1 00:00:00,000 --> 00:00:02,520 The following content is provided under a Creative 2 00:00:02,520 --> 00:00:03,970 Commons license. 3 00:00:03,970 --> 00:00:06,360 Your support will help MIT OpenCourseWare 4 00:00:06,360 --> 00:00:10,660 continue to offer high quality educational resources for free. 5 00:00:10,660 --> 00:00:13,350 To make a donation or view additional materials 6 00:00:13,350 --> 00:00:16,575 from hundreds of MIT courses, visit MIT OpenCourseWare 7 00:00:16,575 --> 00:00:17,891 at ocw.mit.edu. 8 00:00:27,040 --> 00:00:28,240 PROFESSOR: Let's start. 9 00:00:28,240 --> 00:00:29,020 What's energy? 10 00:00:32,890 --> 00:00:35,770 This being a Sloan class, we do cold calls. 11 00:00:35,770 --> 00:00:38,380 So I walk up to Eric and I say, how should we 12 00:00:38,380 --> 00:00:41,150 define energy for this class? 13 00:00:41,150 --> 00:00:43,710 AUDIENCE: I would define energy as currency. 14 00:00:43,710 --> 00:00:47,200 I think it's the price [INAUDIBLE].. 15 00:00:47,200 --> 00:00:48,460 PROFESSOR: Currency. 16 00:00:48,460 --> 00:00:52,480 So we should be doing monetary economics, as opposed 17 00:00:52,480 --> 00:00:55,070 to thinking about electric power and stuff. 18 00:00:55,070 --> 00:00:58,390 AUDIENCE: Well, I guess I shared my personal view. 19 00:00:58,390 --> 00:01:03,280 As an engineer, I see energy going 20 00:01:03,280 --> 00:01:06,063 into everything we manufacture. 21 00:01:06,063 --> 00:01:07,480 PROFESSOR: But if it's just money, 22 00:01:07,480 --> 00:01:09,430 then there's nothing special about this class. 23 00:01:09,430 --> 00:01:11,320 We could just do plain old price theory, 24 00:01:11,320 --> 00:01:12,700 or we could just plain old micro, 25 00:01:12,700 --> 00:01:16,120 or we could do plain monetary. 26 00:01:16,120 --> 00:01:20,180 AUDIENCE: Like I can't print infinite amounts of energy. 27 00:01:20,180 --> 00:01:21,080 PROFESSOR: OK. 28 00:01:21,080 --> 00:01:22,550 Let's see if everybody agrees. 29 00:01:22,550 --> 00:01:24,290 Julian, where are you on this? 30 00:01:24,290 --> 00:01:25,850 How would you define energy? 31 00:01:25,850 --> 00:01:27,470 AUDIENCE: The ability to do work. 32 00:01:27,470 --> 00:01:29,390 PROFESSOR: OK. 33 00:01:29,390 --> 00:01:31,760 We're now into basic physics. 34 00:01:31,760 --> 00:01:32,930 Even I remember that. 35 00:01:32,930 --> 00:01:33,770 I am an alumnus. 36 00:01:36,350 --> 00:01:38,650 Perhaps we could be a little less abstract. 37 00:01:38,650 --> 00:01:41,360 What are some interesting examples 38 00:01:41,360 --> 00:01:45,267 that fit under that very broad 801 heading? 39 00:01:45,267 --> 00:01:47,100 AUDIENCE: Oh, under that very broad heading, 40 00:01:47,100 --> 00:01:50,780 I mean, we use energy for a very broad variety of uses, 41 00:01:50,780 --> 00:01:55,560 from keeping the lights on, transportation, manufacturing. 42 00:01:55,560 --> 00:02:00,235 It's really kind of integrated in everything we make or do, 43 00:02:00,235 --> 00:02:04,250 from an economics or engineering standpoint. 44 00:02:04,250 --> 00:02:07,790 It supports all of our communications. 45 00:02:07,790 --> 00:02:11,000 Like without energy, or at least electrical energy, 46 00:02:11,000 --> 00:02:16,160 and petroleum energy, we would really kind of be nowhere. 47 00:02:16,160 --> 00:02:20,030 PROFESSOR: But we'll probably exclude the ability to do work 48 00:02:20,030 --> 00:02:22,940 that you have just personally. 49 00:02:22,940 --> 00:02:26,720 And we'll probably exclude some forms of energy 50 00:02:26,720 --> 00:02:29,300 that don't do useful work. 51 00:02:29,300 --> 00:02:30,920 But what you're saying is there's 52 00:02:30,920 --> 00:02:34,130 a wide variety of sources and a wide variety of uses. 53 00:02:34,130 --> 00:02:35,463 That's true. 54 00:02:35,463 --> 00:02:37,130 But you could probably, as you just did, 55 00:02:37,130 --> 00:02:40,580 name the principal ones. 56 00:02:40,580 --> 00:02:41,840 Let me ask Sam. 57 00:02:41,840 --> 00:02:43,377 Why are you interested in energy? 58 00:02:43,377 --> 00:02:44,960 AUDIENCE: One of the things I'm really 59 00:02:44,960 --> 00:02:47,845 interested in new sources of energy, renewable sources 60 00:02:47,845 --> 00:02:50,380 and moving away from fossil fuels. 61 00:02:50,380 --> 00:02:52,528 That's part of the reason I'm doing [INAUDIBLE].. 62 00:02:52,528 --> 00:02:53,570 PROFESSOR: Step one back. 63 00:02:53,570 --> 00:02:55,310 Why are you interested in that? 64 00:02:55,310 --> 00:02:58,850 AUDIENCE: I think one of the main problems we have right now 65 00:02:58,850 --> 00:03:05,557 with international relations is sources of oil and petroleum. 66 00:03:05,557 --> 00:03:07,640 PROFESSOR: So you're interested in energy security 67 00:03:07,640 --> 00:03:08,990 kinds of questions. 68 00:03:08,990 --> 00:03:09,680 OK. 69 00:03:09,680 --> 00:03:10,365 Yeah. 70 00:03:10,365 --> 00:03:12,740 AUDIENCE: Developing nations that haven't yet [INAUDIBLE] 71 00:03:12,740 --> 00:03:13,700 to their grids. 72 00:03:13,700 --> 00:03:16,486 [INAUDIBLE] newer sources of energy 73 00:03:16,486 --> 00:03:20,647 versus old traditional sources that [INAUDIBLE].. 74 00:03:20,647 --> 00:03:22,730 PROFESSOR: So can you think about some-- can there 75 00:03:22,730 --> 00:03:25,310 be some sort of leapfrogging strategy the way 76 00:03:25,310 --> 00:03:28,280 developing countries have bypassed wireline telephones 77 00:03:28,280 --> 00:03:29,640 and jumped to mobile. 78 00:03:29,640 --> 00:03:32,785 Is there something like that in energy? 79 00:03:32,785 --> 00:03:34,910 Yeah, we're going to do less on developed countries 80 00:03:34,910 --> 00:03:35,450 than I'd like. 81 00:03:35,450 --> 00:03:36,908 But we will do some, because that's 82 00:03:36,908 --> 00:03:38,570 a very interesting question. 83 00:03:38,570 --> 00:03:39,320 OK. 84 00:03:39,320 --> 00:03:42,200 A variety of interests. 85 00:03:42,200 --> 00:03:47,550 We had a couple of definitions of the energy problem. 86 00:03:47,550 --> 00:03:50,930 I'm sorry for the US focus, but we will broaden. 87 00:03:50,930 --> 00:03:54,230 We had a couple of definitions of energy problem 88 00:03:54,230 --> 00:03:56,720 in those answers. 89 00:03:56,720 --> 00:03:59,750 One has to do with the possibility of running out. 90 00:03:59,750 --> 00:04:01,100 Sustainability. 91 00:04:01,100 --> 00:04:05,327 Another has to do with environment. 92 00:04:05,327 --> 00:04:07,410 Are there any other aspects to the energy problem? 93 00:04:07,410 --> 00:04:09,980 And energy security, international dependence. 94 00:04:09,980 --> 00:04:13,980 Are there any other aspects to the energy problem? 95 00:04:13,980 --> 00:04:15,487 That people have thought about. 96 00:04:15,487 --> 00:04:17,070 I mean, if there is an energy problem. 97 00:04:17,070 --> 00:04:19,600 You hear about it all the time. 98 00:04:19,600 --> 00:04:21,220 Is there anything else? 99 00:04:21,220 --> 00:04:22,330 Sarah? 100 00:04:22,330 --> 00:04:24,080 AUDIENCE: Cost and market efficiency. 101 00:04:24,080 --> 00:04:25,580 Because when you don't have storage, 102 00:04:25,580 --> 00:04:27,790 you have things like wind power that 103 00:04:27,790 --> 00:04:29,990 can cause a lot of problems in the market. 104 00:04:29,990 --> 00:04:33,920 PROFESSOR: So there are two things there. 105 00:04:33,920 --> 00:04:37,010 One is even if we don't run out, it might get really expensive. 106 00:04:37,010 --> 00:04:39,430 So it's not a question of, oh my God, 107 00:04:39,430 --> 00:04:40,780 this is the last drop of oil. 108 00:04:40,780 --> 00:04:44,170 It's, oh my God, this drop of oil is $7,000. 109 00:04:44,170 --> 00:04:45,820 That's a different kind of problem. 110 00:04:45,820 --> 00:04:48,340 Economists like the second part. 111 00:04:48,340 --> 00:04:50,320 Or think that the world tends to get you 112 00:04:50,320 --> 00:04:53,620 to the second kind, not the last drop, but the expensive drop. 113 00:04:53,620 --> 00:04:55,540 And then the issue of how do you actually 114 00:04:55,540 --> 00:04:58,000 do renewables when renewables don't 115 00:04:58,000 --> 00:05:00,080 work like dispatchable power? 116 00:05:00,080 --> 00:05:00,580 OK. 117 00:05:00,580 --> 00:05:02,080 Those are energy problems. 118 00:05:05,710 --> 00:05:09,070 Why haven't they been solved? 119 00:05:09,070 --> 00:05:09,820 Yeah. 120 00:05:09,820 --> 00:05:11,950 That was-- either you're waving for flies, 121 00:05:11,950 --> 00:05:13,940 or you're ready to go. 122 00:05:13,940 --> 00:05:16,930 AUDIENCE: So one of the problems, like [INAUDIBLE],, 123 00:05:16,930 --> 00:05:20,110 people tend to focus usually just on the supply side. 124 00:05:20,110 --> 00:05:22,540 But it's actually kind of both supply and demand. 125 00:05:22,540 --> 00:05:24,560 And the US has one of the highest demand 126 00:05:24,560 --> 00:05:27,160 for energy in the entire world. 127 00:05:27,160 --> 00:05:30,910 So the country used to be a major oil exporter, 128 00:05:30,910 --> 00:05:32,350 prior to World War II. 129 00:05:32,350 --> 00:05:35,030 And now really one of the major oil importers. 130 00:05:35,030 --> 00:05:36,430 So a big problem is it's actually 131 00:05:36,430 --> 00:05:41,650 the mentality of the consumers in the US, excessive spending, 132 00:05:41,650 --> 00:05:42,910 so on and so forth. 133 00:05:42,910 --> 00:05:45,250 PROFESSOR: Well, apart from being terrible people, 134 00:05:45,250 --> 00:05:47,710 which I give you. 135 00:05:47,710 --> 00:05:51,830 I mean, there are a lot of, you know, 136 00:05:51,830 --> 00:05:56,150 it costs us money to import all this oil. 137 00:05:56,150 --> 00:05:57,070 It's expensive. 