July 14, 2004

Ending the Oil Age, Pessimistically

Orson Scott Card's ticked off the Angry Economist with his essay on oil replacement. And the Angry Economist has good reason this time. Card misses both strategic and economic arguments in his article. The Angry Economist concentrates on the economic ones, I'll review both.

First, the strategic consequence of cutting a growing economic power from its energy supplies is on full display with our oil embargo of Japan just prior to WW II. It is quite likely that if we had not engaged in economic warfare, Japan would not have struck on December 7, 1941. No oil for Japan was a death sentence for the regime and they knew it. Card says that moving to alternate energy is a death sentence for our enemies and he's right. But it's the kind of death sentence we should never impose on them.

The chosen strategy of the US in this war is serialization, the idea being to take on our enemies in turn, focusing our enormous power on a limited number of fronts and creating holding actions on any others until we can get to them. Serialization requires us to lull some problems to sleep, leaving them sufficient hope so that they decide not to make trouble and giving them a way out, a peaceful method of reform, giving most of them the illusion that they can maintain their autocracy for a long, long time.

Our enemy's strategy of parallelization is to stir up trouble on enough fronts that we can't concentrate our forces and they start winning in a few of them. Then they leverage their newfound power to create more victories. Provoking too many splits in our forces permits them to defeat them in detail.

A fast, government pushed shift off of oil would threaten so many countries with financial ruin that it would be the Imperial Japan scenario writ large. What we would get would be parallelization in spades. We have no need, and should have no desire, to follow our enemy's strategy.

So much for the strategic objection. The economic objection has both a philosophical and practical component. The Angry Economist is right that it's philosophically unpleasant to abandon the free market system. Government economic development is always less efficient and often leads to huge boondoggles that, retrospectively, almost always seem to be bad bets. While it's true that free market atom bomb development probably wouldn't have been a bright idea, energy systems are not weapons systems. They are much larger, more complicated, and have a greater scope for the negative externalities of government action to express themselves in self-defeating ways. One day we may end up in a situation where temporary government intervention in energy cannot be avoided. Today is simply not that day.

The practical component is that we've got an alternative energy scheme that is likely to improve things in the near-medium term that is already practical for some limited scenarios (as evidenced by shipping products) and is visibly improving without the massive, distorting government subsidies that Card announces are necessary.

Our solution in waiting is hydrogen fuel cells, an energy middleware component that will allow the huge amounts of potential energy that we waste every day to be captured in an efficient, unified energy market. Instead of a market for heating oil, diesel oil, natural gas, electricity, and various markets for the minor alternative players, they all get unified in one clean market, the hydrogen fuel cell market.

When alternatives don't have to build up a new infrastructure for wide adoption, their effective costs go way down and thus they will be adopted more widely. Hydrogen's around in just about everything and the more trash that we can convert to hydrogen feedstock, the better.

Without a government rush job on this, this emerging fuel cell innovation will put a python squeeze on the oil powers that will not be seen as a hostile act, that will not provoke a parallelization of the conflict that will be against US interests. It will be a neutral economic reality that will speed up reform efforts and allow the guys on the fence to hop off on our side, not the other side.

Posted by TMLutas at July 14, 2004 07:53 AM