The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  Jimmy Carter worried about the dangers of dependency on foreign oil and the risks of another energy crisis. Indeed, he saw energy as the great challenge for his new administration, and he looked to coal and energy conservation as the two principal answers. Reinforcing his fears about energy insecurity, the CIA had just completed a study warning that world oil supplies would start to decline within a decade. Less than two weeks after his inauguration in 1977, Jimmy Carter sat down next to a fireplace for his first “fireside chat” from the White House, wearing what would become an iconic sweater—beige with buttons down the middle. He told the American people that “one of our most urgent projects is to develop a national energy policy.” The speech was well received.

  Two months later, speaking from the Oval Office, Carter warned the American people that he would be holding “an unpleasant talk with you” about “the greatest challenge that our country will face during our lifetime” with “the exception of preventing war.” The energy problem, he explained, will “get progressively worse through the rest of this century . . . We are now running out of oil and gas, we must prepare for a . . . change—to strict conservation and to a renewed use of coal” along with “permanent renewable energy sources like solar power.” This “difficult effort,” he concluded, was nothing less than the “moral equivalent of war”—forever memorialized by its initials: MEOW.

  Whatever the specifics about supply-and-demand, Carter laid out the long-term energy challenge for the United States and the world community. The United States, he made clear, was now, fatefully, tied into a world market.

  “I gave the energy message on television and think it came out all right,” Carter wrote in his diary. But the speech was not well received. Its brittle tone and pessimism, its emphasis on sacrifice and moral failing, and its expectation of permanent scarcity—all these left a very mixed legacy. Many decades later a senior energy adviser walking through the Old Executive Office Building, next to the White House, observed, “These halls are still haunted by Jimmy Carter’s sweater.”7

  Carter put James Schlesinger, formerly director of central intelligence and secretary of defense under Nixon and Ford, in charge of a 90-day crash program to develop a national energy plan. Schlesinger, a master of the complexities of bureaucracy, combined 50 government agencies concerned with energy into a single new organization, the Department of Energy.

  Support for solar continued to build, and the Carter administration moved with it. As Schlesinger summarized it, “Solar has captured the public imagination.” It was in these years that the Carter administration and Congress laid down the baseboards for today’s renewables industry. They did so with tax incentives, grants, regulations, a solar bank, and R&D funding. The administration also established a new national research laboratory devoted to solar energy—the Solar Energy Research Institute—in Golden, Colorado, in the foothills of the Rockies. To head it, Energy Secretary Schlesinger chose, of all people, Denis Hayes, who had been criticizing the Carter administration for not moving fast enough on solar. But Schlesinger had a reasonable theory: if a nuclear proponent headed the nuclear program, and a coal proponent the coal program, then why not a renewables advocate to head the renewables program?8

  “PURPA MACHINES”

  One other policy would prove of critical importance. It is one that has already been cited: Section 210 of the Public Utility Regulatory Policies Act of 1978, otherwise known as PURPA. This may have been obscure at the time, but it turned out to be one of the main foundations on which the renewable industry was born.

  Electric utilities were required to contract to buy the power output from what were called qualifying facilities, or QFs. These facilities were mostly meant to be cogeneration projects or small renewable facilities, such as a small dam or wind turbines. The rate that the utilities would pay the owner of the QF was set on a state-by-state basis by the slightly arcane notion of “avoided cost.” That is, the utility would guarantee to buy the electric output at what was calculated to be the cost of theoretical oil supplies at some point in the future, plus the high costs of building theoretical new power plants—again against some point in the future. The costs that were avoided were often set at the peak of the market and sometimes, especially in the case of a place like California, on very generous terms. A guaranteed market with guaranteed high prices certainly provides the incentives to get people moving and help jump-start an industry. It worked here. In time, however, many of these facilities became known as “PURPA machines,” as they would never have been economic had it not been for what turned out to be those excessively high estimates of the avoided costs.

  In addition to creating a market, these PURPA machines had another consequence. By requiring utilities to purchase power from these units, which were not owned by the utilities, the government was taking the first step to erode the natural monopoly that had characterized the power business for more than seventy years. This would give a further boost to renewable energy.

  There was in those years much debate over solar policy and the nature of incentives. Some argued that systems had been overdesigned and were too expensive and too complex. “We’ve built a Cadillac when people want a Volkswagen,” complained one critic, George Tenet, the promotion manager of the Solar Energy Industries Association (and many years later the head of the CIA). Yet the momentum continued to build. By 1980 over a thousand companies belonged to the Solar Energy Industries Association. Some of them were start-ups but some were large companies, ranging from Grumman, Boeing, and Alcoa to General Motors and Exxon.9

  GOOD-BYE SUNSHINE

  That shining moment did not last. As quickly as it had emerged, the solar energy industry seemed to fold. The Iranian Revolution led to chaos in the oil market, rapid increases in prices, new gas lines, and a second oil shock, and the Carter administration started to come unwound. In July 1979, just a few weeks after announcing the bold solar goal atop the White House, President Carter delivered what became known as the “malaise speech,” warning that the nation faced a crisis of confidence and a “crisis of the American spirit.” His own response was to fire much of his cabinet and announce that he was now putting most of his energy chips, and billions of dollars, into synfuels—liquids made either from coal or oil shale—as the way out of the energy crisis.

