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Energy: Production, Consumption, and Consequences. 1990. Pp. 1-17. Washington, D.C.: National Academy Press. Energy Planning in a Dynamic World: Overview and Perspective WILLIAM F. KIESCHNICK AND JOHN L. HELM Our preference for muddling through has had its day, and it will not be good enough for the third century of the Constitution. William D. Carey, former executive officer, American Association for the Advancement of Science In the 16 years since the oil shock of 1973, many individuals, institu- tions, and government bodies have directed much effort toward revitalizing and fortifying the energy system in the United States. Although much progress has been achieved, the formulation of a coherent long-range na- tional energy policy has not yet been accomplished. Nonetheless, actively planning for the country's future energy system seems to have fallen in importance relative to other issues on the national agenda. The authors in this volume make clear that the time is at hand for a reappraisal of the way in which we plan for and use our national energy system. The agenda for energy institutions has always been to provide energy in the forms required to support economic growth, social progress, and ever-changing societal needs and values. In effect, there has been a social contract between provider, consumer, and government. Consumers, need- ing energy for existence and enterprise, set specifications by their needs and value systems and seek to pay the lowest possible price for delivery. Providers continually assess the consumers' needs and values, invest in projects and programs to deliver energy, and receive consumer payments ' 1

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2 WILLIAM ~ RIESCHNICK AND JOHN L. HELM to underwrite their expenses and capital. Government serves as the referee and auditor of the process and intervenes to set ground rules, provide incentives, and mitigate emergencies. This agenda has been expressed in a variety of settings over time. It is particularly interesting and useful to compare the energy context of the 1970s with that emerging for the l990s. The key features of the 1970s included the following: Rapidly rising prices. Widely held beliefs that both prices and consumption would con- tinue to rise without moderation (no significant price elasticiW). Perceived episodic shortages leading to real episodic shortages. Rising consumption exacerbated by panic purchases. Government inter- ventions to allocate scarce supplies. Major emphasis on supply management; all viable energy sources should be mobilized and alternative energy sources should be developed for the future. Government mandates to achieve energy demand reduction by efficiency standards for automobiles, appliances, commercial buildings, and residences. Strong market and government incentives for investment in long- term energy supply. Licit assumptions that environmental problems would remain local in scope and character and that their solution would be straightforward. Acute concern over economic and strategic vulnerabilities due to high petroleum prices and dependence on foreign supplies. The emerging market conditions of the l99Os differ significantly: Volatile prices oscillating around a gradually changing mean price, probably rising in real terms. Increased recognition of price elasticities in the free markets, and the realization that these elasticities are constructive and tend to moderate emergencies. lion. Shifts from supply shortages to supply excess and rising consump- More sophisticated understanding of demand management and how demand can be mitigated by efficiency measures and how price influences supply enlargement and diversification by alternative fuels. Government deregulation of supply sectors such as the electric power distribution grid and the natural gas pipelines. Disincentives for long-range energy investments, such as energy commodity price volatility and short time horizons for competing capital investment opportunities. - Disincentives for lonn-r~nae

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OVERVIEW AND PERSPECTIVE 3 Mounting concerns about energy system impacts on the environ- ment at global and regional scales as well as at the local level. Growing concern that the U.S. energy system will eventually be vulnerable again to price shocks, given increasing consumption and di- minishing development of new energy sources because of currently lower energy prices. The differences between the conditions of the 1970s and those of the l990s are substantial. In the 1970s the perceived problems of the U.S. supply shortage and dollar drain were clear; high prices induced large investments in energy research and development and production; the environmental performance of energy systems was not confining. In the l990s the potential for price and environmental shocks is largely speculative with respect to both timing and impact, yet anticipatory investment appears to be required if adverse contingencies are to be effectively mitigated. It is this changed context for energy planning that makes a fundamental reappraisal so important and thus presents an expanded set of challenges to our national energy future. How can energy managers, private and public, take advantage of our improved understanding about the interdependence of energy supply and demand with innovation and efficiency technologies? The environmental consequences of energy production, distribu- tion, and use have grown to a planetary scale. What are the implications of this "environmental closure" for domestic and international energy planning and policy? What technological opportunities exist to respond to environmen- tal closure, improve efficiency, increase supplies, and finesse uncertainty? What, if any, institutional measures will be required to promote the selec- tion and deployment of such technologies? What private and public strategies are most likely to be effective in the context of a high degree of uncertainty about energy demand growth; the workings of our natural world and the ecosystems that support humankind; and the future role of technology, markets, and human ingenuity? These questions are addressed by the chapters in this volume and are discussed in overview below. SUPPLY, DEMAND, AND REAPPRAISAL During the 1970s, most energy planning was premised on the prevailing assumption that energy demand was price-inelastic and on the expectation of high, continually escalating energy prices. As Alvin Weinberg explains, most studies before the 1980s significantly underestimated the long-term

