ENERGY 2050
Risky
Business

WBCSD, Scenario Unit
160 Route de FlorissantCH 1231 Conches
Switzerland
schweizer@wbcsd.ch© 1999, WBCSD, All Rights ReservedISBN No. 2-940240-05-1

Understanding
Risk

1

Table of Contents

Understanding Risk

1

Scenarios in Brief

5

Scenarios in Full

13

F.R.O.G. - King Coal

14

GEOpolity - Kyoto Rules

36

JAZZ - Happy Virus

57

Appendices

83

Plausibility

84

F.R.O.G.

86

GEOpolity

90

JAZZ

94

Sustainability

100

About Scenarios

102

People107

Bibliography113

Acknowledgements
Scenario work creates options wich lead to better strategic decisions. Too often we in business
are not too good at creative, inductive work that is strong enough to influence the allocation oflarge resources.

Thus, I want to thank all participants who had, or developed in the course of this work, a great
tolerance for ambiguity, without ever losing sight of the fact that their industry’s future was atstake.

Scenarios need to lead to better (strategic) decisions. Several of the participating companies,
who need to remain nameless for competitive reasons, have taken the stories in-house with avigor, dedication and courage that makes it all worthwhile. Thank you.

And while scenario work is always team work, three individuals stood out:
Bill Kyte, our chair, who dared to find out what might turn his - professional - world upside down;
David Bodanis, our writer, who wrote the first report on energy which is both exciting and a joy
to read; andPallavi Hiremath, our designer, who made it all come together in the form you now have in yourhands.

Ulrich Golüke
Manager, Scenario Unit
April 1999

ENERGY 2050 : Risky Business

Understanding Risk
Energy is a risky business these days. These are not simple risks, whichmore careful management could avoid. Rather, they are fundamental to the way theindustry is evolving.
What would you do, for example, if:→

Wal-Mart became your greatest competitor, and started giving away
energy for free→Firms such as Sony began producing energy, instead of using it→

Cars were operated without any contribution from oil companies→

International authorities would take away your license to operate, unless you could show you produced zero damage to the environment→

Exporting your product to less-advanced foreign markets was nearly
guaranteed to be a failure

All these events are ones which our analysis shows are likely - or indeed are
already underway.
In this new world, simply continuing with business as usual - or just making a few precautionary investments in renewables, or in broader services - will not begood enough. But yet, our analysis also suggests that in the next decade, a number ofenergy companies will be richer, and better protected from risk, than ever before.
How can this be? The energy business already deals with many risks: technological, political and contractual. It seems to be a full range, but yet a new attributeof risk is appearing.
Call it connected risk.
All past strategies for dealing with risk - all the procedures which businesshas developed over decades or even centuries – depended, in the end, on risks being
independent of each other; limited in space and time. Because they were separable thisway, it was possible to build up accurate actuarial tables. It is what the modern insurance industry depends on.
That has changed. A globalized, connected world of over 6 billion violates
those basic assumptions. Risks are no longer so isolated, and mishaps spread. For example:→

When a reactor design turns out to have a fault, all reactors of that type
become a liability overnight. If operating or maintenance procedures

2Understanding Risk

are faulty, you may find you have to take half your capacity off-line
overnight.
→

Even when faults are not ‘objectively’ that serious, the wide spread ofmodern media can make any incidence look large and threatening.

→

New distributed energy production and usage technologies allow entirely new players to enter the business almost at will. This means thatthe capital intensiveness which had once been a ‘useful’ barrier to entry, is now the reverse. It can become a barrier that locks you inside,
within an isolated valley: turning many players into mere dinosaurs,
desperately trying to shed stranded assets and escape.

Life is very different in this new world of connected risks. In the past, there
might have been a few hundred plaintiffs in a class action lawsuit. But now, where
could one possibly go to buy insurance coverage against a lawsuit alleging your responsibility for damaging the climate of earth’s entire population?
The very skill sets one acquired are no longer sufficient. Standard technological and political skills are now merely a part of what is needed. Today one also
needs to be a brand manager (of a commodity which many of your customers do noteven realize they are buying); an emissions trader; a venture capitalist.

3

ENERGY 2050 : Risky Business

4

The Scenarios… in brief

5

ENERGY 2050 : Risky BusinessF . R . O . G .
World Being
Envisaged

Imagine that GNP starts rising quickly around the world again, but
this leads to trade tensions and widespread ecological problems. Nations begin turning inward, and the world economy enters a deep
reverse.

OECD-based firms are attracted to the potentially fast-growing markets in Asiaand Latin America. But all the technology transfers and investments meansthat the developing countries soon increase their own abilities, and are able todisplace foreign firms.

How itHappens

That alone would have inspired resentment in OECD nations, but it ismade worse by the fact that the rapid industrialization, in Asia especially,leads to higher levels of greenhouse gases, pressure on global food prices,and oscillations in financial markets. Instead of initiating joint action todeal with these problems, there is an increasingly resentful attitude between trading nations.
By the 2020s, rising trade barriers have slowed world growth considerably. The
habit of innovation and fresh expansion has been almost lost. Each step in theslowdown arose so gradually - and there were many local pockets of prosperity
and clean environment - that the full signals were never seen.

Coal is the great winner, as are fossil fuels generally. In a world without concern for controlling CO2, their wide availability and price advantage makes
them impregnable. Long-distance transmission systems are favored, since users in wealthy countries want power stations kept far away. Battery and other

EnergyImplications
6

storage technologies get an important niche, to help guard against
uncertainty in supplies, as well as in parts of transport.
The losers are all systems that are expensive, or that take a longtime to produce returns. Nuclear power and hydroelectric projects

F.R.O.G

nearly halt. Renewables are the greatest failure. Unable to compete on direct
price, no one except a few eccentrics or niche users bothers with them.

The reflex of major economic blocs putting up trade barriers in times of stress is
a common one, as with the early years of the worldwide 1930s Depression, or
rising Asian protectionism at the end of the 1990s. Sharply rising greenhouse gases are near certain if high growth levels are maintained foranother decade.
Energy supplies are highly vulnerable to international tensions, as with
the need to escort tankers near Iraq in the latter stages of the Iran/Iraq

Why this is
Plausible

war. The education and strong economies needed for innovation are
equally fragile, as seen in the large numbers of Korean science postgraduates
who withdrew from universities in America then faced unemployment at homewhen their economy weakened in 1998.

Strong positions in coal and traditional fossil fuels will be favored. Firms whichthought that high-tech and innovative technologies were the way to go would
have wasted their time, since high litigation and a generally querulous attitude within societies will slow innovation. Large projects, suchas major, border-crossing pipelines, will be hard to fund.
Amid all the tensions, oligarchy and protected markets are likely toBusiness
Implications

return. Skills in heavy engineering and in standard, economy of scale
marketing, will prevail.

Watch for international conferences ending in recriminations; watch also, very
closely, for early signs of the insurance industry withdrawing from selected sectors. Check the state of environmental ‘choke-points’ in rapidly developing countries, be they emissions policies, impending water shortages, or demographic surges.
See if increases in private schools seem to be leading to a smaller

Early Signals

educated pool in the near-future: also if increases in private security guards seem to mark a general turn inward. Track the progress of legislation which makes liability easier or harder to prove.

7

ENERGY 2050 : Risky Business

GEOpolity
World Being
Envisaged

Imagine that deregulation is reversed, and an international bureaucracy guides the world’s energy markets.

Business continues as usual till 2003, but a series of weather shocks attributed
to global warming make people demand international controls on greenhousegases. Led by a revamped World Trade Organization, the resulting organization - termed ‘GEOpolity’ - soon enforces strict directives to shift the world’s
economy away from high carbon fuels.
There are successes at first, but by the late 2010s, complaints arise about

How itHappens

GEOpolity’s over-bureaucratic approach, especially when several of theindustrial projects it favored turn out to be badly chosen and administered.
By the 2020s, a revamped GEOpolity is created, taking a more indirect
approach. Tradable permits are strongly encouraged; energy suppliers are subsidized in giving rebates to efficient users; there is wide research in alternate
technologies, and tax incentives for insulation are in place in almost all countries. The oil-producing economies see a near total collapse, but most otherareas experience a steady - if slow - development, especially as population growth
has eased considerably.

Low-carbon energy sources are the great winners, and especially ones alreadyavailable: Natural gas, some renewables, hydroelectric (including small-scalehydro) and nuclear energy. Coal is strongly discouraged, throughEnergyImplications

direct taxes and the removal of subsidies. Fuel cells and other alternate systems are encouraged for transport, though gasoline’s
proven advantages keep it in place in many areas.
Later, as the GEOpolity authorities take the more indirect approach,insulation and energy efficiencies are even more strongly encour-8

GEOpolity

aged. Renewables spread widely, as subsidized research, protection against liability and then economies of scale take effect. Coal remains a dirty word.

People often turn to large-scale government authorities for a solution to theirproblems, as with the agreements on international financial institutions whichwere set up in the late 1940s and lasted for decades. This is especially

Why this is
Plausible

likely when business has been vilified, as - alas - tends to happen atregular intervals. The weather shocks which could start off the scenario
have solid scientific backing.
Responsibility for energy policy is especially likely to be passed into

government’s hands. OECD countries have experienced decades of regulation;in much of Asia there is a tradition of accepting governmental supervision; theUS has residual memories of the Tennessee Valley Authority experience andgovernment-led rural electrification as well.

There will be advantages to having strong positions in renewables and perhaps
nuclear; to be able to provide transport energy sources beyond straightforward
petroleum products; to be situated in energy-savings goods as these
become desired. Prior positions in coal and oil will be a liability, though
the ability to retrofit scrubbers or raise the efficiency of installed capacity would be useful.

Business
Implications

Throughout, good skills in dealing with bureaucracies - especially international ones, far removed from one’s home base - are central. Financing forthe projects which GEOpolity has agreed upon will be easy to get, however large
they are, and obstructive litigation will be legally blocked. Projects which
GEOpolity has not declared support for will be hard to start.

Look out for anti-business moods, which might be evidenced in the villains chosen in popular films. Watch closely to see if current concern with tradable permits becomes self-regulated by business, or whether it is kept under tight government control. Follow the articles in Nature andScience on the latest evidence related to greenhouse gases (and other

Early Signals

global effects). See if non-profits that are tightly linked with governments are accepted, instead of losing popularity because of those links.

9

ENERGY 2050 : Risky BusinessJ

AWorld Being
Envisaged

Z

Z

Imagine that the new business style which had once been restricted to
Silicon Valley spreads quickly around the globe.

The steady trends of dematerialization, combined with the great profits available in customizing services, are what pulls the new entrepreneurial style fromits Silicon Valley stronghold. As the business landscape changes, firms such as
Wal-Mart, Sony and Virgin are soon plucking customers from traditional energy suppliers: offering bundled deals, where convenience comes first, and energy is simply an added commodity.
Latin America and parts of Europe and Asia do well, responding with sur-

How itHappens

prising boldness to the new opportunities, and often merging citizens
groups with the new-style practices. But losing countries - and losing groups
within wealthy countries - react angrily by the 2020s: imposing stiff taxes
where possible.
To counter some of the main critiques, the new organizations voluntarily uphold codes of ‘green’ practice. Consumer watchdogs publicize laggards. Where
large-scale resistances do remain, the new business styles often infiltrate like a
happy virus, creating localized regions of success.

