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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems 1 Overview The energy problem now faced by the United States began to be recognized 10 years or more ago. Still, the occasional symptoms (the oil embargo of 1973, the natural gas shortage of 1976–1977, and the gasoline lines of the summer of 1979) are frequently mistaken for the problem itself. As each symptom is relieved, the public sense of crisis fades. The seeds of future crisis, however, remain. Resolution of the problem demands a systematic examination of energy supply and demand in the context of existing policies, and articulation of a coherent set of policies for the transition to new sources of energy and new ways of using it. The essential difficulty is that these policies must be as consonant as possible with other, often conflicting, national objectives—protecting the environment and public health and ensuring national security, economic growth, and equity among different regions and classes. The nation’s energy problems are exemplified by two simple facts: stagnant domestic production and rising demand. Total energy production in the United States in 1978 was about 3 percent less than in 1972, the last full year before the oil embargo and OPEC price rise of 1973–1974 (Figure 1–1). In the same period, energy consumption rose by 9 percent (Figure 1–2). The difference is made up by increasing oil imports at continually rising prices. Imports now provide about half of all the oil consumed in the United States, up from about 30 percent in 1972. The total cost has jumped from $4.77 billion in 1972 to $41.46 billion in 1978.1 In the meantime, total world demand for oil has risen even more rapidly2–4 while exporting nations, with an eye to the ultimate depletion of what is in many cases the sole source of wealth, have exercised strict
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems FIGURE 1–1 Energy production in the United States from 1948 to 1978, by energy source (quads). Source: U.S. Department of Energy, Energy Information Administration, Annual Report to Congress, 1978, vol. 2, Data (Washington, D.C.: U.S. Department of Energy (DOE/EIA-0173/2), 1979). control over production. Thus, the United States is forced to compete for supplies in an increasingly tight world market. The inevitable result is upward pressure on prices and enhanced opportunities for the control of prices by cartel. The United States is a key factor in the world oil situation. U.S. oil consumption is huge, amounting to almost 30 percent of world consumption. At the same time, its domestic production is declining, probably irreversibly (except for some temporary help from Alaskan production, which will peak in the 1980s). Natural gas production is also on a downward trend. These production trends might be arrested by higher prices and favorable public policies, but any increase above current production levels is likely to be small and to decline after the year 2000. The only readily available large-scale domestic energy sources that could even in principle reverse the decline in domestic energy production over the next three decades—coal and nuclear fission*—face a variety of technical, political, and environmental obstacles, and will be difficult (though not impossible) to expand very rapidly.† * See statement 1–1, by H.Brooks, Appendix A. † See statement 1–2, by J.P.Holdren, Appendix A.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems FIGURE 1–2 Energy consumption in the United States from 1948 to 1978, by energy source (quads). Source: U.S. Department of Energy, Energy Information Administration, Annual Report to Congress, 1978, vol. 2, Data (Washington, D.C.: U.S. Department of Energy (DOE/EIA-0173/2), 1979). The implications are serious. First of all, rising dependence on increasingly costly foreign oil tends to degrade the value of the dollar and exacerbates inflation. The heavy and growing involvement of the United States in the world oil market not only worsens the domestic problem, but puts less affluent importing countries at a growing disadvantage in competing for supplies. The foreign policy consequences of this strained situation are twofold: Oil-producing countries find it increasingly feasible to exact political concessions from importers, and U.S. relations with other oil importers are weakened. The United States has been a net importer of energy since the early 1950s. Energy was cheap, and it grew cheaper throughout the 1950s and 1960s; little concern was expressed as consumption more and more outpaced domestic production. In constant 1948 dollars, the price per barrel of crude oil at the wellhead fell from $2.50 in 1948 to $1.85 in 1972; imported oil was even cheaper. Most other forms of energy—notably electricity and coal—declined even more in price than oil. Net energy imports rose on the average more than 10 percent annually throughout the 1960s, more than doubling in that decade. Sources of supply became increasingly concentrated in the Middle East and Africa.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems In 1970 domestic oil production peaked, and growth in imports accelerated. From 1970 until the fourfold OPEC price rise in 1973–1974, oil imports rose at rates exceeding 30 percent annually—almost doubling again in 3 years. The price rise brought in its wake a serious economic recession; energy consumption, and therefore imports, dipped in response. They rebounded sharply afterward, though rates of increase are now less than in the early 1970s. The nation now imports more than a fifth of its primary energy in the form of foreign oil. The solution to this problem is not simply to produce more energy, and not simply to conserve, but rather to find a new economic equilibrium between supply and demand.* Higher prices are inevitable, and the nation must take advantage of the resulting new opportunities for both enhanced supply and greater efficiency in energy use. Ordinary market forces will play important roles here. In some cases, however, such as the international oil market, they will be relatively ineffective and must be supplemented by government incentives to conserve and by federal aid in developing new technologies that can allow wider use of domestic resources such as coal, to allay the growth in demand for oil. All in all, conservation deserves the highest immediate priority in energy planning. In general, throughout the economy it is now a better investment to save a Btu than to produce an additional one.