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4 WILLIAM ~ MESCHNICK AND JOHN L. HELM price elasticity of energy demand, the growing importance of the environ- ment, the consequences of electrification, and the potential role of efficiency technologies. This happened partly because forecasters possessed little ex- perience with surges in energy prices before the 1970s. What policymakers and energy analysts learned in the 1980s was how subtle and complex is the relationship between energy supply and demand and how sensitive it is to factors external to the energy system. Despite growing knowledge of the relationship between energy supply and demand and the external feedbacks affecting energy production and consumption, it remains difficult to construct useful models of this system. At least two reasons for this difficulty emerge from the contributions in this volume. First, changes can occur very rapidly. Perhaps the most striking ex- ample of this fact in the energy sector is given by John Bookout, who shows that the volatile price behavior of oil is typical of other commodities such as grains or metals. Weinberg shows rapid changes in the ratio of energy use to gross domestic product. Thomas Schelling observes that rapid change and adaptation are an inherent characteristic of humans and human systems, for example, people readily adapt to seasonal variations, different regional climates, and more. Hence, the role of rates of change is complex; although rapid change may promote adaptation, it has repeatedly undermined forecasting and planning. This consideration is especially true for the case of oil price volatility, because oil price serves as the yardstick by which energy planners evaluate other energy investments. Second, the energy system has increasingly complex interconnections with other national and global structures such as the economy and the phys- ical environment. These interconnections can sometimes lead to surprises and heightened vulnerability. The rapid energy price rises of the 1970s in the United States con- tributed to general inflation and substantial capital transfers from oil- consuming to oil-producing nations. The effects on oil-importing nations were somewhat reversed when demand proved to be responsive to price and the oil crisis of the 1970s created enough change in the behavior of consumers to substantially reduce the rate of growth of energy demand. During the mid-l9SOs, U.S. consumers saw gasoline prices fall and stay low over long periods. Then, producer nations' economies suffered as a result of diminished world petroleum consumption. Both playersoil importers and exportersexperienced unexpected economic interactions. Thomas Graedel shows clearly how complex interactions arise from the growing interdependence of the energy system and the environment. Even though energy generation has always produced undesirable by-products, until recently fuel use and the consequent pollution were thought to be relatively modest compared with the environment's ability to absorb the

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OVERVIEW AND PF,~PECT~ - 5 emissions. We are now recognizing such effects as local ozone buildup (Shiller, this volume), regional acid rain (Graedel, this volume) and the global greenhouse (Schelling, and Helm and Schneider, this volume), as symptoms of escalating energy consumption. Advances in understanding of the energy-environment connection present new and difficult trade-offs between the social value of energy and the social value of environmental quality. Harnessing all sources of energy affects the physical and economic environment. Every energy option challenges policymakers with a set of social trade-offs, yet the political process for achieving, or even clearly understanding, social trade-offs is difficult. Any fossil fuel necessarily gen- erates oxides of carbon and nitrogen when burned. Any long-distance transportation system for oil or gas has risks of occasional leaks and spills. Hydropower involves intrusions on natural water flow systems. Light-water atomic fission reactors have the potential for self-destructive transients, and all fission reactors produce spent fuel, the disposal of which requires centuries-long confinement. Solar power requires large amounts of materi- als whose manufacture involves mining and use of energy. Considering the diverse and pervasive nature of these effects of energy generation and use, energy planning involves getting the most effective and desirable energy for the least adverse impact. The trade-off process is difficult at all levels of the energy system. As John Gibbons and Peter Blair show, individuals weigh the energy efficiency of consumer goods against price and competing features on almost a daily basis. John Shiller explains that as the need to improve the environmental performance of consumer goods, such as motor vehicles, continues to grow, so too will the complexity of the trade-offs required at the time of purchase. The difficulty of the trade-off process can also be observed at the in- stitutional level in Wallace Behnke's discussion of future electricity supply issues; grid reliability, supply dependability, open access, and deregulation, among other considerations, are placing complex and often competing demands on the electric power industry. Richard Balzhiser calls for the institutionalization of the trade-off process to establish the "risk/reward symmetry" that he asserts is critical to the repair of the nuclear industry. The challenge and the necessity of achieving trade-off; at the international level are presented by Peter Sand and William Ruckelshaus. Sand presents the principles on which transboundary air pollution has been managed over large regions, such as Europe and North America; while fairly straight- forward in principle, the trade-off process among various nations can be intricate in practice. Ruckelshaus emphasizes that multilateral action is needed on a global scale to prevent the "pollute and cure" approach and to promote the "sustainable development" approach; even more difficult local versus global trade-offs will be required.