  Confidence was not restored. In November 1980 Ronald Reagan defeated Jimmy Carter for the presidency. Carter’s renewables policies went down with him.

  “I really believe that the effort I made over those four years was the maximum that a human being could do,” Carter said many years later. “I’m not bragging on myself... I made eight or nine speeches on energy, until people got sick of it.” His advisers, Carter added, said, “ ‘Look, don’t talk about energy anymore, Mr. President. You’re hitting your head against a stone wall.’ ” The political cost in Carter’s own estimation proved to be very high. “It sapped away a substantial portion of my domestic influence.”

  Reflecting on his experience, Carter summed it up this way: “It was like gnawing on a rock.”10

  “PRODUCTION, PRODUCTION, PRODUCTION”

  If Jimmy Carter was the energy pessimist, prophesying about the great dangers ahead and warning Americans to change their ways, Ronald Reagan was the opposite, the sunny optimist, the beacon of self-confidence, the proponent of a new “morning in America.”

  The Reagan administration, which came into office in 1981, was determined to let market principles and price signals shape the energy marketplace. It was also responding to the distortions, bureaucratic nightmare, and endless litigation that resulted from the oil and natural gas price controls that Richard Nixon had hurriedly put in place a decade earlier. The Carter administration, paying a considerable political price, had already initiated price deregulation that would unfold on a schedule. But the Reagan administration moved swiftly to terminate the system altogether.

  Although there was some continuity on the issue of price controls, renewable energy was an entirely differ
ent story. It had become apolitical divide—indeed, an ideological test—and, as such, represented a major discontinuity between the two administrations. The difference was made abundantly clear at the outset of the Reagan administration by Michael Halbouty, the head of the energy transition team and successful Texas wildcatter, as well as the developer of the sprawling Galleria shopping center and hotel complex in Houston. To a visitor at the Department of Energy, Halbouty announced that he could sum up the energy policy of the Reagan administration in just three words—“Production, production, and production”—as in domestic production of oil and natural gas.

  Renewables had little place in that paradigm, and they quickly fell by the wayside. As far as the Reaganites were concerned, renewables were much too identified with the Carter administration and its travails and, even worse, with California Governor Jerry Brown. He was not only Reagan’s successor as governor, but was seen as the very embodiment of the anti-Reagan liberal. Nicknamed “Governor Moonbeam,” he had become the nation’s most vigorous champion of power from wind and the sun.

  There were also practical problems. These were new technologies; there was hype, and there were things to criticize. Many of the PURPA machines were never going to be economic—indeed, some were highly uneconomic, miniature white elephants. Some never functioned properly. Under Reagan, the funding and incentives for renewables were slashed or eliminated altogether. (So was the Carter administration’s multibillion-dollar program in synthetic fuels.) Denis Hayes, the director of the Solar Energy Research Institute, was abruptly summoned to the Denver airport to meet the head of the organization that oversaw the institute. Hayes was told that his budget was being slashed and 40 percent of the staff would be fired immediately. Hayes resigned on the spot.11

  But solar and other renewables would have in any event faced a much rockier road because of the marketplace. The sky-high interest rates and deep recession of the early 1980s, the consequences of the battle against inflation, would have slowed solar sales, mostly rooftop water heaters, in any event, as people stopped spending and real estate went into a bust.

  Solar just lost its luster as a business. In 1981 Exxon sold its solar thermal business. “Our view of solar had changed,” recalled A. L. Shrier, the president of the Exxon unit at the time. “It was going to take longer and would be harder to make it widespread. We didn’t see the costs coming down or the technology developing fast enough.” With Reagan elected, it was also clear that the heady Carter objective of 20 percent solar by the end of the century was gone. Most other large companies came to the same conclusion.12

  In 1986, in the face of a large oversupply of oil on the world market, oil prices plummeted from a high of $34 a barrel to as little as $10 a barrel. That completely knocked the economic legs out from under the nascent solar industry. Price, it turned out, mattered enormously, and solar, as it was then, just could not compete. A solar architect who had thought he was “battling” OPEC found instead that his business was on the ropes without the support—and expectation—of relatively high energy prices.

  THE EPITAPH?

  In 1986, the same year as the price collapse, the solar hot water system on the roof of the White House sprung a leak. Instead of being repaired, the system was dismantled. Its designer would later explain that White House Chief of Staff Donald Regan “felt that the equipment was just a joke, and he had it taken down.” The disassembled equipment was eventually shipped off as surplus government property to a college in Maine, which used it to produce hot water for its cafeteria. Eventually the system outlived its usefulness on campus. In 2006 it was dismantled again, and part of it was packed up and shipped to Atlanta where—as Carter had speculated at his rooftop press conference twenty-seven years earlier—it ended up a museum exhibit. And, where else, but in the Carter Presidential Library.