138 00:05:57,070 --> 00:05:58,000 The price varies. 139 00:05:58,000 --> 00:06:01,190 I'll talk about that a little bit. 140 00:06:01,190 --> 00:06:03,700 Why is this not a problem that the markets-- 141 00:06:03,700 --> 00:06:05,458 why aren't some of these problems problems 142 00:06:05,458 --> 00:06:06,250 that markets solve? 143 00:06:09,100 --> 00:06:11,590 AUDIENCE: I think that there are huge barriers to entry, 144 00:06:11,590 --> 00:06:14,583 because the cost of laying down the infrastructure. 145 00:06:14,583 --> 00:06:16,750 You talk about the power distribution infrastructure 146 00:06:16,750 --> 00:06:20,230 is immense, and it's something that I 147 00:06:20,230 --> 00:06:24,880 think only entities such as the government can afford, 148 00:06:24,880 --> 00:06:27,790 because I don't think that the private sector would 149 00:06:27,790 --> 00:06:31,113 be capable of funding such a huge research endeavor. 150 00:06:31,113 --> 00:06:32,530 PROFESSOR: Well, except almost all 151 00:06:32,530 --> 00:06:35,200 the US power grid is privately funded and privately owned. 152 00:06:35,200 --> 00:06:36,050 Not all of it. 153 00:06:36,050 --> 00:06:37,460 But most of it. 154 00:06:37,460 --> 00:06:39,190 So we built it before. 155 00:06:39,190 --> 00:06:40,848 But you have a point. 156 00:06:40,848 --> 00:06:43,390 Where I would go with that, and I'll spend some time on this, 157 00:06:43,390 --> 00:06:48,460 is things move slowly in energy, because of all the capital. 158 00:06:48,460 --> 00:06:51,820 Doesn't mean they don't move, but they move slowly. 159 00:06:51,820 --> 00:06:55,870 In one presentation, we use the analogy of turning a tanker. 160 00:06:55,870 --> 00:06:57,190 You can do it. 161 00:06:57,190 --> 00:06:58,690 It's not easy, and it takes a while. 162 00:06:58,690 --> 00:07:00,000 Jackie, you had a thought. 163 00:07:00,000 --> 00:07:02,935 AUDIENCE: I think there's a lack of consensus as to what 164 00:07:02,935 --> 00:07:05,830 should be done, because there's such a wide variety of opinions 165 00:07:05,830 --> 00:07:10,360 and interests at state, political, economic, social 166 00:07:10,360 --> 00:07:13,510 that there's no way to-- or there hasn't been a way so far 167 00:07:13,510 --> 00:07:15,080 to agree on something. 168 00:07:15,080 --> 00:07:16,330 PROFESSOR: So we could maybe-- 169 00:07:16,330 --> 00:07:18,220 two alternative ways which we heard a lot 170 00:07:18,220 --> 00:07:21,970 about in the recent past to deal with the oil use problem 171 00:07:21,970 --> 00:07:25,840 is drill baby drill, or conservation. 172 00:07:25,840 --> 00:07:29,410 And you could imagine a world in which you would do both, 173 00:07:29,410 --> 00:07:30,940 but you're right. 174 00:07:30,940 --> 00:07:34,870 There's no particular consensus. 175 00:07:34,870 --> 00:07:36,640 Does there need to be a consensus, though? 176 00:07:36,640 --> 00:07:37,840 Think about food. 177 00:07:37,840 --> 00:07:39,760 There's no consensus on food. 178 00:07:39,760 --> 00:07:41,560 We don't have a food problem. 179 00:07:41,560 --> 00:07:43,270 But we eat a lot. 180 00:07:43,270 --> 00:07:47,180 And you know, we're leading the obesity epidemic. 181 00:07:47,180 --> 00:07:49,660 I'm doing my part. 182 00:07:49,660 --> 00:07:52,690 But we don't have a national food policy. 183 00:07:52,690 --> 00:07:54,710 I mean, we have a farm policy. 184 00:07:54,710 --> 00:07:57,080 But it's been in place for a long time. 185 00:07:57,080 --> 00:07:59,270 It doesn't actually do that much. 186 00:07:59,270 --> 00:08:00,850 So why do we need an energy policy? 187 00:08:00,850 --> 00:08:02,350 AUDIENCE: I think at the point where 188 00:08:02,350 --> 00:08:07,000 we are in the energy problem requires some major steps that 189 00:08:07,000 --> 00:08:09,100 means government won't necessarily-- government 190 00:08:09,100 --> 00:08:11,505 or large businesses, or some kind of large entity 191 00:08:11,505 --> 00:08:13,930 will have to be involved in that. 192 00:08:13,930 --> 00:08:18,070 PROFESSOR: OK, you're worried about scale questions. 193 00:08:18,070 --> 00:08:20,600 Since you posed the question, you can answer the question. 194 00:08:20,600 --> 00:08:22,850 AUDIENCE: I think it's not necessarily of corporations 195 00:08:22,850 --> 00:08:25,270 not having money to invest in energy projects. 196 00:08:25,270 --> 00:08:26,950 That's not really true. 197 00:08:26,950 --> 00:08:31,270 But the government is necessary because most 198 00:08:31,270 --> 00:08:34,990 of the very, very major energy problems, the energy projects 199 00:08:34,990 --> 00:08:37,299 will involve an investment timeline that will 200 00:08:37,299 --> 00:08:40,240 take 20, 30 years to play back. 201 00:08:40,240 --> 00:08:42,340 So as people who run a corporation, 202 00:08:42,340 --> 00:08:45,180 I mean, they don't have personal interest necessarily 203 00:08:45,180 --> 00:08:47,260 [INAUDIBLE],, because the timeline 204 00:08:47,260 --> 00:08:49,880 that they're going to be in that corporation is so limited. 205 00:08:49,880 --> 00:08:53,645 So a big part of it is just the structure of corporations 206 00:08:53,645 --> 00:08:55,520 doesn't really favor that sort of investment. 207 00:08:55,520 --> 00:08:58,690 So the government needs to step back and think about long term 208 00:08:58,690 --> 00:08:59,620 interests. 209 00:08:59,620 --> 00:09:01,660 PROFESSOR: But we did build the existing power 210 00:09:01,660 --> 00:09:04,330 grid and all of the existing infrastructure 211 00:09:04,330 --> 00:09:06,310 with private money. 212 00:09:06,310 --> 00:09:08,740 So what's new now? 213 00:09:08,740 --> 00:09:10,150 AUDIENCE: Well, I think back then 214 00:09:10,150 --> 00:09:13,930 also like corporations tend to be run 215 00:09:13,930 --> 00:09:15,980 much more by large families. 216 00:09:15,980 --> 00:09:18,010 So in that case, people did have an interest 217 00:09:18,010 --> 00:09:20,575 in how companies were performing over the long run, 218 00:09:20,575 --> 00:09:22,450 because they're think about my kids are going 219 00:09:22,450 --> 00:09:23,800 to take over this company. 220 00:09:23,800 --> 00:09:25,180 And I think about how-- 221 00:09:25,180 --> 00:09:26,800 I mean, like a big part of how-- 222 00:09:26,800 --> 00:09:29,240 PROFESSOR: Well, I give you that possibility. 223 00:09:29,240 --> 00:09:31,630 But in electric power, it wasn't true. 224 00:09:31,630 --> 00:09:33,583 Thomas Edison set up the first company. 225 00:09:33,583 --> 00:09:34,750 It was not a family company. 226 00:09:34,750 --> 00:09:36,550 So electric power doesn't fit it. 227 00:09:36,550 --> 00:09:38,890 Let me try another line. 228 00:09:38,890 --> 00:09:39,928 See what Andrea says. 229 00:09:39,928 --> 00:09:41,470 AUDIENCE: I was going to mention also 230 00:09:41,470 --> 00:09:44,860 that one issue with electricity, for example, is that once it's 231 00:09:44,860 --> 00:09:47,200 in the grid, you have no idea. 232 00:09:47,200 --> 00:09:49,450 You can differentiate whether it comes 233 00:09:49,450 --> 00:09:52,460 from coal or from nuclear or whatever source. 234 00:09:52,460 --> 00:09:56,140 So that's an issue in pricing, which may cause issue-- 235 00:09:56,140 --> 00:09:59,890 which may cause people not to take initiative 236 00:09:59,890 --> 00:10:03,040 from different sources to solve a common problem, which 237 00:10:03,040 --> 00:10:05,230 could be the grid, or maybe something else. 238 00:10:05,230 --> 00:10:07,640 And another thing is that, which is also true, 239 00:10:07,640 --> 00:10:10,450 though, with food, so I got kind of perplexed with that, 240 00:10:10,450 --> 00:10:14,290 is that it's an international issue that 241 00:10:14,290 --> 00:10:16,690 may involve many players. 242 00:10:16,690 --> 00:10:21,280 So it's hard to have different countries agree 243 00:10:21,280 --> 00:10:23,290 upon certain standards. 244 00:10:23,290 --> 00:10:24,970 As we've talked a lot, we've heard a lot 245 00:10:24,970 --> 00:10:27,760 about developing countries versus developed and all that. 246 00:10:27,760 --> 00:10:29,250 PROFESSOR: So we're going-- 247 00:10:29,250 --> 00:10:31,000 let me pursue that a little bit, because I 248 00:10:31,000 --> 00:10:33,950 think it takes us down the road I've been hoping to go down, 249 00:10:33,950 --> 00:10:38,190 which is why do we all need to agree? 250 00:10:38,190 --> 00:10:40,830 We don't all have common food standards. 251 00:10:40,830 --> 00:10:43,950 We don't all have agreement on a lot of things. 252 00:10:43,950 --> 00:10:47,910 Why are many countries involved? 253 00:10:47,910 --> 00:10:51,630 Why might Canada and the US need to agree on certain things 254 00:10:51,630 --> 00:10:53,160 related to energy? 255 00:10:53,160 --> 00:10:55,290 AUDIENCE: Because, I mean, some issues 256 00:10:55,290 --> 00:10:57,530 that are coming to my mind right now 257 00:10:57,530 --> 00:11:00,630 are, firstly, that you have the allocation 258 00:11:00,630 --> 00:11:04,680 of the sources of energy are given in the world. 259 00:11:04,680 --> 00:11:08,157 So you may have a region of abundance in some resource, 260 00:11:08,157 --> 00:11:10,740 and not abundance in some other resources, so you need to have 261 00:11:10,740 --> 00:11:12,030 [INAUDIBLE]. 