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6 wIr I ,l-AM ~ R~ESCHNICK AND JOHN L HELM As populations grow and as the search for raw energy widens, interac- tions will grow and social trade-offs will become more difficult. This process has been especially visible in the United States in the public debate over control of urban ozone in a few cities, the production and transportation of oil in Alaska, and the exploration for oil and gas offshore in the United States. The social trade-offs to be made between constructive energy use and reasonable energy prices, on the one hand, and environmental quality control, on the other hand, will remain enormously difficult and challenging. Another challenge to energy managers comes from the short-term planning bias that is inherent in energy prices: Robert Malpas discusses prices as "the criteria by which investment decisions are judged" and asserts that they do not adequately reflect the future costs and long-term consequences of current investments in terms of their potential, indeed inevitable, effect on the ecosystem and resource supplies. He attributes this to a mismatch of long time scales on the supply side to short time scales on the demand side. Ale long time scales inherent in managing energy supply arise from, for example, long planning and construction lead times and project lifetimes of 15 to 20 years or more. In contrast, the time scales on which decisions affecting energy demand are made daily by millions of individuals and organizations are based on short usage periods, typically 3 to 6 years. Further, energy institutions, policymakers, providers, and consumers understandably have different insights and beliefs about such complex phenomena as global trade and the greenhouse effect, which even experts understand with only limited precision. This leads to a natural bias toward short time frames and incremental change. The net result is that nonpollution and efficiency are undervalued and energy supply investments are made in long-lived, less efficient, or less environmentally benign technology. Malpas concludes that "The challenge facing demand- driven energy policy options is how to influence short-term decisions to take into account long-term opportunity and potential penalties." Thus, planning for the future requires developing an adequate per- ception of energy futures and technological opportunities. Clearly energy futures frequently turn up surprises, but sometimes the surprise is due to the accumulated effects of long-term processes, which lead to an unstable system vulnerable to shocks, such as the embargo imposed in 1973 by the Organization of Petroleum Exporting Countries (OPEC). At other times, unexpected events trigger actions and reactions that lead to surprises such as the price elasticity of demand and the temporary gasoline deliverability shortages of the 1970s. Surprises also result because the model or method used to look to the future is only approximate and may not account for all that becomes important. OPEC-watchers have a poor record in predicting the outcome and impact of the sociological and political behavior of the off- and-on-again cartel. Scientists investigating the greenhouse phenomenon _ __ 1 ~ ~~ _ ~ ~ ~

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OVERVIEW AND PERSPECTIVE 7 are concerned about the approximate nature of their computer models and about unpredictable instabilities surprisesdeveloping in the climate system, such as more rapid changes in global climate than are currently anticipated. lathe chapters in this volume suggest that the most pervasive class of surprise that has frustrated forecasting has been provided by technology. Part of the challenge of accounting for the role of technology in energy planning arises because of its diverse embodiments. In addition to the large base of existing technologies that have been or can be selected for use and can be continuously improved, new and completely unpredictable technologies are continuously produced by the ingenuity of the innovators and inventors. The possibilities for unforeseen breakthroughs include re- newable energy sources such as solar, fusion systems, fuel cells, and things yet to be imagined. How can a forecaster or planner account for technolog- ical serendipity in the energy system? 1b do so explicitly is confounded by several factors: the logic of resource scarcity is simple and direct, whereas the logic of resource expansion by human resourcefulness is complex and indirect; there are always short-term negative effects due to increased pres- sure on the current system, whereas the benefits that may result from the constructive adversity of this pressure come only later; and innovation often leads to changing the order of things and often includes individual, institutional, and even societal dislocations. Planning and reappraisal must become more sensitive to these considerations. THE ENVIRONMENTAL DIMENSION Almost all human activity leads to the discharge of by-products; and the production and use of energy, which itself is basic to all human activity, is no exception. With the explosive growth in energy consumption during the past century, there has necessarily been correspondingly rapid growth in the release of combustion products. The earth's atmosphere now contains about 20 percent more carbon dioxide than in 1900 and 25 percent more than before the industrial revolution 200 years ago. The scope of interactions between the energy system and the environment is unprecedented. Because of the long time frames involved and the growing potential for surprise, the reappraisal of energy systems worldwide has become an urgent priority. In 1900 the world consumption of energy was about 1 billion gigawatts, and now is approaching 10 billion gigawatts. This tenfold increase in one century is the product of a threefold increase in world population and a roughly threefold increase in average per capita use. As Chauncey Starr argues, the increase in per capita energy use is fundamentally linked to the growth of the world economy. Starr predicts that as technological advance and evolving social organization combine to improve the standard of living