Heavy, slow-changing energy systems become dinosaurs. Renewables and othernew technologies take off, not by governmental mandate, but because firms are
drawn to the profits in energy sources that are still at early stages of development. Modular and other dispersed energy systems - which a service-centeredworld demands - spread quickly.

EnergyImplications

Retrofitting of housing stock becomes a growth industry, as does
technology to upgrade inefficient older power plants. There aremarkets in new types of small motors, individual solar cells, andother consumer-targeted items. Homes and cars often generate
excess energy, which is fed back into pooled sources.

Information technology pervades the energy field, and its use in monitoring,
supply auctioning and repairs is taken as matter of course. Advances in
10

JAZZ

nanotechnology and biotech turn most late 20th century technology into museum curiosities.

Profits already increasingly come from customizing services in many fields. Nonenergy firms are constantly looking for new opportunities, and mortgage firms
and supermarkets have already begun giving away ‘free’ energy.
New business forms in the past - the mediaeval European trading fairs;
19th century trusts - often spread from protected, ‘virus’-like niches. Technology has often been held back by conventional practices, so highly deregulated outlets, with a global sweep, could greatly accelerate advance.

Why this is
Plausible

More scientists are active today than have lived in all human history. If
high-quality education spreads to even a third the under-25 population of developing nations, the numbers available will soon more than double.

Understanding the subtleties of customer demand will be central. Being skilled
only in heavy engineering, or in dealing with regulators, is a guarantee of failure.
Successful firms will enter into alliances with partners far removed from theirusual fields, absorbing the unique skills they bring. Innovation will
be at a premium: not as part of easily ignored mission statements,
but locked-in through high salary rewards, and regular spinning offof semi-autonomous divisions to experiment with new technologies,
and new forms of partnership. Profits will depend less on large capi-

Business
Implications

tal investments, than on the appropriate creative use of available resources.
Since boycotts are easily carried out, stakeholder awareness is high. There will
be a premium on dual nationals who can customize portals into once-distantmarkets, as well as on financial and risk specialists who can assemble complex
projects.

Watch for unsuspected new arrivals in the energy field. See if business is treatedfavorably in popular films, and if international agencies have problems recruiting top university graduates. Keep a close eye on research parks,
including those in developing countries, and see if many OECD
graduates begin going there to complete their research degrees.

Early Signals

Watch for trends in individual-scale energy systems, and track how
well non-profit organizations which have started working with businesses are
accepted.
11

ENERGY 2050 : Risky Business

12

The Scenarios… in full13

ENERGY 2050 : Risky Business

F.R.O.G. –King Coal
From ‘The Economist Retrospective Survey - 2050’:“The world-wide recession which hit in 1998 turned
out to be briefer than expected. By 2001, world trade
had risen to record levels, and energy companies once
again began to export their latest equipment to Asiaand Latin America.
“The possibilities of growth seemed tremendous. Backin the 1990s, a typical OECD country such as Britain
had a total generating capacity of 80GW. In Chinaalone, however, that much new generating capacity
had been ordered in the same decade.
“As the new century began, targeting such markets
seemed an excellent way of escaping from stagnant
markets at home.
“No one realized how disastrously it was going toend...

14

F.R.O.G. - King Coal

I. DEVELOPING COUNTRIES STARTED GAINING
An Unexpected Development
The first signs of failure had actually occurred several years before, but
been missed in the euphoria of the earlier, mid-1990s boom. China’s telephone switching industry, for example, had been so backward in the early 1990s that it had seemed
an easy export market for Western firms. All the Western investor had assumed thatwould continue.
But the developing countries did not remain passive receivers of superiorWestern technology for long.
By the end of the 1990s,
China’s locally produced telephone switch-

Developing Countries are catching up ...

ing equipment was just as good, or better,

Percent of World Trade originating in Developing Countries

than what the large Western exporters
could produce. As the years moved towards
2005, there were similar developments inselected areas of petrochemicals, and electricity generation as well. It was a oncein-a-generation shift.
There was much precedence
for this. Japan had gone the same route in
the 1960s, just as South Korea had donein the 1980s. There is a powerful trend fromthe history of technology that countries
which enter last upon a technology often

Source: calculated from Vital Signs 1998, Worldwatch Institute(Note: Y-scale does not start at origin)manage to advance in it more quickly thanany others. Germany had come later to chemicals than Britain, and soon leapfrogged it;
Japan had come later to electronics than America, and soon surpassed it as well.
Even back in the first Clinton administration, Seoul had one of the world’s
highest concentrations of Ph.D.s per capita. Now, in 2006, parts of Sao Paulo, Kuala
Lumpur, Bangalore and the Hong Kong hinterland began to match that. But the overconfidence which years of superiority had given the West kept the majority of businessand political leaders from seeing this coming.

15

ENERGY 2050 : Risky Business

Finance and a Bonus
Technology alone is not enough to create self-directed projects. Funding has
to be available as well - and here Asia was in a wonderful position in the first decade of
the new century. The central bankers responsible for Europe’s new unified currency
were so concerned to establish their low-inflation“It was called the demographic
bonus, for this is the age groupwith the highest savings rate.”

credentials that many European banks began toscour foreign markets even more than before. Asiaand Latin America seemed attractively far awayfrom these unduly tight restrictions.
It also helped that money seemed ‘safe’
when it was loaned to Asia. After the banking de-bacles of 1998-9, Thailand, Malaysia, Korea and even large parts of China had substantially improved the transparency of their surviving financial institutions.
Most of all, a great deal of funds were being locally generated now. Peasantshave large families, but middle class couples have smaller ones. Many Asian countries
had started slowing their population growth as far back as the 1970s. As a result, in thedecade 2000-2010 there was a great ‘bulge’ of parents in their 30s and 40s. It was called
the demographic bonus, for this is the age group with the highest savings rate. As aresult - here and in parts of Latin America as well - the rising locally-based energy
companies did not lack for funds.

OECD contrast
Had this been all that happened, there would simply have been worldwide
economic growth, with the developing countries gradually increasing their share, while
the traditionally wealthy countries kept their own position as well.

.... but the Rich keep getting richer
Share of Global Income going to... see legend

It did not turn out like that.
The US was the first country toshow signs of fundamental weakness. For decades after WWII, the US had prided itself on
being a unified, middle-class country. But evenas far back as the 1980s that had been more ofa myth than a reality. Salaries began to separate, with a wealthier 20 percent or so lifting
away from the majority. By 2005 a new upper
middle class had largely turned its back on

Source: State of the World 1994, Worldwatch Institute16

F.R.O.G. - King Coal

society. It chose private schools for its children, and private security guards for its offices and neighborhoods.
Education suffered most of all. In the 1970s, Proposition 13 on the California state ballot had led to lowered funding for Californian schools, as a tax-saving measure. In barely a decade, California’s school spending - and student scores - had dropped
from the top five in the nation, to near the very bottom. The great ballot initiatives of2004 - in Seattle, Atlanta, Orlando and Santa Fe - extended that across the nation.
Universities increasingly depended on foreign-born students for entry into their science-based graduate departments; factories and - most tellingly - even research labs,
were now increasingly set up outside US borders.
Europe and Canada preserved their educational systems, but suffered aslow-down for a different reason. The great downsizing movement of the 1980s and1990s had produced many firms which were - in the jargon of the time - ‘lean and mean’.
But once every competitor was similarly ‘lean’, it was hard to get an edge on them.
One solution would have been deft shifts into new fields, and indeed several
pharmaceutical firms did manage to do this. But most energy, automobile and chemical
firms chose a different path, and simply engaged in mergers
with established competitors. This had excellent short-term
results. Cost went down, and there was access to larger markets. A few strategists worried that this was not much of aninvestment for the future, but investors were so keen on guar-“Most firms simply
engaged in mergers withestablished competitors.”

anteed profits that they had little choice but to go along.
Litigation fears were the final reason for holding back. The energy industry
was familiar with this effect, since in the last quarter of the 20th century, litigation - orjust the threat of litigation - had brought the nuclear industry to a near halt in almost
every country outside Japan or France. The population throughout Europe and much ofNorth America aging, and wanted nothing to change
what it was used to. Innovation was incremental,
and slow; the blur-fast technology shifts which computer technology had once given signs of unleash-“Litigation fears were thefinal reason for holding back.”

ing throughout society were now a thing of the past.

Controlled risk
It was a cautious atmosphere, dominated by this mind-set that continually
saw sunk costs already in place. It did not, however, stop large foreign contracts goingahead. The lure of profits was too great. In 2004, London’s traditional finance centers eager to not fall too far behind Frankfurt - had begun marketing what were called RSIs

17

ENERGY 2050 : Risky Business(Risk Separation Instruments). These were a way, it seemed, to insulate individual
investments from the wider risk that might lurk abroad.
Their first main success“In 2004, London’s traditional financecenters had begun marketing Risk
Separation Instruments.”

had come in 2006, when one of the
newly merged American oil monoliths
wanted to invest in an energy project
straddling Argentina’s borders, but
did not want to have to make a single

decision about whether it was worth taking the risk to go ahead. Instead, for a price, theLondon clearing house ‘sold’ to other investors the overall risk of volatility in thoseSouth American economies. All the oil company was left with was the risk of its particular energy project.
Scandinavian and Swiss firms - some of the most cautious of the economic
investors in Asia - were especially attracted to RSIs. By 2009, even the World Bank wasoffering RSIs, most notably in the shared grid systems it proposed for the India/Pakistan borders. The project had long been supported by the UN, as a way of reducing
political tension there, but firms had been leery because of the risk. Now, with the RSIs,
it finally got underway.

Environmental ease
The unexpected collapse of the environmental movement made things easier.
Trained ecologists had always insisted on nuanced predictions, but the media regularly
broadcast shriller voices. There were predictions of great floods in the Nile delta, andmassive agriculture failures in Canada and“The unexpected collapse of theenvironment made things easier.”

Asia. When those did not come true, there
was a great ease; a feeling that business as
usual really was all right after all. It is truethat the California mudslides back in 2003

had briefly been declared a sign that global warming triggered by rising CO2 really hadreached danger levels. But when the rains and mudslides were not repeated again by
2008, or 2009, this too was seen as further proof that everything was fine.
The new upper middle class had also been making sure that local conditions improved. In prosperous Marin County, north of San Francisco, newspapers wererecycled as a matter of course; in wealthy neighborhoods in Hamburg, consumers bought
detergents with green labels wherever possible. Years of earlier legislation were taking
effect. The Rhine was cleaner than it had been in years; streams throughout North
America had been improved; urban air quality in most OECD cities was better as well.
No glaring sustainability limits looked about to be hit - quite the opposite - so there also18

F.R.O.G. - King Coal

seemed little reason to bother with the confusing details of Kyoto Accord enforcements.
Other international accords were quietly left to slip away as well.

Ominous quiet; Differences are masked
For several years globalization went on like this, with the developing nations steadily gaining on the historically wealthier ones. Few OECD citizens were especially troubled by this however, since constant growth masked the growing imbalance.
The bull market that had begun in 2001 was still going strong in 2009, and incomes
were higher than they ever had been before.
Young people in Malaysia and Argentina still looked up to Hollywood; theUN Security Council was still dominated by the few countries that had been dominantdecades before. The successful NATO/Russian intervention to safeguard the new Caspian
pipeline seemed a further sign that the old world still prevailed, and that the old powers were still dominant. There was a harmony; a feeling of cautious synchrony.
It was soon to change.

