[Editor note: Part I on energy conservationism examined Richard Nixon’s price control order of August 1971 as the birth of peacetime conservationism , with shortages leading to mandatory allocation law.]
A tract for the energy-shortage times was a 1976 essay in Foreign Affairs by Amory Lovins, the 29-year-old energy representative of the U.K. environmental group, Friends of the Earth. In “Energy Strategy: The Road Not Taken?” Lovins coined the term soft energy paths to differentiate energy conservation and decentralized renewable technology from the “hard” path of central-station power plants fueled by oil, gas, coal, or uranium.
Neo-Malthusians such as Paul Ehrlich and John Holdren sang his praises, and the article became the most reprinted piece in the history of Foreign Affairs. Lovins was soon testifying before the U.S. Congress and advising President Carter on the proposition that the least-cost energy option was not to produce energy, but to save it.
Unlike S. David Freeman of the Ford Foundation Energy Project (see post yesterday), Lovins, an Oxford don, specialized in the technical minutiae of energy and wrote, footnoted, and argued his opponents into despair, never mind how hypothesized and obscure his engineering-grounded pontifications were from demonstrated market preferences. Lovins became the most talked about energy guru in the world during the crisis period, with a deceptively simple message that less was more. To critics, however, Lovins was “selling a dream without presenting the bill.”
Lovins held a deep-rooted suspicion—even phobia—about the energy market. “It is hard to think of any current energy technology in extensive use that does not hold the potential for serious long-term environmental risks—risks which may today be wholly unsuspected,” he warned. From this premise came his worldview, later dubbed whole systems thinking, that saw current energy usage—thus production—as a massive market failure. “We must devise a science and a technology of energy impact analysis so that we can make energy a critical variable in all policy decisions, rather than leaving it to emerge de facto from decisions taken on other grounds,” he wrote in 1975. “Boundary conditions on the energy inputs are now needed.” This message was new to the United States energy debate, although the “small is beautiful” theme of E.F. Schumacher was already popular in Europe.
Lovins’s first order of business was to push for a short-term phase-out of nuclear power—a signature issue for Friends of the Earth. Lovins feared that the rapid depletion of oil and gas would segue to super-abundant coal and nuclear—a bad transition and worse long-run lock-in to him. Lovins wanted “transitional technologies that use fossil fuels briefly and sparingly to build a bridge to the energy-income [energy-renewable] economy of 2025.” However wrong this would turn out to be, Lovins would fare better with his second aim: full-scale deployment of conservation technologies to reach a “realistic long-term goal” of “modest, zero, or negative [energy] growth” per unit of output.
Lovins’s technical optimism toward soft energies was missing when it came to conventional technologies. Admitting that the then-higher energy prices were still too low to effectuate his desired transition, he argued that his alternative was theoretically cheaper when social factors and depletionism were factored in. The hard path, Lovins charged, was littered with “subsidized $100-billion bailouts, oligopolies, regulations, nationalization, eminent domain, corporate statism.”
But most of these complaints were about political capitalism, not capitalism proper. To get beyond such political capitalism would have required a completely different framework for energy—free-market capitalism to determine market share for hard and soft energy alike. But that was hardly the soft-energy agenda, which required government mandates. And not even this was enough as shown by Enron’s failed investments in energy efficiency and renewables two decades later.
Lovins was an eloquent conservationist. At a time when pervasive regulation left markets in turmoil, it was Lovins who with diagrams, sound bites, and bushels of footnotes explained why market participants got it wrong and government intervention could get it right. Part of his approach was to calculate the energy savings if today’s embedded assets could be instantaneously transformed to the most energy-efficient technology—an engineering-over-economics approach. (1)
Another part was making Malthusian/Hotelling-like assumptions, such as imputing a higher long-run replacement cost for fossil energies, to compute a “social” cost high enough to make his alternative affordable. The soft energy path was not cheap, Lovins admitted, “only cheaper than not doing it.”