† On the supply side, the most important short-term measure is to enhance domestic oil and gas production by exploiting unconventional sources and enhanced-recovery techniques. The most important intermediate-term measure is developing synthetic fuels from coal, and perhaps from oil shale, to serve where coal and nuclear power (which are most suitable now for electricity production) cannot directly replace oil and gas, as in transportation. Perhaps equally important is the use of coal and nuclear power to produce electricity for applications such as space heating, where such replacement is possible. While these measures are being taken, the research and development necessary to bring truly sustainable energy sources—nuclear fission, solar energy, geothermal energy in places, and perhaps fusion—into place for the long term must receive continued attention. The relative merits of the principal long-term choices, and the timing of their execution, are discussed in subsequent sections of this chapter and in the body of the report * Statement 1–3, by R.H.Cannon, Jr.: This is too weak. Energy production increases of major proportions and vigorous conservation are both crucial to national economic viability and security. Neither alone can suffice. † Statement 1–4, by R.H.Cannon, Jr.: Generalization unwarranted. It is often true but often not, for many energy inefficiencies have already been corrected.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems MODERATING DEMAND GROWTH Slowing the growth of energy demand will be essential, regardless of the supply options developed during the coming decades. In fact, the demand element of the nation’s energy strategy should be accorded the highest priority. Some reduction in growth will inevitably result from rising energy prices, and this reduction could be accelerated by such explicit government policies as taxes and tariffs on energy and standards for the performance of energy-using equipment. In any event, studies by the CONAES Demand and Conservation Panel indicate that the growth of demand for energy in this country could be reduced substantially—particularly after about 1990—by gradual increases in the technical efficiency of energy end-use and by price-induced shifts toward less energy-intensive goods and services.5 In this analysis the Demand and Conservation Panel explored the dynamics and determinants of energy use by performing detailed economic and technological analyses of the major energy-consuming sectors: buildings, industry, and transportation. The projected energy intensities for each sector were based on (1) expected economic responses to price increases and income growth and (2) technical changes in energy efficiency that would be economical at the prices assumed and would minimize the life cycle costs of automobiles, appliances, houses, manufacturing equipment, and so on. No credit was taken for major technological breakthroughs; only advances based on currently available technology were considered. A major conclusion from this analysis is that technical efficiency measures alone could reduce the ratio of energy consumption to gross national product (for convenience, the energy/GNP ratio) to as little as half* its present value over the next 30–40 years. (This conclusion is sensitive to the prices assumed in the analysis, and a result of this magnitude is attained only if prices for energy increase more rapidly than is probable in a market at equilibrium.) Similar conclusions were reached by the CONAES Modeling Resource Group,6† whose work suggests that such reductions are possible without appreciable impacts on the consumer market basket. In some cases the price increases necessary to reach such reductions in demand would have to be secured by taxes that would open up a wedge between consumer prices and the costs of producing and delivering energy. Whether this would be politically tolerable or not may be open to question. It is possible, however, that if such price increases are not imposed * Statement 1–5, by R.H.Cannon, Jr.: It would be wrong to depend on so large an improvement. Calculations using other models and assumptions predict severe economic impact for smaller energy/GNP reductions. † See statement 1–6, by E.J.Gornowski, Appendix A.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems domestically, they will be imposed by the international oil market with considerably greater abruptness. These findings are embodied in the panel’s “scenarios,” or estimates of energy demand under a range of different assumed circumstances involving the price of energy and the consequent technological responses in terms of energy consumption. (A scenario is a kind of “what if” statement, giving the expected results of more or less plausible assumptions about future events, according to some self-consistent model.) The Demand and Conservation Panel’s scenarios are intended to project—given certain unvaried assumptions about population growth and income growth, labor productivity, and the like—the effects on energy demand between 1975 and 2010 of various price schedules for delivered energy. The assumed prices range from an average quadrupling by 2010 to a case in which the average price of delivered energy actually decreases by one third. Table 1–1 lists the generalized assumptions and postulated prices for each of these demand scenarios. (The specific assumed prices for individual fuels in each of these demand scenarios can be found in Table 11–2 of chapter 11.) Obviously, high-priced energy evokes greater efficiency in use and thus lower consumption. One of the key assumptions in the panel’s scenarios is that the U.S. gross national product grows at an average rate of 2 percent between 1975 and 2010*; a variant of one scenario explores the implications of 3 percent growth. More rapid economic growth, as might be expected, implies higher energy consumption.† The panel found that the economically rational responses of consumers to this range of energy prices would result in a broad range of energy consumption totals for the year 2010.‡ Figures 1–3 and 1–4 illustrate the width of this range. Chapters 2 and 11 explain more about the assumptions and methods used in making these projections. A WORD ABOUT THE STUDY’S PROJECTIONS The Demand and Conservation Panel’s scenarios are only one of a variety of scenarios developed and used in this study to aid in visualizing the complex interplay among policies, prices, and technologies in the supply and demand of energy. Table 1–2 summarizes the main features and * Statement 1–7, by R.H.Cannon, Jr.: Over the entire 33-yr period 1946 to present, 3.4 percent GNP growth, not 2 percent, has been consistent with a healthy economy and reasonably low unemployment. † See statement 1–8, by H.S.Houthakker and H.Brooks, Appendix A. ‡ Statement 1–9, by R.H.Cannon, Jr.: Assuming 3.4 percent GNP growth would make the 2010 quad figures (roughly) for scenario A 125, for scenario B 160, for scenario C 230, and for scenario D 270.