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8 H7LLL4A! ~ ~ESCHNICK ED JOHN L. HELM in industrialized societies and to extend improvement to more societies, per capita energy demand will continue to grow. Because of lead times in deploying new energy technology, Starr predicts a 1.6-fold increase of fossil fuel use for electricity generation. Malpas predicts that if the current pace of world demand continues without harnessing the benefits of new technologies, it will be necessary to triple the consumption of coal to satisfy the projected primary energy demand in the year 2020. The potential consequences of this scenario could be profound. Taken together, the by-products of energy production, distribution, and consumption define society's single largest environmental loading. In recent years, awareness of this loading has evolved from a focus on point sources of pollution with point effects to distributed sources with distributed effects. As Ruckelshaus notes, 'CWe nearly all have environmental consciousness now, whereas nearly all of us grew up without it." Environmental loading and its consequences occur rather rapidly on the local and even regional scale; the time scale over which significant regional effects develop is on the order of 10 to 30 years (see, for example, Graedel's analyses, this volume). The global accumulation of by-products such as carbon dioxide occurs at a slower rate, doubling in 100 to 150 years, but the time interval between the beginning of this trend (circa 1850) and its possible egregious effects is not [mown. This mismatch of time scales and the potential for rapid change pre- sented by the greenhouse issue resemble the conditions characterizing the prehistory of the U.S. oil shocks. The conditions that made the oil price shocks possible were observed for more than 20 years. Beginning in 1950, the United States began to import more petroleum products than it ex- ported. During the 1960s, low oil prices also encouraged rapid growth in the demand for oil in Europe and Japan as oil replaced coal. Clear signals of the significance of this demand trend were broadcast. In the early 1960s, OPEC successfully cooperated to resist a reduction in posted prices of oil and proceeded to increase per-barrel royalty and tax payments. During the Arab-Israeli War of 1967, disruptions in the supply of OPEC oil led to the exhaustion of U.S. excess capacity (at that time). By 1971 the experience and lessons in cooperation of the 1960s encouraged OPEC to determine oil production and prices unilaterally, and the embargo followed. The scale on which energy management in the United States was prac- ticed did not match well the much slower demand growth and geographic shifts of energy supply. As a result, the system failed to respond and vulnerability accumulated as a slowly growing dependence on imported oil. Curiously, this dependence and its implications were well understood (be- fore October 1973, projections estimated that imports would supply more than half the oil consumed by the United States), but it was not until the

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OVERVIEW AND PERSPECTIVE 9 price spikes of the 1970s that the system was shocked into a flexible state and the active pursuit of "energy independence" was undertaken. Just as U.S. dependence on foreign oil grew slowly, so too will effects of climate change induced by greenhouse gases take time to manifest themselves. The increase of greenhouse gases is as well established as the increasing oil deficit was in the 1950s and 1960s, and the possibility that these gases contribute to climate change seems as clear as did the potential for OPEC disruptions in oil supply. The complexity of mechanisms by which greenhouse gases may affect climate complicates the interpretation of environmental signals. A few observers speculate that the U.S. drought of 1988 was a signal that the calamity has begun; however, the weight of evidence is that this proposition is false. This complexity makes predicting the future climate as difficult as predicting future actions of the OPEC cartel. From these perspectives, the similarity between the management challenges presented by the oil situation of the 1960s and by the greenhouse situation of today is noteworthy. The key issue here is the rate of change relative to the rate at which the system can adapt. Thomas Schelling points out that we routinely adapt to rapid climate differences far greater than those predicted by current models of the greenhouse effect on a seasonal and even daily basis; he therefore concludes that societal adaptation, rather than intervention, will result. However, Helm and Schneider argue that current models predict that a transition to a different climate could occur much faster than the rate at which global ecosystems can adapt. If this occurs, a state of unpredictable planetary disequilibrium would result, and this in turn would most likely lead to societal disruption. Because climate system modeling is still approximate, the potential rate of climate change is not known with sufficient precision to predict that disequilibrium will occur. Moreover, social responses to disequilibrium conditions are also difficult to predict. Weinberg gives further evidence of the importance of relative rates with his observation that energy demand is inelastic in the short term but elastic over the long term; Gibbons and Blair make the same observation in the context of energy efficiency. Thus, should a climate shock occur, responding in a reactive rather than anticipatory manner is likely to be inefficient, and the tremendous inertia of the global climate may make reversal of change impossible. In sum, like U.S. oil import vulnerability, the potential for climate shocks accumulates slowly. The nature of possible future climates is un- certain, as evidenced by the range of opinion represented in this volume. Helm and Schneider assert that a very rapid and possibly unpleasant climate transition a greenhouse shockseems possible, while Schelling argues that the magnitude of currently projected climate change is smaller than changes with which society routinely copes. Together these views constitute

