WEBVTT 00:00:00.000 --> 00:00:02.520 The following content is provided under a Creative 00:00:02.520 --> 00:00:03.970 Commons license. 00:00:03.970 --> 00:00:06.360 Your support will help MIT OpenCourseWare 00:00:06.360 --> 00:00:10.660 continue to offer high quality educational resources for free. 00:00:10.660 --> 00:00:13.350 To make a donation or view additional materials 00:00:13.350 --> 00:00:16.575 from hundreds of MIT courses, visit MIT OpenCourseWare 00:00:16.575 --> 00:00:17.891 at ocw.mit.edu. 00:00:27.040 --> 00:00:28.240 PROFESSOR: Let's start. 00:00:28.240 --> 00:00:29.020 What's energy? 00:00:32.890 --> 00:00:35.770 This being a Sloan class, we do cold calls. 00:00:35.770 --> 00:00:38.380 So I walk up to Eric and I say, how should we 00:00:38.380 --> 00:00:41.150 define energy for this class? 00:00:41.150 --> 00:00:43.710 AUDIENCE: I would define energy as currency. 00:00:43.710 --> 00:00:47.200 I think it's the price [INAUDIBLE].. 00:00:47.200 --> 00:00:48.460 PROFESSOR: Currency. 00:00:48.460 --> 00:00:52.480 So we should be doing monetary economics, as opposed 00:00:52.480 --> 00:00:55.070 to thinking about electric power and stuff. 00:00:55.070 --> 00:00:58.390 AUDIENCE: Well, I guess I shared my personal view. 00:00:58.390 --> 00:01:03.280 As an engineer, I see energy going 00:01:03.280 --> 00:01:06.063 into everything we manufacture. 00:01:06.063 --> 00:01:07.480 PROFESSOR: But if it's just money, 00:01:07.480 --> 00:01:09.430 then there's nothing special about this class. 00:01:09.430 --> 00:01:11.320 We could just do plain old price theory, 00:01:11.320 --> 00:01:12.700 or we could just plain old micro, 00:01:12.700 --> 00:01:16.120 or we could do plain monetary. 00:01:16.120 --> 00:01:20.180 AUDIENCE: Like I can't print infinite amounts of energy. 00:01:20.180 --> 00:01:21.080 PROFESSOR: OK. 00:01:21.080 --> 00:01:22.550 Let's see if everybody agrees. 00:01:22.550 --> 00:01:24.290 Julian, where are you on this? 00:01:24.290 --> 00:01:25.850 How would you define energy? 00:01:25.850 --> 00:01:27.470 AUDIENCE: The ability to do work. 00:01:27.470 --> 00:01:29.390 PROFESSOR: OK. 00:01:29.390 --> 00:01:31.760 We're now into basic physics. 00:01:31.760 --> 00:01:32.930 Even I remember that. 00:01:32.930 --> 00:01:33.770 I am an alumnus. 00:01:36.350 --> 00:01:38.650 Perhaps we could be a little less abstract. 00:01:38.650 --> 00:01:41.360 What are some interesting examples 00:01:41.360 --> 00:01:45.267 that fit under that very broad 801 heading? 00:01:45.267 --> 00:01:47.100 AUDIENCE: Oh, under that very broad heading, 00:01:47.100 --> 00:01:50.780 I mean, we use energy for a very broad variety of uses, 00:01:50.780 --> 00:01:55.560 from keeping the lights on, transportation, manufacturing. 00:01:55.560 --> 00:02:00.235 It's really kind of integrated in everything we make or do, 00:02:00.235 --> 00:02:04.250 from an economics or engineering standpoint. 00:02:04.250 --> 00:02:07.790 It supports all of our communications. 00:02:07.790 --> 00:02:11.000 Like without energy, or at least electrical energy, 00:02:11.000 --> 00:02:16.160 and petroleum energy, we would really kind of be nowhere. 00:02:16.160 --> 00:02:20.030 PROFESSOR: But we'll probably exclude the ability to do work 00:02:20.030 --> 00:02:22.940 that you have just personally. 00:02:22.940 --> 00:02:26.720 And we'll probably exclude some forms of energy 00:02:26.720 --> 00:02:29.300 that don't do useful work. 00:02:29.300 --> 00:02:30.920 But what you're saying is there's 00:02:30.920 --> 00:02:34.130 a wide variety of sources and a wide variety of uses. 00:02:34.130 --> 00:02:35.463 That's true. 00:02:35.463 --> 00:02:37.130 But you could probably, as you just did, 00:02:37.130 --> 00:02:40.580 name the principal ones. 00:02:40.580 --> 00:02:41.840 Let me ask Sam. 00:02:41.840 --> 00:02:43.377 Why are you interested in energy? 00:02:43.377 --> 00:02:44.960 AUDIENCE: One of the things I'm really 00:02:44.960 --> 00:02:47.845 interested in new sources of energy, renewable sources 00:02:47.845 --> 00:02:50.380 and moving away from fossil fuels. 00:02:50.380 --> 00:02:52.528 That's part of the reason I'm doing [INAUDIBLE].. 00:02:52.528 --> 00:02:53.570 PROFESSOR: Step one back. 00:02:53.570 --> 00:02:55.310 Why are you interested in that? 00:02:55.310 --> 00:02:58.850 AUDIENCE: I think one of the main problems we have right now 00:02:58.850 --> 00:03:05.557 with international relations is sources of oil and petroleum. 00:03:05.557 --> 00:03:07.640 PROFESSOR: So you're interested in energy security 00:03:07.640 --> 00:03:08.990 kinds of questions. 00:03:08.990 --> 00:03:09.680 OK. 00:03:09.680 --> 00:03:10.365 Yeah. 00:03:10.365 --> 00:03:12.740 AUDIENCE: Developing nations that haven't yet [INAUDIBLE] 00:03:12.740 --> 00:03:13.700 to their grids. 00:03:13.700 --> 00:03:16.486 [INAUDIBLE] newer sources of energy 00:03:16.486 --> 00:03:20.647 versus old traditional sources that [INAUDIBLE].. 00:03:20.647 --> 00:03:22.730 PROFESSOR: So can you think about some-- can there 00:03:22.730 --> 00:03:25.310 be some sort of leapfrogging strategy the way 00:03:25.310 --> 00:03:28.280 developing countries have bypassed wireline telephones 00:03:28.280 --> 00:03:29.640 and jumped to mobile. 00:03:29.640 --> 00:03:32.785 Is there something like that in energy? 00:03:32.785 --> 00:03:34.910 Yeah, we're going to do less on developed countries 00:03:34.910 --> 00:03:35.450 than I'd like. 00:03:35.450 --> 00:03:36.908 But we will do some, because that's 00:03:36.908 --> 00:03:38.570 a very interesting question. 00:03:38.570 --> 00:03:39.320 OK. 00:03:39.320 --> 00:03:42.200 A variety of interests. 00:03:42.200 --> 00:03:47.550 We had a couple of definitions of the energy problem. 00:03:47.550 --> 00:03:50.930 I'm sorry for the US focus, but we will broaden. 00:03:50.930 --> 00:03:54.230 We had a couple of definitions of energy problem 00:03:54.230 --> 00:03:56.720 in those answers. 00:03:56.720 --> 00:03:59.750 One has to do with the possibility of running out. 00:03:59.750 --> 00:04:01.100 Sustainability. 00:04:01.100 --> 00:04:05.327 Another has to do with environment. 00:04:05.327 --> 00:04:07.410 Are there any other aspects to the energy problem? 00:04:07.410 --> 00:04:09.980 And energy security, international dependence. 00:04:09.980 --> 00:04:13.980 Are there any other aspects to the energy problem? 00:04:13.980 --> 00:04:15.487 That people have thought about. 00:04:15.487 --> 00:04:17.070 I mean, if there is an energy problem. 00:04:17.070 --> 00:04:19.600 You hear about it all the time. 00:04:19.600 --> 00:04:21.220 Is there anything else? 00:04:21.220 --> 00:04:22.330 Sarah? 00:04:22.330 --> 00:04:24.080 AUDIENCE: Cost and market efficiency. 00:04:24.080 --> 00:04:25.580 Because when you don't have storage, 00:04:25.580 --> 00:04:27.790 you have things like wind power that 00:04:27.790 --> 00:04:29.990 can cause a lot of problems in the market. 00:04:29.990 --> 00:04:33.920 PROFESSOR: So there are two things there. 00:04:33.920 --> 00:04:37.010 One is even if we don't run out, it might get really expensive. 00:04:37.010 --> 00:04:39.430 So it's not a question of, oh my God, 00:04:39.430 --> 00:04:40.780 this is the last drop of oil. 00:04:40.780 --> 00:04:44.170 It's, oh my God, this drop of oil is $7,000. 00:04:44.170 --> 00:04:45.820 That's a different kind of problem. 00:04:45.820 --> 00:04:48.340 Economists like the second part. 00:04:48.340 --> 00:04:50.320 Or think that the world tends to get you 00:04:50.320 --> 00:04:53.620 to the second kind, not the last drop, but the expensive drop. 00:04:53.620 --> 00:04:55.540 And then the issue of how do you actually 00:04:55.540 --> 00:04:58.000 do renewables when renewables don't 00:04:58.000 --> 00:05:00.080 work like dispatchable power? 00:05:00.080 --> 00:05:00.580 OK. 00:05:00.580 --> 00:05:02.080 Those are energy problems. 00:05:05.710 --> 00:05:09.070 Why haven't they been solved? 00:05:09.070 --> 00:05:09.820 Yeah. 00:05:09.820 --> 00:05:11.950 That was-- either you're waving for flies, 00:05:11.950 --> 00:05:13.940 or you're ready to go. 00:05:13.940 --> 00:05:16.930 AUDIENCE: So one of the problems, like [INAUDIBLE],, 00:05:16.930 --> 00:05:20.110 people tend to focus usually just on the supply side. 00:05:20.110 --> 00:05:22.540 But it's actually kind of both supply and demand. 00:05:22.540 --> 00:05:24.560 And the US has one of the highest demand 00:05:24.560 --> 00:05:27.160 for energy in the entire world. 00:05:27.160 --> 00:05:30.910 So the country used to be a major oil exporter, 00:05:30.910 --> 00:05:32.350 prior to World War II. 00:05:32.350 --> 00:05:35.030 And now really one of the major oil importers. 00:05:35.030 --> 00:05:36.430 So a big problem is it's actually 00:05:36.430 --> 00:05:41.650 the mentality of the consumers in the US, excessive spending, 00:05:41.650 --> 00:05:42.910 so on and so forth. 