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems TABLE 1–1 Essential Assumptions of Demand and Conservation Panel Scenarios Scenario Energy Conservation Policy Average Delivered Energy Price in 2010 as Multiple of Average 1975 Price (1975 dollars) Average Annual GNP Growth Rate (percent) A* Very aggressive, deliberately arrived at reduced demand requiring some life-style changes 4 2 A Aggressive; aimed at maximum efficiency plus minor life-style changes 4 2 B Moderate; slowly incorporates more measures to increase efficiency 2 2 B′ Same as B, but 3 percent average annual GNP growth 2 3 C Unchanged; present policies continue 1 2 D Energy prices lowered by subsidy; little incentive to conserve 0.66 2 purposes of each set. Chapter 11 deals in some detail with all the scenario projections made in this study, but brief descriptions of the most important ones will be vital to an understanding of much of what follows. The Supply and Delivery Panel, in its scenarios, estimated the availabilities of various energy forms between 1975 and 2010 under three progressively more favorable sets of assumed financial and regulatory conditions. These are denoted “business as usual,” “enhanced supply,” and “national commitment.” This exercise provided the committee with an idea of the problems and potentials of the nation’s major energy supply alternatives. Table 1–3 lists, as an example, the supplies of energy that might be made available if all energy sources could be accorded the incentives implied by the panel’s enhanced-supply assumptions. With the scenarios of these two panels as a basis, the staff of the study attempted to develop a self-consistent set of projections for the consumption of the various energy forms between 1975 and 2010; the method in brief was to use the demand scenarios as a framework, and to fill the demands thus established by entering the available supplies of each major energy form as given by the Supply and Delivery Panel’s scenarios. Some interfuel substitutions were made, and the resulting differences in
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems FIGURE 1–3 Demand and Conservation Panel projections of total primary energy use to 2010 (quads).
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems FIGURE 1–4 Demand and Conservation Panel projections of primary energy use by energy-consuming sectors to 2010 (quads). Energy demand projections for different assumptions about GNP or population growth can be roughly estimated by scaling the scenario projections. For example, for a crude idea of the effect of 3 percent average annual GNP growth (rather than the 2 percent assumed in constructing the scenarios), one would multiply the demand total by 3/2. conversion and distribution losses and the like cause the projected totals to vary somewhat from the Demand and Conservation Panel’s framework. These scenarios offer a 3 percent GNP growth variant for each of the Demand and Conservation Panel’s scenarios. Figure 1–5, showing the primary energy totals for these scenarios, illustrates the difference varying GNP growth assumptions might make. Yet another set of scenarios was developed by the CONAES Modeling
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems TABLE 1–2 Scenario Projections Used in the CONAES Study Scenario Source Description Demand scenarios: A*, A, B, B′, C, D Demand and Conservation Panel A, B, C, and D explore the effects of varied schedules of prices for energy at the point of use, from an average quadrupling between 1975 and 2010 (scenario A) to a case (scenario D) in which the average price of energy falls to two thirds of its 1975 value by 2010. Basic assumptions include 2 percent annual average growth in GNP, and population growth to 280 million in the United States in 2010. Scenario A* is a variant of A that takes additional conservation measures into account. Scenario B′ is a variant of B, projecting the effect on energy consumption of a higher annual average rate of growth in GNP (3 percent). Supply scenarios: Business as usual, enhanced supply, and national commitment Supply and Delivery Panel Projections of energy resource and power production under various sets of assumed policy and regulatory conditions. Business-as-usual projections assume continuation without change of the policies and regulations prevailing in 1975; enhanced-supply and national-commitment projections assume policies and regulatory practices to encourage energy resource and power production. Study scenarios: I2, I3, II2, II3, III2, III3, IV2, IV3 (correspondence between study scenarios and demand scenarios: I2=A*, II2=A, III2=B, III3=B′, IV2=C; scenario D was not used) Staff of the CONAES study Based on the demand scenarios; integrations of the projections of demand from the demand scenarios and projections of supply from the supply scenarios. A variant of each price-schedule scenario was projected for 3 percent annual average growth of GNP. MRG scenarios Modeling Resource Group Estimates of the economic costs of limiting or proscribing energy technologies in accordance with various policies.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems Resource Group in its econometric investigation of various determinants of energy supply and demand. Unlike the three sets of scenarios thus far described, those of the Modeling Resource Group do not proceed from prices (or, equivalently, policies) given at the outset. They are based instead on equilibration of supply and demand, so that prices come as outputs, rather than being given as inputs. Generally speaking, these scenarios contain much less sectoral detail than the other scenarios used in the study; in exchange for this simplification, they permit a more extensive exploration of different policies (including special constraints or moratoria on particular technologies). It should always be borne in mind, in dealing with scenarios and other projections, that they cannot pretend to predict the future. All scenarios require great oversimplification of reality, and many judgments enter into their assumptions. The value of scenarios is in their self-consistency, which allows an approximate view of relationships between supply and demand, trade-offs among different energy sources, and the possible impacts of broadly defined policies.* The temptation to take this kind of projection too literally should be resisted, but as means of illustrating certain gross features of the nation’s energy system and its possible evolution, this study’s scenarios have value. THE ECONOMIC EFFECTS OF MODERATING ENERGY CONSUMPTION According to the analyses of the Demand and Conservation Panel, the kinds of energy conservation that offer the greatest promise of substantially moderating in the growth of energy consumption involve replacing equipment and structures with those that are more energy efficient. To avoid economic penalties, the rate of replacement must generally depend on the normal turnover of capital stock—about 10 years for automobiles, 20–50 years for industrial plants, and 50 years or more for housing—though rising energy prices will accelerate this turnover in most cases. The effects of conservation will become evident only over the long term,† but these long-term benefits require many actions that must be begun immediately, and sustained consistently over time. As Table 1–1 and Figure 1–3 illustrate, the panel found that any of a range of primary energy consumption totals (varying by a factor of more than 2) could be compatible with the same rate of growth in GNP. Thus, energy consumption may exert less influence on the size of the economy than often has been supposed. These findings were borne out by the work of the Modeling Resource * See statement 1–10, by E.J.Gornowski, Appendix A. † Statement 1–11, by J.P.Holdren: An oversimplification. Many approaches to conservation—such as retrofitting existing equipment—produce big short-term gains.