262 00:11:12,030 --> 00:11:15,270 And the source where you have them, as opposed to the source 263 00:11:15,270 --> 00:11:17,230 where you use them might not be the same. 264 00:11:17,230 --> 00:11:20,580 So then, again, you may have to [INAUDIBLE] in those two 265 00:11:20,580 --> 00:11:21,120 countries. 266 00:11:21,120 --> 00:11:24,690 Plus what you do here may affect-- so if I pollute here, 267 00:11:24,690 --> 00:11:27,180 it affects what goes on in Canada. 268 00:11:27,180 --> 00:11:30,060 PROFESSOR: I heard the magic word. 269 00:11:30,060 --> 00:11:32,970 If we pollute here, it affects Canada. 270 00:11:32,970 --> 00:11:41,270 If we burn coal in Ohio, it affects people around the power 271 00:11:41,270 --> 00:11:43,310 plant, elsewhere. 272 00:11:43,310 --> 00:11:45,110 We talked about pollution. 273 00:11:45,110 --> 00:11:48,050 An awful lot of energy policy is driven 274 00:11:48,050 --> 00:11:50,280 by environmental concerns. 275 00:11:50,280 --> 00:11:52,460 You will recall from basic economics 276 00:11:52,460 --> 00:11:59,330 the notion of an externality, that activity A done by-- 277 00:11:59,330 --> 00:12:03,710 entity A effect's entity B outside the market. 278 00:12:03,710 --> 00:12:07,700 Climate change, local pollution of various kinds 279 00:12:07,700 --> 00:12:10,250 drives a lot of energy policy, which is one reason why 280 00:12:10,250 --> 00:12:11,930 people talk about renewables. 281 00:12:11,930 --> 00:12:15,470 Climate change is that issue writ large, very large, 282 00:12:15,470 --> 00:12:17,030 and we'll come back to that. 283 00:12:17,030 --> 00:12:19,310 The other way that concept works is if you 284 00:12:19,310 --> 00:12:21,500 think about energy security. 285 00:12:21,500 --> 00:12:22,850 So I don't have an SUV. 286 00:12:22,850 --> 00:12:25,940 But if I had an SUV, I could drive my SUV, 287 00:12:25,940 --> 00:12:27,200 burn all the gas I wanted. 288 00:12:27,200 --> 00:12:28,790 I would contribute to oil imports. 289 00:12:28,790 --> 00:12:31,160 But guess what-- and that would make 290 00:12:31,160 --> 00:12:32,900 us less secure as a country. 291 00:12:32,900 --> 00:12:37,410 But the effective on me of that insecurity is trivial. 292 00:12:37,410 --> 00:12:39,640 There's an externality there, it's argued. 293 00:12:39,640 --> 00:12:43,110 If you think about oil imports as being undesirable, 294 00:12:43,110 --> 00:12:46,250 when I drive, it affects imports. 295 00:12:46,250 --> 00:12:47,270 Doesn't affect me. 296 00:12:47,270 --> 00:12:48,950 Affects everybody else in the room 297 00:12:48,950 --> 00:12:53,120 because they live in a country that imports more oil. 298 00:12:53,120 --> 00:12:57,170 So the arguments for a lot of this stuff is externalities. 299 00:12:57,170 --> 00:12:58,980 That we're going to spend some time on it. 300 00:12:58,980 --> 00:13:02,000 But the reason private-- the basic reason private business 301 00:13:02,000 --> 00:13:03,732 hasn't solved all of it-- 302 00:13:03,732 --> 00:13:04,940 there are other problems too. 303 00:13:04,940 --> 00:13:10,070 But some of the core problems are because the market doesn't 304 00:13:10,070 --> 00:13:11,300 deal with externalities. 305 00:13:11,300 --> 00:13:13,520 That's sort of a definition. 306 00:13:13,520 --> 00:13:14,990 Market doesn't solve pollution. 307 00:13:14,990 --> 00:13:19,520 Market doesn't solve other kinds of externalities. 308 00:13:19,520 --> 00:13:21,200 If you listen to the State of the Union, 309 00:13:21,200 --> 00:13:22,492 I'm sure you found it riveting. 310 00:13:24,890 --> 00:13:27,920 The president called, as he had in prior speeches, 311 00:13:27,920 --> 00:13:31,430 for a clean energy standard. 312 00:13:31,430 --> 00:13:33,980 And the way he had done it earlier 313 00:13:33,980 --> 00:13:36,890 was x percent of electricity has to come from clean sources 314 00:13:36,890 --> 00:13:39,830 by 2020 or 2030. 315 00:13:39,830 --> 00:13:43,380 Probably not a chance that Congress will pass that. 316 00:13:43,380 --> 00:13:46,100 But the interesting question is what might you mean by clean? 317 00:13:46,100 --> 00:13:50,270 And that's the only phrase he used in the speech. 318 00:13:50,270 --> 00:13:53,330 What do you think he meant by clean? 319 00:13:53,330 --> 00:13:55,920 Think about all the ways you can generate electricity. 320 00:13:55,920 --> 00:13:57,390 Which sources count as clean? 321 00:13:57,390 --> 00:13:58,085 Yeah? 322 00:13:58,085 --> 00:14:00,720 AUDIENCE: [INAUDIBLE] definition he means nuclear as clean. 323 00:14:00,720 --> 00:14:04,190 Not necessarily renewable, but clean coal cycle, 324 00:14:04,190 --> 00:14:06,530 and I guess more for the environmental pollution. 325 00:14:06,530 --> 00:14:08,787 Not necessarily the infrastructure that-- 326 00:14:08,787 --> 00:14:10,370 PROFESSOR: No, he means environmental. 327 00:14:10,370 --> 00:14:12,170 Exactly right. 328 00:14:12,170 --> 00:14:14,670 Not clear he means nuclear. 329 00:14:14,670 --> 00:14:17,190 A lot of people don't think nuclear is clean. 330 00:14:17,190 --> 00:14:19,860 But renewables are clean. 331 00:14:19,860 --> 00:14:20,838 Any other thoughts? 332 00:14:20,838 --> 00:14:21,630 I don't know what-- 333 00:14:21,630 --> 00:14:23,350 I forget whether he meant renewable. 334 00:14:23,350 --> 00:14:23,850 Yeah. 335 00:14:23,850 --> 00:14:25,308 AUDIENCE: [INAUDIBLE] that when you 336 00:14:25,308 --> 00:14:27,660 don't release more CO2 in the atmosphere, and then 337 00:14:27,660 --> 00:14:30,230 [INAUDIBLE]. 338 00:14:30,230 --> 00:14:33,420 PROFESSOR: What would that be? 339 00:14:33,420 --> 00:14:34,350 AUDIENCE: Solar power. 340 00:14:34,350 --> 00:14:35,580 PROFESSOR: Solar power. 341 00:14:35,580 --> 00:14:36,720 Renewables in general. 342 00:14:36,720 --> 00:14:41,170 Yeah, I mean biomass properly done can do that. 343 00:14:41,170 --> 00:14:42,160 It's a little tricky. 344 00:14:42,160 --> 00:14:43,830 There's a little start-up problem. 345 00:14:43,830 --> 00:14:46,470 I mean, you cut down all the trees and burn them. 346 00:14:46,470 --> 00:14:48,600 On its face, it's not a great thing to do. 347 00:14:48,600 --> 00:14:50,100 But if you're planting, you can keep 348 00:14:50,100 --> 00:14:54,060 that sustainable after a while. 349 00:14:54,060 --> 00:14:58,500 He actually also meant some uses of natural gas, 350 00:14:58,500 --> 00:14:59,420 which get half credit. 351 00:15:02,240 --> 00:15:04,402 It's kind of complicated. 352 00:15:04,402 --> 00:15:06,860 So it's going to be raise or lower the price of electricity 353 00:15:06,860 --> 00:15:07,402 if we did it? 354 00:15:11,228 --> 00:15:12,270 AUDIENCE: Probably raise. 355 00:15:12,270 --> 00:15:13,980 PROFESSOR: Probably raise. 356 00:15:13,980 --> 00:15:15,840 Because if it was going to lower it, 357 00:15:15,840 --> 00:15:18,300 you probably wouldn't need a federal push to get it done, 358 00:15:18,300 --> 00:15:19,290 right? 359 00:15:19,290 --> 00:15:20,850 That the market can deal with. 360 00:15:23,730 --> 00:15:26,040 And I'm not quite sure why I asked that question, 361 00:15:26,040 --> 00:15:29,940 because the obvious answer is legislation. 362 00:15:29,940 --> 00:15:33,030 So we've fiddled and diddled with a lot of these questions. 363 00:15:33,030 --> 00:15:37,320 And I want to answer that question myself, 364 00:15:37,320 --> 00:15:39,240 because the question is, why is there 365 00:15:39,240 --> 00:15:43,230 a social science class in the energy studies minor? 366 00:15:43,230 --> 00:15:45,720 What in heaven's name does social science 367 00:15:45,720 --> 00:15:50,040 have to do with what's clean, what are the reasons why 368 00:15:50,040 --> 00:15:53,870 we have an energy problem, what are our concerns, 369 00:15:53,870 --> 00:15:57,710 whether you achieve that goal or not. 370 00:15:57,710 --> 00:16:03,280 I'm going to give you sort of how those of us who thought up 371 00:16:03,280 --> 00:16:05,950 this course think about the energy system 372 00:16:05,950 --> 00:16:08,170 from a social science point of view. 373 00:16:08,170 --> 00:16:11,650 This may be my best graphic ever. 374 00:16:11,650 --> 00:16:15,610 So most of what we talk about when we talk about energy 375 00:16:15,610 --> 00:16:19,030 are flows from things like coal through, say, 376 00:16:19,030 --> 00:16:21,850 electricity generation, into the provision 377 00:16:21,850 --> 00:16:26,050 of energy services like toasting your toast in the morning. 378 00:16:26,050 --> 00:16:30,730 And an awful lot of technology is in here is there 379 00:16:30,730 --> 00:16:33,460 and how do you get primary energy from the sun, 380 00:16:33,460 --> 00:16:36,700 from coal, from nuclear power, whatever, how do you convert it 381 00:16:36,700 --> 00:16:39,130 to something useful, and then how 382 00:16:39,130 --> 00:16:40,720 do you get services from it. 383 00:16:40,720 --> 00:16:43,000 And that's great stuff. 384 00:16:43,000 --> 00:16:46,630 I'll have something to say about what's in that box. 385 00:16:46,630 --> 00:16:49,930 But that's not mainly just to get systems straight, 386 00:16:49,930 --> 00:16:52,400 as opposed to devices. 387 00:16:52,400 --> 00:16:55,640 That's not mainly what we're going to talk about. 388 00:16:55,640 --> 00:17:00,140 We're going to talk about what drives the flows. 389 00:17:00,140 --> 00:17:04,060 Well, there's a supply side. 390 00:17:04,060 --> 00:17:05,410 You find energy. 391 00:17:05,410 --> 00:17:06,520 You convert it. 392 00:17:06,520 --> 00:17:08,000 Some of that's done by government. 393 00:17:08,000 --> 00:17:10,480 Some of it's done by private enterprises. 