00:05:42.910 --> 00:05:45.250 PROFESSOR: Well, apart from being terrible people, 00:05:45.250 --> 00:05:47.710 which I give you. 00:05:47.710 --> 00:05:51.830 I mean, there are a lot of, you know, 00:05:51.830 --> 00:05:56.150 it costs us money to import all this oil. 00:05:56.150 --> 00:05:57.070 It's expensive. 00:05:57.070 --> 00:05:58.000 The price varies. 00:05:58.000 --> 00:06:01.190 I'll talk about that a little bit. 00:06:01.190 --> 00:06:03.700 Why is this not a problem that the markets-- 00:06:03.700 --> 00:06:05.458 why aren't some of these problems problems 00:06:05.458 --> 00:06:06.250 that markets solve? 00:06:09.100 --> 00:06:11.590 AUDIENCE: I think that there are huge barriers to entry, 00:06:11.590 --> 00:06:14.583 because the cost of laying down the infrastructure. 00:06:14.583 --> 00:06:16.750 You talk about the power distribution infrastructure 00:06:16.750 --> 00:06:20.230 is immense, and it's something that I 00:06:20.230 --> 00:06:24.880 think only entities such as the government can afford, 00:06:24.880 --> 00:06:27.790 because I don't think that the private sector would 00:06:27.790 --> 00:06:31.113 be capable of funding such a huge research endeavor. 00:06:31.113 --> 00:06:32.530 PROFESSOR: Well, except almost all 00:06:32.530 --> 00:06:35.200 the US power grid is privately funded and privately owned. 00:06:35.200 --> 00:06:36.050 Not all of it. 00:06:36.050 --> 00:06:37.460 But most of it. 00:06:37.460 --> 00:06:39.190 So we built it before. 00:06:39.190 --> 00:06:40.848 But you have a point. 00:06:40.848 --> 00:06:43.390 Where I would go with that, and I'll spend some time on this, 00:06:43.390 --> 00:06:48.460 is things move slowly in energy, because of all the capital. 00:06:48.460 --> 00:06:51.820 Doesn't mean they don't move, but they move slowly. 00:06:51.820 --> 00:06:55.870 In one presentation, we use the analogy of turning a tanker. 00:06:55.870 --> 00:06:57.190 You can do it. 00:06:57.190 --> 00:06:58.690 It's not easy, and it takes a while. 00:06:58.690 --> 00:07:00.000 Jackie, you had a thought. 00:07:00.000 --> 00:07:02.935 AUDIENCE: I think there's a lack of consensus as to what 00:07:02.935 --> 00:07:05.830 should be done, because there's such a wide variety of opinions 00:07:05.830 --> 00:07:10.360 and interests at state, political, economic, social 00:07:10.360 --> 00:07:13.510 that there's no way to-- or there hasn't been a way so far 00:07:13.510 --> 00:07:15.080 to agree on something. 00:07:15.080 --> 00:07:16.330 PROFESSOR: So we could maybe-- 00:07:16.330 --> 00:07:18.220 two alternative ways which we heard a lot 00:07:18.220 --> 00:07:21.970 about in the recent past to deal with the oil use problem 00:07:21.970 --> 00:07:25.840 is drill baby drill, or conservation. 00:07:25.840 --> 00:07:29.410 And you could imagine a world in which you would do both, 00:07:29.410 --> 00:07:30.940 but you're right. 00:07:30.940 --> 00:07:34.870 There's no particular consensus. 00:07:34.870 --> 00:07:36.640 Does there need to be a consensus, though? 00:07:36.640 --> 00:07:37.840 Think about food. 00:07:37.840 --> 00:07:39.760 There's no consensus on food. 00:07:39.760 --> 00:07:41.560 We don't have a food problem. 00:07:41.560 --> 00:07:43.270 But we eat a lot. 00:07:43.270 --> 00:07:47.180 And you know, we're leading the obesity epidemic. 00:07:47.180 --> 00:07:49.660 I'm doing my part. 00:07:49.660 --> 00:07:52.690 But we don't have a national food policy. 00:07:52.690 --> 00:07:54.710 I mean, we have a farm policy. 00:07:54.710 --> 00:07:57.080 But it's been in place for a long time. 00:07:57.080 --> 00:07:59.270 It doesn't actually do that much. 00:07:59.270 --> 00:08:00.850 So why do we need an energy policy? 00:08:00.850 --> 00:08:02.350 AUDIENCE: I think at the point where 00:08:02.350 --> 00:08:07.000 we are in the energy problem requires some major steps that 00:08:07.000 --> 00:08:09.100 means government won't necessarily-- government 00:08:09.100 --> 00:08:11.505 or large businesses, or some kind of large entity 00:08:11.505 --> 00:08:13.930 will have to be involved in that. 00:08:13.930 --> 00:08:18.070 PROFESSOR: OK, you're worried about scale questions. 00:08:18.070 --> 00:08:20.600 Since you posed the question, you can answer the question. 00:08:20.600 --> 00:08:22.850 AUDIENCE: I think it's not necessarily of corporations 00:08:22.850 --> 00:08:25.270 not having money to invest in energy projects. 00:08:25.270 --> 00:08:26.950 That's not really true. 00:08:26.950 --> 00:08:31.270 But the government is necessary because most 00:08:31.270 --> 00:08:34.990 of the very, very major energy problems, the energy projects 00:08:34.990 --> 00:08:37.299 will involve an investment timeline that will 00:08:37.299 --> 00:08:40.240 take 20, 30 years to play back. 00:08:40.240 --> 00:08:42.340 So as people who run a corporation, 00:08:42.340 --> 00:08:45.180 I mean, they don't have personal interest necessarily 00:08:45.180 --> 00:08:47.260 [INAUDIBLE],, because the timeline 00:08:47.260 --> 00:08:49.880 that they're going to be in that corporation is so limited. 00:08:49.880 --> 00:08:53.645 So a big part of it is just the structure of corporations 00:08:53.645 --> 00:08:55.520 doesn't really favor that sort of investment. 00:08:55.520 --> 00:08:58.690 So the government needs to step back and think about long term 00:08:58.690 --> 00:08:59.620 interests. 00:08:59.620 --> 00:09:01.660 PROFESSOR: But we did build the existing power 00:09:01.660 --> 00:09:04.330 grid and all of the existing infrastructure 00:09:04.330 --> 00:09:06.310 with private money. 00:09:06.310 --> 00:09:08.740 So what's new now? 00:09:08.740 --> 00:09:10.150 AUDIENCE: Well, I think back then 00:09:10.150 --> 00:09:13.930 also like corporations tend to be run 00:09:13.930 --> 00:09:15.980 much more by large families. 00:09:15.980 --> 00:09:18.010 So in that case, people did have an interest 00:09:18.010 --> 00:09:20.575 in how companies were performing over the long run, 00:09:20.575 --> 00:09:22.450 because they're think about my kids are going 00:09:22.450 --> 00:09:23.800 to take over this company. 00:09:23.800 --> 00:09:25.180 And I think about how-- 00:09:25.180 --> 00:09:26.800 I mean, like a big part of how-- 00:09:26.800 --> 00:09:29.240 PROFESSOR: Well, I give you that possibility. 00:09:29.240 --> 00:09:31.630 But in electric power, it wasn't true. 00:09:31.630 --> 00:09:33.583 Thomas Edison set up the first company. 00:09:33.583 --> 00:09:34.750 It was not a family company. 00:09:34.750 --> 00:09:36.550 So electric power doesn't fit it. 00:09:36.550 --> 00:09:38.890 Let me try another line. 00:09:38.890 --> 00:09:39.928 See what Andrea says. 00:09:39.928 --> 00:09:41.470 AUDIENCE: I was going to mention also 00:09:41.470 --> 00:09:44.860 that one issue with electricity, for example, is that once it's 00:09:44.860 --> 00:09:47.200 in the grid, you have no idea. 00:09:47.200 --> 00:09:49.450 You can differentiate whether it comes 00:09:49.450 --> 00:09:52.460 from coal or from nuclear or whatever source. 00:09:52.460 --> 00:09:56.140 So that's an issue in pricing, which may cause issue-- 00:09:56.140 --> 00:09:59.890 which may cause people not to take initiative 00:09:59.890 --> 00:10:03.040 from different sources to solve a common problem, which 00:10:03.040 --> 00:10:05.230 could be the grid, or maybe something else. 00:10:05.230 --> 00:10:07.640 And another thing is that, which is also true, 00:10:07.640 --> 00:10:10.450 though, with food, so I got kind of perplexed with that, 00:10:10.450 --> 00:10:14.290 is that it's an international issue that 00:10:14.290 --> 00:10:16.690 may involve many players. 00:10:16.690 --> 00:10:21.280 So it's hard to have different countries agree 00:10:21.280 --> 00:10:23.290 upon certain standards. 00:10:23.290 --> 00:10:24.970 As we've talked a lot, we've heard a lot 00:10:24.970 --> 00:10:27.760 about developing countries versus developed and all that. 00:10:27.760 --> 00:10:29.250 PROFESSOR: So we're going-- 00:10:29.250 --> 00:10:31.000 let me pursue that a little bit, because I 00:10:31.000 --> 00:10:33.950 think it takes us down the road I've been hoping to go down, 00:10:33.950 --> 00:10:38.190 which is why do we all need to agree? 00:10:38.190 --> 00:10:40.830 We don't all have common food standards. 00:10:40.830 --> 00:10:43.950 We don't all have agreement on a lot of things. 00:10:43.950 --> 00:10:47.910 Why are many countries involved? 00:10:47.910 --> 00:10:51.630 Why might Canada and the US need to agree on certain things 00:10:51.630 --> 00:10:53.160 related to energy? 00:10:53.160 --> 00:10:55.290 AUDIENCE: Because, I mean, some issues 00:10:55.290 --> 00:10:57.530 that are coming to my mind right now 00:10:57.530 --> 00:11:00.630 are, firstly, that you have the allocation 00:11:00.630 --> 00:11:04.680 of the sources of energy are given in the world. 00:11:04.680 --> 00:11:08.157 So you may have a region of abundance in some resource, 00:11:08.157 --> 00:11:10.740 and not abundance in some other resources, so you need to have 00:11:10.740 --> 00:11:12.030 [INAUDIBLE]. 