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems Because of their predominance in oil, natural gas, and uranium, the Middle East and Africa will develop an even larger surplus in their energy trades, probably running into hundreds of billions of 1972 dollars by the turn of the century. The corresponding deficits will be primarily in the industrial countries (except Canada). U.S. invisible items of trade are now quite strong and are supporting the nation’s current account. A good part of this flow represents oil company earnings in the world market; this partially offsets the high costs of oil imports. In addition, new conservation efforts, new oil finds, and a high propensity to import by OPEC help keep the U.S. external position from deteriorating too much. In the United States the energy trade deficit will be somewhat reduced by the expected growth in exports of coal or uranium if such exports are permitted. If the United States were to limit uranium exports, there would be a correspondingly larger demand for U.S. coal. The main reason uranium would normally be preferred by importers is its lower transportation cost. These projections do not take into account the trade in nuclear power plants and related facilities (and possibly other advanced energy technologies), which may offset a large part of the industrial nations’ energy trade deficits but will add to the deficits of the non-oil-producing countries. In the absence of political constraints, worldwide investment in nuclear power between now and 2010 could add up to about one trillion 1972 dollars, and much of this will be supplied by North America, Europe, and Japan. Nonenergy exports of developing countries not members of OPEC would have to expand to finance their part of these investments. CONSEQUENCES OF ACTION ON NATIONAL ENERGY POLICIES Conservation in the United States, beyond what is induced by higher world oil prices, would reduce the growth of demand for OPEC oil and thus reduce the cartel’s power to raise the price and limit production. The more the conservation effort concentrates on oil (or natural gas in uses where the two are directly substilutable), the greater will be the benefits to the rest of the world, although the magnitude of these benefits should not be exaggerated. Promotion of domestic energy production, especially of oil and gas and directly substitutable energy forms, would be equivalent to conservation in its external economic effects. Price controls on oil and gas, or other measures shielding domestic consumers from world energy prices, would have effects opposite to those of accelerated conservation and domestic production; they would reinforce the pressure for a higher world oil price. A tariff on imported oil would encourage conservation and domestic output by allowing the domestic price of oil to rise to match the landed
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems price of imported oil (assuming price controls have expired). It would also enable the importing country to reduce the monopoly profit that would otherwise go to OPEC. A tariff would be particularly effective if adopted simultaneously by other major oil-importing countries. Import quotas, with competitive bidding for import licenses, would similarly reduce OPEC’s power over oil prices.* Abandoning nuclear reprocessing is likely to accelerate the rise of uranium prices. This would increase the incentives for reprocessing in uranium-importing countries. To counter this tendency, the United States (possibly in agreement with Canada and Australia), would have to keep the price of enriched uranium low enough, by subsidies if necessary, to make reprocessing uneconomic. If such a policy made a major contribution to preventing nuclear war or large-scale terrorism, the probable high cost to the United States would not be considered prohibitive. However, alternative methods of controlling proliferation (for example, international safeguards programs including international surveillance of reprocessing operations) could be cheaper and more effective, and must be explored. Beyond all this, it must be recognized that so much attention paid to the spent-fuel end of the uranium fuel cycle tends to ignore the fact that nuclear explosives can be obtained by uranium enrichment—the so-called front end of the cycle: (See chapter 5 under the heading “Uranium Enrichment.”) As years pass and new enrichment technologies appear, this front-end risk of weapons proliferation increases. Abandonment or postponement of the breeder reactor is likely to have effects similar to the avoidance of reprocessing, raising the price of uranium, and thus strengthening the interest of other countries in the development of breeders or advanced converters. Under some plausible conditions, the United States could remain a uranium exporter through the end of this century. Hence a major delay in the domestic breeder program, rather than setting an example to others, may accelerate breeder development elsewhere, if only because it would leave less U.S. uranium available for export (or increase U.S. demand for uranium imports). In any case, European work on breeders may be too far along, and too strongly supported by energy projections, to be stopped, despite growing political opposition to nuclear power in many European countries and Japan. To the extent that public distrust of nuclear power in the industrialized countries slows its growth, the pressure on uranium supplies will decrease and the above-mentioned problems will be postponed, although the problems of the international oil market will intensify. A slowdown in the growth of U.S. GNP would help keep down our * Statement 1–65, by L.F.Lischer and D.J.Rose: OPEC, of course, could retaliate by stopping shipments.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems energy demand and be similar in that respect to the accelerated conservation discussed earlier. However, it would also reduce U.S. demand for nonenergy imports and thus make it more difficult for other countries, especially poor ones, to finance their energy imports. THE DEVELOPING COUNTRIES AND THE WORLD FINANCIAL SYSTEMS As we have seen, the growing demand for energy in the developing countries will make them increasingly important in the global energy picture. Some of these countries are already considerable importers of oil, and others will become so as their transportation sectors expand. Moreover, the industrialization that is an inescapable aspect of economic development will greatly increase their reliance on electric power, of which they now have very little. Their agriculture will also shift from animal and human energy to tractors, harvesters, and trucks, and from natural to industrial fertilizers. As personal incomes rise in these countries, they will want better housing with more lighting and appliances, not to mention air conditioning. The more affluent of their citizens will demand motorcycles, automobiles, and air travel. In fact, the total demand for energy in these countries could conceivably rise faster than GNP.37 Furthermore, we must hope that their GNP does rise at a reasonable rate, not only in their own interest but also for the sake of global political stability. No doubt a substantial part of the required energy can be supplied from domestic sources. Oil and gas are found in many developing countries, but most of those with large resources have already joined OPEC. While there does not appear to be much coal in the developing countries, hydroelectricity could be expanded considerably, at ecologically acceptable sites, if financing were available. Sizeable quantities of uranium presumably remain to be discovered in some regions, but uranium (or thorium, of which India has large reserves) is only a small part of the cost of nuclear power.