19

ENERGY 2050 : Risky Business

II. TENSIONS RISE
Slowdown
The recession which hit in developing countries in late 2011 took almost all
economic analysts by surprise. The business cycle was felt to be a thing of the past.
Central bankers tried the usual measures, but they did not work. Something more wasgoing on than just the usual problems of over-supply, or surges of destabilizing speculation.
The free market is a powerful tool, unleashing immense human powers;
drawing individuals forward wherever price opportunities show that needs are waiting
to be fulfilled. But as Adam Smith himself had pointed out, after years of steady growth,a distortion enters into those prices:
Scarce goods can become so valuable that there is an incentive to continue
seeking them out even when doing so makes the scarcities worse.
In China, for example, Beijing’s emptying aquifers had made it profitable todig deeper wells - but that simply lowered the aquifers further. Industry there wasfinding it nearly impossible to get the

Each year, twice as many people die from Infectious Diseases than were killed annually in WW II
Million deaths per year

water they needed at anything approaching the prices they needed to becompetitive. The effects went wider. In
one country after another, high prices
for prime fish had given great incentives for fishermen to violate any quotas, and scoop up the last of these now
extra-valuable targets. Optimal farmland had been turned into housing;other housing had been built on dangerously exposed flood-plains.
A great instability had
been created. So many peasants had

Source: calculated from Vital Signs 1996, Worldwatch Institutemigrated to the suddenly attractive
cities that educational systems could
not cope; sewage was not properly

treated; quality of life was often unattractive. Delhi and Bangkok had been crowded
before, but with hundreds of thousands of extra cars lung diseases were serious. Bottlenecks began to appear, and not simply due to lack of infrastructure, which could berectified by more port or roads construction. Instead it was affecting more fundamental
matters: many nations could not get sufficient fuel; so much topsoil and cropland had
20

F.R.O.G. - King Coalbeen lost that it was hard to grow more food locally when current account problems
made imports difficult.

No Support for Taking a BreakAt one point, early in 2012, the political movement called the ‘Revivalists’looked like it might come to power, and lead a strategic pause in growth, to give time forsome of these problems to be worked out. It had begun in India, then quickly spread through satellite broadcasts and Internet groups - to several other developing or midincome countries, which had long traditions of resenting foreign domination. Thailand,
Ukraine, China and Argentina were regions where local activists especially took up the
Revivalist call.
Technocrats soon pushed the Revivalists’ calls aside, however, and in thisthey were supported by the mass of the ordinary population. Fast growth is what had
brought living standards forward over the past decade. If incomes were falling now, it
seemed only logical to push directly forward to try to build it up again. Revivalist activists were arrested, and there were show trials against them in China and Ukraine.
Politicians could not let those upstarts win. Memories of the riots of 1998 that had
helped topple governments in Korea, and Indonesia were still fresh.
Citizens, and leaders, understood the social contract. Government did nothave to be democratic. In China especially there was only the slightest layering of Western-style local elections. But governments did have to deliver the growth their citizens
expected.
Deficit financing soon shifted into high gear. One developing country after
another decided that an export drive greater than anything seen so far would have to be
the solution.

OECD Resentments
The artificially pumped-up export surge came at a particularly bad time forthe wealthier, OECD countries. They had depended on the developing countries as amarket for their own exports. But precisely because they had depended on it, they had
weakened internally, and not dealt with their fundamental lacking in education, longterm research, and the legal systems that made it hard to develop genuinely innovative
products. It had been masked by the sharedworldwide growth, but now that was over.
Incomes slowed here as well, and agreat mood of resentment began to spread. No
nation likes seeing its own position threatened.

“European and American citizens
could no longer pretend their past
glory was based on real merit.”
21

ENERGY 2050 : Risky BusinessFrance had been resentful as Germany surpassed it economically through the 19th
century; the US had been resentful when Japan had, briefly, shown signs of doing thesame in the 1980s. Now in 2012 the crumbling of superiority was now clear through theOECD nations. European and American citizens could no longer pretend their past
glory was based on real merit. A decade of fast global growth had changed this. Their hitech, superior firms were - as the rush of high quality goods from Asia and Latin America
showed - no longer so hi-tech or superior after all.
Just to make it worse, Western media chose this moment to begin focusing
on the wider consequences of the growth which the fast developing nations had under-“A few voices argued for
calm, but the media werein no mood to listen.”gone. Greenhouse gases had been rising steadily, with Asiaand several Middle Eastern countries being some of thefastest growing contributors. Scientists knew that a few
years of this alone had not been responsible for the worrisome jolts in weather patterns that were being noticed, but

it was easy for an angry media to ignore those provisos. Camera crews showed toxic
wastes which had been generated in the new economies being dumped near European
shores. When there were oscillations in financial markets, and pressure on global foodprices, it was automatic now to choose these scarily enlarged distant countries to blame.
No longer were these countries our trading partners, to be dealt with, be itwith the usual easy superiority, or even through a wary acceptance. In times of stress,
people like finding enemies. The angry nationalizations in Russia, parts of North Africa
and Venezuela made it worse. So did the show trials which saw Western executives
subpoenaed - and arrested - to testify before courts in India and in Brazil for failings intheir locally-run subsidiaries. A few voices argued for calm, but the media were in nomood to listen. These distant countries were harming us. No one will want to be tolerant of someone who is doing that.

Backlash
The demagogic backlash began in the American South, but was soon picked
up in France and other European nations as well. It matched the inner tensions which
had accumulated over the years of growth in the OECD nations. There had been a
constant feeling of resentment towards“There had been a constant feeling ofresentment towards people outside
one’s own ethnic group, or religious
views, or income level.”people outside one’s own ethnic group, or
religious views, or income level. There had
also been an increased acceptance of litigation: a querulous touchiness, which sent
people to the courts to resolve problems
in a direct, confrontational way. With

22

F.R.O.G. - King Coal

those attitudes so well established, feeling resentful against foreign countries was simply more of the same.
Scholarships were cut for foreign students at British and French universities; visas - through the Helms-Livingston act of 2013 - were cut for foreign nationals in
Silicon Valley. Some of the most dynamic minds were removed from the institutions
where their innovation could have been used, and sent back to their home countries,
where slowing economies made it hard to get a job. It was similar to what had happeneda generation before when large number of Korean science postgraduates had withdrawn
from universities in America, then faced unemployment at home, when their economy
had weakened in 1998.
The 2013 amendment had little immediate effect on the world economy, but
the broadcast images of students and young software executives being sent home - in a
few notable cases before jeering crowds at US airports - did little to increase any desire
for cooperative international action by the countries to which they were returning.

The ‘Pride of Sapparo’ events
As the recession entered its third year, in 2014, international organizations
had been profoundly weakened. Politicians who supported them were in increasing danger of being turned out of office.
Perhaps the last effort to keep to the old system came when Japan began tocomplain about highly raised SO2 emissions drifting over from Chinese power plants,
which were responsible for a worrying rise inchildhood asthma in Nagasaki, Kobe andgreater Tokyo. At first Japan took its complaints to the few remaining international or-“In late November 2013, a Japanbound supertanker was torpedoedby an unidentified submarine.”ganizations, but when they proved to have nopower, Japan unilaterally instructed its banks to call back its funds invested in China.
To an unsettled China, weakened by slowly growing trade barriers anyway,
and with a national government that could not afford any sign of weakness before its
restless citizens, this was too much. Four months later, in late November 2013, a Japan-bound supertanker, passing through one of the many narrow passageways on thesea journey from the Middle East, was torpedoed by an unidentified submarine.
China never declared responsibility, and although Japan obtained a rulingin its favor from the World Court in the Hague, the US and other major powers had nodesire to engage in direct war with China. Japan’s further protests went unheard, andworld media attention soon shifted elsewhere. But now, when memories of WWII had
almost entirely passed from living memory, Japan’s long-dormant military tradition
began to rise once more.
23

ENERGY 2050 : Risky BusinessIII. KING COAL
A World of Risk and Threat
The previous generation had come to take safe international trade for
granted. At the start of the 21st century, it had been cheaper to transport a few poundsof bulk cargo entirely across the Pacific,“Rogue submarine attacks continued
at occasional intervals in the Pacific.”

than to send a postcard from Bremen
to Hamburg. But this was only because
the sea-lanes were guaranteed by overwhelming US Navy superiority. Thatchanged now. Americans were unwilling to vote the funds to further increase their Navy’s
size. Rogue submarine attacks continued at occasional intervals in the Pacific; land tosea missile attacks, combined with mines, began to interrupt oil shipments from throughout the Middle East.
Computer piracy became“And in the late 1970s, one oil company
after another pulled its investments outof Third World countries.”

almost as great a threat. Nations had
no overwhelming superiority against
private groups, and suffered as a result. Information controls were destroyed, and shipping directions andfuel supplies interfered with; safety mechanisms in long-distance natural gas pipelines
could be shut down as well. Sometimes the cyber-piracy was a proxy act for hostile
countries; often it was simply for private extortion.
At first the spot market tried to cope, but soon something more fundamental began to happen. The world has often shifted its energy systems when risks are toolarge. Supertankers replaced pipelines from the Middle East after 1956, not because of
any flaw in pipeline design, but because the Suez crisis of that year showed how risky it
was to depend on those land-based pipelines. American utilities had first shifted to oil
on a large scale not because their country was running out“The very shape of theworld’s energy systembegan to change.”of coal - far from it - but because coal supplies had been
becoming uncertain, due to a powerful miner’s union, while
oil supplies were safer. And in the late 1970s, one oil company after another pulled its investments out of Third World
countries, to avoid the risk of nationalization.

So it was now. Through the 2010s, the very shape of the world’s energy
system began to change.

24

F.R.O.G. - King Coal

Coal
Coal was the great success story. The
earth’s crust contains vast quantities of it, andCoal wins
Consumption of million tons of oil equivalent

with countries desperate for guaranteed energy
supplies, legislation that had made its extraction
and use expensive - rules about desulphurizationequipment; about mining safety and the like - began to be superseded.
China had already been using large
amounts, and now simply increased its consumption. The breakdown of security guarantees on
its western and northern borders enhanced thisshift, for no Chinese leader was going to trust in

Source: Vital Signs 1998, Worldwatch Institutenatural gas pipelines that had to crosslong, politically unstable regions. Since
the seas were unsafe, other countries
made the same choice wherever possible. Because businesses were increas-

The relative share of energy
carriers shifted before
Primary energy shares

ingly oriented to the short-term, it
helped that coal did not involve any expensive or new infrastructure; that it
did not entail any long-term technological gambles either.
Large shifts on this scale
had happened before, and with surprising speed. In 1955, the great majorityof Europe’s energy had come from coal.
By 1972 - a bare 17 years later - thatfigure had fallen to 22 percent. What

Source: Technology & Global Change, Arnulf Grübler, pg 250 Fig 6.19

the world was experiencing now was
simply a shift back.