00:11:12.030 --> 00:11:15.270 And the source where you have them, as opposed to the source 00:11:15.270 --> 00:11:17.230 where you use them might not be the same. 00:11:17.230 --> 00:11:20.580 So then, again, you may have to [INAUDIBLE] in those two 00:11:20.580 --> 00:11:21.120 countries. 00:11:21.120 --> 00:11:24.690 Plus what you do here may affect-- so if I pollute here, 00:11:24.690 --> 00:11:27.180 it affects what goes on in Canada. 00:11:27.180 --> 00:11:30.060 PROFESSOR: I heard the magic word. 00:11:30.060 --> 00:11:32.970 If we pollute here, it affects Canada. 00:11:32.970 --> 00:11:41.270 If we burn coal in Ohio, it affects people around the power 00:11:41.270 --> 00:11:43.310 plant, elsewhere. 00:11:43.310 --> 00:11:45.110 We talked about pollution. 00:11:45.110 --> 00:11:48.050 An awful lot of energy policy is driven 00:11:48.050 --> 00:11:50.280 by environmental concerns. 00:11:50.280 --> 00:11:52.460 You will recall from basic economics 00:11:52.460 --> 00:11:59.330 the notion of an externality, that activity A done by-- 00:11:59.330 --> 00:12:03.710 entity A effect's entity B outside the market. 00:12:03.710 --> 00:12:07.700 Climate change, local pollution of various kinds 00:12:07.700 --> 00:12:10.250 drives a lot of energy policy, which is one reason why 00:12:10.250 --> 00:12:11.930 people talk about renewables. 00:12:11.930 --> 00:12:15.470 Climate change is that issue writ large, very large, 00:12:15.470 --> 00:12:17.030 and we'll come back to that. 00:12:17.030 --> 00:12:19.310 The other way that concept works is if you 00:12:19.310 --> 00:12:21.500 think about energy security. 00:12:21.500 --> 00:12:22.850 So I don't have an SUV. 00:12:22.850 --> 00:12:25.940 But if I had an SUV, I could drive my SUV, 00:12:25.940 --> 00:12:27.200 burn all the gas I wanted. 00:12:27.200 --> 00:12:28.790 I would contribute to oil imports. 00:12:28.790 --> 00:12:31.160 But guess what-- and that would make 00:12:31.160 --> 00:12:32.900 us less secure as a country. 00:12:32.900 --> 00:12:37.410 But the effective on me of that insecurity is trivial. 00:12:37.410 --> 00:12:39.640 There's an externality there, it's argued. 00:12:39.640 --> 00:12:43.110 If you think about oil imports as being undesirable, 00:12:43.110 --> 00:12:46.250 when I drive, it affects imports. 00:12:46.250 --> 00:12:47.270 Doesn't affect me. 00:12:47.270 --> 00:12:48.950 Affects everybody else in the room 00:12:48.950 --> 00:12:53.120 because they live in a country that imports more oil. 00:12:53.120 --> 00:12:57.170 So the arguments for a lot of this stuff is externalities. 00:12:57.170 --> 00:12:58.980 That we're going to spend some time on it. 00:12:58.980 --> 00:13:02.000 But the reason private-- the basic reason private business 00:13:02.000 --> 00:13:03.732 hasn't solved all of it-- 00:13:03.732 --> 00:13:04.940 there are other problems too. 00:13:04.940 --> 00:13:10.070 But some of the core problems are because the market doesn't 00:13:10.070 --> 00:13:11.300 deal with externalities. 00:13:11.300 --> 00:13:13.520 That's sort of a definition. 00:13:13.520 --> 00:13:14.990 Market doesn't solve pollution. 00:13:14.990 --> 00:13:19.520 Market doesn't solve other kinds of externalities. 00:13:19.520 --> 00:13:21.200 If you listen to the State of the Union, 00:13:21.200 --> 00:13:22.492 I'm sure you found it riveting. 00:13:24.890 --> 00:13:27.920 The president called, as he had in prior speeches, 00:13:27.920 --> 00:13:31.430 for a clean energy standard. 00:13:31.430 --> 00:13:33.980 And the way he had done it earlier 00:13:33.980 --> 00:13:36.890 was x percent of electricity has to come from clean sources 00:13:36.890 --> 00:13:39.830 by 2020 or 2030. 00:13:39.830 --> 00:13:43.380 Probably not a chance that Congress will pass that. 00:13:43.380 --> 00:13:46.100 But the interesting question is what might you mean by clean? 00:13:46.100 --> 00:13:50.270 And that's the only phrase he used in the speech. 00:13:50.270 --> 00:13:53.330 What do you think he meant by clean? 00:13:53.330 --> 00:13:55.920 Think about all the ways you can generate electricity. 00:13:55.920 --> 00:13:57.390 Which sources count as clean? 00:13:57.390 --> 00:13:58.085 Yeah? 00:13:58.085 --> 00:14:00.720 AUDIENCE: [INAUDIBLE] definition he means nuclear as clean. 00:14:00.720 --> 00:14:04.190 Not necessarily renewable, but clean coal cycle, 00:14:04.190 --> 00:14:06.530 and I guess more for the environmental pollution. 00:14:06.530 --> 00:14:08.787 Not necessarily the infrastructure that-- 00:14:08.787 --> 00:14:10.370 PROFESSOR: No, he means environmental. 00:14:10.370 --> 00:14:12.170 Exactly right. 00:14:12.170 --> 00:14:14.670 Not clear he means nuclear. 00:14:14.670 --> 00:14:17.190 A lot of people don't think nuclear is clean. 00:14:17.190 --> 00:14:19.860 But renewables are clean. 00:14:19.860 --> 00:14:20.838 Any other thoughts? 00:14:20.838 --> 00:14:21.630 I don't know what-- 00:14:21.630 --> 00:14:23.350 I forget whether he meant renewable. 00:14:23.350 --> 00:14:23.850 Yeah. 00:14:23.850 --> 00:14:25.308 AUDIENCE: [INAUDIBLE] that when you 00:14:25.308 --> 00:14:27.660 don't release more CO2 in the atmosphere, and then 00:14:27.660 --> 00:14:30.230 [INAUDIBLE]. 00:14:30.230 --> 00:14:33.420 PROFESSOR: What would that be? 00:14:33.420 --> 00:14:34.350 AUDIENCE: Solar power. 00:14:34.350 --> 00:14:35.580 PROFESSOR: Solar power. 00:14:35.580 --> 00:14:36.720 Renewables in general. 00:14:36.720 --> 00:14:41.170 Yeah, I mean biomass properly done can do that. 00:14:41.170 --> 00:14:42.160 It's a little tricky. 00:14:42.160 --> 00:14:43.830 There's a little start-up problem. 00:14:43.830 --> 00:14:46.470 I mean, you cut down all the trees and burn them. 00:14:46.470 --> 00:14:48.600 On its face, it's not a great thing to do. 00:14:48.600 --> 00:14:50.100 But if you're planting, you can keep 00:14:50.100 --> 00:14:54.060 that sustainable after a while. 00:14:54.060 --> 00:14:58.500 He actually also meant some uses of natural gas, 00:14:58.500 --> 00:14:59.420 which get half credit. 00:15:02.240 --> 00:15:04.402 It's kind of complicated. 00:15:04.402 --> 00:15:06.860 So it's going to be raise or lower the price of electricity 00:15:06.860 --> 00:15:07.402 if we did it? 00:15:11.228 --> 00:15:12.270 AUDIENCE: Probably raise. 00:15:12.270 --> 00:15:13.980 PROFESSOR: Probably raise. 00:15:13.980 --> 00:15:15.840 Because if it was going to lower it, 00:15:15.840 --> 00:15:18.300 you probably wouldn't need a federal push to get it done, 00:15:18.300 --> 00:15:19.290 right? 00:15:19.290 --> 00:15:20.850 That the market can deal with. 00:15:23.730 --> 00:15:26.040 And I'm not quite sure why I asked that question, 00:15:26.040 --> 00:15:29.940 because the obvious answer is legislation. 00:15:29.940 --> 00:15:33.030 So we've fiddled and diddled with a lot of these questions. 00:15:33.030 --> 00:15:37.320 And I want to answer that question myself, 00:15:37.320 --> 00:15:39.240 because the question is, why is there 00:15:39.240 --> 00:15:43.230 a social science class in the energy studies minor? 00:15:43.230 --> 00:15:45.720 What in heaven's name does social science 00:15:45.720 --> 00:15:50.040 have to do with what's clean, what are the reasons why 00:15:50.040 --> 00:15:53.870 we have an energy problem, what are our concerns, 00:15:53.870 --> 00:15:57.710 whether you achieve that goal or not. 00:15:57.710 --> 00:16:03.280 I'm going to give you sort of how those of us who thought up 00:16:03.280 --> 00:16:05.950 this course think about the energy system 00:16:05.950 --> 00:16:08.170 from a social science point of view. 00:16:08.170 --> 00:16:11.650 This may be my best graphic ever. 00:16:11.650 --> 00:16:15.610 So most of what we talk about when we talk about energy 00:16:15.610 --> 00:16:19.030 are flows from things like coal through, say, 00:16:19.030 --> 00:16:21.850 electricity generation, into the provision 00:16:21.850 --> 00:16:26.050 of energy services like toasting your toast in the morning. 00:16:26.050 --> 00:16:30.730 And an awful lot of technology is in here is there 00:16:30.730 --> 00:16:33.460 and how do you get primary energy from the sun, 00:16:33.460 --> 00:16:36.700 from coal, from nuclear power, whatever, how do you convert it 00:16:36.700 --> 00:16:39.130 to something useful, and then how 00:16:39.130 --> 00:16:40.720 do you get services from it. 00:16:40.720 --> 00:16:43.000 And that's great stuff. 00:16:43.000 --> 00:16:46.630 I'll have something to say about what's in that box. 00:16:46.630 --> 00:16:49.930 But that's not mainly just to get systems straight, 00:16:49.930 --> 00:16:52.400 as opposed to devices. 00:16:52.400 --> 00:16:55.640 That's not mainly what we're going to talk about. 00:16:55.640 --> 00:17:00.140 We're going to talk about what drives the flows. 00:17:00.140 --> 00:17:04.060 Well, there's a supply side. 00:17:04.060 --> 00:17:05.410 You find energy. 00:17:05.410 --> 00:17:06.520 You convert it. 00:17:06.520 --> 00:17:08.000 Some of that's done by government. 