* It is clear, therefore, that a large part of the energy needed by developing countries will have to be imported. In addition, heavy investments in electric power will be necessary even if the fuel can be obtained inside the country. Electric power, of course, is generally capital intensive, but it will be even more so if oil, gas, and coal are not available, and nuclear and hydroelectric power (or, in the more distant future, solar energy) must be used. In fact, oil is likely to be preempted by transportation uses, and in most developing countries coal would have to * Statement 1–66, by J.P.Holdren: It is unfortunate that this passage ignores the great potential of renewables other than hydroelectricity, and the potential of geothermal energy, in many developing countries.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems be imported from the United States and Australia, the countries with the greatest potentials for exports. It seems likely, therefore, that the developing countries as a whole will concentrate their investments in nuclear and hydroelectric power, at least until the end of this century, and that they will have to import increasing amounts of oil and uranium. This prospect implies further strains in the international financial system, which is already being taxed by the aftermath of the 1973–1974 oil price increase. The developing countries generally had little leeway in their balances of payments for increased oil prices; moreover, the recession in the developed countries induced by the oil price increase had severe impacts on their export earnings. The OPEC countries on the whole did not spend much of their vast new revenue on exports from developing countries. As a result, the non-oil-producing developing countries as a group (with notable exceptions such as India) suddenly found themselves with large trade deficits whose financing continues to preoccupy the international banking community. The difficulty is not so much that the money is not available; the OPEC surpluses remain in the world banking system and could be invested elsewhere. The problem is rather that the countries with cash surpluses (principally Saudi Arabia, Kuwait, and the United Arab Emirates) have not been willing to lend large amounts directly to the developing countries, although they have made relatively small amounts available to a few selected countries and to international organizations. These countries with surpluses have preferred to invest in short-term assets in the United States and Europe, rather than in long-term investment projects in the developing countries. Consequently, Western banks have had to assume the credit risks of loans to countries whose debt-servicing ability is heavily dependent on continued rapid economic growth. Various international arrangements are now being worked out to diversify these risks. The stakes are high, for without adequate financing the developing countries would have to curtail economic growth, to the detriment of billions of people already close to the subsistence level, and to the detriment of the international banking system’s stability. The developing countries’ needs for massive investments in electric power will only magnify their financial problems. The developed countries, preferably in consultation with the OPEC countries that have cash surpluses, should give high priority to schemes for maintaining a flow of financial resources to poor countries that fosters their economic development. This means, among other things, that they should encourage imports from the poor countries even where these imports compete with domestic production. The international institutions active in this field (particularly the International Bank for Reconstruction and Development, the International Development Association, and the
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems regional development banks) need further strengthening. Increased public awareness of the domestic aspects of the energy problem should not lead to neglect of its far-reaching international implications.* SUMMARY This committee has studied at length the many factors and relationships involved in our nation’s energy future. It offers here some technical and economic observations that decision makers may find useful as they develop energy policy in the larger context of the future of our society. Our observations focus on (1) the prime importance of energy conservation; (2) the critical near-term problem of fluid fuel supply; (3) the desirability of a balanced combination of coal and nuclear fission as the only large-scale intermediate-term options for electricity generation; (4) the need to keep the breeder option open; and (5) the importance of investing now in research and development to ensure the availability of a strong range of new energy options sustainable over the long term. Policy changes both to improve energy efficiency and to enhance the supply of alternatives to imported oil will be necessary. The continuation of artificially low prices would inevitably widen the gap between domestic supply and demand, and this could only be made up by increased imports, a policy that would be increasingly hazardous and difficult to sustain. The most vital of these observations is the importance of energy demand considerations in planning future energy supplies. There is great flexibility in the technical efficiency of energy use, and there is correspondingly great scope for reducing the growth of energy consumption without appreciable sacrifices in the growth of GNP or in nonenergy consumption patterns. Indeed, as energy prices rise, the nation will face important losses in economic growth if we do not significantly increase the economy’s energy efficiency. Reducing the growth of energy demand should be accorded the highest priority in national energy policy.† In the very near future, substantial savings can be made by relatively simple changes in the ways we manage energy use, and by making investments in retrofits of existing capital stock and consumer durables to render them more energy efficient. The most substantial conservation opportunities, however, will be fully achievable only over the course of two or more decades, as the existing capital stock and consumer durables are replaced. There are economically attractive opportunities for such improvements in appliances, automobiles, * See statement 1–67, by H.I.Kohn and L.F.Lischer, Appendix A. † Statement 1–68, by L.F.Lischer and H.Brooks: To this we would add “while maintaining a healthy and growing economy.”