  The “rays of hope” for solar power dimmed, at least in the United States, into a very faint glow. Or, as the New York Times put it, “The promise of renewable power has become a distant hope.” Companies went bankrupt or disappeared altogether. Activists and entrepreneurs moved on into other fields. The Economist described this once buoyant solar industry as “a commercial graveyard for ecologically minded dreamers.” Within the nascent renewables industry, the decades of the 1980s and 1990s were to be recalled as the Valley of Death—companies struggled just to stay alive.

  By this time, Scott Sklar, the former aide to Senator Javits, was head of the Solar Energy Industries Association, and the solar industry’s chief lobbyist in Washington. He remembered all too well the mood in those times.

  “We were really morose,” he said.13

  JAPAN: STAYING ALIVE

  The end of the “solar dream” in the United States would pretty much have seemed to mean the end of the road for renewables. If the United States, the global leader in technology and R&D, had more or less given up on renewables, who else would stick with it? The answer was Japan.

  In the early 1970s, Kotaro Ikeguchi was a rising young official in MITI, Japan’s powerful Ministry of International Trade and Industry. Assigned to a department dealing with energy and mining, he became alarmed that Japan had become dangerously overreliant on Middle East oil and was oblivious to the risks. The consequences of a cutoff of supply could be disastrous.

  But Ikeguchi could not stir much interest. For Japan’s high-speed economic growth in the 1960s and early 1970s had been fueled by Middle Eastern oil, and there was little expectation that would change.

  So as an outlet for his anxieties, Ikeguchi decided to write a novel that might wake up both officialdom and the public to Japan’s vulnerability. His imaginary crisis was a Middle Eastern war that resulted in a cutoff of imports. His hero? By coincidence, it was a spry, incisive, but very pragmatic MITI bureaucrat with an understanding of Japan’s precarious energy dependence. Since he was a working bureaucrat, he needed a pen name. He came up with “Taichi Sakaiya,” which means, loosely, “Big Man on the Roof of the World.”

  But before he could find a publisher, reality intruded. His fiction became nonfiction. With the 1973 oil crisis, the Japanese suddenly feared that their whole edifice of economic growth might collapse. Ikeguchi decided it would be inappropriate to publish his novel while the Japanese people were suffering through a real energy shortage, and he put it into a drawer.

  Like his fictional hero, Ikeguchi was drafted to help formulate Japan’s response to a real energy crisis. He was tapped to head Japan’s Sunshine Project, the all-out national initiative to find a way to reduce Japan’s dependence on Middle Eastern oil. He parceled out grants, hammered out industry research partnerships on a wide variety of technological ventures, and pushed through bureaucratic changes in government research institutes.14

  THE “BUREAUCRAT-NOVELIST”

  After the first oil crisis eased, Ikeguchi pulled his manuscript out of the drawer and in 1975 published it as Yudan! The title can be translated as “Cut Off!” or more evocatively, “Starvation in Winter!” It became a huge best-seller—over a million copies. Ikeguchi became famous. Thereafter he was much better known by his pen name Taichi Sakaiya. Highly prolific, he continued to publish books, ranging from an enormously influential treatise called The Knowledge-Value Revolution, which presaged today’s information economy, to a four-volume historical novel on Genghis Khan. One Japanese publication described his “unique position” as “bureaucrat-novelist.” When the second oil crisis hit in 1979, he was recruited to establish an entire new bureaucracy—the New Energy and Industrial Technology Development Organization, NEDO. With a dedicated budget and staff, NEDO continued to propel Japanese research on renewables, even when the rest of the world, including the United States it seemed, had lost interest.

  “I thought that the age of oil was over,” recalled Sakaiya. “It was the age of the knowledge revolution.”15

  After a flirtation with geothermal—partly abandoned because many of these resources were in environmentally sensitive areas—MITI turned to solar energy
. Japan’s experience with semiconductors was applicable to the manufacture of solar cells, as silicon was the main building block for both. It appeared to the Japanese government that there was some chance of making solar photovoltaics competitive as a source of primary energy if costs could be cut massively.

  The solar market took off, fueled by large government subsidies that helped consumers purchase solar panels, along with the most expensive domestic electricity rates in the world, plummeting costs, efficiencies of scale, and increased competition. Led by such companies as Sharp, Kyocera, and Sanyo, Japan was by the beginning of this century the world’s dominant solar manufacturer.

  The original MITI vision that Taichi Sakaiya had articulated—of creating a new knowledge-based industry with strong export potential—seemed to be on the cusp of realization. But by then the renewable mandate was passing to another country.

  FEEDING INTO GERMANY

  It was drilled into the East German guards at the Berlin Wall that their prime mission, above all else, was to keep their fellow citizens from crossing from communist East Berlin into democratic West Berlin. Over the course of 1989 they had become increasingly jumpy. The Soviet grip on Eastern Europe was weakening, and the Berlin Wall was the front line in the East-West stand-off. Any East German attempting to breach the wall risked being shot dead on the spot by the border guards.

  But on the night of November 9, 1989, after an ambiguous message by the East German leadership during a televised press conference, hundreds of thousands of East Berliners surged toward the wall, expecting it to come down, demanding that it be opened. Confused and uncertain, the guards hesitated, but finally did allow the wall to open, changing the course of history. People poured across the border. The division of Germany was over, as soon would be the Cold War itself.