Transport
It was not identical to the last time coal had been king, since the world’s car
fleets needed mobile energy sources. As a result, ‘coal-powered’ vehicles became popular - but not through the old-fashioned expedient of having coal-fired engines in eachcar. Instead, coal was increasingly burnt in distant power plants, and then the energy
released as electricity was shipped back, for battery powered or hybrid cars to use.
25

ENERGY 2050 : Risky Business

There had been hints of that back in the
1990s, when legislation mandating zero-

People love cars, in the past...
Million

Production (cars/year)

Thousandemission cars in California had been unconcerned whether it left net pollution unchanged. What would get poured out in particulate and CO2 from smokestacks in distant Arizona was not dealt with; all attention was simply on ways to ensure that
there would be fewer smog-producing fumes
from tailpipes in Los Angeles.
By the late 2010s, this attitude
was taken further. The US had long exported polluting manufacturing industries

Source: Worldwatch Institute magazine Sept/Oct 1996

to the Mexican side of the US/Mexico border. Now this was extended to electricity
production, and clusters of the lowest-

priced systems were installed there. In Europe, an income-desperate Romania becamea center for belching smokestacks of generators, whose electricity was sent back toGermany, France and Italy.
It was a cynical attitude in... in the future
Thousand

Automobile Fleet in China

many ways, but it fit in with the narrow-focus mood, that problems that were
pushed far away were no longer our obligation to deal with. The world’s vehicle
fleet grew, in rich and poor countries
alike, but there was little support for
major governmental infrastructure tohelp it along. A few major toll road systems were built, where returns wereguaranteed, but not much else. As a result congestion grew far worse, and alarge sub-market grew up, of entertain-

Source: Who will feed China?, Worldwatch Institutement and business devices to make useof the time stuck in traffic.

“Congestion grew far worse, and a large
sub-market grew up of entertainmentand business devices to make use of thetime stuck in traffic.”

26

F.R.O.G. - King Coal

Displacement Technologies
Long-distance transmission and energy conversion technologies flourishedin this world. They fed the ‘coal-powered’ cars, and helped keep whatever pollution was
generated in the process far, far from sight. Battery technologies and mobile generation
sources were encouraged as well. Some of thiswas small batteries for car fleets, which always
did well when interrupted oil supplies sent
gasoline prices high. Larger, free-standing“Long-distance transmission andenergy conversion technologies
flourished in this world.”

units were in demand for homes or neighborhoods. The situation was analogous to the way wealthy people in East Africa had often
had their own mobile generators, to take up the slack when the official grid broke down.
As national economies got more difficult, such generators were increasingly demanded
as backup for neighborhood and small regional networks.

Fossil Fuels
Fossil fuels generally did well. There were hardly any citizen-organized pressure groups arguing for CO2 reduction, for too many years had passed without any clear
signals of global warming. A few businesses wasted time consulting with these quaintly
named ‘stakeholders’, but even these last holdouts soon gently abandoned them.
Governments knew what their citizens wanted - there was a constant mood of angry, assertive complaints - and exorbitant gaso-“Fossil fuels generally did well.”line taxes which had held down oil use in Europe were gradually eased. Decades before there had been a consensus that government agencies could guide the market away from what pure cost considerations laidout, but that was long gone.
Middle Eastern oil countries should have done well, but the dangers of guaranteeing shipping held down their advantages. Saudi Arabia remained independent in
name, but without comprehensive American protection, its policies were entirely theplaything of nearby
Iraq. Venezuela didmuch better, for its
location close to theenormous North“A few businesses wasted time consulting withthese quaintly named ‘stakeholders’, but even theselast holdouts soon gently abandoned them.”

American and Brazilian markets guaranteed high demand for its oil. The few remaining Alaskan oil fields
which had been undeveloped in the previous era had of course long been entered.

27

ENERGY 2050 : Risky Business

Nuclear
Nuclear power took an interestingly split path. In most OECD countries it
continued its long fade downwards. Investors wanted fast economic returns, and were
not interested in such big projects. Also, the fact that the industry had been shrinking
for years meant that the most-qualified engineers and managers had often chosen not
to work in that field. The quality of their replacements left much to be desired. These
unfortunate supervisory skills, as the Crown Commission’s inquest later revealed, werewhat had been responsible for the major radioactive leakage on the shores of the Irish
Sea in 2011.

Nuclear, a second S-curve is needed
Gigawatts

Total Capacity

In a few of the developing nations which were not supplied with coal, however, it was different. Elites there had thepower to guarantee that decommissioning
costs would be covered and that no delaying
class action suits would get in the way of
immediate construction. Japanese firms
were especially active in these exports, building on the enhanced nuclear system which a
determined civil service had seen begun.

Source: Vital Signs 1997, Worldwatch InstituteRenewables still lose out in R & D
Share %

Government R&D spending

LosersThe losers were all thetechnologies that were initially more
expensive when widespread, lightly
regulated coal came back: photovoltaics, wind, wave, etc. There was little incentive for much insulation or conservation either, since those also did notoffer the immediate payoff which selling standard energy products provided.
Hydroelectric power would
have made resurgence if the developing countries had their way. Much of
the opposition to dams, after all, hadbeen led by outside institutions, such

Source: Power Surge, Worldwatch Institute28

F.R.O.G. - King Coalas the World Bank and its early successors. But in an environment of high risk and low
trust, putting together stable financing packages of“The losers were photovoltaics,
wind, wave, etc.”
breakdown of international cooperation, there were
the necessary size was almost impossible. With thefewer organizations that could fund such large projects.

Exports
As to exports, there was still a certain amount of dumping of dated equipment to poor countries, despite the barriers of national pride, since there was now little
official obstacle to their sale, even if they did produce high levels of CO2 or other emissions. There also was a small market for very high quality goods, pulled in by elites inallcountries.

Those were items
such as photovoltaics that would“Rising protectionism kept many of these goods
from being freely traded, but high-profit goods havea way of finding holes in any official barriers.”

keep a local areaclean, or very high quality small generators. Rising protectionism kept many of thesegoods from being freely traded, but since high-profit goods, especially ones desired by
local elites, have a way of finding holes in any official barriers, a certain trade in these
items continued.

29

ENERGY 2050 : Risky Business

IV. A WORLD TURNED INWARD
Oligarchy Returns
By now, well through the 2020s, the deregulation movement that had once
seemed so powerful was long gone. The business landscape had shifted, and oligarchy
had returned, building on a steady wave of“The deregulation movement that
had once seemed so powerful was
long gone.”mergers. Some of this was the natural tendency of business to search for safe, guaranteed markets. It is what had happened in the
US after the first deregulation movements,of the 1970s, when the number of airlines first rose, then quickly fell, as consolidationand the advantages of centralized efficiency took over. It had happened even earlier, inthe 1920s, when the huge oil trust which governments had broken up, soon coalescedback together in efficient groupings again.
In the uncertain world of the late 2020s, there was even more demand forsuch guarantees; for anything that would“Managers of large businesses feltthat they were scrambling within an
imploding system.”guarantee efficiency. Managers of large
businesses felt that they were scrambling
within an imploding system. They tried tosqueeze ever more value out of their assets,
but it was hard, since everyone aroundthem was also scrambling to maintain their relative position. Getting the rights to large,
non-contested markets was an ideal way out.
It helped that the public was in no mood for ideological experiments. Oligarchies were seen as being good at guaranteeing supplies, and that was all that counted.
This did not mean that all firms became hugely centrist. Local demagogues often pickedon energy companies operating in their ter-

“Oligarchies were seen as being
good at guaranteeing supplies.”

ritory, and so highly dispersed structures
were often maintained, where it did not matter if one part was cleaved off in a random
nationalization.

Trade Barriers
Tariffs increased, as one country after another put up barriers against competitors. On September 16, 2031, the great Strasbourg conference - the last international conference calling for a return to unrestricted trade - officially declared its fail30

F.R.O.G. - King Coalure. That accelerated a spiral downwards, for the first wave of tariffs had slowed tradeenough to make things worse, which now raised calls for even higher tariffs to make up
for it. Politicians succeeded
who called for a closing ofborders, and a generalturning inward to solve
their nation’s problem. The“On September 16, 2031, the great Strasbourg
conference - the last international conference
calling for a return to unrestricted trade officially declared its failure.”

cold-eyed successors of Le
Pen in France, Mahatir in Malaysia and Buchanan in America came to power.
It did not help that all the years of unregulated growth were now having
worldwide, ecological effects. Border skirmishes over fresh-water diversions had begun. Massive, border-crossing CO2 emissions were clearly affecting climate, but aside
from occasional bouts of armed intervention, the main response was just to try to block
this away, or get its effects delayed, as much as possible.
Regional and then religious trading blocs began to appear, as people turned
only to those who believed as they did. France and Italy found that their natural gas
was cut off. Their traditional suppliers in North Africa were turning away, to the great pan-Islamic
unities emerging to the East,
where the call of factors other

CO2 is rising especially in developing countries
3000

Million tons

2500

than immediate cash prices were
becoming more important. And ina development not seen for centuries, city-states began to riseagain. Their high barriers were

2000
1500
1000

Industrial Countries

forbidding to outsiders, but gavea much-desired linking, a sense of
security, to those inside.

Developing Countries
500
0
1950

1960

1970

1980

1990

2000

Source: Adapted from Vital Signs 1998-1999, pg 67 Fig 2, Worldwatch Institute

Reversal in Developing Nations
The countries that had once been surging into fast development suffered
greatly. Brazilian industries that had exported to North America and to some of theonce-booming western Africa states had nowhere to go; Indian firms that had tradedwith China and other East Asian countries found that markets closing as well.
Internal growth was difficult, and not simply because the newly isolated
home markets were so small. Local firms back in the growth years come to turn to local
insurers for their largest projects, but those insurers had themselves pooled the risk of31

ENERGY 2050 : Risky Businessthose projects through reinsurance trades with larger, international funds. The increasing
trade barriers brought that to an end. No longer did hundreds of trainees from local
insurance groups meet at Lloyds in London; no longer could big projects in the now
increasingly isolated states go forward with any security. That was especially grievous,
for type faults began to appear in several of the standard nuclear plants that had been
imported. Wherever single-style systems had been quickly brought in - in genetically
non-varied seeds; in a single design of hi-tech water treatment centers - faults whichappeared were not localized but spread quickly through all the similar types.
Growth began to choke on itself even more than before. Developing countries were suffering, as per capita incomes fell, and any shift to less polluting industries
and transport was long since
reversed. A few nations tried

Urban concentrations of sulfur dioxide50

to pull themselves out. Thaiand Argentinean leaders had

Micrograms per cubic meter of air

put much effort into shifting
to natural gas as a solution,

40

since it was an abundantfuel, with few polluting ef-

30

fects. But those efforts only
briefly succeeded. It was too

20

hard to organize the funds,
hire qualified servicing

10

crews, and - above all - over0
100

come the continued insecu1000

10000

100,000

Per capita income (dollars, log scale)
Source: Adapted from Sustainable Development & The Energy Industries, pg 328 Fig 2rity of sea transport.
Innovation was
no longer the magical solu-

tion it once had been. The glory years of high growth before 2010 had been powered by
the insights which bright postgraduates, often returning from top American and European universities. Now, though, their home governments could not send them there,
and America and Europe were no longer in a mood to come up with thousands of scholarships for non-natives. The engineering, software and biotech students who continued
to graduate from top local institutes found it hard to find firms that could use theirtalents. A few succeeded by going it alone, but the communal ethos was against that,and venture capital funds were hard to find.