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems buildings, and industrial processes at today’s prices for energy, and as prices rise these opportunities will multiply. This underscores the importance of clear signals from the economy about trends in the price of energy. New investments in energy-consuming equipment should be made with an eye to energy prices some years in the future. Without clear ideas of the replacement cost of energy and its impact on operating costs, consumers will be unlikely to choose appropriately efficient capital goods. These projected cost signals should be given prominence and clarity through a carefully enunciated governmental pricing policy. They can be amplified where desirable by regulation; performance standards, for example, are useful in cases (such as the automobile) where fuel prices are not strongly reflected in operating costs. Although there is some uncertainty in these conclusions because of possible feedback effects of energy consumption on labor productivity, labor-force participation, and the propensity for leisure, calculations indicate that, with sufficiently high energy prices, an energy/GNP ratio one half* of today’s could be reached, over several decades, without significant adverse effects on economic growth. Of course, so large a change in this ratio implies large price increases and consequent structural changes in the economy. This would entail major adjustments in some sectors, particularly those directly related to the production of energy and of some energy-intensive products and materials. However, given the slow introduction of these changes, paced by the rate of turnover in capital stock and consumer durables, we believe neither their magnitude nor their rate will exceed those experienced in the past owing to changes in technology and in the conditions of economic competition among nations. The possibility of reducing the nation’s energy/GNP ratio should serve as a stimulus to strong conservation efforts. It should not, however, be taken as a dependable basis for forgoing simultaneous and vigorous efforts on the supply programs discussed in this report. The most critical near-term problem in energy supply for this country is fluid fuels. World supplies of petroleum will be severely strained beginning in the 1980s, owing both to the expectation of peaking in world production about a decade later and to new world demands. Severe problems are likely to occur earlier because of political disruptions or cartel actions. Next to demand-growth reduction, therefore, highest priority should be given to the development of a domestic synthetic fuels industry, for both liquids and gas, and to vigorous exploration for conventional oil and gas, enhanced recovery, and development of unconventional sources (particularly of natural gas). * Statement 1–69, by R.H.Cannon, Jr.: It would be wrong to depend on so large an improvement. Calculations using some models and assumptions predict severe economic impact for smaller energy/GNP reductions.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems As fluid fuels are phased out of use for electricity generation, coal and nuclear power are the only economic alternatives for large-scale application in the remainder of this century.* A balanced mix of coal- and nuclear-generated electricity is preferable to the predominance of either. After 1990, for example, coal will be increasingly required for the production of synthetic fuels. The requirements for nuclear capacity depend on the growth rate of electricity demand; this study’s projections of electricity growth between 1975 and 2010 (for up to 3 percent annual average GNP growth) are considerably below industry and government projections,† and in the highest-conservation cases actually level off or decline after 1990. Such projections are sensitive also to assumptions about end-use efficiency, technological progress in electricity generation and use, and the assumed behavior of electricity prices in relation to those of primary fuels. They are therefore subject to some uncertainty. At relatively high growth rates in the demand for electricity, the attractiveness of a breeder or other fuel-efficient reactor is greatest, all other things being equal. At the highest growth rates considered in this study, the breeder can be considered a probable necessity. For this reason, this committee recommends continued development of the LMFBR, so that it can be deployed early in the next century if necessary. Any decision on deployment, however, should be deferred until the future courses of electricity demand growth, fluid fuel supplies, and other factors become clearer.‡ In terms of public risks from routine operation of electric power plants (including fuel production and delivery), coal-fired generation presents the highest overall level of risk, with oil-fired and nuclear generation considerably safer, and natural gas the safest.§ With respect to accidents, the generation of electricity from fossil fuels presents a very low risk of catastrophic accidents. The projected mean number of fatalities¶ associated with nuclear accidents is probably less than the risk from routine operation of the nuclear fuel cycle (including mining, transportation, and waste disposal), but the large range of uncertainty that still attaches to nuclear safety calculations makes it difficult to provide a confident assessment of the probability of catastrophic reactor accidents. The spread of uncertainty in present estimates of the risks of both coal and nuclear power is such that the ranges of possible risk overlap somewhat. * Statement 1–70, by J.P.Holdren: My longer dissenting view, statement 1–2, Appendix A, also applies here. † See statement 1–71, by L.F.Lischer and H.Brooks, Appendix A. ‡ Statement 1–72, by R.H.Cannon, Jr., and H.Brooks: Since about 20 years will necessarily elapse between such a decision and the start of actual deployment, the decision cannot be delayed very long. § Statement 1–73, by J.P.Holdren: My longer dissenting view, statement 1–60, Appendix A, also applies here. ¶ See statement 1–74, by H.Brooks, Appendix A.