394 00:17:10,480 --> 00:17:12,670 There's a demand for energy services, 395 00:17:12,670 --> 00:17:13,810 mainly not for energy. 396 00:17:13,810 --> 00:17:14,920 Where does that come from? 397 00:17:14,920 --> 00:17:16,430 How are those decisions made? 398 00:17:16,430 --> 00:17:18,530 How are the supply decisions made? 399 00:17:18,530 --> 00:17:22,329 So if you think about devices and systems in here, 400 00:17:22,329 --> 00:17:25,030 what are in the higher boxes are the decisions 401 00:17:25,030 --> 00:17:29,650 about how they're operated, how intensively they're used. 402 00:17:29,650 --> 00:17:31,840 Supply and demand interact-- 403 00:17:31,840 --> 00:17:33,550 too many arrows-- supply and demand 404 00:17:33,550 --> 00:17:35,530 interact through markets. 405 00:17:35,530 --> 00:17:38,140 The markets, as well as the decisions on both sides, 406 00:17:38,140 --> 00:17:42,640 affect what's in that technology box and how it's used. 407 00:17:42,640 --> 00:17:46,800 Stepping back, there are a whole lot 408 00:17:46,800 --> 00:17:50,730 of things that I think of as stocks. 409 00:17:50,730 --> 00:17:55,230 Things like reserves of oil, existing buildings, 410 00:17:55,230 --> 00:18:00,930 infrastructure, cars, you could add technologies, that underlie 411 00:18:00,930 --> 00:18:02,205 the operation of the system. 412 00:18:05,110 --> 00:18:07,110 And that's the underlay the operation. 413 00:18:07,110 --> 00:18:11,460 They too are shaped by decisions on the supply and demand side. 414 00:18:11,460 --> 00:18:15,780 How much gasoline you use is shaped by today's technology. 415 00:18:15,780 --> 00:18:19,860 It's also shaped by past purchasing decisions of cars. 416 00:18:19,860 --> 00:18:21,900 How much do we use to heat buildings 417 00:18:21,900 --> 00:18:26,310 is shaped by the latest fancy technology, 418 00:18:26,310 --> 00:18:29,560 and the buildings that were built a half a century ago. 419 00:18:29,560 --> 00:18:32,590 And what retrofit possibilities there are. 420 00:18:32,590 --> 00:18:33,622 But that's fun. 421 00:18:33,622 --> 00:18:35,080 So we're going to look at decisions 422 00:18:35,080 --> 00:18:37,520 on the supply and demand side. 423 00:18:37,520 --> 00:18:43,830 But those decisions are affected by regulation. 424 00:18:43,830 --> 00:18:47,340 And the markets are affected by regulations and laws 425 00:18:47,340 --> 00:18:49,590 of various kinds. 426 00:18:49,590 --> 00:18:57,680 Now, there's a natural tendency to take those as given. 427 00:18:57,680 --> 00:19:01,040 To say, OK, what I need to know to operate in this world is, 428 00:19:01,040 --> 00:19:03,140 well, what are the laws and regulations 429 00:19:03,140 --> 00:19:08,410 that affect what we can do in the energy sphere? 430 00:19:08,410 --> 00:19:11,960 But if you want to change things, 431 00:19:11,960 --> 00:19:15,210 and I heard a number of you wanting to change things, 432 00:19:15,210 --> 00:19:19,310 that's not good enough, because what 433 00:19:19,310 --> 00:19:22,190 goes on in laws and regulations affects 434 00:19:22,190 --> 00:19:26,000 what gets done down here, what's used to do what? 435 00:19:26,000 --> 00:19:28,790 To produce, to convert, to use. 436 00:19:28,790 --> 00:19:32,000 And affects the kinds of decisions 437 00:19:32,000 --> 00:19:35,520 that households, firms, other kinds of organizations, 438 00:19:35,520 --> 00:19:37,050 universities make. 439 00:19:37,050 --> 00:19:40,230 So we're going to spend a little time saying, 440 00:19:40,230 --> 00:19:41,750 where do those come from? 441 00:19:41,750 --> 00:19:43,730 What's the political process look like? 442 00:19:46,490 --> 00:19:48,920 Those political processes are shaped, obviously, 443 00:19:48,920 --> 00:19:53,780 by firms and households and other organizations. 444 00:19:53,780 --> 00:19:58,510 I will also say, we will-- 445 00:19:58,510 --> 00:20:01,240 so there's a little political science there. 446 00:20:01,240 --> 00:20:05,990 There will also be a little bit of organizational behavior here 447 00:20:05,990 --> 00:20:08,330 and a little bit of psychology there, 448 00:20:08,330 --> 00:20:13,070 when we look at how these decisions actually get made. 449 00:20:13,070 --> 00:20:20,580 So behind everything are a set of norms and values 450 00:20:20,580 --> 00:20:26,050 and traditions that really shape the political context. 451 00:20:26,050 --> 00:20:31,152 You listen to any campaign speech, you hear a lot of that. 452 00:20:31,152 --> 00:20:32,860 You don't necessarily hear a lot of-- you 453 00:20:32,860 --> 00:20:35,120 hear a lot of that, and then some specific policy. 454 00:20:35,120 --> 00:20:37,090 But you hear a lot of that. 455 00:20:37,090 --> 00:20:38,950 And that's important. 456 00:20:38,950 --> 00:20:40,900 And campaign speeches in different countries 457 00:20:40,900 --> 00:20:45,040 say different things when they sound themes about traditions 458 00:20:45,040 --> 00:20:47,450 and values and norms. 459 00:20:47,450 --> 00:20:50,710 But the political process operates within them. 460 00:20:50,710 --> 00:20:53,000 We'll talk about that. 461 00:20:53,000 --> 00:21:00,180 So we want to talk about not only sort of how systems work 462 00:21:00,180 --> 00:21:03,940 and how supply and demand interact in the energy space, 463 00:21:03,940 --> 00:21:08,400 but in fact, how that whole structure is shaped 464 00:21:08,400 --> 00:21:12,180 by, if you will, a higher order more fundamental-- 465 00:21:12,180 --> 00:21:15,450 the higher order in the chart processes 466 00:21:15,450 --> 00:21:19,020 in the political sphere, in the social sphere. 467 00:21:19,020 --> 00:21:23,700 So the reason why we're doing social science 468 00:21:23,700 --> 00:21:28,260 is the system involves people. 469 00:21:28,260 --> 00:21:33,460 And social science, economics, political science, sociology, 470 00:21:33,460 --> 00:21:36,480 anthropology, social psychology, things 471 00:21:36,480 --> 00:21:39,270 I've read about at least, these are 472 00:21:39,270 --> 00:21:44,250 all ways of looking at systems that involve people. 473 00:21:44,250 --> 00:21:48,060 And if you want to change a system that involves people, 474 00:21:48,060 --> 00:21:50,580 you need to think about the kinds of things 475 00:21:50,580 --> 00:21:52,930 we're going to talk about here. 476 00:21:52,930 --> 00:21:56,890 So we're going to try to give you some basic understanding, 477 00:21:56,890 --> 00:22:01,080 or at least some sensitivity to the tools that come out 478 00:22:01,080 --> 00:22:03,480 of the social sciences that can help 479 00:22:03,480 --> 00:22:06,600 you understand, and with some luck, 480 00:22:06,600 --> 00:22:10,160 can help you drive change. 481 00:22:10,160 --> 00:22:13,400 This is not a prediction or a course 482 00:22:13,400 --> 00:22:16,910 where we talk about the future will look like x. 483 00:22:16,910 --> 00:22:19,340 That's for you guys to decide. 484 00:22:19,340 --> 00:22:24,440 This is a course where we try to help you shape the future. 485 00:22:24,440 --> 00:22:27,980 The annual energy review comes out of the Energy Information 486 00:22:27,980 --> 00:22:28,880 Agency. 487 00:22:28,880 --> 00:22:31,610 It says AER 2010. 488 00:22:31,610 --> 00:22:36,590 It's published in 2011, the latest data, or 2010. 489 00:22:36,590 --> 00:22:39,410 This is energy consumption per person in the United States 490 00:22:39,410 --> 00:22:41,310 over time. 491 00:22:41,310 --> 00:22:48,590 You will notice that it sort of peaks in the '70s someplace, 492 00:22:48,590 --> 00:22:51,120 and is flat. 493 00:22:51,120 --> 00:22:54,122 Now, if you think about how the cars we drive, 494 00:22:54,122 --> 00:22:55,830 compare it-- well, you may not know this, 495 00:22:55,830 --> 00:22:59,090 but how the cars we drive compared to the cars folks 496 00:22:59,090 --> 00:23:01,070 drove in the '70s, they are bigger, 497 00:23:01,070 --> 00:23:02,960 and have a lot more horsepower. 498 00:23:02,960 --> 00:23:04,760 And what our homes look like compared 499 00:23:04,760 --> 00:23:08,150 to homes built in the '70s is they are bigger, 500 00:23:08,150 --> 00:23:10,940 and they tend to be centrally air conditioned. 501 00:23:10,940 --> 00:23:13,860 If you think about computer use and appliance use, 502 00:23:13,860 --> 00:23:16,640 there's a lot more of it. 503 00:23:16,640 --> 00:23:20,900 But energy consumption per capita is flat. 504 00:23:20,900 --> 00:23:22,880 I'll show you energy per dollar of GDP, 505 00:23:22,880 --> 00:23:24,800 but you might expect it to be declining. 506 00:23:24,800 --> 00:23:30,190 And what that tells you is first of all, there is efficiency. 507 00:23:30,190 --> 00:23:32,260 And second of all, if you think for a minute, 508 00:23:32,260 --> 00:23:37,690 maybe we're doing different things than we did in the '70s. 509 00:23:37,690 --> 00:23:41,270 Like less manufacturing. 510 00:23:41,270 --> 00:23:44,260 Another graph, I love this graph. 511 00:23:44,260 --> 00:23:47,170 Impossible to read, I expect, from the back. 512 00:23:47,170 --> 00:23:51,310 But this is energy consumption per person across the States. 513 00:23:51,310 --> 00:23:57,730 And there, on the virtuous right end is Massachusetts. 514 00:23:57,730 --> 00:24:00,100 How about that, we are good folks. 515 00:24:00,100 --> 00:24:03,230 Is there anybody here from Wyoming? 516 00:24:03,230 --> 00:24:03,730 Anybody? 517 00:24:03,730 --> 00:24:04,600 Nobody from Wyoming? 518 00:24:04,600 --> 00:24:07,840 No one will admit to being from Wyoming? 519 00:24:07,840 --> 00:24:08,440 All right. 