Lovins presented his views in romantic, something-for-everyone packaging. As he told a congressional subcommittee in 1977:
A final feature of the soft energy path that I wish to commend to this committee as politicians is that it helps to avoid conflict between constituencies by offering advantages to all of them; jobs for the unemployed, capital for businesspeople, environmental protection for conservationists, increased national security for the military, opportunities for small business to innovate and for big business to recycle itself, savings for consumers, world order and equity for globalists, energy independence for isolationists, exciting technologies for the secular, a rebirth of spiritual values for the religious, radical reforms for the young, traditional virtues for the old, civil rights for liberals and states’ rights for conservatives.
Many of Amory Lovins’s positions (“we could advantageously be running this country with no central power stations at all,” “we could eliminate oil imports if we would stop living in sieves and stop driving petrol pigs”) put him at odds with virtually every energy economist. His characterization of the hard-energy path—“Strength through Exhaustion”—was recycled Malthusianism. Yet for an era when market forces were disabled and distortions abounded, Lovins had an alluring message. The wider academe, media, and political class welcomed a new approach to energy to correct “market failure.”
A special report in Business Week (1977) captured the spirit of the day:
The idea is rapidly gaining support that conservation may be a cheaper and better—if unfamiliar—way to solve the nation’s energy problem than developing new supplies. And there is a deep-rooted feeling in Washington that if energy conservation is to be effective on the scale that federal planners now believe is essential, it will require demand management on an unprecedented scale.
Energy consumption would flatten out in the next decade as Lovins predicted, but it was hardly natural. It resulted from a wrenching adjustment to government-induced distortions—physical shortages of natural gas and petroleum products, energy price spikes, and, relatedly, economic stagnation for much of 1980–82. Compounded energy growth would rebound toward two percent per annum between 1986 and 2000 with “hard” energy as the workhorse—not the scenario predicted by Lovins and (as described below) Daniel Yergin. (2)
Lovins’s upper-bound prediction of 95 quadrillion British thermal units (quads) of primary energy usage by 2000, however, was only four percent short because of a lost decade of demand growth. His same forecast estimating a continuing drop to 75 quads by 2025 promises to be wildly off the mark—barring massive government intervention and distortion as occurred in the 1970s. (3)
John Holdren Joins In ….
Lovins’s “urgent” hard-to-soft transition had a champion in physicist John Holdren. Holdren founded a multidisciplinary studies program at the University of California, Berkeley, in 1973 to train “the next generation of scientists and professionals who will need to cope with the even more complex environmental and international-relations issues of the future.”
Berkeley’s Energy and Resources Group, which Holdren would co-direct for the next two decades, was praised by Lovins for launching “a soft path study for California in cooperation with many other people and groups,” including the left-moving Resources for the Future. California would become the soft energy laboratory of the U.S. (and world) with a plethora of special subsidies for windpower, solar farms, and utility demand-reduction programs. The result would be the highest power rates in the country, legislative reform to address the problem, and the electricity crisis that Enron would inherit and infamously drive in 2000–2001.
Holdren was at the beginning of a long career as a leading critic of the carbon-based energy economy. By the 1990s, he would emerge as a leading voice of energy alarmism and a revered figure of the left-of-center private foundations and the Clinton/Gore administration (and most recently, as President Obama’s science czar). Ken Lay and Enron would be influenced by his energy views as well, as explained in my forthcoming book, Enron and Ken Lay: An American Tragedy.
(1) Given purchase and installation costs, continued reliance on older assets can be less expensive (more economical) than installing new equipment even if the energy savings from new assets lowers operating costs.
(2) Daniel Yergin’s shifting energy views are discussed in Robert L. Bradley, Jr. Capitalism at Work: Business, Government, and Energy (Salem, MA: Scrivener Press, 2009), pp. 258–60.
(3) In 2007, the U.S. Department of Energy forecast U.S. energy consumption in 2025 at 124 quads, which would be 65 percent above Lovins’s estimate.
NOTE: This post is adopted from Robert L. Bradley, Jr. Capitalism at Work: Business, Government, and Energy, chapter 10. Full citations are available on pp. 396–97.