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems High-level nuclear waste management does not present catastrophic risk potential, but its long-term low-level threat demands more sophisticated and comprehensive study and planning than it has so far received, particularly in view of the acute public sensitivity to this issue.§ The problem of nuclear weapons proliferation is real and is probably the most serious potentially catastrophic problem associated with nuclear power. However, there is no technical fix—even the stopping of nuclear power (especially by a single nation)—that averts the nuclear proliferation problem. At best, the danger can be delayed while better control institutions are put in place. There is a wide difference, of opinion about which represents the greater threat to peace: the dangers of proliferation associated with the replacement of fossil resources by nuclear energy, or the exacerbation of international competition for access to fossil fuels that could occur in the absence of an adequate worldwide nuclear power program. Because of their higher economic costs, solar energy technologies, other than hydroelectric power, will probably not contribute much more than 5 percent to energy supply in this century, unless there is massive government intervention in the market to penalize the use of nonrenewable fuels and subsidize the use of renewable energy sources. Such intervention could find justification in the generally lower social costs of solar energy in comparison to alternatives. The danger of such intervention lies in the possibility that it may lock us into obsolete and expensive technologies with high materials and resource requirements, whereas greater reliance on “natural” market penetration would be less costly and more efficient over the long term. Technical progress in solar technologies, especially photovoltaics, has accelerated dramatically during the last few years; nevertheless, there is still insufficient effort on long-term research and exploratory development of novel concepts. A much increased basic research effort should be directed at finding ways of using solar energy to produce fluid fuels, which may have the greatest promise in the long term.* Major further exploitation of hydroelectric power, or of biomass through terrestrial energy farms, presents ecological problems that make it inadvisable to count on these as significant future incremental energy sources for the United States. (Marine biomass energy farms could have none of this problem, of course.) There is insufficient information to judge § Statement 1–75, by H.I.Kohn, D.J.Rose, and B.I.Spinrad: Failure of summary to mention carbon dioxide, water, and regulatory risk problems is misleading. See ‘Conclusions’ in chapter 9. * Statement 1–76, by R.H.Cannon, Jr.: Two of these are marine biomass and ocean thermal energy conversion. Not enough is yet known to assess the magnitudes of their potential contributions.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems whether the large-scale exploitation of hot-dry-rock geothermal energy or the geopressured brines will ultimately be feasible or economic. Local exploitation of geothermal steam or hot water is already feasible and should be encouraged where it offers an economical substitute for petroleum. It is too early in the investigation of controlled thermonuclear fusion to make reliable forecasts of its economic or environmental characteristics. It is not, however, an option that can be counted on to make any contribution within the time frame of this study. Nevertheless, fusion warrants sufficient technical effort to enable a realistic assessment by the early part of the next century of its long-term promise in competition with breeder reactors and solar energy technologies. It is important to keep in mind that the energy problem does not arise from an overall physical scarcity of resources. There are several plausible options for an indefinitely sustainable energy supply, potentially accessible to all the people of the world. The problem is in effecting a socially acceptable and smooth transition from gradually depleting resources of oil and natural gas to new technologies whose potentials are not now fully developed or assessed and whose costs are generally unpredictable. This transition involves time for planning and development on the scale of half a century. The question is whether we are diligent, clever, and lucky enough to make this inevitable transition an orderly and smooth one. Thus, energy policy involves very large social and political components that are much less well understood than the technical factors. Some of these sociopolitical considerations are amenable to better understanding through research on the social and institutional characteristics of energy systems and the factors that determine public, official, and industry perception and appraisal of them. However, there will remain an irreducible element of conflicting values and political interests that cannot be resolved except in the political arena. The acceptability of any such resolution will be a function of the processes by which it is achieved. NOTES 1. U.S. Department of Energy, Energy Information Administration, Annual Report to Congress, 1978, vol. 2, Data (Washington, D.C.: U.S. Department of Energy (DOE/EIA-0173/2), 1979). 2. American Petroleum Institute, Basic Petroleum Data Book, looseleaf binder, updated to April 1978 (Washington, D.C.: American Petroleum Institute, 1978). 3. J.Darmstadter and H.Landsberg, “The Economic Background,” in “The Oil Crisis in Perspective,” ed. R.Vernon, Daedalus, Fall 1975, p. 22. 4. H.Landsberg, Low-Cost, Abundant Energy: Paradise Lost?, annual report (Washington, D.C.: Resources for the Future, Inc., 1973), pp. 27–52.