520 00:24:08,440 --> 00:24:10,630 I'm betting against Alaska. 521 00:24:10,630 --> 00:24:12,460 How about Louisiana? 522 00:24:12,460 --> 00:24:14,530 North Dakota. 523 00:24:14,530 --> 00:24:16,900 Working from the left in. 524 00:24:16,900 --> 00:24:18,610 IA is Iowa, yes? 525 00:24:18,610 --> 00:24:19,480 Iowa. 526 00:24:19,480 --> 00:24:22,480 Anybody from-- surely somebody is from Iowa. 527 00:24:22,480 --> 00:24:24,280 OK, we have no Midwesterners here. 528 00:24:24,280 --> 00:24:26,900 How about Texas, South Dakota, or Kentucky? 529 00:24:26,900 --> 00:24:29,440 Ah, we have the Texas delegation? 530 00:24:29,440 --> 00:24:30,730 OK. 531 00:24:30,730 --> 00:24:34,000 Gentlemen, how come we use so much less energy 532 00:24:34,000 --> 00:24:37,570 than you do per capita? 533 00:24:37,570 --> 00:24:38,680 Pickett. 534 00:24:38,680 --> 00:24:39,400 Wyatt? 535 00:24:39,400 --> 00:24:40,000 Take a run. 536 00:24:40,000 --> 00:24:41,380 What do you think? 537 00:24:41,380 --> 00:24:43,330 AUDIENCE: We do a lot of farming in Kentucky. 538 00:24:43,330 --> 00:24:45,163 So that may have something to do with it. 539 00:24:45,163 --> 00:24:47,080 PROFESSOR: Farming is actually a fairly energy 540 00:24:47,080 --> 00:24:48,940 intensive activity these days. 541 00:24:48,940 --> 00:24:51,160 You're driving a lot of machinery. 542 00:24:51,160 --> 00:24:52,500 It uses a lot of energy. 543 00:24:52,500 --> 00:24:53,970 So that's one thing. 544 00:24:53,970 --> 00:24:54,790 OK. 545 00:24:54,790 --> 00:24:55,600 Anything else? 546 00:24:58,770 --> 00:25:00,072 Yeah, go ahead. 547 00:25:00,072 --> 00:25:02,280 AUDIENCE: Unlike Massachusetts, where a lot of people 548 00:25:02,280 --> 00:25:04,770 walk, especially in Boston, in South Dakota 549 00:25:04,770 --> 00:25:06,180 everything's really spread apart, 550 00:25:06,180 --> 00:25:07,385 so everybody drives there. 551 00:25:07,385 --> 00:25:08,760 PROFESSOR: So it's lower density. 552 00:25:08,760 --> 00:25:11,260 There's probably a lot more driving per capita. 553 00:25:11,260 --> 00:25:12,480 Yeah. 554 00:25:12,480 --> 00:25:15,235 Matt, you raised-- you identified 555 00:25:15,235 --> 00:25:16,110 as one of this crowd. 556 00:25:16,110 --> 00:25:17,190 AUDIENCE: [INAUDIBLE] in Texas. 557 00:25:17,190 --> 00:25:17,760 PROFESSOR: It's what? 558 00:25:17,760 --> 00:25:19,170 AUDIENCE: Air conditioning? 559 00:25:19,170 --> 00:25:20,340 PROFESSOR: Air conditioning. 560 00:25:20,340 --> 00:25:21,210 Hotter summers. 561 00:25:21,210 --> 00:25:23,030 Probably a lot more central air. 562 00:25:23,030 --> 00:25:25,290 AUDIENCE: Probably a drive everywhere. 563 00:25:25,290 --> 00:25:28,507 PROFESSOR: A lot more spread out, yeah. 564 00:25:28,507 --> 00:25:30,090 It's interesting, when you first think 565 00:25:30,090 --> 00:25:32,710 about energy use in Massachusetts, you might think, 566 00:25:32,710 --> 00:25:33,900 gee, we have cold winters. 567 00:25:33,900 --> 00:25:35,670 We must heat these buildings. 568 00:25:35,670 --> 00:25:39,030 You notice, there's Hawaii right next to us, 569 00:25:39,030 --> 00:25:42,090 where they don't heat anything ever really. 570 00:25:42,090 --> 00:25:44,087 So there are lots of differences. 571 00:25:44,087 --> 00:25:45,420 And you pointed to some of them. 572 00:25:45,420 --> 00:25:47,430 They're transportation related. 573 00:25:47,430 --> 00:25:50,340 There's also not a lot of manufacturing in Massachusetts 574 00:25:50,340 --> 00:25:51,445 anymore. 575 00:25:51,445 --> 00:25:53,070 So we don't have a big industrial load. 576 00:25:53,070 --> 00:25:53,655 Yeah? 577 00:25:53,655 --> 00:25:56,100 AUDIENCE: Wait, so California, is California right next 578 00:25:56,100 --> 00:25:58,710 to Massachusetts there? 579 00:25:58,710 --> 00:25:59,970 PROFESSOR: Yeah, California. 580 00:25:59,970 --> 00:26:02,428 AUDIENCE: Because California also there's a lot of farming, 581 00:26:02,428 --> 00:26:03,967 and we drive a lot. 582 00:26:03,967 --> 00:26:04,800 PROFESSOR: All true. 583 00:26:04,800 --> 00:26:09,390 But very little manufacturing anymore. 584 00:26:09,390 --> 00:26:11,760 But you're right. 585 00:26:11,760 --> 00:26:13,920 There are a lot of puzzles here. 586 00:26:13,920 --> 00:26:16,980 I mean, there is Arizona. 587 00:26:16,980 --> 00:26:19,800 And you want to talk about central air conditioning, 588 00:26:19,800 --> 00:26:22,530 you have to have central air conditioning in Arizona. 589 00:26:22,530 --> 00:26:26,610 So whereas northern California, you still need it, 590 00:26:26,610 --> 00:26:27,930 but it's not desperate. 591 00:26:27,930 --> 00:26:28,500 Yeah? 592 00:26:28,500 --> 00:26:30,120 Jessica? 593 00:26:30,120 --> 00:26:33,330 AUDIENCE: How does this do manufacturing, for example? 594 00:26:33,330 --> 00:26:37,140 Does it ration it to the state that [INAUDIBLE] done 595 00:26:37,140 --> 00:26:39,465 and those residents, or to where the products are made? 596 00:26:39,465 --> 00:26:39,570 RICHARD SCHMALENSEE: Yeah. 597 00:26:39,570 --> 00:26:40,800 Where the plant is. 598 00:26:40,800 --> 00:26:42,736 AUDIENCE: What about some of these-- 599 00:26:42,736 --> 00:26:45,980 or the big states that make electricity, 600 00:26:45,980 --> 00:26:48,990 have big coal plants, big oil plants, big everything? 601 00:26:48,990 --> 00:26:50,700 Is that proportioned for that state, or-- 602 00:26:50,700 --> 00:26:52,575 RICHARD SCHMALENSEE: It will be in the state. 603 00:26:52,575 --> 00:26:53,580 It'll be in the state. 604 00:26:53,580 --> 00:26:56,250 I mean, California is a pretty light user of electricity. 605 00:26:56,250 --> 00:26:57,960 We're a pretty light user of electricity. 606 00:26:57,960 --> 00:26:59,670 Hawaii is light. 607 00:26:59,670 --> 00:27:01,680 In part, because those are states 608 00:27:01,680 --> 00:27:04,630 where it's really expensive. 609 00:27:04,630 --> 00:27:07,120 It's expensive here for a variety of reasons. 610 00:27:07,120 --> 00:27:08,920 California, heavily environmental. 611 00:27:08,920 --> 00:27:10,990 Hawaii-- it's Hawaii. 612 00:27:10,990 --> 00:27:16,300 I mean, it's all oil-fired, and the oil comes by tanker. 613 00:27:16,300 --> 00:27:16,990 Yeah? 614 00:27:16,990 --> 00:27:19,407 AUDIENCE: I was going to say that I assume the differences 615 00:27:19,407 --> 00:27:23,140 also come from state laws and regulations and how those few 616 00:27:23,140 --> 00:27:23,850 decision-makers-- 617 00:27:23,850 --> 00:27:24,760 I don't know. 618 00:27:24,760 --> 00:27:27,310 I mean, for example, you just mentioned [INAUDIBLE].. 619 00:27:27,310 --> 00:27:29,095 I assume it might be just because you 620 00:27:29,095 --> 00:27:30,580 have different taxes, so it might 621 00:27:30,580 --> 00:27:33,190 be more expensive in certain states, or oil 622 00:27:33,190 --> 00:27:35,020 might be cheaper or more expensive, 623 00:27:35,020 --> 00:27:36,550 gasoline, stuff like that. 624 00:27:36,550 --> 00:27:36,790 RICHARD SCHMALENSEE: Yeah. 625 00:27:36,790 --> 00:27:37,270 Some of that. 626 00:27:37,270 --> 00:27:37,812 Some of that. 627 00:27:37,812 --> 00:27:41,220 I mean, we'll talk about some of the state regulations. 628 00:27:41,220 --> 00:27:43,930 Some of the states, like California, for instance-- 629 00:27:43,930 --> 00:27:45,430 and Texas, for that matter-- 630 00:27:45,430 --> 00:27:49,370 have strong programs favoring renewables, 631 00:27:49,370 --> 00:27:51,700 which will add a bit. 632 00:27:51,700 --> 00:27:54,400 But you could imagine, down the road, it adding a lot. 633 00:27:54,400 --> 00:27:57,160 The environmental standards are pretty uniform, 634 00:27:57,160 --> 00:28:00,970 but most of the electricity generated here 635 00:28:00,970 --> 00:28:02,770 is generated by gas. 636 00:28:02,770 --> 00:28:06,050 And we're at the far end of the pipeline. 637 00:28:06,050 --> 00:28:10,420 So it's not Texas or Louisiana, where the gas is there. 638 00:28:10,420 --> 00:28:13,340 It comes by comes by pipeline. 639 00:28:13,340 --> 00:28:16,090 In fact, we import some, LNG. 640 00:28:16,090 --> 00:28:17,080 Liquefied gas. 641 00:28:17,080 --> 00:28:18,550 AUDIENCE: It was also, per capita, 642 00:28:18,550 --> 00:28:21,525 places that have a relatively small population 643 00:28:21,525 --> 00:28:22,900 for their activity-- like Alaska, 644 00:28:22,900 --> 00:28:25,825 where there's a lot of mining and stuff, 645 00:28:25,825 --> 00:28:27,200 and there's not that many people. 646 00:28:27,200 --> 00:28:29,040 Doesn't that skew it a little bit? 647 00:28:29,040 --> 00:28:30,640 RICHARD SCHMALENSEE: Yeah. 648 00:28:30,640 --> 00:28:34,480 But if you put two Alaskas next to each other, 649 00:28:34,480 --> 00:28:37,240 you would have more people, but still the same per capita. 650 00:28:37,240 --> 00:28:39,970 So I don't know if there are scale effects, particularly. 651 00:28:39,970 --> 00:28:41,980 I think density works. 652 00:28:41,980 --> 00:28:45,010 Alaska's doing a lot of energy-intensive stuff. 653 00:28:45,010 --> 00:28:47,470 A lot of travel within Alaska. 654 00:28:47,470 --> 00:28:50,200 A lot of heating in Alaska. 655 00:28:50,200 --> 00:28:53,630 I don't think it's the absolute scale. 656 00:28:53,630 --> 00:28:56,750 I mean, consider Hawaii, which is also quite small. 657 00:28:56,750 --> 00:29:00,300 But Hawaii doesn't-- they're not mining anything. 658 00:29:00,300 --> 00:29:01,820 There's nothing to mine. 659 00:29:01,820 --> 00:29:04,980 They're not doing a lot of manufacturing. 