00:17:08.000 --> 00:17:10.480 Some of it's done by private enterprises. 00:17:10.480 --> 00:17:12.670 There's a demand for energy services, 00:17:12.670 --> 00:17:13.810 mainly not for energy. 00:17:13.810 --> 00:17:14.920 Where does that come from? 00:17:14.920 --> 00:17:16.430 How are those decisions made? 00:17:16.430 --> 00:17:18.530 How are the supply decisions made? 00:17:18.530 --> 00:17:22.329 So if you think about devices and systems in here, 00:17:22.329 --> 00:17:25.030 what are in the higher boxes are the decisions 00:17:25.030 --> 00:17:29.650 about how they're operated, how intensively they're used. 00:17:29.650 --> 00:17:31.840 Supply and demand interact-- 00:17:31.840 --> 00:17:33.550 too many arrows-- supply and demand 00:17:33.550 --> 00:17:35.530 interact through markets. 00:17:35.530 --> 00:17:38.140 The markets, as well as the decisions on both sides, 00:17:38.140 --> 00:17:42.640 affect what's in that technology box and how it's used. 00:17:42.640 --> 00:17:46.800 Stepping back, there are a whole lot 00:17:46.800 --> 00:17:50.730 of things that I think of as stocks. 00:17:50.730 --> 00:17:55.230 Things like reserves of oil, existing buildings, 00:17:55.230 --> 00:18:00.930 infrastructure, cars, you could add technologies, that underlie 00:18:00.930 --> 00:18:02.205 the operation of the system. 00:18:05.110 --> 00:18:07.110 And that's the underlay the operation. 00:18:07.110 --> 00:18:11.460 They too are shaped by decisions on the supply and demand side. 00:18:11.460 --> 00:18:15.780 How much gasoline you use is shaped by today's technology. 00:18:15.780 --> 00:18:19.860 It's also shaped by past purchasing decisions of cars. 00:18:19.860 --> 00:18:21.900 How much do we use to heat buildings 00:18:21.900 --> 00:18:26.310 is shaped by the latest fancy technology, 00:18:26.310 --> 00:18:29.560 and the buildings that were built a half a century ago. 00:18:29.560 --> 00:18:32.590 And what retrofit possibilities there are. 00:18:32.590 --> 00:18:33.622 But that's fun. 00:18:33.622 --> 00:18:35.080 So we're going to look at decisions 00:18:35.080 --> 00:18:37.520 on the supply and demand side. 00:18:37.520 --> 00:18:43.830 But those decisions are affected by regulation. 00:18:43.830 --> 00:18:47.340 And the markets are affected by regulations and laws 00:18:47.340 --> 00:18:49.590 of various kinds. 00:18:49.590 --> 00:18:57.680 Now, there's a natural tendency to take those as given. 00:18:57.680 --> 00:19:01.040 To say, OK, what I need to know to operate in this world is, 00:19:01.040 --> 00:19:03.140 well, what are the laws and regulations 00:19:03.140 --> 00:19:08.410 that affect what we can do in the energy sphere? 00:19:08.410 --> 00:19:11.960 But if you want to change things, 00:19:11.960 --> 00:19:15.210 and I heard a number of you wanting to change things, 00:19:15.210 --> 00:19:19.310 that's not good enough, because what 00:19:19.310 --> 00:19:22.190 goes on in laws and regulations affects 00:19:22.190 --> 00:19:26.000 what gets done down here, what's used to do what? 00:19:26.000 --> 00:19:28.790 To produce, to convert, to use. 00:19:28.790 --> 00:19:32.000 And affects the kinds of decisions 00:19:32.000 --> 00:19:35.520 that households, firms, other kinds of organizations, 00:19:35.520 --> 00:19:37.050 universities make. 00:19:37.050 --> 00:19:40.230 So we're going to spend a little time saying, 00:19:40.230 --> 00:19:41.750 where do those come from? 00:19:41.750 --> 00:19:43.730 What's the political process look like? 00:19:46.490 --> 00:19:48.920 Those political processes are shaped, obviously, 00:19:48.920 --> 00:19:53.780 by firms and households and other organizations. 00:19:53.780 --> 00:19:58.510 I will also say, we will-- 00:19:58.510 --> 00:20:01.240 so there's a little political science there. 00:20:01.240 --> 00:20:05.990 There will also be a little bit of organizational behavior here 00:20:05.990 --> 00:20:08.330 and a little bit of psychology there, 00:20:08.330 --> 00:20:13.070 when we look at how these decisions actually get made. 00:20:13.070 --> 00:20:20.580 So behind everything are a set of norms and values 00:20:20.580 --> 00:20:26.050 and traditions that really shape the political context. 00:20:26.050 --> 00:20:31.152 You listen to any campaign speech, you hear a lot of that. 00:20:31.152 --> 00:20:32.860 You don't necessarily hear a lot of-- you 00:20:32.860 --> 00:20:35.120 hear a lot of that, and then some specific policy. 00:20:35.120 --> 00:20:37.090 But you hear a lot of that. 00:20:37.090 --> 00:20:38.950 And that's important. 00:20:38.950 --> 00:20:40.900 And campaign speeches in different countries 00:20:40.900 --> 00:20:45.040 say different things when they sound themes about traditions 00:20:45.040 --> 00:20:47.450 and values and norms. 00:20:47.450 --> 00:20:50.710 But the political process operates within them. 00:20:50.710 --> 00:20:53.000 We'll talk about that. 00:20:53.000 --> 00:21:00.180 So we want to talk about not only sort of how systems work 00:21:00.180 --> 00:21:03.940 and how supply and demand interact in the energy space, 00:21:03.940 --> 00:21:08.400 but in fact, how that whole structure is shaped 00:21:08.400 --> 00:21:12.180 by, if you will, a higher order more fundamental-- 00:21:12.180 --> 00:21:15.450 the higher order in the chart processes 00:21:15.450 --> 00:21:19.020 in the political sphere, in the social sphere. 00:21:19.020 --> 00:21:23.700 So the reason why we're doing social science 00:21:23.700 --> 00:21:28.260 is the system involves people. 00:21:28.260 --> 00:21:33.460 And social science, economics, political science, sociology, 00:21:33.460 --> 00:21:36.480 anthropology, social psychology, things 00:21:36.480 --> 00:21:39.270 I've read about at least, these are 00:21:39.270 --> 00:21:44.250 all ways of looking at systems that involve people. 00:21:44.250 --> 00:21:48.060 And if you want to change a system that involves people, 00:21:48.060 --> 00:21:50.580 you need to think about the kinds of things 00:21:50.580 --> 00:21:52.930 we're going to talk about here. 00:21:52.930 --> 00:21:56.890 So we're going to try to give you some basic understanding, 00:21:56.890 --> 00:22:01.080 or at least some sensitivity to the tools that come out 00:22:01.080 --> 00:22:03.480 of the social sciences that can help 00:22:03.480 --> 00:22:06.600 you understand, and with some luck, 00:22:06.600 --> 00:22:10.160 can help you drive change. 00:22:10.160 --> 00:22:13.400 This is not a prediction or a course 00:22:13.400 --> 00:22:16.910 where we talk about the future will look like x. 00:22:16.910 --> 00:22:19.340 That's for you guys to decide. 00:22:19.340 --> 00:22:24.440 This is a course where we try to help you shape the future. 00:22:24.440 --> 00:22:27.980 The annual energy review comes out of the Energy Information 00:22:27.980 --> 00:22:28.880 Agency. 00:22:28.880 --> 00:22:31.610 It says AER 2010. 00:22:31.610 --> 00:22:36.590 It's published in 2011, the latest data, or 2010. 00:22:36.590 --> 00:22:39.410 This is energy consumption per person in the United States 00:22:39.410 --> 00:22:41.310 over time. 00:22:41.310 --> 00:22:48.590 You will notice that it sort of peaks in the '70s someplace, 00:22:48.590 --> 00:22:51.120 and is flat. 00:22:51.120 --> 00:22:54.122 Now, if you think about how the cars we drive, 00:22:54.122 --> 00:22:55.830 compare it-- well, you may not know this, 00:22:55.830 --> 00:22:59.090 but how the cars we drive compared to the cars folks 00:22:59.090 --> 00:23:01.070 drove in the '70s, they are bigger, 00:23:01.070 --> 00:23:02.960 and have a lot more horsepower. 00:23:02.960 --> 00:23:04.760 And what our homes look like compared 00:23:04.760 --> 00:23:08.150 to homes built in the '70s is they are bigger, 00:23:08.150 --> 00:23:10.940 and they tend to be centrally air conditioned. 00:23:10.940 --> 00:23:13.860 If you think about computer use and appliance use, 00:23:13.860 --> 00:23:16.640 there's a lot more of it. 00:23:16.640 --> 00:23:20.900 But energy consumption per capita is flat. 00:23:20.900 --> 00:23:22.880 I'll show you energy per dollar of GDP, 00:23:22.880 --> 00:23:24.800 but you might expect it to be declining. 00:23:24.800 --> 00:23:30.190 And what that tells you is first of all, there is efficiency. 00:23:30.190 --> 00:23:32.260 And second of all, if you think for a minute, 00:23:32.260 --> 00:23:37.690 maybe we're doing different things than we did in the '70s. 00:23:37.690 --> 00:23:41.270 Like less manufacturing. 00:23:41.270 --> 00:23:44.260 Another graph, I love this graph. 00:23:44.260 --> 00:23:47.170 Impossible to read, I expect, from the back. 00:23:47.170 --> 00:23:51.310 But this is energy consumption per person across the States. 00:23:51.310 --> 00:23:57.730 And there, on the virtuous right end is Massachusetts. 00:23:57.730 --> 00:24:00.100 How about that, we are good folks. 00:24:00.100 --> 00:24:03.230 Is there anybody here from Wyoming? 00:24:03.230 --> 00:24:03.730 Anybody? 