Sunshine At The B-School

IF YOU SAID the adoption of energy conservation and low-technology solar power represent the way out of the United States' dependence on imported oil, most people would dismiss you as a "freak" from California or the Sierra Club. However, if you told that to the members of the Energy Project at the Harvard Business School, they'd most likely slap you on the back and welcome you to the club.

The Energy Project earlier this month released its report on America's energy options: a collection of eight persuasive, crisply written essays entitled Energy Future. The project, which has been studying energy problems since 1972, says it is impossible to wriggle out of OPEC's grip in the short term by depending on conventional domestic energy sources--oil, natural gas, coal and nuclear. The Harvard group is not the first to say we must look elsewhere. But what is unique about this conclusion--other than the respect the group commands in government and business circles--is the Project's pragmatic, multidisciplinary examination of the energy problem. The group scrutinizes not only the economic and technical barriers to exploitation of energy each source, but also the political and institutional realities. Co-editors Robert Stobaugh, professor of Business Administration and director of the Project, and Daniel Yergin, lecturer at the Kennedy School of Government, write:

"Coal" to us is not merely a solidified hydrocarbon that exists in abundance in the United States, nor is it a simple coefficient in a mathematical model. "Coal" is in fact a system that involves, among other things, labor-management strife, uncertain environmental effects, and doubts posed by those who make investment decisions for utilities.

This is in contrast to most analysts, who in their advocacy of specific energy sources, ignore the political realities behind their calculations.

Stobaugh, Yergin and their Project colleagues avoid this trap. They rule out natural gas as a solution, arguing that the deregulation of interstate prices will not make substantial additions to U.S. gas reserves. Coal's contribution in the short term is uncertain because uncertain demand for the fuel by electrical utilities has made the railroads, coal's key transportation link, hesitant to upgrade their service. Moreover, opposition to the environmental hazards of coal usage (which include black lung disease, the scarring of the land by strip mining, and air, water and thermal pollution) cause the Project to condemn coal. The stalmate between government and industry leaders and nuclear power critics over the true costs and benefits of nuclear power has ruled out adoption of that power source in the short term.

UNFORTUNATELY NEITHER the decontrol of oil nor the production of petroleum from unconventional sources nor divestiture of the oil companies is likely to reverse the decline in domestic oil production. The argument that decontrol of oil prices would encourage oil exploration does not obscure the fact that "over 2 million wells have been drilled in the United States--four times as many as in all the rest of the noncommunist world combined." Shale oil would cost far more than conventional oil and takes too long to develop--"a production level equal to about half of one percent of U.S. oil consumption--100,000 barrels a day--would require a billion dollars and a decade"--as well as using enormous quantities of water, which would incite the opposition of farmers and ranchers. On divestiture, Stobaugh writes:

Economic analyses do not yet enable one to determine whether breaking up the companies would result in any meaningful changes in either competition or efficiency. What is clear is that there is no evidence that divestiture would lead to to greater domestic supplies of oil.

There is just no oil to be found.

Therefore, the U.S. has the choice of either importing more oil or turning to conservation and solar energy. The Project opts for the latter. Imported oil presents risks other than supply cutoffs and higher prices. There are external costs as well, such as a slowing of economic growth, higher unemployment and inflation and balance of payments deficits, along with "increased tension and suspicion among the nations of the West."

The Energy Project believes the United States could reduce energy consumption by 30 to 40 per cent through conservation and "still enjoy the same or an even higher standard of living." The key is the encouragement of "productive conservation"; that is, using energy more efficiently. In the transportation sector, the Project, recognizing that the automobile is likely to remain an American fixture, recommends more stringent gasoline mileage standards instead of massive investment in mass transit. The government should grant very high tax credits to industry for mundane improvements like furnace maintenance, lighting adjustments, plugging leaky steam traps, recovering, installing insulation, and developing more efficient technologies to replace the existing capital stock. Indeed, it's the very banality of such measures that is the primary problem with conservation--the approach just doesn't lend itself to any heart-rending, grandiose scheme like the Manhattan Project or landing a man on the moon. But the Energy Project believes such simple measures could cut U.S. energy consumption by almost as much as all the oil, domestic as well as imported, used in the nation in 1973.

THE PROJECT CALCULATES the application of available solar technology could provide 7 to 23 per cent of the United States' energy needs by the year 2000. The Project is not referring to massive, multibillion dollar power stations in space which beam electricity back to earth via microwave (a NASA pet project): rather, it is talking about solar house and hot water heating, windmills, wood burning and hydraulic power. Modeste A. Maidique, assistant professor at the Business School, writes:

Many people still assume that solar energy is something for the future, awaiting technological breakthrough. That assumption represents a great misunderstanding, for active and passive solar heating is a here-and-now alternative to imported oil.

Again, the main obstacle to the wide adoption of solar has been the lack of adequate economic incentives. Solar projects do not pay for themselves quickly enough to be worthwhile. The Project believes government incentives--such as the 55 to 60 per cent take credit that California currently grants homeowners who install solar heating--would overcome this hurdle and permit solar to take a prominent place in the fight against imported oil.

With the proper government encouragement, solar energy and conservation could "provide" two-thirds of the United States' increased energy demands in the late-1980s. Without such a program, the Department of Energy estimates oil imports could increase by as much as half. Clearly, the Energy Project's recommendations deserve a fair chance in the current energy debate and in Washington. As this book shows, not all good ideas come from California. Some come from just across the Charles.