Internal Splits
In many of these countries, massive inequalities returned, and there wasan amoeba-like splitting of the population. In India, for example, the more prosperous
32

F.R.O.G. - King Coal

members of the professional classes had long been used to spending summer months incooler resort homes. Now that was made permanent.
The enhanced resorts were called Gandhi towns, in homage to the plainliving founder of their independent nation, and they were immensely attractive. Situated an average of 200 miles from the main cities, no direct air pollution reached them,water supplies weresafe, and security was
far easier to maintain.

Unequality is backLocal power was provided by clean photovoltaic or wind resources, while hydrogen resources wereavailable as backups,
for those times whentroops could not control
the main coal-powered
facilities, located safely
far away, on the edgesof the urban agglomerations. To contain theurban populations,fundamentalist cur-

Source: Vital Signs 1997, Worldwatch Instituterents were channeled
as resentment against
Pakistan.

OECD Slowing
These effects spilled over to the one-time wealthy countries. Without brightforeign students, innovation slowed at MIT and Silicon Valley’s research labs. Tradewas down, so there were smaller markets for new products. Asia’s demographic bonus
had long since dried up, and there was no longer that stream of funds either. Investments were increasingly limited towhat a country’s own domestic savings
could provide. The outer world was nolonger a place where ideas and fresh
products and useful funds came from;it was, more often on the news or in“ It is not the owners of stagecoaches
who built railways.”- Schumpeter, 1911
“Theorie der wirtschaftlichen Entwicklung.”

political discussion, simply a miser33

ENERGY 2050 : Risky Businessable or competing domain, where refugees assembled, or dangerous military encampments were being built up. Japan’s decision to remain as isolated from the world system as possible was felt as especially ominous here, even though its new industrial
emplacements in Manchuria had - so far - been accepted peacefully by the regional
governments in place there.
Home-grown innovation in the other one-time OECD countries was incapable of making up for the shortfalls. The years of taking developing markets for granted- as a place where merely average technology could be sold - now had their effect. Since
so many projects had been funded on a standard cost-plus basis, there had been little
incentive to improve, for all charges could simply be passed along. Europe had once
hoped that fresh energies could be unleashed by new stock exchange listings for local
hi-tech firms, but those hopes had long since fizzled out. A negative, backward-looking
attitude was taking over. The great number of baby-boomers from the last century were
now well into their retirement years, and what they wanted above all else was security,
and an assurance that nothing substantial would change. They were quick to sue ifanything they did not like took place.
New power technologies and fuels were especially susceptible. Funds that
could have gone for product development ended up being spent simply covering risk;
the fact that the insurance industry was so damaged from earlier huge payouts madethat even more expensive. Only coal-fired plants got research funds, but that was simply because coal was so fundamental that any ef-“The optimistic period decades
before was now long gone.”ficiency boosts there could be counted on beingtranslated into profits. That is why there was continuing work on coal liquefaction for transport, as
well as straightforward work on drilling platforms

and the like. Otherwise no one was investing for 10 years or longer. Firms which had
thought that high-tech and innovative technologies were the way to go forward foundthey had wasted their time. Funds were pulled to quick, low-risk projects with a sure
return.
It was a powerful mind-set, quite deadly for each nation’s future. Education
especially suffered, as there were ever more ballot initiatives or political candidates
that reduced state funding of schools. The optimistic period decades before, when taxpayers had invested in top-rate school systems to educate the future generation, wasnow long gone.
A few individuals and political leaders tried to bring things back. They even

“The moment technology slowed
down, everyone with an installedbase immediately had a great
deat to lose.”34

had support from the firms that still had personal contacts across the globe, because they
had brought locals into senior executive ranks
before the trade barriers had gone up. But theF.R.O.G. - King Coaltask seemed impossible. Everything that went wrong occurredslowly, and separately. There was no clear jolt to push anyone onto
a different path. Also, the moment technology slowed down, ev-“Times were harsh.”eryone with an installed base immediately had a great deal to lose
if they encouraged fresh products. And as to social innovation, or new political attitudes
that would turn things around? That was out, entirely: Times were harsh, and this was
no moment to engage in wasteful experiments, that might lower each nation’s guard.

An old parable tells of a frog that was put in a kettle of cold
water. The heat was gradually increased, but since it occurred so slowly, the frog did not react, and stayed withinthat dangerous kettle till it died.
35

ENERGY 2050 : Risky Business

GEOpolity –Kyoto Rules
It is now 40 years since the establishment of our beloved GEOpolity organization, and as there are young
citizens not fully aware of the blessings which it has
bestowed upon us - the order and security which it
has granted to us all - the Auditor-General has mostkindly granted me the time to write out this brief history.
In the ‘90s of the last century, Earth’s carbon dioxide levels had reached their highest levels since160,000 BC. Mankind was aware of this, due to ice
core samples taken from the Antarctic continent, butlittle action was taken to avert the impending crisis....
Maybe the Climate is changing
CO2 parts per million by volume

Source: Vital Signs 1995, Worldwatch Institute36

GEOpolity - Kyoto Rules

I. GEOpolity BEGINS
Eco-ShockThe first flooding occurred in the Nile delta, in the late summer of 2003.
Natural coastal barriers had been shrinking for decades, due to sediment trapped behind the distant Aswan dam. Only a few thousand people died in the first floods, butmany more fell to new forms of bacterial infection which bred in the stagnant, overflowing waters.
Rioting broke out, in protest at the Cairo government’s inability to cope, but
this was displaced on the world’s news-screens by the far graver crisis beginning a few
weeks later in Southeast Asia, and the Indian subcontinent, where strangely unseasonable weather conditions destroyed peasant crop harvests over large regions. World grain
reserves had been declining steadily
since the late 1980s, and since this coincided with the unforeseen rainfall

Disaster happens, and insurance cover gets lessBillion dollars

surges that held down the US and Canadian harvest, famine occurred inparts of Malaysia, Northeastern India
and China. And then, even as the news
reports from inland regions of China
were first coming in, the unabatedNorth American rains led to mudslides
in California, on a scale that had notbeen recorded in over a century. In all
the confusion, stock markets and evenbonds began oscillating strangely. In-

Source: Vital Signs 1998, Worldwatch Institutesurers were pulling out of one national
market after another.

United Response
Humans are a highly suspicious species, and under times of mild stressoften refuse to act together. In the 1970s, when an Americanpresident declared that high gasoline prices were the moral
equivalent of war, he was quickly met by opponents wearing
pins with the mocking acronym ‘M.E.O.W.’, and his political calls“Humans are a highly
suspicious species.”

were not answered. At times of greater stress though, a wartime-style cohesion can
37

ENERGY 2050 : Risky Business“At times of greater stressa wartime-style cohesion
can take effect.”take effect. A later American president, unsurpassed in his
ability to read the popular mind, once mused that if humankind were faced with a threat from outer space, theywould put down their national differences, and join together
to battle the threat.

This is what happened after the famine and floods of 2003, just as it had
after previous disasters. Following the decades of Napoleon’s wars, Western Europe’s
leaders set up institutions to resolve future conflicts by peaceful means, and these lasted
for almost a century. After the 1930s Depression and WWII, the Bretton Woods agreements establishing an international monetary system were accepted, and strictly abided
by, for decades after as well.
In 2003, a few neutral sci-

“People simply wanted the uncertainty
to end. It had been too much, too fast.”

entists still were not convinced thefloods and harvest shortfalls weremore than isolated events, but politicians picked up the near-universal

public mood that future global shocks had to be averted, and that was enough. People
simply wanted the uncertainty to end. It had been too much, too fast.

The new ‘GEOpolity’
The new authority which was established in response to the 2003 turmoils
developed out of the World Trade Organization, since this was the global organization
with the greatest reputation for being crisply competent. The core

“The core staff had
been enforcing the
Kyoto Accords.”

staff that had been enforcing the Kyoto Accords was immediately
brought over, while additional technocratic staff was supplied by
the elites of the Japanese MITI, the French Civil Service, the U.S.
Treasury, and several respected non-profits. It quickly renamed itself ‘GEOpolity’ - for ‘Global Ecosystems Organization’.

If the floods and crop failures had arisen a decade before, big business might
have been turned towards to fix it, but the wild currency fluctuations that had occurredin the last two years of the 20th century had discredited pure capitalism, or at least the“The 20th century
had discredited pure
capitalism.”belief that unfettered transactions, alone, could maintain a stablesystem. Conventional national governments were also too weak;
discredited from their failures to resolve persistent unemployment
at home, let alone the constant bluffing and then retreats in faceof the ongoing India/Pakistan tension. The U.S. was still the world’s

strongest military power, but no one - not least its own politicians - wanted it to take on
the full burden of acting alone.
38

GEOpolity - Kyoto Rules

II. WHAT A DIRECT BUREAUCRACY DOES
Strict Rules: First Energy Shifts
An eco-shocked world demanded firm early action, and the powerful GEOpolity bureaucracy responded
to the call. Rising carbon dioxide levels

Ecological treaties have a long history ...
Cumulative numbers of treaties

were seen as the reason for the environmental disturbances. GEOpolity
immediately put in place strict rules to
cut back on those emissions. There werehigher taxes on coal and oil, and cutbacks worldwide in subsidies for higher
carbon fossil fuels. On the positive side,
GEOpolity gave strong support for
nuclear energy and natural gas. Planning permission was suddenly available

Source: Worldwatch Institutefor the facilities GEOpolity wanted,
while regulations were imposed
hampering the oil pipelines or coalfacilities it did not. Firms with long-

Subsidies, though diminishing, are still aterm commitments in coal did badly,

potent tool

but ones that had taken positions

Subsidy Rate of Fossil Fuels (% of market price)

in renewables, natural gas andnuclear suddenly found the pathforward wide open, and theirchoices a source of public support.
Some economists proposed more indirect measures, butthere was no support for doing anything but attack the problems directly. The goal was to shift theworld’s fuel mix, and these direct
measures - taxes and regulations were accepted as the quickest way.

Source: State of the World 1998, Worldwatch Institute

As often happens whenbureaucratic targets are very clear,
there were a number of quick improvements. CFC production had declined rapidly inthe late 1990s, in line with the precise directives set by the Montreal Protocols of 1987,
39

ENERGY 2050 : Risky Businessas amended in 1990. Just a decade

Regulations work !
Thousand tons

Global CFC Production

after the 1975 legislation requiring
improved efficiency in American

Montral Protocol signed

cars, new vehicles coming off theassembly line had double the mileage of their predecessors; within
another decade, they were emitting
only five percent of the pollution
they had before. So it was here,with the worldwide 2004-2005 shift
away from indirect subsidies onhigh carbon fuels having the strongest effect. Countries that had held

Source: Vital Signs 1998, Worldwatch Instituteback natural gas fired generators,
for the sake of preserving their coalindustries, were now pressured to reverse course. The new plants quickly came on stream.