00:24:03.730 --> 00:24:04.600 Nobody from Wyoming? 00:24:04.600 --> 00:24:07.840 No one will admit to being from Wyoming? 00:24:07.840 --> 00:24:08.440 All right. 00:24:08.440 --> 00:24:10.630 I'm betting against Alaska. 00:24:10.630 --> 00:24:12.460 How about Louisiana? 00:24:12.460 --> 00:24:14.530 North Dakota. 00:24:14.530 --> 00:24:16.900 Working from the left in. 00:24:16.900 --> 00:24:18.610 IA is Iowa, yes? 00:24:18.610 --> 00:24:19.480 Iowa. 00:24:19.480 --> 00:24:22.480 Anybody from-- surely somebody is from Iowa. 00:24:22.480 --> 00:24:24.280 OK, we have no Midwesterners here. 00:24:24.280 --> 00:24:26.900 How about Texas, South Dakota, or Kentucky? 00:24:26.900 --> 00:24:29.440 Ah, we have the Texas delegation? 00:24:29.440 --> 00:24:30.730 OK. 00:24:30.730 --> 00:24:34.000 Gentlemen, how come we use so much less energy 00:24:34.000 --> 00:24:37.570 than you do per capita? 00:24:37.570 --> 00:24:38.680 Pickett. 00:24:38.680 --> 00:24:39.400 Wyatt? 00:24:39.400 --> 00:24:40.000 Take a run. 00:24:40.000 --> 00:24:41.380 What do you think? 00:24:41.380 --> 00:24:43.330 AUDIENCE: We do a lot of farming in Kentucky. 00:24:43.330 --> 00:24:45.163 So that may have something to do with it. 00:24:45.163 --> 00:24:47.080 PROFESSOR: Farming is actually a fairly energy 00:24:47.080 --> 00:24:48.940 intensive activity these days. 00:24:48.940 --> 00:24:51.160 You're driving a lot of machinery. 00:24:51.160 --> 00:24:52.500 It uses a lot of energy. 00:24:52.500 --> 00:24:53.970 So that's one thing. 00:24:53.970 --> 00:24:54.790 OK. 00:24:54.790 --> 00:24:55.600 Anything else? 00:24:58.770 --> 00:25:00.072 Yeah, go ahead. 00:25:00.072 --> 00:25:02.280 AUDIENCE: Unlike Massachusetts, where a lot of people 00:25:02.280 --> 00:25:04.770 walk, especially in Boston, in South Dakota 00:25:04.770 --> 00:25:06.180 everything's really spread apart, 00:25:06.180 --> 00:25:07.385 so everybody drives there. 00:25:07.385 --> 00:25:08.760 PROFESSOR: So it's lower density. 00:25:08.760 --> 00:25:11.260 There's probably a lot more driving per capita. 00:25:11.260 --> 00:25:12.480 Yeah. 00:25:12.480 --> 00:25:15.235 Matt, you raised-- you identified 00:25:15.235 --> 00:25:16.110 as one of this crowd. 00:25:16.110 --> 00:25:17.190 AUDIENCE: [INAUDIBLE] in Texas. 00:25:17.190 --> 00:25:17.760 PROFESSOR: It's what? 00:25:17.760 --> 00:25:19.170 AUDIENCE: Air conditioning? 00:25:19.170 --> 00:25:20.340 PROFESSOR: Air conditioning. 00:25:20.340 --> 00:25:21.210 Hotter summers. 00:25:21.210 --> 00:25:23.030 Probably a lot more central air. 00:25:23.030 --> 00:25:25.290 AUDIENCE: Probably a drive everywhere. 00:25:25.290 --> 00:25:28.507 PROFESSOR: A lot more spread out, yeah. 00:25:28.507 --> 00:25:30.090 It's interesting, when you first think 00:25:30.090 --> 00:25:32.710 about energy use in Massachusetts, you might think, 00:25:32.710 --> 00:25:33.900 gee, we have cold winters. 00:25:33.900 --> 00:25:35.670 We must heat these buildings. 00:25:35.670 --> 00:25:39.030 You notice, there's Hawaii right next to us, 00:25:39.030 --> 00:25:42.090 where they don't heat anything ever really. 00:25:42.090 --> 00:25:44.087 So there are lots of differences. 00:25:44.087 --> 00:25:45.420 And you pointed to some of them. 00:25:45.420 --> 00:25:47.430 They're transportation related. 00:25:47.430 --> 00:25:50.340 There's also not a lot of manufacturing in Massachusetts 00:25:50.340 --> 00:25:51.445 anymore. 00:25:51.445 --> 00:25:53.070 So we don't have a big industrial load. 00:25:53.070 --> 00:25:53.655 Yeah? 00:25:53.655 --> 00:25:56.100 AUDIENCE: Wait, so California, is California right next 00:25:56.100 --> 00:25:58.710 to Massachusetts there? 00:25:58.710 --> 00:25:59.970 PROFESSOR: Yeah, California. 00:25:59.970 --> 00:26:02.428 AUDIENCE: Because California also there's a lot of farming, 00:26:02.428 --> 00:26:03.967 and we drive a lot. 00:26:03.967 --> 00:26:04.800 PROFESSOR: All true. 00:26:04.800 --> 00:26:09.390 But very little manufacturing anymore. 00:26:09.390 --> 00:26:11.760 But you're right. 00:26:11.760 --> 00:26:13.920 There are a lot of puzzles here. 00:26:13.920 --> 00:26:16.980 I mean, there is Arizona. 00:26:16.980 --> 00:26:19.800 And you want to talk about central air conditioning, 00:26:19.800 --> 00:26:22.530 you have to have central air conditioning in Arizona. 00:26:22.530 --> 00:26:26.610 So whereas northern California, you still need it, 00:26:26.610 --> 00:26:27.930 but it's not desperate. 00:26:27.930 --> 00:26:28.500 Yeah? 00:26:28.500 --> 00:26:30.120 Jessica? 00:26:30.120 --> 00:26:33.330 AUDIENCE: How does this do manufacturing, for example? 00:26:33.330 --> 00:26:37.140 Does it ration it to the state that [INAUDIBLE] done 00:26:37.140 --> 00:26:39.465 and those residents, or to where the products are made? 00:26:39.465 --> 00:26:39.570 RICHARD SCHMALENSEE: Yeah. 00:26:39.570 --> 00:26:40.800 Where the plant is. 00:26:40.800 --> 00:26:42.736 AUDIENCE: What about some of these-- 00:26:42.736 --> 00:26:45.980 or the big states that make electricity, 00:26:45.980 --> 00:26:48.990 have big coal plants, big oil plants, big everything? 00:26:48.990 --> 00:26:50.700 Is that proportioned for that state, or-- 00:26:50.700 --> 00:26:52.575 RICHARD SCHMALENSEE: It will be in the state. 00:26:52.575 --> 00:26:53.580 It'll be in the state. 00:26:53.580 --> 00:26:56.250 I mean, California is a pretty light user of electricity. 00:26:56.250 --> 00:26:57.960 We're a pretty light user of electricity. 00:26:57.960 --> 00:26:59.670 Hawaii is light. 00:26:59.670 --> 00:27:01.680 In part, because those are states 00:27:01.680 --> 00:27:04.630 where it's really expensive. 00:27:04.630 --> 00:27:07.120 It's expensive here for a variety of reasons. 00:27:07.120 --> 00:27:08.920 California, heavily environmental. 00:27:08.920 --> 00:27:10.990 Hawaii-- it's Hawaii. 00:27:10.990 --> 00:27:16.300 I mean, it's all oil-fired, and the oil comes by tanker. 00:27:16.300 --> 00:27:16.990 Yeah? 00:27:16.990 --> 00:27:19.407 AUDIENCE: I was going to say that I assume the differences 00:27:19.407 --> 00:27:23.140 also come from state laws and regulations and how those few 00:27:23.140 --> 00:27:23.850 decision-makers-- 00:27:23.850 --> 00:27:24.760 I don't know. 00:27:24.760 --> 00:27:27.310 I mean, for example, you just mentioned [INAUDIBLE].. 00:27:27.310 --> 00:27:29.095 I assume it might be just because you 00:27:29.095 --> 00:27:30.580 have different taxes, so it might 00:27:30.580 --> 00:27:33.190 be more expensive in certain states, or oil 00:27:33.190 --> 00:27:35.020 might be cheaper or more expensive, 00:27:35.020 --> 00:27:36.550 gasoline, stuff like that. 00:27:36.550 --> 00:27:36.790 RICHARD SCHMALENSEE: Yeah. 00:27:36.790 --> 00:27:37.270 Some of that. 00:27:37.270 --> 00:27:37.812 Some of that. 00:27:37.812 --> 00:27:41.220 I mean, we'll talk about some of the state regulations. 00:27:41.220 --> 00:27:43.930 Some of the states, like California, for instance-- 00:27:43.930 --> 00:27:45.430 and Texas, for that matter-- 00:27:45.430 --> 00:27:49.370 have strong programs favoring renewables, 00:27:49.370 --> 00:27:51.700 which will add a bit. 00:27:51.700 --> 00:27:54.400 But you could imagine, down the road, it adding a lot. 00:27:54.400 --> 00:27:57.160 The environmental standards are pretty uniform, 00:27:57.160 --> 00:28:00.970 but most of the electricity generated here 00:28:00.970 --> 00:28:02.770 is generated by gas. 00:28:02.770 --> 00:28:06.050 And we're at the far end of the pipeline. 00:28:06.050 --> 00:28:10.420 So it's not Texas or Louisiana, where the gas is there. 00:28:10.420 --> 00:28:13.340 It comes by comes by pipeline. 00:28:13.340 --> 00:28:16.090 In fact, we import some, LNG. 00:28:16.090 --> 00:28:17.080 Liquefied gas. 00:28:17.080 --> 00:28:18.550 AUDIENCE: It was also, per capita, 00:28:18.550 --> 00:28:21.525 places that have a relatively small population 00:28:21.525 --> 00:28:22.900 for their activity-- like Alaska, 00:28:22.900 --> 00:28:25.825 where there's a lot of mining and stuff, 00:28:25.825 --> 00:28:27.200 and there's not that many people. 00:28:27.200 --> 00:28:29.040 Doesn't that skew it a little bit? 00:28:29.040 --> 00:28:30.640 RICHARD SCHMALENSEE: Yeah. 00:28:30.640 --> 00:28:34.480 But if you put two Alaskas next to each other, 00:28:34.480 --> 00:28:37.240 you would have more people, but still the same per capita. 00:28:37.240 --> 00:28:39.970 So I don't know if there are scale effects, particularly. 00:28:39.970 --> 00:28:41.980 I think density works. 00:28:41.980 --> 00:28:45.010 Alaska's doing a lot of energy-intensive stuff. 00:28:45.010 --> 00:28:47.470 A lot of travel within Alaska. 00:28:47.470 --> 00:28:50.200 A lot of heating in Alaska. 00:28:50.200 --> 00:28:53.630 I don't think it's the absolute scale. 00:28:53.630 --> 00:28:56.750 I mean, consider Hawaii, which is also quite small. 00:28:56.750 --> 00:29:00.300 But Hawaii doesn't-- they're not mining anything. 