660 00:29:04,980 --> 00:29:08,070 They can't drive that much. 661 00:29:08,070 --> 00:29:08,570 OK. 662 00:29:08,570 --> 00:29:08,960 Brendan? 663 00:29:08,960 --> 00:29:10,668 AUDIENCE: It looks to me like it's mainly 664 00:29:10,668 --> 00:29:12,550 red states versus blue states. 665 00:29:12,550 --> 00:29:13,550 RICHARD SCHMALENSEE: OK. 666 00:29:13,550 --> 00:29:16,040 Well, hold that for a moment. 667 00:29:16,040 --> 00:29:18,560 We want to get deeper into the semester 668 00:29:18,560 --> 00:29:20,310 before we're really political. 669 00:29:20,310 --> 00:29:26,870 But-- so this is energy per dollar of GDP. 670 00:29:26,870 --> 00:29:29,990 And it's been declining for a long time, 671 00:29:29,990 --> 00:29:34,010 reflecting efficiency, reflecting the decline 672 00:29:34,010 --> 00:29:37,940 of manufacturing, reflecting-- 673 00:29:37,940 --> 00:29:40,730 well, those are two big ones. 674 00:29:40,730 --> 00:29:43,490 But probably other factors, as well. 675 00:29:43,490 --> 00:29:46,100 Efficiency in energy use, efficiency 676 00:29:46,100 --> 00:29:52,220 in electricity generation, and other dimensions. 677 00:29:52,220 --> 00:29:53,630 I find this one interesting. 678 00:29:53,630 --> 00:29:55,820 That's BTUs per dollar. 679 00:29:55,820 --> 00:29:58,280 So that's real on real. 680 00:29:58,280 --> 00:30:00,260 This is dollars on dollars. 681 00:30:00,260 --> 00:30:03,290 This is energy spending. 682 00:30:03,290 --> 00:30:05,900 And you'll see, that's not so stable. 683 00:30:05,900 --> 00:30:08,230 And that's one reason-- 684 00:30:08,230 --> 00:30:11,830 that's one component of what people 685 00:30:11,830 --> 00:30:14,350 think of as the energy problem. 686 00:30:14,350 --> 00:30:18,310 I mean, all of a sudden, we're cruising along fat and happy, 687 00:30:18,310 --> 00:30:19,240 and boom! 688 00:30:19,240 --> 00:30:21,550 We move from something like 8% of GDP 689 00:30:21,550 --> 00:30:24,610 to something like 14% of GDP to pay the energy bill 690 00:30:24,610 --> 00:30:26,390 over a few years. 691 00:30:26,390 --> 00:30:29,350 And then this is-- 692 00:30:29,350 --> 00:30:30,400 come on, where are we? 693 00:30:30,400 --> 00:30:35,840 This is the recent oil spike and oil collapse. 694 00:30:35,840 --> 00:30:38,440 This is a law-- we'll talk about this next Wednesday. 695 00:30:38,440 --> 00:30:42,280 And this is a period when we got very complacent about energy, 696 00:30:42,280 --> 00:30:46,760 and you didn't hear much about energy from anybody. 697 00:30:46,760 --> 00:30:50,320 So prices move. 698 00:30:50,320 --> 00:30:51,760 And that is a source of concern. 699 00:30:55,240 --> 00:30:59,290 Let me talk about sources of energy consumption. 700 00:30:59,290 --> 00:31:02,680 If you extend this graph back-- 701 00:31:02,680 --> 00:31:07,560 way back-- it starts with wood. 702 00:31:07,560 --> 00:31:11,130 If you go back far enough, New England didn't have forests. 703 00:31:11,130 --> 00:31:13,410 They were cut down for energy. 704 00:31:13,410 --> 00:31:15,060 And gradually, it dawned on people 705 00:31:15,060 --> 00:31:18,475 that perhaps that's not a good way forward. 706 00:31:18,475 --> 00:31:20,100 They have these wonderful photographs-- 707 00:31:20,100 --> 00:31:21,660 I'll grab one if I can-- 708 00:31:21,660 --> 00:31:23,220 of Vermont. 709 00:31:23,220 --> 00:31:25,620 Basically, hills of mud. 710 00:31:25,620 --> 00:31:26,880 Hills of mud. 711 00:31:26,880 --> 00:31:28,350 Because the wood was there. 712 00:31:28,350 --> 00:31:30,150 They cut the wood down. 713 00:31:30,150 --> 00:31:32,410 That gave them scrub. 714 00:31:32,410 --> 00:31:34,890 They used the scrub to graze sheep. 715 00:31:34,890 --> 00:31:36,810 There was a big boom in wool. 716 00:31:36,810 --> 00:31:37,680 You graze sheep. 717 00:31:37,680 --> 00:31:38,640 They eat everything. 718 00:31:38,640 --> 00:31:40,230 You get raw dirt. 719 00:31:40,230 --> 00:31:42,970 It runs down when it rains. 720 00:31:42,970 --> 00:31:44,370 We move from wood to coal. 721 00:31:44,370 --> 00:31:47,580 So you would have a wood peak over here, and coal going up. 722 00:31:47,580 --> 00:31:52,850 But this is since 1950. 723 00:31:52,850 --> 00:31:57,020 This renewable energy, which is pretty high in 1950 724 00:31:57,020 --> 00:31:59,570 and grows slowly, is mostly hydro-- 725 00:31:59,570 --> 00:32:03,350 mostly big dams built in the '30s and '40s. 726 00:32:03,350 --> 00:32:05,780 You'll see not too many built since. 727 00:32:05,780 --> 00:32:08,660 The recent run-up is other things. 728 00:32:08,660 --> 00:32:12,130 You see nuclear power go up and go flat. 729 00:32:12,130 --> 00:32:14,500 Coal continues to rise. 730 00:32:14,500 --> 00:32:17,537 Natural gas. 731 00:32:17,537 --> 00:32:19,120 You might think that this downturn has 732 00:32:19,120 --> 00:32:22,960 something to do with policy, and you would be right. 733 00:32:22,960 --> 00:32:27,040 This has something to do with prices. 734 00:32:27,040 --> 00:32:30,963 But you see natural gas kind of flat with a little uptick 735 00:32:30,963 --> 00:32:31,630 here at the end. 736 00:32:31,630 --> 00:32:33,380 We're going to spend a lot of time talking 737 00:32:33,380 --> 00:32:35,170 about that uptick at the end. 738 00:32:35,170 --> 00:32:39,470 And oil continues to grow. 739 00:32:39,470 --> 00:32:45,950 If you look at imported energy, we're 740 00:32:45,950 --> 00:32:50,930 basically pretty self-sufficient except for oil. 741 00:32:50,930 --> 00:32:56,570 A whole lot of this is natural gas from Canada, which is-- 742 00:32:56,570 --> 00:32:59,270 that's, like, 80% of our natural gas imports, which 743 00:32:59,270 --> 00:33:02,630 doesn't keep too many people up nights, unless you're a hockey 744 00:33:02,630 --> 00:33:03,620 fan. 745 00:33:03,620 --> 00:33:10,750 But oil, over time, continued to grow until recently. 746 00:33:10,750 --> 00:33:12,520 And we'll talk about that. 747 00:33:12,520 --> 00:33:15,260 Let me unpack that a little bit. 748 00:33:15,260 --> 00:33:18,730 So since at least the 1970s, there 749 00:33:18,730 --> 00:33:22,900 has been this desire to have energy independence, which 750 00:33:22,900 --> 00:33:27,840 really means oil independence, since we're a coal exporter. 751 00:33:27,840 --> 00:33:31,380 Most of our natural gas imports are from Canada. 752 00:33:31,380 --> 00:33:34,530 And electricity, nothing happens much across the border. 753 00:33:34,530 --> 00:33:38,550 The main story, historically, has been, 754 00:33:38,550 --> 00:33:39,990 OK, we're going to be independent. 755 00:33:39,990 --> 00:33:42,060 OK, this is going to be great. 756 00:33:42,060 --> 00:33:43,320 And there goes consumption. 757 00:33:43,320 --> 00:33:48,630 And in the meantime, production, depending how you measure it, 758 00:33:48,630 --> 00:33:52,860 peaked some long time ago-- 759 00:33:52,860 --> 00:33:56,250 not for want of drilling. 760 00:33:56,250 --> 00:33:59,070 The other interesting fact, again, you'll 761 00:33:59,070 --> 00:34:03,690 notice that little uptick at the end. 762 00:34:03,690 --> 00:34:07,170 That little uptick at the end is shale. 763 00:34:07,170 --> 00:34:09,389 And if you've been following the paper, 764 00:34:09,389 --> 00:34:13,440 shale is the big story in fossil fuels. 765 00:34:13,440 --> 00:34:15,850 It's also a big environmental story. 766 00:34:15,850 --> 00:34:17,760 And we will spend some time on it. 767 00:34:17,760 --> 00:34:20,730 But that little uptick-- and there's a similar uptick 768 00:34:20,730 --> 00:34:22,409 in natural gas-- 769 00:34:22,409 --> 00:34:26,670 is a big deal, the start of something. 770 00:34:26,670 --> 00:34:28,590 This graph won't look like this in five years. 771 00:34:33,340 --> 00:34:35,230 How's that for complexity? 772 00:34:35,230 --> 00:34:38,139 This is energy flows. 773 00:34:38,139 --> 00:34:43,060 And you can spend all day long looking at this, 774 00:34:43,060 --> 00:34:45,310 and it would be good for you. 775 00:34:45,310 --> 00:34:48,550 But let me just point out a few highlights. 776 00:34:48,550 --> 00:34:51,489 Over here, really, is sort of primary energy. 777 00:34:51,489 --> 00:34:53,920 How many BTUs, with 100% efficiency, 778 00:34:53,920 --> 00:34:56,440 would there be in the petroleum we use, the coal we use, 779 00:34:56,440 --> 00:34:58,900 the gas we use, and so on? 780 00:34:58,900 --> 00:35:02,650 You see, first of all, that petroleum and coal and gas 781 00:35:02,650 --> 00:35:03,940 are still the main story. 782 00:35:10,100 --> 00:35:13,730 If you go to the right, you will also see, 783 00:35:13,730 --> 00:35:18,230 this is how much energy does useful work. 784 00:35:18,230 --> 00:35:22,710 This is the energy that gets lost mainly in waste heat. 785 00:35:22,710 --> 00:35:24,510 So anybody looking at that diagram 786 00:35:24,510 --> 00:35:26,760 would say, gee, there's an enormous opportunity 787 00:35:26,760 --> 00:35:28,330 for efficiency. 788 00:35:28,330 --> 00:35:32,640 Now, you could also see, in electricity, 789 00:35:32,640 --> 00:35:35,580 there's a lot of it wasted. 790 00:35:35,580 --> 00:35:39,810 That's mostly at the generating station. 791 00:35:39,810 --> 00:35:42,840 And a lot of money and effort has gone into reducing that, 792 00:35:42,840 --> 00:35:45,990 but it is not trivial. 793 00:35:45,990 --> 00:35:50,090 The other thing to note is due to breakdown by residential, 794 00:35:50,090 --> 00:35:54,460 commercial, industrial, and transportation. 