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Energy Resilience

Andy Grove, former CEO of Intel, has written an article for The American titled Our Electric Future in which he recommends a transition toward using electricity instead of petroleum to power the U.S. transportation system.

He rightly dismisses "energy independence" as a worthwhile goal, instead making "energy resilience" — reducing the likelihood of, and increasing our ability to endure, supply disruptions — the standard. He argues that electricity should be the backbone of national energy policy.

I don't like one of his reasons:

Oil moves to the highest bidder. Fleets of tankers carry it across oceans day and night. Natural gas can also move around, but with extra difficulties. On land, it can be transported in pipelines, but to carry it across oceans requires liquefaction and expensive, high-tech ships that can carry this liquid in strong, deeply cooled containers.

Electricity can be transported only over land. In other words, it is sticky: it stays in the continent where it is produced.

The "stickiness" of electricity is a disadvantage. This stickiness means we have to generate electricity locally, which provides protection against it being bid away by other nations. But that also means that we can't bid it away from other nations.

The very fact that we're able to import oil, a practice much maligned by the energy independence crowd, means that we have access to (much) more than we're able to produce ourselves. That's a good thing! We import it because that's cheaper than domestic production. With electricity we don't have the option of importing on such a grand scale.

Grove recognizes that electricity can be generated from many different fuels, reducing the risk of a fuel-based supply disruption. But as anyone who lived in California in 2000 could say — and incidentally, didn't Grove? — the electricity generation and distribution infrastructure itself can be a significant point of failure. If California could have hypothetically solved its energy crisis by importing electricity, even from a foreign cartel, that would have been wonderful!

We live in a world where just about everything — from a hairdryer to the Internet — runs on electricity. A big exception is the transportation sector, critical to the movement of people, production materials, food, and even fuel. Transportation uses more than half of all the petroleum consumed in this country. If we don't convert a large portion of the transportation sector to electricity, we cannot make real progress toward energy resilience.

It's important to underscore the fact that although oil prices have risen dramatically, there have been no shortages outside of actual natural disasters. The market, and this fuel, works. I look at petroleum and see an energy source that's already resilient! It looks more resilient to me than electricity, where California demonstrated that misregulation could create a crisis even with no natural disaster in sight.

To start with, the U.S. government should lead the way by requiring that a growing percentage of new cars be built with dual-fuel capability. These dual-fuel cars would have both an electric engine and an auxiliary gasoline engine to augment it. The car would run on electricity, and after the batteries were depleted, it would switch to running on the gasoline engine.

Sorry Andy, you've completely lost me here. Why, pray tell, should the government impose your preferences on everybody else?

Such dual capabilities are often built into machines to help with technology transitions. When DVD players first came to market, they were often combined with a VCR tape player so the consumer could choose if he wanted to watch a movie in VCR or DVD form. Eventually the DVD player became the default standard, but only after a period of time that allowed consumers and the broader market time to adapt.

I'm confused. Didn't this happen without government intervention?

Laptop computers today come with both wireless and wired Internet connections. If you are in a hotel, you can choose to use wireless service or plug in to the hotel's wired connection. I expect wireless connectivity eventually will be sufficiently powerful and accessible to obviate the wired alternative.

Now I'm even more confused. Didn't Intel, not the government, cause this to happen? Please please can't we take credit for this? I want my stock to go back up…


Grove admits that the market will cause the transition to electric vehicles on its own. But he's dissatisfied with the pace. He thinks he knows what the optimal transition speed is — he thinks it should be faster. He wants to subsidize the transition. He thinks he knows better than you how to spend your money.

I could argue (but won't bother going into detail here) that the free market rate of technology transition is the only objectively defensible rate of transition, and that therefore the currently already-subsidized rate of transition is too fast and should be slowed down by ending the subsidies. I at least have economic theory to ground this argument. I'm pretty sure I saw Grove just waving his hands, without considering the impact of his subsidies on Sumner's Forgotten Man.

Grove is a genius, and he has my high respect. But he doesn't know the right way to spend my money, and he doesn't know the right way to spend yours. Hold on to your wallet.

Comments: 6

1: Anonymous
2008-07-21 02:07:04 UTC

Grove lost you because you have the typical closed libertarian mind which believes that government is always more inefficient than the free market. While that is generally true, it isn't always true.

2: Don Lloyd
2008-07-21 12:21:26 UTC

Kyle,

There are generally two types of businesses, one that has confidence in its ability to outcompete its rivals for the voluntary trade of consumers and one that relies on its pull to win government subsidies and mandates. When the second type wins, the first type rationally looks for geener pastures to toil in, and the consumer loses in at least the long run.

Regards, Don

3: Adm' Arword
2008-07-21 21:33:23 UTC

It is impossible to burn oil without impacting everyone. Thus there is no forgotten man in Grove's proposal, and Cap'n Arbyte once again shows his slavery to the simplistic libertarian ecomonic theory which is flawed and practically useless in the real word.

4: Captain Arbyte
2008-07-22 02:02:01 UTC

#1, I'm not making an efficiency argument at all. The word "efficient" doesn't even appear in my post.

Don, I've long believed that Intel was one of the former, but after SpectraWatt, it's getting hard to tell.

Arword, you don't merely forget the forgotten man -- you claim he doesn't exist!

5: jbquinn
2008-07-22 02:59:47 UTC

I think your article could be strengthened by addressing some additional points. Devil's advocatory follows:

Is oil intrinsically any less susceptible to misregulation than electricity? Or have we merely not had a bad roll of the dice lately?

How do the subsidies Grove advocates compare to the costs of fighting pollution and the net present worth of future environment cleanup costs?

Is oil really worse, environmentally speaking, than electricity?

Is it a foregone conclusion that government should even be paying these environmental costs? Or should those costs be priced into oil and electricity respectively?

How do the subsidies Grove advocates affect the balance of power among energy subsidies? Is "balance of power" concept even applicable to subsidies or can energy subsidies be cancelled one by one in any order we choose in that quest to bring true free market competition to the energy sector?

6: Anonymous
2008-07-22 17:02:19 UTC

Arbyte,

Society (via government) should in cases impose it's preference at times exactly because doing so is more efficient than the free market. Your lack of understanding of that concept is why Grove lost you.

As for the forgotten man, perhaps it is you who should prove that he exists in this energy situation instead of simply being dismissive of Arword's comment.

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