00:29:00.300 --> 00:29:01.820 There's nothing to mine. 00:29:01.820 --> 00:29:04.980 They're not doing a lot of manufacturing. 00:29:04.980 --> 00:29:08.070 They can't drive that much. 00:29:08.070 --> 00:29:08.570 OK. 00:29:08.570 --> 00:29:08.960 Brendan? 00:29:08.960 --> 00:29:10.668 AUDIENCE: It looks to me like it's mainly 00:29:10.668 --> 00:29:12.550 red states versus blue states. 00:29:12.550 --> 00:29:13.550 RICHARD SCHMALENSEE: OK. 00:29:13.550 --> 00:29:16.040 Well, hold that for a moment. 00:29:16.040 --> 00:29:18.560 We want to get deeper into the semester 00:29:18.560 --> 00:29:20.310 before we're really political. 00:29:20.310 --> 00:29:26.870 But-- so this is energy per dollar of GDP. 00:29:26.870 --> 00:29:29.990 And it's been declining for a long time, 00:29:29.990 --> 00:29:34.010 reflecting efficiency, reflecting the decline 00:29:34.010 --> 00:29:37.940 of manufacturing, reflecting-- 00:29:37.940 --> 00:29:40.730 well, those are two big ones. 00:29:40.730 --> 00:29:43.490 But probably other factors, as well. 00:29:43.490 --> 00:29:46.100 Efficiency in energy use, efficiency 00:29:46.100 --> 00:29:52.220 in electricity generation, and other dimensions. 00:29:52.220 --> 00:29:53.630 I find this one interesting. 00:29:53.630 --> 00:29:55.820 That's BTUs per dollar. 00:29:55.820 --> 00:29:58.280 So that's real on real. 00:29:58.280 --> 00:30:00.260 This is dollars on dollars. 00:30:00.260 --> 00:30:03.290 This is energy spending. 00:30:03.290 --> 00:30:05.900 And you'll see, that's not so stable. 00:30:05.900 --> 00:30:08.230 And that's one reason-- 00:30:08.230 --> 00:30:11.830 that's one component of what people 00:30:11.830 --> 00:30:14.350 think of as the energy problem. 00:30:14.350 --> 00:30:18.310 I mean, all of a sudden, we're cruising along fat and happy, 00:30:18.310 --> 00:30:19.240 and boom! 00:30:19.240 --> 00:30:21.550 We move from something like 8% of GDP 00:30:21.550 --> 00:30:24.610 to something like 14% of GDP to pay the energy bill 00:30:24.610 --> 00:30:26.390 over a few years. 00:30:26.390 --> 00:30:29.350 And then this is-- 00:30:29.350 --> 00:30:30.400 come on, where are we? 00:30:30.400 --> 00:30:35.840 This is the recent oil spike and oil collapse. 00:30:35.840 --> 00:30:38.440 This is a law-- we'll talk about this next Wednesday. 00:30:38.440 --> 00:30:42.280 And this is a period when we got very complacent about energy, 00:30:42.280 --> 00:30:46.760 and you didn't hear much about energy from anybody. 00:30:46.760 --> 00:30:50.320 So prices move. 00:30:50.320 --> 00:30:51.760 And that is a source of concern. 00:30:55.240 --> 00:30:59.290 Let me talk about sources of energy consumption. 00:30:59.290 --> 00:31:02.680 If you extend this graph back-- 00:31:02.680 --> 00:31:07.560 way back-- it starts with wood. 00:31:07.560 --> 00:31:11.130 If you go back far enough, New England didn't have forests. 00:31:11.130 --> 00:31:13.410 They were cut down for energy. 00:31:13.410 --> 00:31:15.060 And gradually, it dawned on people 00:31:15.060 --> 00:31:18.475 that perhaps that's not a good way forward. 00:31:18.475 --> 00:31:20.100 They have these wonderful photographs-- 00:31:20.100 --> 00:31:21.660 I'll grab one if I can-- 00:31:21.660 --> 00:31:23.220 of Vermont. 00:31:23.220 --> 00:31:25.620 Basically, hills of mud. 00:31:25.620 --> 00:31:26.880 Hills of mud. 00:31:26.880 --> 00:31:28.350 Because the wood was there. 00:31:28.350 --> 00:31:30.150 They cut the wood down. 00:31:30.150 --> 00:31:32.410 That gave them scrub. 00:31:32.410 --> 00:31:34.890 They used the scrub to graze sheep. 00:31:34.890 --> 00:31:36.810 There was a big boom in wool. 00:31:36.810 --> 00:31:37.680 You graze sheep. 00:31:37.680 --> 00:31:38.640 They eat everything. 00:31:38.640 --> 00:31:40.230 You get raw dirt. 00:31:40.230 --> 00:31:42.970 It runs down when it rains. 00:31:42.970 --> 00:31:44.370 We move from wood to coal. 00:31:44.370 --> 00:31:47.580 So you would have a wood peak over here, and coal going up. 00:31:47.580 --> 00:31:52.850 But this is since 1950. 00:31:52.850 --> 00:31:57.020 This renewable energy, which is pretty high in 1950 00:31:57.020 --> 00:31:59.570 and grows slowly, is mostly hydro-- 00:31:59.570 --> 00:32:03.350 mostly big dams built in the '30s and '40s. 00:32:03.350 --> 00:32:05.780 You'll see not too many built since. 00:32:05.780 --> 00:32:08.660 The recent run-up is other things. 00:32:08.660 --> 00:32:12.130 You see nuclear power go up and go flat. 00:32:12.130 --> 00:32:14.500 Coal continues to rise. 00:32:14.500 --> 00:32:17.537 Natural gas. 00:32:17.537 --> 00:32:19.120 You might think that this downturn has 00:32:19.120 --> 00:32:22.960 something to do with policy, and you would be right. 00:32:22.960 --> 00:32:27.040 This has something to do with prices. 00:32:27.040 --> 00:32:30.963 But you see natural gas kind of flat with a little uptick 00:32:30.963 --> 00:32:31.630 here at the end. 00:32:31.630 --> 00:32:33.380 We're going to spend a lot of time talking 00:32:33.380 --> 00:32:35.170 about that uptick at the end. 00:32:35.170 --> 00:32:39.470 And oil continues to grow. 00:32:39.470 --> 00:32:45.950 If you look at imported energy, we're 00:32:45.950 --> 00:32:50.930 basically pretty self-sufficient except for oil. 00:32:50.930 --> 00:32:56.570 A whole lot of this is natural gas from Canada, which is-- 00:32:56.570 --> 00:32:59.270 that's, like, 80% of our natural gas imports, which 00:32:59.270 --> 00:33:02.630 doesn't keep too many people up nights, unless you're a hockey 00:33:02.630 --> 00:33:03.620 fan. 00:33:03.620 --> 00:33:10.750 But oil, over time, continued to grow until recently. 00:33:10.750 --> 00:33:12.520 And we'll talk about that. 00:33:12.520 --> 00:33:15.260 Let me unpack that a little bit. 00:33:15.260 --> 00:33:18.730 So since at least the 1970s, there 00:33:18.730 --> 00:33:22.900 has been this desire to have energy independence, which 00:33:22.900 --> 00:33:27.840 really means oil independence, since we're a coal exporter. 00:33:27.840 --> 00:33:31.380 Most of our natural gas imports are from Canada. 00:33:31.380 --> 00:33:34.530 And electricity, nothing happens much across the border. 00:33:34.530 --> 00:33:38.550 The main story, historically, has been, 00:33:38.550 --> 00:33:39.990 OK, we're going to be independent. 00:33:39.990 --> 00:33:42.060 OK, this is going to be great. 00:33:42.060 --> 00:33:43.320 And there goes consumption. 00:33:43.320 --> 00:33:48.630 And in the meantime, production, depending how you measure it, 00:33:48.630 --> 00:33:52.860 peaked some long time ago-- 00:33:52.860 --> 00:33:56.250 not for want of drilling. 00:33:56.250 --> 00:33:59.070 The other interesting fact, again, you'll 00:33:59.070 --> 00:34:03.690 notice that little uptick at the end. 00:34:03.690 --> 00:34:07.170 That little uptick at the end is shale. 00:34:07.170 --> 00:34:09.389 And if you've been following the paper, 00:34:09.389 --> 00:34:13.440 shale is the big story in fossil fuels. 00:34:13.440 --> 00:34:15.850 It's also a big environmental story. 00:34:15.850 --> 00:34:17.760 And we will spend some time on it. 00:34:17.760 --> 00:34:20.730 But that little uptick-- and there's a similar uptick 00:34:20.730 --> 00:34:22.409 in natural gas-- 00:34:22.409 --> 00:34:26.670 is a big deal, the start of something. 00:34:26.670 --> 00:34:28.590 This graph won't look like this in five years. 00:34:33.340 --> 00:34:35.230 How's that for complexity? 00:34:35.230 --> 00:34:38.139 This is energy flows. 00:34:38.139 --> 00:34:43.060 And you can spend all day long looking at this, 00:34:43.060 --> 00:34:45.310 and it would be good for you. 00:34:45.310 --> 00:34:48.550 But let me just point out a few highlights. 00:34:48.550 --> 00:34:51.489 Over here, really, is sort of primary energy. 00:34:51.489 --> 00:34:53.920 How many BTUs, with 100% efficiency, 00:34:53.920 --> 00:34:56.440 would there be in the petroleum we use, the coal we use, 00:34:56.440 --> 00:34:58.900 the gas we use, and so on? 00:34:58.900 --> 00:35:02.650 You see, first of all, that petroleum and coal and gas 00:35:02.650 --> 00:35:03.940 are still the main story. 00:35:10.100 --> 00:35:13.730 If you go to the right, you will also see, 00:35:13.730 --> 00:35:18.230 this is how much energy does useful work. 00:35:18.230 --> 00:35:22.710 This is the energy that gets lost mainly in waste heat. 00:35:22.710 --> 00:35:24.510 So anybody looking at that diagram 00:35:24.510 --> 00:35:26.760 would say, gee, there's an enormous opportunity 00:35:26.760 --> 00:35:28.330 for efficiency. 00:35:28.330 --> 00:35:32.640 Now, you could also see, in electricity, 00:35:32.640 --> 00:35:35.580 there's a lot of it wasted. 00:35:35.580 --> 00:35:39.810 That's mostly at the generating station. 00:35:39.810 --> 00:35:42.840 And a lot of money and effort has gone into reducing that, 00:35:42.840 --> 00:35:45.990 but it is not trivial. 00:35:45.990 --> 00:35:50.090 The other thing to note is due to breakdown by residential, 00:35:50.090 --> 00:35:54.460 commercial, industrial, and transportation. 