795 00:35:54,460 --> 00:35:57,550 It's not quite a third for residential plus 796 00:35:57,550 --> 00:36:00,520 commercial, industrial, and transportation, 797 00:36:00,520 --> 00:36:02,380 but it's kind of close-- 798 00:36:02,380 --> 00:36:07,000 ballpark, a third in each bucket. 799 00:36:07,000 --> 00:36:10,210 Transportation is obviously almost all oil, 800 00:36:10,210 --> 00:36:15,910 and most of the oil goes to transportation. 801 00:36:15,910 --> 00:36:19,840 You see the beginnings-- 802 00:36:19,840 --> 00:36:22,120 I mean, solar is trivial. 803 00:36:22,120 --> 00:36:24,410 Wind is a lot bigger. 804 00:36:24,410 --> 00:36:25,900 It's grown rapidly. 805 00:36:25,900 --> 00:36:30,010 Little bit of-- and hydro is pretty steady. 806 00:36:30,010 --> 00:36:32,560 Again, you can stare at these. 807 00:36:32,560 --> 00:36:35,020 It's interesting to look at this graph over time. 808 00:36:35,020 --> 00:36:37,300 And I'll show you an old one. 809 00:36:37,300 --> 00:36:41,590 But that's sort of the basic flow outline of the system. 810 00:36:41,590 --> 00:36:45,370 That's that red box and what it looks like unpacked. 811 00:36:49,940 --> 00:36:51,530 There we go. 812 00:36:51,530 --> 00:36:52,918 I just find this interesting. 813 00:36:52,918 --> 00:36:53,960 I did it a few years ago. 814 00:36:53,960 --> 00:36:56,060 This is, who uses industrial? 815 00:36:56,060 --> 00:36:58,160 On that industrial box, where does it go? 816 00:36:58,160 --> 00:37:00,760 What industries use energy? 817 00:37:00,760 --> 00:37:03,980 And it turns out that a quarter of it goes to bulk chemicals-- 818 00:37:03,980 --> 00:37:06,410 just heat to drive reactions. 819 00:37:06,410 --> 00:37:09,860 Paper gets 10%, oil refining gets 15%, 820 00:37:09,860 --> 00:37:12,110 and the rest is pretty spread. 821 00:37:12,110 --> 00:37:15,070 If you look at energy-- 822 00:37:15,070 --> 00:37:19,840 BTUs per dollar of value added, turns out cement 823 00:37:19,840 --> 00:37:22,540 is very energy-intensive. 824 00:37:22,540 --> 00:37:24,310 As those of you who know cement will 825 00:37:24,310 --> 00:37:26,920 recognize, that it's a major source of CO2 emissions-- 826 00:37:26,920 --> 00:37:31,940 both the energy and the reaction that that energy produces. 827 00:37:31,940 --> 00:37:33,910 Now, if you look forward-- 828 00:37:33,910 --> 00:37:37,060 and we're going to do a fair amount looking forward-- 829 00:37:37,060 --> 00:37:40,120 this is sort of a general consensus. 830 00:37:40,120 --> 00:37:43,820 And it underlies, I think, the reasons why a lot of you 831 00:37:43,820 --> 00:37:44,320 are here. 832 00:37:44,320 --> 00:37:47,740 You sense this is a place where change needs to happen, 833 00:37:47,740 --> 00:37:49,060 of one kind or another. 834 00:37:49,060 --> 00:37:51,910 Again, I didn't make it a required reading, 835 00:37:51,910 --> 00:37:55,270 but you can look at the National Research Council report 836 00:37:55,270 --> 00:37:58,570 that this is from to see why they think this. 837 00:38:02,340 --> 00:38:04,970 But it's not easy. 838 00:38:04,970 --> 00:38:08,860 Here's what that graph looked like in 1982. 839 00:38:08,860 --> 00:38:12,260 You know, it doesn't look that different. 840 00:38:12,260 --> 00:38:14,990 Main difference is, you could stare at these-- again, 841 00:38:14,990 --> 00:38:16,010 this will be on Stellar. 842 00:38:16,010 --> 00:38:17,300 It's not as complete. 843 00:38:17,300 --> 00:38:19,820 The main difference you can see is 844 00:38:19,820 --> 00:38:22,550 that we used to use a fair amount of oil 845 00:38:22,550 --> 00:38:23,750 to generate electricity. 846 00:38:23,750 --> 00:38:26,730 We don't do that anymore. 847 00:38:26,730 --> 00:38:28,880 We really don't use oil for electricity, 848 00:38:28,880 --> 00:38:30,260 for a range of reasons. 849 00:38:30,260 --> 00:38:33,650 It's too expensive, among other things. 850 00:38:33,650 --> 00:38:38,270 And that's-- still, transportation is mostly oil. 851 00:38:38,270 --> 00:38:41,010 We still use a lot of coal-- 852 00:38:41,010 --> 00:38:43,250 oil, coal, natural gas. 853 00:38:43,250 --> 00:38:45,080 The other stuff is still pretty-- was 854 00:38:45,080 --> 00:38:47,280 pretty small, is pretty small. 855 00:38:47,280 --> 00:38:49,940 There's still, again, this rejected 856 00:38:49,940 --> 00:38:52,830 energy, useful energy-- waste energy, useful energy. 857 00:38:52,830 --> 00:38:56,960 So if you look at this, you say, my heavens. 858 00:38:56,960 --> 00:38:58,890 Again, you could look at the flows. 859 00:38:58,890 --> 00:39:01,800 And this is that they weren't quite as good at doing 860 00:39:01,800 --> 00:39:03,480 this graph at Livermores. 861 00:39:03,480 --> 00:39:05,910 They came to be, in later years. 862 00:39:05,910 --> 00:39:11,050 You look at it and you say, the system doesn't move fast. 863 00:39:11,050 --> 00:39:12,490 How can it move? 864 00:39:12,490 --> 00:39:15,860 Well, it could move if we all decided-- 865 00:39:15,860 --> 00:39:20,030 in a lot of utilities, you can opt to buy green electricity. 866 00:39:20,030 --> 00:39:24,590 That is to say, if 20% of the people-- 867 00:39:24,590 --> 00:39:28,730 20% of the usage is green, then the utility 868 00:39:28,730 --> 00:39:32,420 is obliged to get 20% of its energy from green sources. 869 00:39:32,420 --> 00:39:36,470 We could all say, and your parents could all say, 870 00:39:36,470 --> 00:39:39,060 we want green electricity. 871 00:39:39,060 --> 00:39:42,820 Well, if everybody did that, it would be a big change. 872 00:39:42,820 --> 00:39:45,280 Not quite clear what the companies would do 873 00:39:45,280 --> 00:39:46,668 or how they would cope with it. 874 00:39:46,668 --> 00:39:47,710 It would be a big change. 875 00:39:47,710 --> 00:39:49,120 Is it likely? 876 00:39:49,120 --> 00:39:50,380 No. 877 00:39:50,380 --> 00:39:51,910 It's expensive. 878 00:39:51,910 --> 00:39:55,090 And what I do isn't going to affect the system much. 879 00:39:55,090 --> 00:39:56,820 If we all do it together, it might. 880 00:39:56,820 --> 00:39:58,810 But that's another story. 881 00:39:58,810 --> 00:40:02,460 Suppose we develop great new technologies, 882 00:40:02,460 --> 00:40:04,980 which I hope many of you do. 883 00:40:04,980 --> 00:40:08,610 Well, where does the money come from? 884 00:40:08,610 --> 00:40:11,400 Energy, as a number of people said at the outset, 885 00:40:11,400 --> 00:40:15,090 is a big-dollar business. 886 00:40:15,090 --> 00:40:19,110 You don't do it at the PC. 887 00:40:19,110 --> 00:40:22,920 Three people in a garage don't do the Facebook of energy. 888 00:40:22,920 --> 00:40:25,530 I mean, there's scope for IT of energy, 889 00:40:25,530 --> 00:40:30,960 but if you really want to change how the work gets done, 890 00:40:30,960 --> 00:40:36,570 you're talking serious R&D. You're talking serious scaling. 891 00:40:36,570 --> 00:40:39,450 Should the government decide where to invest? 892 00:40:39,450 --> 00:40:40,410 If so, how? 893 00:40:43,260 --> 00:40:45,000 Can you rely on large energy firms? 894 00:40:45,000 --> 00:40:46,590 Some of them are really big. 895 00:40:46,590 --> 00:40:49,620 Southern Company is building a nuclear reactor-- 896 00:40:49,620 --> 00:40:51,210 first in a long time. 897 00:40:51,210 --> 00:40:52,800 That's a lot of money. 898 00:40:52,800 --> 00:40:56,040 Intel spends billions on fabs, so maybe Intel 899 00:40:56,040 --> 00:40:57,295 should spend the billions. 900 00:40:57,295 --> 00:40:58,500 Are they going to do it? 901 00:40:58,500 --> 00:41:01,840 Is Southern Company going to do something radical? 902 00:41:01,840 --> 00:41:03,550 Small companies? 903 00:41:03,550 --> 00:41:04,930 We're going to talk about this. 904 00:41:04,930 --> 00:41:09,070 Because the question of, what kinds of organizations 905 00:41:09,070 --> 00:41:11,740 are best suited to do what in the innovation 906 00:41:11,740 --> 00:41:15,075 process is kind of important here. 907 00:41:15,075 --> 00:41:16,450 I mean, if you think you're going 908 00:41:16,450 --> 00:41:21,260 to revolutionize electricity generation with $100,000 909 00:41:21,260 --> 00:41:23,620 and three people, no. 910 00:41:23,620 --> 00:41:24,820 No. 911 00:41:24,820 --> 00:41:26,883 You might produce something basic 912 00:41:26,883 --> 00:41:28,300 that somebody would buy that would 913 00:41:28,300 --> 00:41:30,920 be sold to somebody bigger that might, 914 00:41:30,920 --> 00:41:37,000 but figuring out how that process works is important. 915 00:41:37,000 --> 00:41:38,950 Another way to transform the energy system 916 00:41:38,950 --> 00:41:41,788 is to really tighten environmental regulation. 917 00:41:41,788 --> 00:41:43,330 And if you've been reading the paper, 918 00:41:43,330 --> 00:41:46,480 you've been reading about regulations of coal-fired power 919 00:41:46,480 --> 00:41:48,160 plants-- 920 00:41:48,160 --> 00:41:50,410 that some of them will have to shut down. 921 00:41:50,410 --> 00:41:54,040 Well, if you really tighten environmental regulation, 922 00:41:54,040 --> 00:41:55,420 you would-- could-- 923 00:41:55,420 --> 00:41:56,560 transform the system. 924 00:41:59,200 --> 00:42:01,770 Are there votes for it? 925 00:42:01,770 --> 00:42:04,320 Is it going to be done at the state level, the federal level? 926 00:42:04,320 --> 00:42:06,955 Does it matter where it's done? 927 00:42:06,955 --> 00:42:08,080 Where are the votes for it? 928 00:42:08,080 --> 00:42:09,538 How would you get the votes for it? 929 00:42:09,538 --> 00:42:11,140 What does the opposition look like? 930 00:42:11,140 --> 00:42:14,810 And what about this regulatory process? 