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10 WILLL4M ~ MESCHNICK AD JOHN L. HELM a quandary; to assume that the greenhouse situation is benign, only to be surprised later by a "greenhouse shock," would be at least as imprudent as overreacting to normal fluctuations in climate. Despite all that is familiar, this management challenge is unprecedented: The rate of accumulated vulnerability is the slowest yet; the prospect for undesirable change has the longest process horizon yet encountered; and the widest range of cultures, societal goals, and value systems is affected. Further, unlike other societal by-products, greenhouse gases are the by-product of many activities essen- tial to life in all societies. Finally, contrary to the U.S. experience with the OPEC shocks, the effects of a greenhouse shock may be irreversible. Therefore, quite unlike past U.S. efforts at managing the domestic energy system, the world may possess only one chance to prevent a greenhouse shock. Because the ways in which energy is produced, distributed, and consumed contribute the single largest loading of greenhouse gases to the planetary environment, all countries must now take this into account in future energy planning. Thus, in addition to reducing U.S. vulnerability to foreign energy sources, if the United States wishes to contribute to reduc- ing the world's vulnerability-to a possible future greenhouse shock, broad reappraisal of the energy system from these perspectives is required. THE ENERGY PLANNING WINDOW Because of the environmental dimension of energy production and use, the importance of conducting an energy reappraisal grows in proportion to world population. But considering the cost of changing energy systems and the uncertainties of the environmental interactions, why is it not prudent to postpone a reappraisal pending further study of the uncertainties? The reason is that if the United States is experiencing a period of heightened system flexibility a window of opportunity then energy managers must act quickly before this window closes. Evidence of such an opportunity window is provided in this volume and in the history of energy. In general, the origins of the current system flexibility lie in responses to the energy price shocks of the 1970s. The way in which severe shocks to the system can create technological opportunities is illustrated in the history of energy systems. During the early 1900s, the United States experienced an episode of energy shortage not unlike that of the 197Os. In 1917 coal supplied 75 percent of the energy consumed by the United States. Then the demands of World War I, mining labor shortages, and railroad tie-ups combined to create a severe coal shortage- within the span of a few months, the cost of coal more than doubled. In immediate response to this crisis, allocation procedures and curtailment of nonessential uses of power were enacted, just as in the emergency of the 1970s. Energy experts also invoked a variety of

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OVERVIEW AND PERSPECTIVE 11 conservation measures, including fuel adjustments on consumer electricity bills, the extension of daylight-savings time, and lowering of thermostat settings to 68F (De Simone, 1976~. The general coal strike of 1919 caused a second fuel price shock. This strike, the culmination of a series of labor actions that took place after the war, virtually shut down bituminous coal production. However, this chapter In the history of American unions may well have been a Pyrrhic victory, because the price effects felt throughout the energy system appear to have shocked it into a state of flexibility. Petroleum energy, already poised for rapid market penetration, quickly became the dominant source of energy supply. Once the demand pressure for energy resumed in the late 1920s, new uses of coal, such as conversion into liquid fuels, never achieved commercial success. In World War I, oil revolutionized warfare; fast ships, planes, and trucks were all decisive contributors to victory. The new possibilities that these machines and technologies offered led to a rapid increase in the demand for oil. In fact, the United States became a net oil importer from 1920 to 1922. Understandably, the consensus among energy experts at that time was that the United States did not possess an adequate supply of petroleum and that somehow a future of continued industrial progress must be ensured though a sustainable reliance on coal. At that juncture, the two most actively discussed energy options were the development of large-scale electric power systems and finding petroleum substitutes; making oil from coal was a popular contender at the time. With the exception of nuclear power, almost every alternative energy technology explored in the 1970s had been envisioned by the studies of the 1920s. Returning to the present situation, the current flexibility in the energy system results from the price shocks of the 1970s. Because many efforts over the past 15 years toward developing a more stable and robust configuration of the system were premised on relatively high long-term oil prices, they were unsuccessful. Hence, even though the OPEC price shocks occurred several years ago, the energy system continues to be more flexible and exploratory than at most other times in the recent past. Yet, as Behnke and others observe, the growth rate of energy demand is resuming. Although the current supply system has been able to respond and maintain low prices, it has done so in reactive rather than anticipatory ways. These measures have included purchasing electric power rather than building new generating capacity, adding any new capacity in small incremental steps, expanding the flexibility and throughput of current facilities such as refineries, and moving to fuel flexibility for stationary applications. Ironically, as Gibbons and Blair note, the value of efficiency in this regard seems to have fallen, as evidenced by the recent debate over relaxation of the corporate average fuel economy (CAFE) standards for automobiles and efficiency-promoting speed limits. Ruckelshaus finds this state of affairs paradoxical, for it is