00:35:54.460 --> 00:35:57.550 It's not quite a third for residential plus 00:35:57.550 --> 00:36:00.520 commercial, industrial, and transportation, 00:36:00.520 --> 00:36:02.380 but it's kind of close-- 00:36:02.380 --> 00:36:07.000 ballpark, a third in each bucket. 00:36:07.000 --> 00:36:10.210 Transportation is obviously almost all oil, 00:36:10.210 --> 00:36:15.910 and most of the oil goes to transportation. 00:36:15.910 --> 00:36:19.840 You see the beginnings-- 00:36:19.840 --> 00:36:22.120 I mean, solar is trivial. 00:36:22.120 --> 00:36:24.410 Wind is a lot bigger. 00:36:24.410 --> 00:36:25.900 It's grown rapidly. 00:36:25.900 --> 00:36:30.010 Little bit of-- and hydro is pretty steady. 00:36:30.010 --> 00:36:32.560 Again, you can stare at these. 00:36:32.560 --> 00:36:35.020 It's interesting to look at this graph over time. 00:36:35.020 --> 00:36:37.300 And I'll show you an old one. 00:36:37.300 --> 00:36:41.590 But that's sort of the basic flow outline of the system. 00:36:41.590 --> 00:36:45.370 That's that red box and what it looks like unpacked. 00:36:49.940 --> 00:36:51.530 There we go. 00:36:51.530 --> 00:36:52.918 I just find this interesting. 00:36:52.918 --> 00:36:53.960 I did it a few years ago. 00:36:53.960 --> 00:36:56.060 This is, who uses industrial? 00:36:56.060 --> 00:36:58.160 On that industrial box, where does it go? 00:36:58.160 --> 00:37:00.760 What industries use energy? 00:37:00.760 --> 00:37:03.980 And it turns out that a quarter of it goes to bulk chemicals-- 00:37:03.980 --> 00:37:06.410 just heat to drive reactions. 00:37:06.410 --> 00:37:09.860 Paper gets 10%, oil refining gets 15%, 00:37:09.860 --> 00:37:12.110 and the rest is pretty spread. 00:37:12.110 --> 00:37:15.070 If you look at energy-- 00:37:15.070 --> 00:37:19.840 BTUs per dollar of value added, turns out cement 00:37:19.840 --> 00:37:22.540 is very energy-intensive. 00:37:22.540 --> 00:37:24.310 As those of you who know cement will 00:37:24.310 --> 00:37:26.920 recognize, that it's a major source of CO2 emissions-- 00:37:26.920 --> 00:37:31.940 both the energy and the reaction that that energy produces. 00:37:31.940 --> 00:37:33.910 Now, if you look forward-- 00:37:33.910 --> 00:37:37.060 and we're going to do a fair amount looking forward-- 00:37:37.060 --> 00:37:40.120 this is sort of a general consensus. 00:37:40.120 --> 00:37:43.820 And it underlies, I think, the reasons why a lot of you 00:37:43.820 --> 00:37:44.320 are here. 00:37:44.320 --> 00:37:47.740 You sense this is a place where change needs to happen, 00:37:47.740 --> 00:37:49.060 of one kind or another. 00:37:49.060 --> 00:37:51.910 Again, I didn't make it a required reading, 00:37:51.910 --> 00:37:55.270 but you can look at the National Research Council report 00:37:55.270 --> 00:37:58.570 that this is from to see why they think this. 00:38:02.340 --> 00:38:04.970 But it's not easy. 00:38:04.970 --> 00:38:08.860 Here's what that graph looked like in 1982. 00:38:08.860 --> 00:38:12.260 You know, it doesn't look that different. 00:38:12.260 --> 00:38:14.990 Main difference is, you could stare at these-- again, 00:38:14.990 --> 00:38:16.010 this will be on Stellar. 00:38:16.010 --> 00:38:17.300 It's not as complete. 00:38:17.300 --> 00:38:19.820 The main difference you can see is 00:38:19.820 --> 00:38:22.550 that we used to use a fair amount of oil 00:38:22.550 --> 00:38:23.750 to generate electricity. 00:38:23.750 --> 00:38:26.730 We don't do that anymore. 00:38:26.730 --> 00:38:28.880 We really don't use oil for electricity, 00:38:28.880 --> 00:38:30.260 for a range of reasons. 00:38:30.260 --> 00:38:33.650 It's too expensive, among other things. 00:38:33.650 --> 00:38:38.270 And that's-- still, transportation is mostly oil. 00:38:38.270 --> 00:38:41.010 We still use a lot of coal-- 00:38:41.010 --> 00:38:43.250 oil, coal, natural gas. 00:38:43.250 --> 00:38:45.080 The other stuff is still pretty-- was 00:38:45.080 --> 00:38:47.280 pretty small, is pretty small. 00:38:47.280 --> 00:38:49.940 There's still, again, this rejected 00:38:49.940 --> 00:38:52.830 energy, useful energy-- waste energy, useful energy. 00:38:52.830 --> 00:38:56.960 So if you look at this, you say, my heavens. 00:38:56.960 --> 00:38:58.890 Again, you could look at the flows. 00:38:58.890 --> 00:39:01.800 And this is that they weren't quite as good at doing 00:39:01.800 --> 00:39:03.480 this graph at Livermores. 00:39:03.480 --> 00:39:05.910 They came to be, in later years. 00:39:05.910 --> 00:39:11.050 You look at it and you say, the system doesn't move fast. 00:39:11.050 --> 00:39:12.490 How can it move? 00:39:12.490 --> 00:39:15.860 Well, it could move if we all decided-- 00:39:15.860 --> 00:39:20.030 in a lot of utilities, you can opt to buy green electricity. 00:39:20.030 --> 00:39:24.590 That is to say, if 20% of the people-- 00:39:24.590 --> 00:39:28.730 20% of the usage is green, then the utility 00:39:28.730 --> 00:39:32.420 is obliged to get 20% of its energy from green sources. 00:39:32.420 --> 00:39:36.470 We could all say, and your parents could all say, 00:39:36.470 --> 00:39:39.060 we want green electricity. 00:39:39.060 --> 00:39:42.820 Well, if everybody did that, it would be a big change. 00:39:42.820 --> 00:39:45.280 Not quite clear what the companies would do 00:39:45.280 --> 00:39:46.668 or how they would cope with it. 00:39:46.668 --> 00:39:47.710 It would be a big change. 00:39:47.710 --> 00:39:49.120 Is it likely? 00:39:49.120 --> 00:39:50.380 No. 00:39:50.380 --> 00:39:51.910 It's expensive. 00:39:51.910 --> 00:39:55.090 And what I do isn't going to affect the system much. 00:39:55.090 --> 00:39:56.820 If we all do it together, it might. 00:39:56.820 --> 00:39:58.810 But that's another story. 00:39:58.810 --> 00:40:02.460 Suppose we develop great new technologies, 00:40:02.460 --> 00:40:04.980 which I hope many of you do. 00:40:04.980 --> 00:40:08.610 Well, where does the money come from? 00:40:08.610 --> 00:40:11.400 Energy, as a number of people said at the outset, 00:40:11.400 --> 00:40:15.090 is a big-dollar business. 00:40:15.090 --> 00:40:19.110 You don't do it at the PC. 00:40:19.110 --> 00:40:22.920 Three people in a garage don't do the Facebook of energy. 00:40:22.920 --> 00:40:25.530 I mean, there's scope for IT of energy, 00:40:25.530 --> 00:40:30.960 but if you really want to change how the work gets done, 00:40:30.960 --> 00:40:36.570 you're talking serious R&D. You're talking serious scaling. 00:40:36.570 --> 00:40:39.450 Should the government decide where to invest? 00:40:39.450 --> 00:40:40.410 If so, how? 00:40:43.260 --> 00:40:45.000 Can you rely on large energy firms? 00:40:45.000 --> 00:40:46.590 Some of them are really big. 00:40:46.590 --> 00:40:49.620 Southern Company is building a nuclear reactor-- 00:40:49.620 --> 00:40:51.210 first in a long time. 00:40:51.210 --> 00:40:52.800 That's a lot of money. 00:40:52.800 --> 00:40:56.040 Intel spends billions on fabs, so maybe Intel 00:40:56.040 --> 00:40:57.295 should spend the billions. 00:40:57.295 --> 00:40:58.500 Are they going to do it? 00:40:58.500 --> 00:41:01.840 Is Southern Company going to do something radical? 00:41:01.840 --> 00:41:03.550 Small companies? 00:41:03.550 --> 00:41:04.930 We're going to talk about this. 00:41:04.930 --> 00:41:09.070 Because the question of, what kinds of organizations 00:41:09.070 --> 00:41:11.740 are best suited to do what in the innovation 00:41:11.740 --> 00:41:15.075 process is kind of important here. 00:41:15.075 --> 00:41:16.450 I mean, if you think you're going 00:41:16.450 --> 00:41:21.260 to revolutionize electricity generation with $100,000 00:41:21.260 --> 00:41:23.620 and three people, no. 00:41:23.620 --> 00:41:24.820 No. 00:41:24.820 --> 00:41:26.883 You might produce something basic 00:41:26.883 --> 00:41:28.300 that somebody would buy that would 00:41:28.300 --> 00:41:30.920 be sold to somebody bigger that might, 00:41:30.920 --> 00:41:37.000 but figuring out how that process works is important. 00:41:37.000 --> 00:41:38.950 Another way to transform the energy system 00:41:38.950 --> 00:41:41.788 is to really tighten environmental regulation. 00:41:41.788 --> 00:41:43.330 And if you've been reading the paper, 00:41:43.330 --> 00:41:46.480 you've been reading about regulations of coal-fired power 00:41:46.480 --> 00:41:48.160 plants-- 00:41:48.160 --> 00:41:50.410 that some of them will have to shut down. 00:41:50.410 --> 00:41:54.040 Well, if you really tighten environmental regulation, 00:41:54.040 --> 00:41:55.420 you would-- could-- 00:41:55.420 --> 00:41:56.560 transform the system. 00:41:59.200 --> 00:42:01.770 Are there votes for it? 00:42:01.770 --> 00:42:04.320 Is it going to be done at the state level, the federal level? 00:42:04.320 --> 00:42:06.955 Does it matter where it's done? 00:42:06.955 --> 00:42:08.080 Where are the votes for it? 00:42:08.080 --> 00:42:09.538 How would you get the votes for it? 00:42:09.538 --> 00:42:11.140 What does the opposition look like? 00:42:11.140 --> 00:42:14.810 And what about this regulatory process? 