the frontier and there’s a lot of debate about what the cost is, how fast you can do it, and what the scale is. Intermittency and transmission are both big challenges. There are a few things that will unfold over the next five years before it becomes clear how big they will become. One is offshore wind. Another is the electric car.

DR: Well, let’s talk about the electric car since you brought it up. Certain groups are mesmerized by the prospect of the electric car, but getting to sufficient energy density in the batteries and getting to scale in terms of refueling, or getting to speed in terms of refueling, seem like really formidable challenges. How do you think the next phases of tackling the challenge will unfold?

DY: There’s a lot of policy momentum in different countries and competitive momentum — and that’s why I say that a new lap in the race has begun. Around 1910, the first round of the race came to an end, and the second round started around 2008. But it’s still the first part of the first lap. Among the automakers there seems to be a wide divergence of views about this.  But even in our most optimistic scenario, we see just 3 percent of the automobile fleet in electric cars by 2020. And again, it’s the law of scale.

DR: Where do you come out on the future of "green jobs"?

DY: There are green jobs and there will be green jobs. Their number will grow. They’re just not in the numbers that some people hoped for in very optimistic projections a couple of years ago. Overall, we’re going to see a lot more focus — and discussion and debate — on the job-creation potential that comes from the entire energy spectrum , including shale gas, things like the Keystone XL pipeline, which some call the biggest shovel-ready project in the country, and from the offshore oil industry. All this comes with the recognition that you’re creating jobs.

There’s a lot of confusion however, about the oil sands. On a well-to-wheel basis, it’s 6 percent more carbon than an average barrel of oil, and the same amount of carbon as other barrels of oil that people use as gasoline in their cars. And the Canadians have every incentive to manage it in an environmentally sound way. It’s a highly-regulated activity. But it’s just become this focal point of ire. You also have to keep in mind the energy security and energy diversification of oil sands, as well as the economic significance it has for the United States, including job creation for the United States. In general, the job aspect of the energy business is something that will get more attention Job creation is part of the energy equation.

There are very optimistic forecasts of how you can change everything overnight, but I think it’s important to be realistic. And generally, based upon what we know today, somewhere between 70 and 75 percent of global energy will come from oil, gas, and coal in 20 years. The reasons are the rapid growth in emerging market countries and the scale of the existing energy infrastructure in developed countries. That energy will be used much more cleanly and efficiently. In the recent optimistic International Energy Agency climate change scenario, in which the world is really driven by climate-change imperatives, they managed to get oil, gas, and coal down to 67 percent of total energy by 2030. Around 2030, you start to see the impacts of other sources, things that may be clear today and things that may not be clear today, potentially gaining real scale. One thing that really interests me in The Quest is the "great bubbling" going on in terms of research and the interest of scientists and venture capitalists in this subject. Scientists whose names are not widely known today may end up having a very signifcant impact, especially if consistent efforts are applied. There will surely be significant technological surprises in the years ahead. But they will probably have been long in development, just out of sight.

DR: But even then, in all likelihood, after coal, gas, oil, nuclear, you’re talking 15 percent of the market, spread among wind, solar, and hydro.

DY: Actually, if you look at it today, the percentage share the share of renewable energy in the overall U.S. energy mix in 2010 was the same as in 1985, although it was a somewhat different mix. We could see the code cracked on second-generation biofuels. There’s so much effort going into that, and that would be a significant development. Wider attention may have fallen away from it, but the research effort is continuing.

Also, regarding biofuels, on an energy basis, 6 percent of the U.S.’s motor car fuel supply is biofuels. Wind is other commercial new industry. It’s a fascinating story — where did our wind industry come from, anyway? But it still takes time for technology to develop. Look at the picture on p. 607. It shows the huge difference in the scale of a wind turbine in the 1980s and one today. It graphically conveys how much has changed.

With solar, one assumes that solar could well be, eventually, one of the big winners in one form or another. That’s why there is a lot of activity focused on bringing down cost.

DR: It’s all solar energy to begin with.

DY: Right, and it’ll all be solar energy to end with. There’s a punch line.

Stay tuned for part two of this interview, coming tomorrow. For more information on Dan Yergin and The Quest, go to www.danielyergin.com.