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems 5. National Research Council, Alternative Energy Demand Futures to 2010, Committee on Nuclear and Alternative Energy Systems, Demand and Conservation Panel (Washington, D.C.: National Academy of Sciences, 1979). 6. National Research Council, Supporting Paper 2: Energy Modeling for an Uncertain Future, Committee on Nuclear and Alternative Energy Systems, Synthesis Panel, Modeling Resource Group (Washington, D.C.: National Academy of Sciences, 1978). 7. Ibid. 8. Institute for Energy Studies, Energy and the Economy, Energy Modeling Forum Report no. 1, vols. 1 and 2 (Stanford, Calif.: Stanford University, 1977). 9. W.W.Hogan, Dimensions of Energy Demand, Discussion Paper Series (Cambridge, Mass.: Kennedy School of Government, Harvard University (E-79–02), July 1979). 10. National Research Council, U.S. Energy Supply Prospects to 2010, Committee on Nuclear and Alternative Energy Systems, Supply and Delivery Panel (Washington, D.C.: National Academy of Sciences, 1979). 11. Landsberg, op. cit. 12. Demand and Conservation Panel, op. cit.; and see chapter 11 of this report. 13. National Research Council, Energy and the Fate of Ecosystems, Committee on Nuclear and Alternative Energy Systems, Risk and Impact Panel, Ecosystems Impact Resource Group (Washington, D.C.: National Academy of Sciences, in preparation), chap. 6. 14. Institute for Energy Studies, Coal in Transition: 1980–2000, Energy Modeling Forum Report no. 1, vols. 1, 2, and 3 (Stanford, Calif.: Stanford University, September 1978). 15. See chapter 5 under “Management of Radioactive Waste”; Roger E.Kasperson et al., “Public Opposition to Nuclear Energy: Retrospect and Prospect,” National Research Council, Supporting Paper 5: Sociopolitical Effects of Energy Use and Policy, Committee on Nuclear and Alternative Energy Systems, Risk and Impact Panel, Sociopolitical Effects Resource Group (Washington, D.C.: National Academy of Sciences, in preparation); and Dorothy Nelkin and Susan Fallows, “The Evolution of the Nuclear Debate: The Role of Public Participation,” Annual Review of Energy 3 (1978):275–312. 16. As cited by Nelkin and Fallows, op. cit., pp. 275–276, these include the “powerful imagery of extinction” and “fundamental fears about the integrity of the human body” named by psychiatrist Robert Lifton, the type of surveillance and security controls that might be necessary to protect nuclear fuel cycles and installations, and mistrust of government bureaucracies. For many, they suggest, nuclear power has become a symbol of technology out of control, and of the declining influence of citizens on important matters of policy. 17. National Research Council, Supporting Paper 1: Problems of U.S. Uranium Resources and Supply to the Year 2010, Committee on Nuclear and Alternative Energy Systems, Supply and Delivery Panel, Uranium Resource Group (Washington, D.C.: National Academy of Sciences, 1978). 18. Assistant Secretary for Resource Applications, Statistical Data of the Uranium Industry (Grand Junction, Colo.: U.S. Department of Energy, 1979). 19. U.S. Department of Energy, Energy Information Administration, Annual Report to Congress 1978, vol. 3, Forecasts (Washington, D.C.: U.S. Government Printing Office, 1979). 20. American Physical Society, “Report to the American Physical Society by the Study Group on Nuclear Fuel Cycles and Waste Management,” Reviews of Modern Physics 50 (1978):S-1–S-85. 21. See chapter 6; and National Research Council, Supporting Paper 6: Domestic Potential of Solar and Other Renewable Energy Sources, Committee on Nuclear and Alternative Energy Systems, Supply and Delivery Panel, Solar Resource Group (Washington, D.C.: National Academy of Sciences, 1979). 22. American Physical Society, Principal Conclusions of the American Physical Society Study Group on Solar Photovoltaic Energy Conversion, report prepared for the Office of
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Energy in Transition, 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems Technology Policy and the U.S. Department of Energy (New York: American Physical Society, 1979). 23. As indicated in the low-growth scenarios of chapter 11: I2, I3, II2, and II3. See also the maximum-solar supply scenario described in that chapter, and chapter 6. 24. See chapters 4 and 9. 25. U.S. Nuclear Regulatory Commission, Reactor Safety Study: An Assessment of Accident Risks in U.S. Commercial Nuclear Power Plants (Washington, D.C.: U.S. Nuclear Regulatory Commission (WASH-1400), 1975). 26. See chapter 9; and National Research Council, Risks and Impacts of Alternative Energy Systems, Committee on Nuclear and Alternative Energy Systems, Risk and Impact Panel (Washington, D.C.: National Academy of Sciences, in preparation), 27. American Physical Society, “Report to the American Physical Society by the Study Group on Light-Water Reactor Safety,” Reviews of Modern Physics, 47 (Summer 1975): suppl. no. 1. 28. Risk Assessment Review Group, H.W.Lewis, Chairman, The Risk Assessment Review Group Report to the U.S. Nuclear Regulatory Commission (Washington, D.C.: U.S. Nuclear Regulatory Commission (NUREG/CR/0400), September 1978). 29. Risk and Impact Panel, Ecosystem Impacts Resource Group, op. cit. 30. Risk Assessment Review Group, op. cit. 31. Ibid. 32. Risk and Impact Panel, Ecosystem Impacts Resource Group, op. cit.; J.Harte and M. El Gasseir, “Energy and Water,” Science 199 (1978):623–624; and R.F.Probstein and H. Gold, Water in Synthetic Fuel Production (Cambridge, Mass.: MIT Press, 1978). 33. U.S. Department of Energy, An Assessment of National Consequences of Increased Coal Utilization, Executive Summary, 2 vols. (Washington, D.C.: U.S. Government Printing Office (TID-29425), February 1979). 34. Risk and Impact Panel, Risks and Impacts of Alternative Energy Systems, op. cit., chap. 7. 35. See, for example, J.M.Weingart, Systems Aspects of Large-Scale Energy Conversion (Laxenberg, Austria: International Institute for Applied Systems Analysis (RM-77–23), May 1977). 36. More detail may be found in research inspired by the CONAES study but not conducted under the study’s direction; see, for example, H.Houthakker and Michael Kennedy, “Long-Range Energy Prospects,” Energy and Development, Autumn 1978. 37. This possibility could be offset, however, by the fact that their capital stock will be mostly new and can be designed for efficiency at present and prospective prices for energy.
Representative terms from entire chapter: