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

by Daniel Yergin

  Otto’s mechanism would draw air and fuel into a cylinder through a valve, compress it, combust that charge, and exhaust the spent charge in four stokes. Daimler, now the chief technologist of the tiny company, continued to object. He dismissed Otto’s ideas as “a waste of time.”

  But Langen placed his bet on Otto. Daimler had missed the significance of the increased power and efficiency offered by Otto’s design. Within six months they had prototyped an engine that not only exceeded the performance of any engine currently available, but could also shatter the three-horsepower barrier. The device was a commercial success.4

  The development of the “Otto cycle” engine in 1876 marked the introduction of the modern internal combustion engine. It combined valves, a crankshaft, spark plugs, and a single cylinder in a way that allowed the fuel and gases to harness the energy of combustion with dramatically fewer energy losses, and thus with greater efficiency. On top of all of that, it was also more reliable.

  By 1890 a German auto industry, founded on the internal combustion engine, had been born. Otto and Karl Benz, who used Otto’s patent for his first three-wheeler, were among the pioneers of the German auto industry. And so was Gottlieb Daimler, who had split off from Otto and founded his own company. By the middle-1890s, Daimler was even distributing his cars in America through the piano maker William Steinway. Daimler’s and Benz’s firms were to be merged in the twentieth century into one company, Daimler-Benz. But Daimler and Benz apparently never met each other.

  THE RACE

  For at least a decade, Germany and France—the latter with such engineers as Armand Peugeot and Louis Renault—led the world in motor transportation.

  The auto industry was much slower to develop in Britain, despite its preeminence in engineering. “Friends” of the railway industry pushed through Parliament the Red Flag Act, which aimed to protect the transportation franchise of the railways. Under the Red Flag Act “road locomotives”—that is, cars—could go no faster than two miles an hour in cities. (A walker, at three miles an hour, could beat that.) In rural areas, drivers could accelerate their cars up to all of four miles an hour. And to add extra safety, drivers had to be preceded by someone walking sixty yards in front who would wave a red flag during daylight hours and carry a lantern after dark. The Red Flag Act meant less incentive to use autos, as their speed and utility were severely constrained.

  On the other side of the Atlantic, in the United States, cars were starting to appear on the street, but they were mainly steamers or electrics. In 1892 one newspaper reported that “a novelty in the way of a wagon propelled by electricity was seen on the streets of Chicago yesterday... The run was made in 22 minutes. The owners found this time respectable—given traffic and the difficulty of negotiating large crowds drawn to the vehicle.”5

  It was not until 1893 that the first successful gasoline-powered car was built in the United States, based on an article in Scientific American describing one of Daimler’s vehicles. Thereafter, an increasing number of innovators were attracted to the internal combustion engine, many of them in the Great Lakes region, particularly around Detroit. Among the more obsessed was a farm boy from Dearborn, Michigan, who had a fascination with machinery and a natural intuition for how things worked—and could work. This was that youthful chief engineer of the Edison Illuminating Company of Detroit, Henry Ford.6

  ELECTRIC OR GASOLINE?

  In 1899, Edison’s blessing still ringing in his ears, Ford left Edison Detroit to work full time on automobiles powered by internal combustion engines.

  But the steamer and the electric car still held the lead. The first police car in America, which took to the road in Akron, Ohio, in 1899, was an electric vehicle. (The Akron police chief had decided it would be cheaper than paying for horse teams and their feed. Its first run was to arrest a citizen who was drunk and disorderly.) In 1900, 2,370 cars were reported to be on the streets of New York City, Boston, and Chicago. Most of them were either steam cars, such as the Stanley Steamer, or electrics. Gasoline-powered cars were far in the rear.7

  Electric cars were favored by many, including “ladies” and, later, by doctors doing house calls. They were quiet, clean, and easy to control. There was no soot, and unlike internal combustion engines, they did not need to be cranked in order to start, sparing motorists the tiring, repetitive activity that could easily break a wrist.

  Yet the internal combustion engine that Nikolaus Otto had first developed was being refined and improved, and it was beginning to overtake both electrics and steam autos in terms of power and reliability.

  Electrics were vexed by three major problems: cost, range, and recharging. The 1902 Phaeton, for instance, had a range of just 18 miles and could go no faster than 14 miles per hour. Steamers, for their part, suffered from low efficiency. They also required long warm-up times and large quantities of water. Moreover, steamers had even less range before needing to be replenished with water than electric cars on a single charge. Internal combustion engines—ICEs—for their part, needed just fuel, could go longer distances, and, by comparison to electrics and steamers, they produced remarkable amounts of power. But they needed to be cranked.8

  But it was still not clear which type of engine was going to prevail.

  NATURE’S SECRET

  By 1900 Thomas Edison had concluded, contrary to what he had told Henry Ford, that an electric vehicle would be preferable to the gasoline-powered cars. Edison complained that those noisy, smelly, sooty, unreliable horseless carriages, fueled by gasoline, could not be the vehicle of the future. He was convinced that he could solve the battery problem with a lightweight, reliable new design with sufficient storage to provide a superior alternative. “I don’t think Nature would be so unkind as to withhold the secret of a good storage battery, if a real earnest hunt were made for it,” Edison wrote to a friend. He had conquered lighting, electric generation, recording, and cinema. Why not transport?

  In 1904, after much hard work, Edison released, to great fanfare, what he labeled the type E battery. It “revolutionized the world of power,” reported the press. Ever the showman, Edison promised “a miniature dynamo in every home . . . an automobile for every family.” But the E battery did not perform as promised and tended to leak. Discouraged but indomitable, Edison returned to the laboratory and redoubled efforts.9

  During this time, there were certainly critics of motorized transport, as there often is with disruptive technologies, and they were not just from the “horse interests.” Some thought the auto was a passing fad, a “useless nuisance” as a character in a popular novel put it. One of the sharpest critics was the president of Princeton University, Woodrow Wilson. In 1906, seven years before he moved into the White House as president of the United States, Wilson declared that cars were “a picture of the arrogance of wealth” and that “nothing spread socialistic feeling in this country more than use of the automobile.”10

  But such opposition could not hold back the tide of enthusiasm. America had caught what a buyer called “the Horseless Carriage fever.” One writer declared, “The automobile is the idol of the modern age.... The man who owns a motorcar gets for himself, beside the joys of touring, the adulation of the walking crowd” and, better yet, “is a god to the women.” But it was still not yet clear in what kind of car the new deity would travel.11

  Through it all, one person had a clear view of what transportation should look like. “The greatest need today,” Henry Ford wrote in 1906, “is a light, lowpriced car with an up-to-date engine of ample horsepower, and built of the very best material.” That was the car he was determined to build.

  In 1908 Ford debuted his first Model Ts. They were light, sturdy, powerful, and priced at only $825. (That was the base price; headlights, windshield, and a roof were all extra.) A few years later came the revolutionary change in manufacturing. Ford introduced the assembly line to mass-produce the car. (The concept was adapted from what had been observed as the “disassembly” line for cattle in a Chicago slau
ghterhouse.) Every ninety-three minutes a new Model T bumped off the line. The price of a Model T went down by as much as two thirds, at one point as low as just $260.12

  The unflagging Edison was not about to quit on the electric car. He reappeared with the type A battery by 1910. This battery promised 60 miles on a single charge and a seven-hour charging time. It was adopted in small vans—like the Detroit Electric and the Baker Runabout—that department stores used for deliveries. Edison was convinced that batteries would be a major component in the future of transportation. He triumphantly wrote to Samuel Insull in 1910, promising the electricity tycoon a major new market for electricity. Or, as Edison put it, “to add many electric Pigs to your big Electric Sow.”13

  But Edison was too late. Ford’s Model Ts were capturing a rapidly growing share of the rapidly growing market and were soon a runaway success. Moreover, with the invention of the electric ignition, motorists no longer had to crank their vehicles, which canceled out one of the decided advantages of the electric car and sealed the victory for the internal combustion engine. Ford had made good on his promise to build a car not just for the wealthy but for “the great multitude” and available to any “man making a good salary.” He had transformed the automobile from a luxury good into a mass-market product.

  By 1920 half the cars in the world were Model Ts. By the time it was discontinued, over 15 million Model Ts had been sold, a record that held for 45 years. By then, the internal combustion engine had long since become the heart and soul of the modern automobile.

  THE NEW FUEL

  But how were these cars to be fueled? The answer was gasoline. The internal combustion engine also saved the oil industry. For its first 40 years, the oil industry had been a lighting business. Its main product was kerosene, poured into lamps and used around the world for illumination. John D. Rockefeller became the richest man in the world as an illumination merchant. But around the beginning of the twentieth century, the rapid advent of electricity was beginning to take away most of the lighting market.

  But just in time, the automobile drove onto the scene.

  Up until then, gasoline was mostly a waste product, an explosive and flammable fraction from refining, which was not of very much use to anyone. But in the dawning automobile age, it turned out that gasoline was a very effective energy packet when poured into an internal combustion engine. By 1911 gasoline had overtaken kerosene as the number one oil product. Major new oil discoveries in the American Southwest, beginning in January 1901 with the blowout at Spindletop, near Beaumont, Texas, assured that there would be adequate supplies of oil.

  But there was still another big problem—distribution—getting the gasoline to motorists. Most gasoline was sold in cans by grocery or general stores, which was pretty inconvenient. In 1907 the National Petroleum News ran a small, inconsequential story that reported, “A new way of reaching the auto gasoline trade direct is being tried with reported success in St. Louis by the Auto Gasoline Co.” The headline was “Station for Autoists.” The “dump,” as one person called it, was probably the first gas station in the United States. The network of gas stations that developed, hundreds of thousands by the end of the 1920s, was as crucial as the roads. Oil had become the fuel of that mobility.14

  THE HALCYON DAYS

  In the 1950s and 1960s, the decades after the Second World War, America was truly the land of the automobile. The development of the suburbs, the building out of new highway and road systems, and the proliferation of the automobile—these went hand in hand. Cars were a major obsession of American life. New cars were sold on the basis of looks, horsepower, performance, and, one way or the other, sex appeal. Fuel efficiency was declining, but that didn’t matter, because gasoline was 25 cents a gallon and gas stations seemed to have sprung up on almost every commercial corner.