Strictness Accepted
The inflexible early directives of GEOpolity were widely accepted, for reasons even beyond these first successes. In Asia there was a long-standing tradition ofdeference to authority, as well as the vivid memories of the 2003 famines. This morethan made up, at first, for the cutbacks on coal which hit especially hard there.
GEOpolity’s authoritarianism also resonated in Asia with what was now
often nostalgically referred to as ‘the glorious 20’s: the two decades from the late 1970s
to the late 1990s when so many Asian countries had achieved prosperity under similarly authoritarian leadership. Russian citizens accepted GEOpolity’s strict approach
for another reason: capitalism had never really taken in their country, and the idea thatsome centralized authority should run things seemed entirely natural.
In China, the residual Communist Party leadership was especially satisfied with GEOpolity. Many of the coal-fired power plants in China had been built withprivate funding, and selectively cutting back a few of those plants was a way for thestate to re-assert control. Keeping the entire nation motivated by the GEOpolity directive was also a way to keep the still-prosperous cities in the Hong Kong hinterland fromdrawing away from Beijing’s control.
Most of all, GEOpolity restored China and Russia to an appropriate position of centrality in the world: listened to in the corridors of power; their consultations
about coal levels reported worldwide, with the same attentiveness that had once been
given to the huddled meetings of OPEC officials decades before. For while the Persian
Gulf had possessed 2/3 of the world’s oil, China and Russia - along with the US - had 80
40

GEOpolity - Kyoto Rules

percent of the world’s coal. When GEOpolity decided that rogue power plants operatorsin the Pacific region were emitting too much CO2, it was a joint operation of the Chineseand Russian fleets that carried the international force of troops who took back control
in the autonomous Kamchatka peninsula of Siberia to the north, as well as in the densely
populated regions of Indonesia to the south.
Western countries also accepted GEOpolity’s command and control style atfirst. There were residual memories of the successful linkages between local farmers
and government, which had led to rural electrification in many OECD countries in theearly 20th century, and which had been behind the successful land reforms in Taiwan
and other countries in the years after WWII. For over a century the U.S. Department ofAgriculture has been encouraging links with farmers, while often promoting a particular environmental line, such as contour plowing to limit topsoil escaping.
What made Geopolity especially accepted in the West now though was thatthe era of individual permissiveness which had come out of the 1960s was now long in
the past. Schools throughout America and Western Europe encouraged responsibility;
government programs were only accepted where they insisted on the acceptance of obligations. Aging baby boomers had had enough of unsettling change. Younger, Generation X adults, now politically powerful in their 30s and 40s, were often children of divorced parents, and also supported stability and certainty. Perhaps most importantly,
across the planet, there was great comfort in sharing a purpose, and feeling that some
central authority was in control.
Many firms that might have been expected to resist GEOpolity were willingenough to support it, for they too wanted the protection it could provide. Business wasmore restricted under GEOpolity than it had been during deregulation, but at least
what was allowed was certain. In the years just before GEOpolity, court cases had begun charging large energy firms with being responsible for global warming. The claims
being demanded dwarfed the billionsof earlier tobacco and asbestos payouts.
Now that was over. When France andJapan had put their technocracy be-“When France and Japan went nuclear
in the 1970s, litigation against any of
the firms involved was outlawed.”hind nuclear power in the 1970s, or when America had engaged in open-air atomic
testing in the depths of the Cold War in the 1950s, large-scale litigation against any of
the firms involved had been disallowed. GEOpolity left the fuels and processes it did notwant relatively unprotected, but litigation against the fuels was just not allowed.
GEOpolity raised its funds through national subventions, and also by theselective taxes. Governmental taxes on undesired energy forms had a long pedigree,
going back at least to the Nordic experiments at the end of the 20th century, which too
had been politically sustained by the belief that the sacrifices they involved served ahigher, unifying purpose.

41

ENERGY 2050 : Risky BusinessIII. ENERGY IMPLICATIONS
Directed Innovation: Further Energy Shifts
What GEOpolity did with its great power and funds was not entirely negative; not simply a reduction of obvious CO2 weak spots. Funds were also provided forhydroelectric projects, and civil engineering and turbine companies prospered. Latin
American was especially favored, since the flow of its many rivers through different
countries had made cooperative projects difficult before. GEOpolity’s authority naturally raised the power of local regional groupings, such as Mercosur, to coordinate andfund those waiting projects. There was reforestation to encourage the take-up of atmospheric carbon dioxide. Wind power sites within transmission distance of major populations were also encouraged. Since natural gas was strongly promoted, a range of Caspian
region pipelines were brought along. Port facilities for receiving it were given tax breaks,
and funds were targeted to them.

“A few scientists complainedthat it was difficult getting
funds for open-ended research.”

In a few areas, entirely fresh research
was promoted. Even with strong and widespread
support for GEOpolity’s objectives, it was hard tosee any end to the individual car. Suburb to suburb commuting was the largest individual driv-

ing pattern in OECD countries - it had surpassed the traditional suburb to city pattern
in America as long ago as the late 1980s - and this meant that mass transit could noteasily replace it. The biotechnology industry was encouraged to look into new fuels, andimproved fermentation processes for producing ethanol from plants were under development. Research into next-generation car batteries was funded, as was work on fuelcells; better pipelines for possible carbon sequestration from power plants were also
being devised.

R&D, though lop-sided, continues% Share of Energy R&D of Western Industrial Countries, 1990-95

A few scientists complained that
it was difficult getting funds for open-ended
research, of the sort where no pre-determinedtargets

were

aimed

at,

and

the

experimenter’s own creativity was the only
constraint. But with pressing environmental needs taking precedence, these complaints
were largely ignored.
Much to the disappointment andsurprise of environmentalists, the new GEOpolity administration did not switch as many
funds to renewable energy research as they
Source: Paper 134, Worldwatch Institute42

GEOpolity - Kyoto Rules

had hoped. Bureaucrats like large, easily replicable systems, while the public simply
wanted solution that were ready and worked now. Because of the relatively low R&D inrenewables before GEOpolity began, photovoltaics and wave power were not at thatstage. It did not help their case that French technocrats skillfully pushed the advantages of using France’s already-installed base of CO2-free nuclear stations as the basisof a massive export program.

Winners and Losers
This was France’s world, as well as countries like it. Under Louis XIV, itsbelief in hierarchy and state-centered order had allowed it to dominate Europe; in the
1950s and 1960s a similar deference to a technocratic elites
had led the country to high and sustained growth rates.
Peasants from the French countryside had powered that

“This was France’s world.”

transformation; using new American-style technology;
building an infrastructure of great dams, roads, and in time nuclear power stations.
France’s diplomatic mandarins had deftly finessed arrangements to their national advantage in the bureaucratic cauldron of the early European Community. Now, in the early 2010sunder GEOpolity, all those abilities came to the fore again. Bewil-“American and Nordic representatives
could not understand how quotas always
seemed to end up to Paris’s advantage.”dered American and Nordic representatives could not understand how quotas always seemed to end up to Paris’s advantage; how these seemingly friendly experts danced around them in final discussion papers.
China’s diplomatic and bureaucratic elites also managed very well, but thegreatest success story was Japan. It did not have to worry about protecting its energy
imports, for GEOpolity had access toenough military might to take care of that.
Nor was its aging population proving tobe the hindrance which had once been ex-“Japan’s skills in slow, incremental
technology came to the fore.”

pected. Instead, under GEOpolity, Japan’s
skills in slow, incremental technology came to the fore. The shocks that had triggered
GEOpolity even had a salutary effect, ending the bickering government struggles which
had regularly slowed Japanese growth in previous years.
A mark of these successes was the shift in where top university students
went for their graduate studies. In the 1880s, Germany had been a prime destination,
because of its admired legal apparatus, as well as its dominance in new chemical industries. In the 1980s, graduates worldwide had aimed at America, for MBAs at Stanford,
43

ENERGY 2050 : Risky Business

Chicago or Harvard. By the 2010s however, a UN/Gallup surveys of 1,000 top international graduates found that France’s Ecole Polytechnique was highest on their preference list, with Tokyo University’s Department of Law coming a close second.
Arab nations were some of the biggest losers. GEOpolity had taxed coal, but
it had taxed oil even more. In theory that should have harmed high-cost North Sea oil
producers the most, since Middle East producers had production costs so low that they
could have absorbed the tax simply by lowering their profits, thus offering their oil atthe same final price as before. But the regula-“GEOpolity had taxed coal, but
it had taxed oil even more.”tions were drafted to disallow that. The low industrialization rates of the Arab countries had
made them a less powerful market for OECD
capital goods than the fast developing Asian pow-

ers, and that, combined with a lack of the nuclear arms which China and Russia possessed, had translated into less politicking pressure when the tax additions were imposed. Saudi Arabia suffered the most, for the religious dissension spreading from a
politically broken Egypt - combined with ever-increasing difficulty in censoring video
images of the Saudi elites at play in expensive foreign locations - finally cracked thetenuous hold of the House of Saud.
North African Arab countries did better, since French influence within GEOpolity ensured that their natural gas supplies would be the first to get preferential
export support. Partly this was because of proximity across the Mediterranean to France;
partly because of the opportunity to support francophone cultures. For the same reason, any hydroelectric expansion which local Quebec governments wished to engage inwas quick to be approved by the GEOpolity bureaucracy.

Business
Businesses and especially energy companies were vilified at the start of
GEOpolity, since their oil products and power plants were seen as the most immediate
cause of the eco-shocks of ‘03. It was a situa-“Businesses and especially energy
companies were vilified at thestart of GEOpolity.”tion the industry was long familiar with, sinceexactly a century before, under John D.
Rockefeller, it had been equally vilified as theincarnation of all evil. That first attack had
quickly enough turned around, for within justa decade of the fiercest attacks on Standard Oil, an astonished British ambassador
noted how the White House had ‘completely reversed the prewar relationships under44

GEOpolity - Kyoto Rules

which it was nothing less than courting disaster for any member of the administration
to incur the suspicion of an affiliation with the oil interests.’
The 2010s saw the same reversal, as energy firms quietly courted the powers that be in the central and regional GEOpolity administrations. It was possible tomaintain profitability, evenwhile controlling less of
their activity than before.
They offered their services
in fulfilling the direct research

tasks“The issue was not so much one of profits butof appeasing the all-powerful technocrats,
whose decisions controlled the market.”which

GEOpolity had set; they efficiently helped meet the targets of miles of gas pipeline
constructed, and numbers of coal scrubbers to be retro-fitted. Where GEOpolity bureaucrats had been over-ambitious, and set goals which even the largest international
construction companies could not fulfill on time, oil companies which had long understood the wisdom of helping great potentates were quick to volunteer their considerable
expertise at cost. Oil companies which were able to use their North Sea and related rig
expertise to set up offshore wind turbines were especially appreciated. The issue was
not so much one of profits - that was secondary at first - but of appeasing the all-powerful technocrats, whose decisions controlled the market.
Firms that developed their skills at navigating these bureaucracies prospered. Sometimes this led to direct gratitude and inside bidding in return for services
rendered; sometimes - even more importantly - it led to having an inside track on exactly which of the many possible strands in GEOpolity’s officially set policies were going
to be carried out next. In the first,
1990s, administration of the late Lord
Blair of Islington, the British govern-More Women are getting educated
Percent in early 1990’s

ment had declared support for the jobs
which maintaining the British coal industry would ensure; yet it had also,quite contradictorily, declared support
for reduced pollution, which only ending those jobs would produce. Which
aspect of policy would prevail at any
one time was of central importance forgenerating firms to know, and only
close attention to the minutiae of government could grant that knowledge.

Source: Vital Signs 1998, Worldwatch InstituteThe same issue arose in GEOpolity, only on an immensely larger scale. New
products were good, but establishing personal relations with key regulators, and thereby
learning which targets were likely to be selected next, was of far greater importance. In
this process, canvassing the views of distinguished white males was no longer suffi45

ENERGY 2050 : Risky Businesscient. At various times in the decade“Texan and Saudi firms uncomfortablewith these powerful Asian women wereleft behind.”

before the 2003 disturbances,
women had been in power or close
to assuming power in India, Pakistan, Malaysia, Japan, the Philip-

pines and Burma - six nations with a total population greater than that of Western
Europe and North America combined. Their political successors were of proportionate
power in GEOpolity. Texan and Saudi firms uncomfortable with these powerful Asian
women were left behind.