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12 WILLLi4M ~ ~ESCHNICK ED JOHN ~ HEM during periods of low energy prices that "more resources are available to make conservation investments against the inevitable day when the price of energy goes up again." He concludes that this time of low energy costs must be used as a grace period. This period will end when demand growth resumes at a rate beyond the capacity of the current system to add supply. Under such pressure, the energy system will not be able to assume the technological flexibility needed to incorporate fundamental, as opposed to incremental, improvements. THE ROLE OF TECHNOLOGY The positive role of technology is noted by most of the authors in this volume. Starr identifies the many present, past, and future possible surprises made possible by electric power. New technologies using lasers, plasma torches, superconductors, and advanced materials can lead to pro- cesses based on organic-plasma chemistry, new electrochemistry (including batteries), and new methods for materials processing and fabrication. If the demand anticipated by Starr materializes, a number of promising technolo- gies discussed by Behnke may play an important role. These technologies include computers, telecommunications, microelectronics, and\high-power semiconductor devices such as thyristors. Bookout also notes how new exploration, production, and refining technology has made important con- tributions to our domestic petroleum supply, and Henrick Ager-Hanssen predicts that technology will continue to play a corresponding role for natural gas supply. Some of the new technologies that have contributed to expanding our hydrocarbon resources include digital processing and enhancement of seismic and remotely sensed data and drilling in harsh conditions on onshore drilling platforms. New technologies that use nat- ural gas for power generation, such as gas turbines and boiler cofiring, are described by William McCormick. The role of technology in achieving efficiency is apparent from the discussion of Gibbons and Blair. Technol- ogy has improved the efficiency of heating, illuminating, air conditioning, cooking, transportation, appliances, and industrial processes; its potential is far from exhausted. Malpas asserts that technology will be the primary agent for continued efficiency in the future. It is the historical and potential role of technology that gives these au- thors their pragmatic optimism. Clearly, technology has been a primary tool for both developing new energy sources and using them more efficiently. So while technological surprise may limit visibility into the future, it clearly makes possible brighter futures than those that presuppose a Malthusian world of exhausted nonrenewable resources. Ultimately, mankind may reach a planetary limit to growth, in which case, technology will be crucial to getting there smoothly.

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OVERVIEW AND PERSPECTIVE 13 In principle a wide variety of developed technologies can be employed to meet a growing demand, but in practice there are lead times inherent in implementing any new energy strategy. Furthermore, several important supply issues may be confronted soon: for example, the need for more electrical generating capacity and the possible end of the gas deliverability "bubble." Together these factors may cause the grace period of low U.S. energy prices to end during the l990s. If so, the option to implement fundamental improvements is likely to become too costly, and only en- hancements and extensions to the existing system will be possible. In this light, the decade of the l99Os becomes an especially important period for decision making and planning. SOME IMPLICATIONS FOR STRATEGY If past energy appraisals and forecasts were hawed because they did not anticipate the complexity of the future, why is this not an inherent limitation of any new reappraisal? It seems inevitable that some future issues will not be discovered in forthcoming reappraisals. The answer is that, if nothing else, the recently recognized economic and environmental issues on regional, national, and global scales have yet to be incorporated into energy system modeling and planning. More than ever, technology and fuel choices must factor environmental consequences and social trade-offs between benefits and costs. The present constrained circumstances for investment in a new energy system present an enormous challenge to domestic energy institutions. There is increasing indication that the risks of environmental and price- supply "future shocks" need to be anticipated with insurance strategies soon. But, how do planners formulate the first of what will doubtless be a series of "midcourse corrections" in the evolution of energy systems? What should be chosen as the rational first steps of departure from the status quo to promote new increments of energy supply that are both affordable and more environmentally benign? Which of these steps will be mandated by policy, and which will be the fruits of a market system producing alternatives by economic incentives? From the above discussion, we conclude that energy policies and choices must be resilient to surprises, both good and bad. This resiliency must pervade all sectors of the planning establishment: business, mu- nicipalities, utilities, and governments. Although the particulars of laws, regulations, taxes, and national programs must come from other forums, the following clear and promising directions for energy policy emerge from the presentations in this volume: 1. Increase energy efficiency.