931 00:42:14,810 --> 00:42:17,340 Has EPA gone wild? 932 00:42:17,340 --> 00:42:18,500 Have the courts gone wild? 933 00:42:18,500 --> 00:42:20,750 How does that work? 934 00:42:20,750 --> 00:42:22,890 There are no laws passed. 935 00:42:22,890 --> 00:42:27,440 You have a blocking Republican coalition in Congress. 936 00:42:27,440 --> 00:42:30,050 And yet EPA is coming out with these very strong 937 00:42:30,050 --> 00:42:32,523 environmental rules. 938 00:42:32,523 --> 00:42:34,190 Where does that come from-- very strong, 939 00:42:34,190 --> 00:42:35,600 as perceived by industry. 940 00:42:35,600 --> 00:42:37,140 Where does it come from? 941 00:42:37,140 --> 00:42:38,630 How is it driven? 942 00:42:38,630 --> 00:42:41,270 Where might it go? 943 00:42:41,270 --> 00:42:46,760 You could imagine the extension of state programs. 944 00:42:46,760 --> 00:42:48,740 29 states and the District of Columbia 945 00:42:48,740 --> 00:42:51,410 now require certain fractions of energy-- 946 00:42:51,410 --> 00:42:54,860 electricity-- to be generated from renewable sources. 947 00:42:54,860 --> 00:42:56,000 You could tighten those. 948 00:42:56,000 --> 00:42:58,610 California has tightened it pretty tight. 949 00:42:58,610 --> 00:43:00,620 Texas has been very effective. 950 00:43:00,620 --> 00:43:03,910 Texas has a lot of wind energy-- 951 00:43:03,910 --> 00:43:05,620 an absurd amount of wind energy. 952 00:43:05,620 --> 00:43:08,980 You could imagine-- we got EPA from a social movement. 953 00:43:08,980 --> 00:43:11,860 We got the Civil Rights laws from a social movement. 954 00:43:11,860 --> 00:43:14,500 You could imagine a social movement that would basically 955 00:43:14,500 --> 00:43:16,905 call for transformation. 956 00:43:16,905 --> 00:43:18,780 Of course, people would have to agree on what 957 00:43:18,780 --> 00:43:22,070 the transformation should be. 958 00:43:22,070 --> 00:43:26,580 It would need something coherent, something simple, 959 00:43:26,580 --> 00:43:29,880 something like Martin Luther King's speeches, 960 00:43:29,880 --> 00:43:32,760 something like Silent Spring that 961 00:43:32,760 --> 00:43:35,580 banned DDT because people got upset that birds were dying. 962 00:43:35,580 --> 00:43:39,600 It would require some rallying cry like that. 963 00:43:39,600 --> 00:43:42,390 Is it possible? 964 00:43:42,390 --> 00:43:47,100 And finally, how are we going to do energy security, 965 00:43:47,100 --> 00:43:49,080 and what does it mean? 966 00:43:49,080 --> 00:43:53,000 Suppose we're completely self-sufficient for oil. 967 00:43:53,000 --> 00:43:55,630 Does that mean we're immune to international price shocks? 968 00:43:55,630 --> 00:43:58,040 Does that mean closing the Straits of Hormuz 969 00:43:58,040 --> 00:44:00,390 would have no effect on us? 970 00:44:00,390 --> 00:44:02,370 What if the lights went out in Europe? 971 00:44:02,370 --> 00:44:04,080 What would that do? 972 00:44:04,080 --> 00:44:06,120 What if world prices went up? 973 00:44:06,120 --> 00:44:10,060 Would we subsidize oil to keep domestic prices down? 974 00:44:10,060 --> 00:44:13,800 So when you think about, how might transformation 975 00:44:13,800 --> 00:44:16,650 happen-- oh, and electric cars powered by coal. 976 00:44:16,650 --> 00:44:20,550 I have to say, I love to ask my environmentalist friends 977 00:44:20,550 --> 00:44:22,890 in the Midwest who have electric cars whether they're 978 00:44:22,890 --> 00:44:28,530 enjoying their coal-powered car or not, because it is. 979 00:44:28,530 --> 00:44:33,630 So it takes a little bit of a systems view. 980 00:44:33,630 --> 00:44:36,000 Two observations, and then I'll let us go. 981 00:44:36,000 --> 00:44:39,000 And the observations are that, in this business, 982 00:44:39,000 --> 00:44:40,650 history matters. 983 00:44:40,650 --> 00:44:42,480 And I have to give you this graph, 984 00:44:42,480 --> 00:44:45,990 because it's a fantastic-- has anybody read 985 00:44:45,990 --> 00:44:49,740 Tufte, the Visual Display of Quantitative Information? 986 00:44:49,740 --> 00:44:50,430 Beautiful book. 987 00:44:50,430 --> 00:44:52,170 At some time in your life, read it. 988 00:44:52,170 --> 00:44:56,430 It's a book on, how can you use visual displays 989 00:44:56,430 --> 00:44:58,530 to get across information? 990 00:44:58,530 --> 00:45:03,330 This shows when capacity was-- when US-generating capacity was 991 00:45:03,330 --> 00:45:06,360 built and how it's powered. 992 00:45:06,360 --> 00:45:08,730 So you get a whole lot of information out of this. 993 00:45:08,730 --> 00:45:11,580 You get out of this that there's a lot of capacity 994 00:45:11,580 --> 00:45:17,430 still running built before 1960, a ton of capacity 995 00:45:17,430 --> 00:45:20,490 built before 1980, and a lot of coal capacity 996 00:45:20,490 --> 00:45:22,860 built before 1980. 997 00:45:22,860 --> 00:45:26,970 The recent capacity over here is almost all gas, 998 00:45:26,970 --> 00:45:29,550 although you see a little coal coming online here. 999 00:45:29,550 --> 00:45:32,590 But it's almost all gas-- 1000 00:45:32,590 --> 00:45:36,380 and very recently, wind. 1001 00:45:36,380 --> 00:45:42,360 But there's a lot of money invested in these plants. 1002 00:45:42,360 --> 00:45:46,320 And for at least some of them, coal is cheap. 1003 00:45:46,320 --> 00:45:49,823 The plant's built. The running cost-- 1004 00:45:49,823 --> 00:45:52,240 the cost of buying the coal, putting it in, and generating 1005 00:45:52,240 --> 00:45:55,440 electricity from it-- is really low. 1006 00:45:55,440 --> 00:45:58,890 So the cost of shutting them down and replacing them-- 1007 00:45:58,890 --> 00:46:00,840 doesn't matter what they cost to build. 1008 00:46:00,840 --> 00:46:04,560 It's a cost of-- the cost is premature replacement. 1009 00:46:04,560 --> 00:46:05,580 Could be very high. 1010 00:46:05,580 --> 00:46:07,500 And that's what we're hearing. 1011 00:46:07,500 --> 00:46:13,760 On the other hand, many of these are really dirty-- 1012 00:46:13,760 --> 00:46:19,800 and compared to the new stuff, really inefficient. 1013 00:46:19,800 --> 00:46:23,400 Turning that ship is not easy. 1014 00:46:23,400 --> 00:46:25,920 Turning that ship is not easy. 1015 00:46:25,920 --> 00:46:27,780 Yeah, all of the new stuff is gas. 1016 00:46:27,780 --> 00:46:28,840 That's just swell. 1017 00:46:28,840 --> 00:46:30,340 That is going to continue. 1018 00:46:30,340 --> 00:46:32,340 And this is in response to a bunch of subsidies 1019 00:46:32,340 --> 00:46:34,890 and regulations-- the wind. 1020 00:46:34,890 --> 00:46:37,050 But these guys are still here. 1021 00:46:37,050 --> 00:46:39,870 They're still here. 1022 00:46:39,870 --> 00:46:41,462 Oh, and the nuclear plants-- 1023 00:46:41,462 --> 00:46:42,670 it's an interesting question. 1024 00:46:42,670 --> 00:46:45,420 How long will the nuclear plants stay? 1025 00:46:45,420 --> 00:46:48,220 They've gotten more efficient over time. 1026 00:46:48,220 --> 00:46:50,460 They could run for a while. 1027 00:46:50,460 --> 00:46:53,370 Will we build new ones? 1028 00:46:53,370 --> 00:46:56,560 Final example of how history matters. 1029 00:46:56,560 --> 00:46:59,135 This is US oil reserves. 1030 00:47:02,320 --> 00:47:04,930 We explored for oil in the lower 48. 1031 00:47:04,930 --> 00:47:06,700 We explored for oil in Alaska. 1032 00:47:06,700 --> 00:47:09,640 We're exploring for oil-- have explored for oil-- off-shore. 1033 00:47:09,640 --> 00:47:12,770 That's US oil reserves over time. 1034 00:47:12,770 --> 00:47:15,280 So it's not that we've pumped out-- 1035 00:47:15,280 --> 00:47:18,100 it's not the difference between 30 billion barrels 1036 00:47:18,100 --> 00:47:19,892 and, I don't know, 22 billion barrels 1037 00:47:19,892 --> 00:47:21,100 is the amount we've produced. 1038 00:47:21,100 --> 00:47:24,370 No, we've produced a lot more. 1039 00:47:24,370 --> 00:47:27,550 But after a while, if you produce a lot today, 1040 00:47:27,550 --> 00:47:31,180 it becomes harder to find tomorrow. 1041 00:47:31,180 --> 00:47:32,770 Who knows how much there is. 1042 00:47:32,770 --> 00:47:35,260 But what there is, is hard to find. 1043 00:47:35,260 --> 00:47:37,910 We're deep underwater off Los Angeles-- 1044 00:47:37,910 --> 00:47:41,500 not off Los Angeles, off New Orleans-- off Louisiana. 1045 00:47:41,500 --> 00:47:46,150 That's not cheap to go down a mile and drill. 1046 00:47:46,150 --> 00:47:48,220 That's just not cheap. 1047 00:47:48,220 --> 00:47:51,580 It was cheaper in Alaska, here. 1048 00:47:51,580 --> 00:47:56,330 But we've pumped a lot of oil out of Alaska. 1049 00:47:56,330 --> 00:47:59,480 So that history, that decision that we're 1050 00:47:59,480 --> 00:48:07,230 going to use domestic oil today, has implications for tomorrow. 1051 00:48:07,230 --> 00:48:09,250 OK, I'm going to stop there. 1052 00:48:09,250 --> 00:48:12,880 Oh, and I should just make the point, 1053 00:48:12,880 --> 00:48:15,910 over the period of this graph, world oil reserves-- that 1054 00:48:15,910 --> 00:48:17,800 actually includes us, but we're small. 1055 00:48:17,800 --> 00:48:20,490 World oil reserves more than doubled. 1056 00:48:20,490 --> 00:48:23,040 Because people look for oil in new places. 1057 00:48:23,040 --> 00:48:26,110 People had been looking for oil in the US, 1058 00:48:26,110 --> 00:48:28,310 and it gets harder to find. 1059 00:48:28,310 --> 00:48:29,410 OK. 1060 00:48:29,410 --> 00:48:31,590 Questions or comments?