46

GEOpolity - Kyoto Rules

IV. ISOLATION, FAILURE AND OVERTHROW
Isolation and Failures
As businesses and national governments increasingly pandered to GEOpolity,
it gradually became cut off from the consequences of its actions. This was dangerous,
for although GEOpolity’s first sharp directives had been effective, by the early 2020s
the failures of a strict, bureaucratic approach were becoming apparent to more
and more people on the out-

“As businesses and governments increasingly
pandered to GEOpolity, it became cut off
from the consequences of its actions.”

side. GEO polity ’s regulations were exhausting, and its micro-management was imposed by distant bureaucratswith insufficient expertise in the problems being faced, just as the World Bank haddone in many developing countries years before.
Even free markets can occasionally lock-in mediocre designs or resource
choices, but bureaucratically-decreed investment decisions have a propensity to do it asa matter of course. Japan’s renowned MITI had forced Japanese firms to concentrate on
mainframe computers back in the 1970s, just as the personal computer revolution was
about to begin. Now in the 2020s, even though nuclear energy produced no carbon dioxide, the French-inspired crash program
to increase its prevalence had not been thewisest of resource“Free markets can lock-in mediocre designs or
resource choices, but bureaucratically-decreed
investment decisions do it as a matter of course.”

uses. Nuclear power
had produced only a small percentage of the world’s output at the start of GEOpolity, soeven its doubling - a massive, expensive program - reduced global CO2 levels barely atall.
China’s active participation had been crucial to GEOpolity, but this meant
the vast quantities of coal which China and India burned were only gradually declining.
The huge amounts of coal the world used going into the 21st century carried a hugeinertia, which was difficult to overcome. Natural gas exploration and delivery had increased immensely, but just as
with nuclear power, its initial levels had been so low - only

“CO2 sources had provenequally hard to control.”about 14 percent of world generating capacity at the startof GEOpolity - that even doubling the final capacity had only slight effects.
Other CO2 sources had proven equally hard to control. In poor countries, agreat amount of CO2 production could have been avoided if people had used more effi47

ENERGY 2050 : Risky Businesscient home appliances, or installed even the most basic of housing and industrial insulation. But in those poor countries the great majority were preoccupied with daily survival, as they always had been, and scarcely responded to these distant bureaucratic
regulations that would have raised their costs - why throw out a serviceable appliance?
- in the short term.
These failures were hard to“These failures were hard to ignore,
since GEOpolity had establishedwide awareness of global CO2 levels,and now was held to them.”

ignore, since GEOpolity had establishedwide popular awareness of global CO2 levels, and now was held to them. The atmosphere works with long feedback delays,
so the promise of a great shift downwards

was impossible to fulfill within a bare two decades. And since mass opinion can often
only be mobilized behind the simplest of slogans, there was little understanding that
reducing other greenhouse gases could be cost-effective.

Harsher Directives
GEOpolity responded to these public failures as most organizations will, bysimply hardening its original views. The great tradeoff from the early days of GEOpolity
had been to leave the world’s car fleet largely alone.

“GEOpolity responded to thesepublic failures by simply
hardening its original views.”(That had been part of the political trading needed
to get full, North American approval.) Automotive
CO2 was supposed to have gone down through themechanism of higher gasoline prices alone. But
people liked their cars so much - demand was so in-elastic - that there had only been a temporary dip. World car production and ownershiprates soon rose enough to largely counterbalance that fall. The promise of fuel cells or
hybrid vehicles taking off had not come true.
Since the previous rules had not succeeded, GEOpolity would now have tobe harsher. The long-avoided Article VI rules from Geopolity’s founding charter wereinvoked. Driving quotas were imposed on North America and the other one-time OECD
countries. A range of other intrusive measures were taken as well: there were interceptions of gasoline shipments; impoundings of the vehicle fleets of several large companies; arbitrary arrests of factory managers who may have violated efficiency-savings
quotas.

48

GEOpolity - Kyoto Rules

Rising Dissatisfaction
It was too much. GEOpolity had never constituted a world government, but
simply had worked in parallel and slightly in command of pre-existing national governments. Those national governments and their independent
courts had sustained the notion ofindividual rights, and resistance toarbitrary regulations. In 2003 and“A new generation had come of age,which had never looked up to GEOpolity
as an all-wise source of salvation.”

the first years after - at the gravest moments of world crisis - some of those rights had been willingly suspended. By thelate 2020s though, the gravest weather changes and resource problems seemed to havebeen averted, and what remained was now accepted as a manageable part of ordinary
life. A new generation had come of age, which had never looked up to GEOpolity as an
all-wise source of salvation. Also, there was less feeling that everyone was in the sameboat. Citizens of wealthy countries who had been willing to slightly raise their taxes tohelp subsidize poorer countries’ CO2 reductions now thought again.

The Interregnum
The interregnum
struggles

lastedfor

20months, and at one point
looked close to provoking international war. But the“The armed forces which had been seconded
to GEOpolity’s control from national armies
refused to follow the directives ordering
action against recalcitrant countries.”

armed forces which had been
seconded to GEOpolity’s control from national armies refused to follow the directives
ordering action against recalcitrant countries. Too much of GEOpolity’s once-great authority had been diminished, and no looming ecological threat was seen as strong enoughto justify these acts.
Three major factions began to take shape. The first one, associated with
GEOpolity’s senior secretariat, was willing to revoke Article VI, but still wanted tomaintain a hard, militarily-backed regulatory system. But the secretariat’s credibility
was greatly diminished when a series of massive explosions occurred in the network ofhastily constructed Liquefied Natural Gas (LNG) deep-water docking terminals. Investigators traced the faults to shoddy construction techniques which certain members of
the secretariat had approved, and although censorship was applied in many countries,
substantial fragments of the report reached the public.
The second faction, which wanted to end GEOpolity entirely, grew in strength
after the explosions. Isolationists in the American West and South gave it strong sup49

ENERGY 2050 : Risky Business

port; so too, in a strange alliance, did many regional administrations in Greater China.
The new natural gas plants and alternate fuels had taken over some of the gaps which
GEOpolity’s coal-reducing directives had insisted upon, but the substitutions had neverbeen complete, or entirely cost-effective. Separatists in both the Guangzhou region andthe increasingly autonomous Manchurian industrial zones felt hampered by the rules.
But although there was widespread upset at GEOpolity’s excesses, the desire to nestle
under some overarching governmental authority was too strong to let this view prevail
either.
The faction which triumphed was a third one, which promised that it waspossible to continue oversight of the still fragile world ecology, yet to do so in a way thatavoided the worst sorts of direct intrusion. Even more, the third faction promised thatits approach would auto-“The faction which triumphed was a third one,which promised oversight of the still fragile
world ecology, in a way that avoided the worst
sorts of direct intrusion.”matically start up a positive shift in life-styles tolead large parts of theworld away from theworst dangers. Supporters of the first two fac-

tions united in declaring these promises irresponsible; sheer examples of pandering to
the masses’ desire for neo-religious fulfillment. But that had little effect. Enough people
still wanted guarantees; certainty. On September 16, 2031, the third faction assumed
power.

50

GEOpolity - Kyoto Rules

V. WHAT INDIRECT BUREAUCRACY DOES:‘NEW GEOpolity’Financial Incentives
The revamped authority was called NEW GEOpolity. Instead of concentrating primarily on shifting the world’s fuel mix, as its predecessor had attempted, it declared its commitment to reducing wastages. Its work was based on two slogans, the first ofwhich was called ‘lease-averaging’.

“The first of which wascalled ‘lease-averaging’.”

Lease-averaging was given its first trial in the stronghold of NEW
GEOpolity’s opponents, within the Manchurian industrial zone. The owners of 200 of
the main factories and offices outside Harbin and Sheyang were told that from now onthey would send their payments for energy costs not to the local energy companies, but
to NEW GEOpolity. At the same time, NEW GEOpolity would bring in energy auditorsfrom Beijing to design and then fit more efficient machining, ventilation, and lighting
systems.
Only 80 of the factories accepted the offer, but as the improvements cameon stream, energy usage went down, inmany places by over

Coal works. Emissions are down ...
16

Kg/MWh30 percent. Users
never had to face thehurdle of higher initial charges, since14
Notes: PF=pulverized fuel; FGD=flue gas desulfurization;
PFBC=pressurized fluidized bed combustion;
IGCC=integrated gasification combined cycle.
12Particulates
10

Nox
Sox

those were entirely
borne by NEW GEOpolity. As the othermanagers saw their

8

6

4

competitors now enjoying

loweredmonthly energy costs,
they petitioned NEW

20
PF (old)

PF + FGD

PFBC

IGCC

Source: Adapted from Sustainable Development & The Energy Industries, pg 184 Fig 2

GEOpolity to be let inon the trial scheme.
In wealthier countries, NEW GEOpolity carried out lease-averaging in aform reminiscent of certain experiments in the secondary mortgage market in America
in the 1990s. Just as in the Manchurian case, the individual owners had no need to put
51

ENERGY 2050 : Risky Business

up initial capital themselves to be able to get savings or loans to help with energy
efficiency.
NEW GEOpolity had to cover its own initial costs, but these were not as
great as opponents had suggested. Concentrating on secondary mortgage providers
greatly magnified the money which NEW GEOpolity put up. Also, the success of theManchurian experiment was publi-... and electric efficiency is up, again

cized, and quickly sought for in Madras, Buenos Aries and then in theheartland of the one-time OECD countries. Each success reduced the extra
charges that were demanded to cover
the ostensible risk of these retrofits andenergy-savings. There was an added
benefit. The great number of housing
retrofittings helped keep unemployment down, for that was a task that
inherently involved detailed, local

Source: Power Surge, Worldwatch Institutework.

Changing Mind-Sets
To further encourage popular support, through the 2030s NEW GEOpolity
began promoting the belief that efficiency savings were an active rather than a passive
response to the world’s problems. The new directorate was persuaded to do this by
NEW GEOpolity’s research department, which had found a curious article from the oldjournal ‘Foreign Affairs’, published decades before the atmospheric CO2 problems peaked.
The article had listed possible advantages of increasing growth through upped efficiency, but the author had unfortunately titled his suggestion a ‘Soft’ energy path - andthis had immediately discredited his views in the corridors of power.
The NEW GEOpolity directorate commissioned a study of late 20th century
mass psychology, to better under-“Systems that were seen to be funded bygovernment ‘investment’, received great
support; but ones relabelled as funded bygovernment ‘subsidy’, saw any support
quickly fall.”stand the power of labels in shifting belief. Railway systems thatwere seen to be funded by government ‘investment’, it found, generally received great support; but
ones relabelled as funded by government ‘subsidy’, saw any sup-port quickly fall. (The effect was what energy companies had experienced in the first
decade after the 2003 shocks as well: at first vilified as the carbon-emitters, several had
52

GEOpolity - Kyoto Rules

managed to shift popular perceptions enough to be thought of once again as the neededenergy-suppliers.)