  And then, with the oil crisis of 1973, everything changed. A furious political battle erupted in Washington over proposed legislation to regulate automobile fuel efficiency. This was something that had never been regulated before. At the forefront of the opposition were the major auto companies—General Motors, Chrysler, and Ford—often referred to simply as “The Big Three.”

  “We do not want any handouts, we do not want any taxes, and we do not want any regulations,” declared the president of General Motors in a congressional hearing in 1975. “We do not like that sort of thing.” Industry executives believed that the market, and the market alone, should be the regulator of how their cars were built; that is, consumers should decide what they wanted. Moreover, gearing up quickly to produce smaller cars would be costly, and the automakers worried what would happen if consumers changed their minds and switched back to bigger cars again, leaving them with idle production lines and vast parking lots filled with unsold small cars.

  In the fevered energy politics of the 1970s, Detroit lost this battle. New regulations, the Corporate Average Fuel Efficiency—known as “CAFE”—Standards were enacted in 1975, requiring car companies to double fuel efficiency of their auto fleet from the then current 13.5 miles per gallon to 27.5 by 1985.

  A few years later, Henry Ford’s grandson, Henry Ford II, acknowledged that “the law requiring greater fuel efficiency in motor vehicle usage has moved us faster toward conservation goals than competitive, free-market forces would have done.” Still he pleaded for Washington to “give up” on pushing for tighter post-1985 fuel-efficiency standards.15

  GETTING MOBBED

  Regulation is often, as in this case, a substitute for the market. From an economist’s point of view, a more market-based approach to moderating demand—to put it in plain English, a higher tax on gasoline—is more efficient and far better than prescriptive regulations. That kind of tax would send a clear signal, keeping fuel efficiency firmly fixed in the minds of auto buyers, as it does in Europe, where taxes and duties on gasoline today can be more than $4 a gallon, compared with an average of about 40 cents in the United States (of which 18.4 cents is federal tax). The tax burden can fall more heavily on lower-income people. But a tax would make auto manufacturers confident that they could reengineer their output toward higher efficiency and not be stuck with those parking lots full of unwanted and unsold highly efficient vehicles when gasoline prices fell again. A tax is also simpler and less likely to lead to distortions. It provides incentive for continuing innovation. By contrast, a target under regulation also becomes a ceiling. Once reached, there is no strong incentive to push further.

  That, at least, is how economists generally view things. However, economists do not run for office all that often; and what for the economist is the rational solution can be for a politician a recipe for electoral disaster.

  Philip Sharp, who served in Congress for 20 years and chaired the House Energy Subcommittee (and is now head of Resources for the Future), will never forget what happened one Saturday morning after he voted for a five-cent increase in the federal gasoline tax. “I went into a post office when I was back in my district,” he recalled, “and I was mobbed by furious constituents.”16

  That is not exactly the kind of popular reaction that a politician wants to court when running for reelection (although Sharp himself was reelected several more times). So regulation, despite its relative drawbacks, does have a great advantage: it does not look like a tax.

  In other words, regulation can be a second-best solution, at least from an economist’s perspective, but a more doable solution from a political prospective. And that was certainly the case with the 1975 fuel-efficiency legislation. As the automobile fleet rolled over, the savings in gasoline consumption added up, and massively so. It was as though a giant “oil field under Detroit” had been discovered. By the mid-1980s, the fuel-efficiency standards had saved about two million barrels of oil per day compared with what would have been consumed had the averages stayed at 1973 levels. That was as much as was being produced at its peak on Alaska’s North Slope oil field, the other great breakthrough for United States energy policy during those years.17 Thos
e standards would also have a major impact on the world’s automobile industry.

  THE JAPANESE ARRIVE

  An odd and unfamiliar car might have been seen fleetingly on the streets of Los Angeles and San Francisco in the late 1950s. It was Toyota’s Toyopet S30 Crown, the first Japanese car to be brought officially to the United States. In Tokyo, Toyopets were used as taxis. But in the United States the Toyopet did not get off to a good start; the first two could not even get over the hills around Los Angeles. It is said that the first car delivered in San Francisco died on the first hill it encountered on the way to inspection. An auto dealer in that city drove it 180 times in reverse around the public library in an effort to promote it, but to no avail. The Toyopet, priced at $1,999, was anything but a hit. Over a four-year period, a total of 1,913 were sold. Other Japanese automakers also started exporting to the United States, but the numbers sold remained exceedingly modest, and the cars themselves were regarded as cheap, not very reliable, oddballs, and starter cars (lacking the vim and panache of what was then the hot import, the Volkswagen Beetle).

  But the explosion in oil prices in the mid-1970s, and corresponding new focus on fuel efficiency, created a port of entry for auto imports, especially from Japan. As a result, those efficient little cars suddenly gained attention and popularity. Over time the Japanese cars began to move upmarket, establishing a growing reputation for quality and reliability.18