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14 WI~L4M ~ ~ESCHNICK ED JOHN ~ HELM 2. Move the aggregate fossil fuel mix toward a higher hydrogen con- tent. 3. Revisit "smokeless" energy sources, primarily improved nuclear fission. Policy directions for other important issues, such as transregional acid de- position and local ozone nonattainment, as indicated in those chapters that specifically discuss them, are already being pursued, because the techno- logical needs to address them are visible and the political process to solve them is already in progress. Increasing Energy Efficiency Nearly all of the authors in this volume advocate increased energy efficiency as a major element of any future energy plan. The special relevance of this strategy is underscored by the diversity of perspectives and management contexts represented by these individuals. But although the value of increasing efficiency is clearly identified as an important agenda item, the means of achieving gains comparable to those of the past are not. The petroleum price shocks of the 1970s and 198Os drove U.S. energy institutions to perform the easier improvements. For example, some of these gains were based on the improved design of long-life capital stock such as automobiles, buildings, appliances, and factories; the considerable impact of these capital improvements will not be easy to repeat. Although the limits to additional progress are not known, the record of technological advances offers hope that the progress to date is a technological point of departure for considerable additional gains. The planning question is concerned less with identifying potential improvements in technology and design than it is with how to bring them into being. History suggests that the price of energy usually drives this progress. The higher the price, whether by taxation or market mechanisms, the more the incentive for energy efficiency. The option may be thought of as a trade-off between moderate, scheduled price increases now and possible large shocks in market prices later. However, because of the large energy component in most manufactured and agricultural products, the social cost of price-induced efficiency in these products would most likely be an increment of general inflation and an erosion of the global competitiveness of those nations that do not balance the factors influencing energy supply and demand in the most cost-effective way. An alternative proposal could be to increase the efficiencies mandated for automobiles, appliances, buildings, and residences. This strategy is actively becoming ensnared by the social trade-off process, as witnessed by the recent CAFE standards debate. The design of any energy saving strategy is likely to be controversial because some form of government intervention, be it taxes, sheltered prices, or

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OVERVIEW AND PERSPECTIVE 15 mandated performance, will almost surely be required. As many of the authors assert, efficiency improvement strategy that is politically attainable will be worth the effort. Promoting Hydrogen-Rich Fuels Increasing the use of hydrogen-rich fuels is simple in concept: namely, increase the hydrogen-to-carbon ratio of the aggregate fossil fuel mix. Hydrogen burns to yield energy and water vapor, whereas carbon burns to yield energy and carbon dioxide, a greenhouse gas. The environmentally most desirable hydrocarbons from the standpoint of the greenhouse effect would involve as much hydrogen and as little carbon as possible. Of the currently available fuels, natural gas (methane) scores highest on this value scale, and coal, being mostly carbon, scores lowest. Intermediate choices, in order of decreasing desirability, are propane/butane and methanol, gasoline, and diesel fuel. In a world that honored this ranking, natural gas would be used as often as possible and the use of coal would be discouraged. This consideration raises grave doubts about an earlier conceptual strategy to use coal as a bridging, transitional fuel between the petroleum era and some future nonfossil era. A better strategy would replace coal with natural gas. Coal has been considered for decades as a feed stock for making methane, but the cost-effectiveness of that process has been disap- pointing to date. Further, to avoid exacerbating the environmental conse- quences of the coal-to-methane conversion process, either huge amounts of nonfossil hydrogen or a non-CO2-emitting method of excess carbon dis- posal, will be required. There appear to be abundant world resources of gas, but because it is costly to transport for distances of more than about 2,000 miles, the relationship of producing locations to consuming locations must be considered. Moreover, because methane is also a greenhouse gas, the importance of methane leakage must be assessed. There may be enough gas resource on the North American continent (McCormick, this volume) and Europe (Ager-Hanssen, this volume) for a substantial gas policy initiative, especially if exploratory drilling technology improves with gas price stimulation. A second wave of world gas supply will be available when technology helps find more gas and solves the problem of bringing remote gas to consumers in a cost-effective way. Liquefying natural gas is at present accomplished by a relatively costly technology; however, remote gas could be converted to transportable liquid methanol, although this process does not yet have adequately sized downstream markets. Clearly mobilizing more world gas with cost-effective technology is a most promising fossil fuel strategy. This technological challenge is formidable but has great potential.