00:42:14.810 --> 00:42:17.340 Has EPA gone wild? 00:42:17.340 --> 00:42:18.500 Have the courts gone wild? 00:42:18.500 --> 00:42:20.750 How does that work? 00:42:20.750 --> 00:42:22.890 There are no laws passed. 00:42:22.890 --> 00:42:27.440 You have a blocking Republican coalition in Congress. 00:42:27.440 --> 00:42:30.050 And yet EPA is coming out with these very strong 00:42:30.050 --> 00:42:32.523 environmental rules. 00:42:32.523 --> 00:42:34.190 Where does that come from-- very strong, 00:42:34.190 --> 00:42:35.600 as perceived by industry. 00:42:35.600 --> 00:42:37.140 Where does it come from? 00:42:37.140 --> 00:42:38.630 How is it driven? 00:42:38.630 --> 00:42:41.270 Where might it go? 00:42:41.270 --> 00:42:46.760 You could imagine the extension of state programs. 00:42:46.760 --> 00:42:48.740 29 states and the District of Columbia 00:42:48.740 --> 00:42:51.410 now require certain fractions of energy-- 00:42:51.410 --> 00:42:54.860 electricity-- to be generated from renewable sources. 00:42:54.860 --> 00:42:56.000 You could tighten those. 00:42:56.000 --> 00:42:58.610 California has tightened it pretty tight. 00:42:58.610 --> 00:43:00.620 Texas has been very effective. 00:43:00.620 --> 00:43:03.910 Texas has a lot of wind energy-- 00:43:03.910 --> 00:43:05.620 an absurd amount of wind energy. 00:43:05.620 --> 00:43:08.980 You could imagine-- we got EPA from a social movement. 00:43:08.980 --> 00:43:11.860 We got the Civil Rights laws from a social movement. 00:43:11.860 --> 00:43:14.500 You could imagine a social movement that would basically 00:43:14.500 --> 00:43:16.905 call for transformation. 00:43:16.905 --> 00:43:18.780 Of course, people would have to agree on what 00:43:18.780 --> 00:43:22.070 the transformation should be. 00:43:22.070 --> 00:43:26.580 It would need something coherent, something simple, 00:43:26.580 --> 00:43:29.880 something like Martin Luther King's speeches, 00:43:29.880 --> 00:43:32.760 something like Silent Spring that 00:43:32.760 --> 00:43:35.580 banned DDT because people got upset that birds were dying. 00:43:35.580 --> 00:43:39.600 It would require some rallying cry like that. 00:43:39.600 --> 00:43:42.390 Is it possible? 00:43:42.390 --> 00:43:47.100 And finally, how are we going to do energy security, 00:43:47.100 --> 00:43:49.080 and what does it mean? 00:43:49.080 --> 00:43:53.000 Suppose we're completely self-sufficient for oil. 00:43:53.000 --> 00:43:55.630 Does that mean we're immune to international price shocks? 00:43:55.630 --> 00:43:58.040 Does that mean closing the Straits of Hormuz 00:43:58.040 --> 00:44:00.390 would have no effect on us? 00:44:00.390 --> 00:44:02.370 What if the lights went out in Europe? 00:44:02.370 --> 00:44:04.080 What would that do? 00:44:04.080 --> 00:44:06.120 What if world prices went up? 00:44:06.120 --> 00:44:10.060 Would we subsidize oil to keep domestic prices down? 00:44:10.060 --> 00:44:13.800 So when you think about, how might transformation 00:44:13.800 --> 00:44:16.650 happen-- oh, and electric cars powered by coal. 00:44:16.650 --> 00:44:20.550 I have to say, I love to ask my environmentalist friends 00:44:20.550 --> 00:44:22.890 in the Midwest who have electric cars whether they're 00:44:22.890 --> 00:44:28.530 enjoying their coal-powered car or not, because it is. 00:44:28.530 --> 00:44:33.630 So it takes a little bit of a systems view. 00:44:33.630 --> 00:44:36.000 Two observations, and then I'll let us go. 00:44:36.000 --> 00:44:39.000 And the observations are that, in this business, 00:44:39.000 --> 00:44:40.650 history matters. 00:44:40.650 --> 00:44:42.480 And I have to give you this graph, 00:44:42.480 --> 00:44:45.990 because it's a fantastic-- has anybody read 00:44:45.990 --> 00:44:49.740 Tufte, the Visual Display of Quantitative Information? 00:44:49.740 --> 00:44:50.430 Beautiful book. 00:44:50.430 --> 00:44:52.170 At some time in your life, read it. 00:44:52.170 --> 00:44:56.430 It's a book on, how can you use visual displays 00:44:56.430 --> 00:44:58.530 to get across information? 00:44:58.530 --> 00:45:03.330 This shows when capacity was-- when US-generating capacity was 00:45:03.330 --> 00:45:06.360 built and how it's powered. 00:45:06.360 --> 00:45:08.730 So you get a whole lot of information out of this. 00:45:08.730 --> 00:45:11.580 You get out of this that there's a lot of capacity 00:45:11.580 --> 00:45:17.430 still running built before 1960, a ton of capacity 00:45:17.430 --> 00:45:20.490 built before 1980, and a lot of coal capacity 00:45:20.490 --> 00:45:22.860 built before 1980. 00:45:22.860 --> 00:45:26.970 The recent capacity over here is almost all gas, 00:45:26.970 --> 00:45:29.550 although you see a little coal coming online here. 00:45:29.550 --> 00:45:32.590 But it's almost all gas-- 00:45:32.590 --> 00:45:36.380 and very recently, wind. 00:45:36.380 --> 00:45:42.360 But there's a lot of money invested in these plants. 00:45:42.360 --> 00:45:46.320 And for at least some of them, coal is cheap. 00:45:46.320 --> 00:45:49.823 The plant's built. The running cost-- 00:45:49.823 --> 00:45:52.240 the cost of buying the coal, putting it in, and generating 00:45:52.240 --> 00:45:55.440 electricity from it-- is really low. 00:45:55.440 --> 00:45:58.890 So the cost of shutting them down and replacing them-- 00:45:58.890 --> 00:46:00.840 doesn't matter what they cost to build. 00:46:00.840 --> 00:46:04.560 It's a cost of-- the cost is premature replacement. 00:46:04.560 --> 00:46:05.580 Could be very high. 00:46:05.580 --> 00:46:07.500 And that's what we're hearing. 00:46:07.500 --> 00:46:13.760 On the other hand, many of these are really dirty-- 00:46:13.760 --> 00:46:19.800 and compared to the new stuff, really inefficient. 00:46:19.800 --> 00:46:23.400 Turning that ship is not easy. 00:46:23.400 --> 00:46:25.920 Turning that ship is not easy. 00:46:25.920 --> 00:46:27.780 Yeah, all of the new stuff is gas. 00:46:27.780 --> 00:46:28.840 That's just swell. 00:46:28.840 --> 00:46:30.340 That is going to continue. 00:46:30.340 --> 00:46:32.340 And this is in response to a bunch of subsidies 00:46:32.340 --> 00:46:34.890 and regulations-- the wind. 00:46:34.890 --> 00:46:37.050 But these guys are still here. 00:46:37.050 --> 00:46:39.870 They're still here. 00:46:39.870 --> 00:46:41.462 Oh, and the nuclear plants-- 00:46:41.462 --> 00:46:42.670 it's an interesting question. 00:46:42.670 --> 00:46:45.420 How long will the nuclear plants stay? 00:46:45.420 --> 00:46:48.220 They've gotten more efficient over time. 00:46:48.220 --> 00:46:50.460 They could run for a while. 00:46:50.460 --> 00:46:53.370 Will we build new ones? 00:46:53.370 --> 00:46:56.560 Final example of how history matters. 00:46:56.560 --> 00:46:59.135 This is US oil reserves. 00:47:02.320 --> 00:47:04.930 We explored for oil in the lower 48. 00:47:04.930 --> 00:47:06.700 We explored for oil in Alaska. 00:47:06.700 --> 00:47:09.640 We're exploring for oil-- have explored for oil-- off-shore. 00:47:09.640 --> 00:47:12.770 That's US oil reserves over time. 00:47:12.770 --> 00:47:15.280 So it's not that we've pumped out-- 00:47:15.280 --> 00:47:18.100 it's not the difference between 30 billion barrels 00:47:18.100 --> 00:47:19.892 and, I don't know, 22 billion barrels 00:47:19.892 --> 00:47:21.100 is the amount we've produced. 00:47:21.100 --> 00:47:24.370 No, we've produced a lot more. 00:47:24.370 --> 00:47:27.550 But after a while, if you produce a lot today, 00:47:27.550 --> 00:47:31.180 it becomes harder to find tomorrow. 00:47:31.180 --> 00:47:32.770 Who knows how much there is. 00:47:32.770 --> 00:47:35.260 But what there is, is hard to find. 00:47:35.260 --> 00:47:37.910 We're deep underwater off Los Angeles-- 00:47:37.910 --> 00:47:41.500 not off Los Angeles, off New Orleans-- off Louisiana. 00:47:41.500 --> 00:47:46.150 That's not cheap to go down a mile and drill. 00:47:46.150 --> 00:47:48.220 That's just not cheap. 00:47:48.220 --> 00:47:51.580 It was cheaper in Alaska, here. 00:47:51.580 --> 00:47:56.330 But we've pumped a lot of oil out of Alaska. 00:47:56.330 --> 00:47:59.480 So that history, that decision that we're 00:47:59.480 --> 00:48:07.230 going to use domestic oil today, has implications for tomorrow. 00:48:07.230 --> 00:48:09.250 OK, I'm going to stop there. 00:48:09.250 --> 00:48:12.880 Oh, and I should just make the point, 00:48:12.880 --> 00:48:15.910 over the period of this graph, world oil reserves-- that 00:48:15.910 --> 00:48:17.800 actually includes us, but we're small. 00:48:17.800 --> 00:48:20.490 World oil reserves more than doubled. 00:48:20.490 --> 00:48:23.040 Because people look for oil in new places. 00:48:23.040 --> 00:48:26.110 People had been looking for oil in the US, 00:48:26.110 --> 00:48:28.310 and it gets harder to find. 00:48:28.310 --> 00:48:29.410 OK. 00:48:29.410 --> 00:48:31.590 Questions or comments?