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16 WILLIAM ~ ~ESCHNICK ED JOHN ~ HELM Rev~sii'ng Nuclear fission As Malpas asserts, "Nuclear energy is the cleanest of all .... One is surprised that environmentalists do not promote it, demanding that it be made safer than it already is." Much has been learned about the design, construction, and operation of nuclear fission power plants. New, inherently safe, second-generation reactor concepts have been researched and designed (Faltermayer, 1988~; some have been tested and demonstrated on a large scale. The inherent safety of these new reactors derives solely from the laws of nature, making them virtually immune to operator error or subsystem failure. Although characteristics differ, all these reactors achieve their safety without human or control system intervention; one type of reactor can withstand a total loss of coolant such as would result from a major structural failure. The nuclear power plants in the United States today rely on engi- neered safety systems and possess little immunity to many modes of failure, particularly those that lead to a loss of coolant. The need for the engi- neered safety systems requires costly and redundant controls to assert a positive, corrective response to subsystem malfunction or operator error. Even though the U.S. nuclear power plants of today have demonstrated the capability of their engineered safety systems to protect the health and safety of the public, experience has shown that they are less successful at protecting the financial risk of their owners. In addition to inherent safety, some second-generation reactors offer other attractive features such as higher thermodynamic performance and fuel cycle flexibility. For the above and other reasons beyond the scope of this chapter, the inherent safety of the new, second-generation reactors translates to substantially smaller social and financial risk than previously possible. Weinberg, Starr, McCormick Balzhiser, and Malpas cite the growing importance of "smokeless" nuclear technology. The promise of inherently safe reactors further suggests that it is time to reconsider and debate anew the nuclear option. However, even though the reactor technology portion is within reach, the balance of the system is not. One important difference is the apparent uneven quality in management. That some U.S. nuclear plants perform as well as any in the world while others are among the worst is widely attributed to this fact (Ahearne, 1986; Hansen et al., 1989~; thus, any nuclear reappraisal must include the management dimension. Also, a complete reappraisal must circumscribe the entire fuel cycle and include a socially and politically acceptable solution to the waste problem. Failure to do this in the United States has cost much in terms of economic opportunities in the past and will continue to be costly in terms of energy deficits in the future. Balzhiser offers his view of what nuclear nonpolicy

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OVERVIEW AND PERSPECTIVE 17 has cost the United States, and one view of what will be required to begin to form an enlightened and constructive nuclear policy. We believe that it is time to stop paying for nuclear nonpolicy; it is time to make the hard choice to either fix or forget nuclear power. SYNERGIES AND CONCLUSION Most of the options discussed above are not mutually exclusive; indeed. some of them can be combined synergistically. For example, hydrogen- rich fuels are also those fuels most conducive to reliable, high-efficiency technologies such as combined-pycle gas turbines. If the energy system is to continue to evolve toward fuels ever richer in hydrogen, non-carbon-based hydrogen sources will be necessary. Nuclear energy provides the ultimate means to provide this smokeless energy in large amounts. Further, high- value "energy currencies" such as hydrogen-rich fuels and electricity can be used to run greenhouse-benign transportation systems, such as new- generation trains or electric cars. Abundant electricity can promote system efficiencies and also simplify the substitution of smokeless energy sources. These three directions, energy efficiency, the hydrogen-rich fuels, and acceptable nuclear power, are emerging in energy policy discussions because they are technically and logically relevant to modern society's energy vul- nerabilities. The technical case for them and the abundance of constructive technological surprises implicit within them richly deserve investigation and appraisal. The technical choices may not be easy. The greater challenge, however, will be to marshal the necessary social and political will to make progress along whichever technological paws are chosen. 1b be ready for the inevitable surprises that the future holds, the time to face the challenge of energy planning in a dynamic world is now. If it be now, 'tis not to come; If it be not to come, it will be now; If it be not now, yet it will come: The readiness is all.... Shakespeare, Hamlet REFERENCES Ahearne, J. F. 1986. Three Mile Island and Bhopal: Lessons learned and not learned. Pp. 197-205 in Hazards: Technology and Fairness. Washington, D.C.: National Academy Press. De Simone, D. 1976. Technology assessment: Where we have been. Pp. 1 - in Retrospective Technology Assessment 1976, J. ~ Tarr, ed. San Francisco, Calif.: San Francisco Press. Faltermayer, E. 1988. Taking fear out of nuclear power. Fortune 118(August 1~:105~118. Hansen, K., W. Dietmar, E. Beckjord, E., P. Gyftopoulos, M. Golay, and R. Lester. 1989. Making nuclear power work: Lessons from around the world. Technology Review 92(February):31 40.

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