Virtual-Creation
As a result of these studies, NEW GEOpolity labeled its next program ‘Virtual-Creation’, emphasizing the solid, positive contribution efficiency would create. The
modality was shifting as well, and in ‘virtual-creation’ responsibility was offloaded evenmore directly to the final users than it had been in ‘lease-averaging’. NEW GEOpolity
oversaw further cuts in usage, yet without being directly involved in collecting payments, selecting energy auditors, or supervising their work. It did this by“Its next program was called‘Virtual-Creation’.”simply reimbursing utilities and oil companies for partof whatever savings they created.
The model for this was the practices of the one-time California utility, Pacific Gas and Electric (PG&E). Back in 1980 it had been a standard 20th century utility,with plans for nuclear and other power stations to fulfill the demands of the growing
economy within which it was set. Little more than a decade later though, it managed toabolish all of its own constructionand engineering functions - andstill earn more money than ever before. The reason was simply that
California government regulatorsof the time ruled that it could keep

“The reason was simply that regulators
ruled that it could keep upto 30 percentof whatever savings in energy usage it
managed to get its customers to achieve.”

between 15 and 30 percent of whatever savings in energy usage it managed to get its customers to achieve.
At first PG&E had tried to achieve the savings that would earn it this profit
in a direct manner, sending in its own specialists to large industrial users, or giving
individual customers rebates if they bought energy-efficient equipment. Gradually
though it too had seen the advantages of stepping back from direct supervision, with all
the difficulties of billing, and decision-making that entailed. First it shifted its rebates
to the sellers of selected energy-efficient equipment, and then it went even further,
accepting bids by industrial users, and giving out rebates to those which promised thegreatest reduction in energy use. It did not have to concern itself with any of the innerdetails. In the mid 1990s, barely eight American states had experimented with such
systems. In NEW GEOpolity now, the program was applied world-wide.

53

ENERGY 2050 : Risky Business

Problems With the Indirect Methods
The CO2 reductions that resulted were immense, and NEW GEOpolity wassafely established in world opinion. But although reformist economists had long promoted the indirect measures which NEW GEOpolity had now taken, they, like so manyother radicals, had never examined the new problems their very reforms would create.
A number of unanticipated effects arose.
In the previous system, for example, there had been a market value for
digging or pumping up fossil fuels, but (aside from estimates of future market earnings)
there had been no value to leaving them in the ground. Under NEW GEOpolity thatshifted, and a program of set-aside payments began. This however produced the same
distortions as the agricultural support systems which had once dominated the life ofEuropean and American farmers. Funds went to paying firms for buying up and thenleaving fossil resources, with the result that several firms shifted away from research,efficiency or distribution, to capture these unexpected profits.
Reforestation to absorb CO2 had its own“Reforestation to absorb CO2
had its own problems.”

problems. Jungles of ancient biodiversity were often
cut down, and replaced with monocultures of tree
species that had been designed simply to grow fast
and absorb the maximum carbon. As those carbon-

sink plantations matured, fires or simple decomposition could send most of the carbon
back into the air, and the purchasing incentives had no controls over that.
There also were problems with tradable permits. Often they were hoarded,
and problems similar to monetary deflation arose; at other times cartels appeared; inall cases, nations repeatedly argued about how the initial distribution of permits was tobe set. And since all these systems - the auctions and“There also were problems
with tradable permits.”

rebates; the mortgage guarantees and the permit supervision and the reforestation incentives - were being applied world-wide, it was difficult to provide sufficient supervision. Tropical landowners, for example, often tradedin carbon credits for forests which they had intended to plant anyway. Corruption was
persistent, and seemingly impossible to entirely stop.
There was a greater weakness. Efficiency savings could only take the world
so far, as previous experience had shown. In one of the world’s first major fuel crises, as
forests had been used up near major cities in the 16th to 18th centuries, the first stage“There was some space for innovation in the
NEW GEOpolity world, but not enough.”of replacement had been
simple efficiency, as betterstoves were developed to use
the remaining wood with lesswaste. But when the limits of those improvements had been reached, only the development of alternate sources of fuel, primarily coal, as well as the ability to ship it suffi54

GEOpolity - Kyoto Rules

cient distances, had allowed the nations of the time to sustain themselves. NEW GEOpolity was not creating new fuels; new energies. Renewables were more encouraged
than they had been before, but it was slow. There was some space for innovation in the
NEW GEOpolity world, but not enough.

A Promise Fulfilled
Those short-comings were accepted however. The worst limits were only
dimly visible on the horizon, and even more, the promise which NEW GEOpolity’s opponents had once called irresponsible was now, actually being fulfilled. Slow, steady spreading of safe energy was changing the very nature of how great numbers of people lived.
It was an effect that had long been suspected. With enough energy available, education and healthsystems improve, and population growth slows. Women
would no longer be treated as
mobile baby factories, for“With enough energy available, education &health systems improve, and population
growth slows.”

schooling made their time
more valuable. As chores involved electricity rather than muscle-power, so the sheer
number of children around would be less important as well.
Mechanized equipment combined with enough education meant that peasants could engage in contour plowing that preserved topsoil; there was more electricity
for night-time school reading or entertainment; more refrigeration, cutting down spoilage of food in the distribution chain as well.
The whole sequence might have seemed naive, wishful dreaming, but it was
based on thorough statistical validation. And once established, the causality working inboth directions helped it maintain itself. The energy that was provided ‘caused’ theeasierlife-

styles, and theeasierlife-

styles ‘caused’
the social im-“The energy that was provided ‘caused’ the easier lifestyles, and the easier life-styles ‘caused’ the social improvements that allowed this energy to be provided.”

provementsthat allowed this energy to be provided. At one time authorities had estimated that
2,000 kWh per person per year was the threshold where these effects would become
apparent. But that was based on archaic figures, using the primitive technology from55

ENERGY 2050 : Risky Businessthe 1990s. The long-running efficiency campaigns of NEW GEOpolity had brought thisfigure far down, in many regions to 300 kWh or less.
For vast numbers of rural or slum-dwelling citizens who had been left out
before, life within the safe bounds of NEW GEOpolity’s indirect guidelines was more
comfortable than anything they had ever known. For others, and especially young people
in the world’s great cities, that safety was tinged with a great nostalgia for the past.
NEW GEOpolity“There was great popularity for events that relived
the more fast-changing days of the 1980s and 1990s,
which only a few elders of fading memory any longer
had first-hand experience with”

felt slow andpreplanned, withso many choices
guided - however
benevolently - by

the government. In Asia particularly, there was great popularity for media events thatrelived the more fast-changing days of the 1980s and 1990s, which only a few elders offading memory any longer had first-hand experience with: when their countries had
been bursting forward, and everything had seemed possible.

56

JAZZ - Happy Virus

JAZZ –
Happy VirusIn the late 1700s, a new style of business began toappear in the UK. Over the next 50 years it transformed the world, as it spread the Industrial Revolution. No one had understood what power it would
have, and many traditional firms - soon pushed into
bankruptcy - had been convinced they could ignoreit.
In the late 1990s, a new style of business began toappear… in California...

57

ENERGY 2050 : Risky Business

I. A NEW MODEL FOR BUSINESS

Silicon Valley
The first sightings of the new business forms had begun in the late 1970s.
Two young men living in a valley near Stanford University, turned a small garage-built
invention into a product - the Apple II computer - which brought them fortunes of several hundred million dollars each, while they were still in their mid 20s.
In subsequent years further oddities occurred: firms such as Netscape began giving away their products, entirely for free, yet managed to become far richer inthe process; other computer firms would initiate product lines which could bring in over$100 million, yet were designed to be brought to a close within six months of their start.

Dematerialization
These practices might have remained restricted to Silicon Valley, but for
the fact that ‘dematerialization’ was steadily spreading through society. Products started
weighing much less than they had in previous years. The micro-chip on a Hallmark
greeting card, weighing under one gram, had more computing power than the multi-ton
computers of two generations before. Plastics were replacing steel; less oil was consumed even though economies were larger; keyhole surgeries that could be done on an
out-patient basis were replacing traditional techniques that had used pints of blood,and kept patients in hospital for

Dematerialization ... in cars
kg per car

weeks.
Production runs inordinary factories were increasingly customized as computerization spread. In one industry
after another, hard-nosed production engineers with years ofexperience in their field began
to be pushed aside. The welltested production practices they
were expert in became increasingly irrelevant. The ‘solid’ ob-

Source: Adapted from Wernick, Consuming Materials:The American Way,Technological Forecasting & Social Change 53(1):111-122

58

JAZZ - Happy Virus

jects produced within their factories could, now, be altered just as quickly as the software controlling the factories’ operations.
As a result, new ideas no longer had to come from insiders with direct access to the tons of steel or miles of pipeline that were laid out within the factories.
Instead, anyone who could improve the software that ran them had to be listened to.
Barriers to entry fell. The lightness and speed which typified Silicon Valley now bubbled
to the surface on these unsuspecting factory floors.

Services and Heavy Engineering
Humans are a highly suspicious species, and do not easily part with established business forms that have served them well. The Silicon Valley techniques might
be useful for flighty outposts
in California, it was felt, or
possibly even for variable control systems within factories,
but its advantages in other“Humans are a highly suspicious species,and do not easily part with establishedbusiness forms that have served them well.”areas were still strongly resisted. For computers were just a tool, and in fields where their use was only tangential,
it was not seen how they could re-shape a firm’s central work.
Humans are also a most practical species however, and when a few heavy
engineering firms - ones clearly far removed from the wilder reaches of Silicon Valley began to make great profits from a more refined understanding of what the new business style meant, then the resistances quickly went down. For the true lesson was not
so much that software itself was all-important, but that it was now possible for almost
all firms to take advantage of the high profits which a shift into customized, user-friendly
services could provide.

An Aeronautic Experience
GE was one of the first great success stories with the new approach, and its
dominance in the decade from 1995-2005 was based, in large part, on generalizing a
breakthrough it had created in its turbine division just a few years before.
When GE wanted to make a jet engine superior to that of its arch rivals
Rolls Royce, and Pratt and Whitney, it had used this new approach to raise its engine’s
efficiency by almost 30 percent. This was far above the industry’s usual improvement

59

ENERGY 2050 : Risky Businesslevel, of 10 percent at most, and its competitors were startled. How had GE managed toget a group of engineers so much better than any one else’s?
They had not.
The ‘trick’ had simply been to enter into the conceptual world of their customers: the big airline engineering and repair departments. Once they had done thatthe solution leapt out: engineering and re-“How had GE managed to get agroup of engineers so much better
than any one else’s?
They had not.”pair departments hate when engines experience ‘down-time’. That division of reality into down-time and up-time - was only tangential inside GE, but was basic there. The
solution had been within the world of the clients they shared with the other engine manu-

facturers all the time. The other firms, however, had not made the shift to viewing theworld in a way to see just how important that was.
As a result, GE’s designers attached monitors to all their engines, that would
tell when the engine was going to need parts repaired, even while it flew. The big airlines loved this. The amount of time they had to waste by keeping engines out of service
was substantially reduced, because the servicing“The ‘trick’ had simply been toenter into the conceptual worldof their customers.”schedules could be planned more exactly. There
had been a twist, a turn, a new recombination and presto: 30 percent efficiency, pulled out ofthin air.

De-regulation
Even with these increasingly recognized advantages, the curious new Silicon Valley system - of efficiencies pulled out of empty air; of utterly unexpected newmarkets regularly being created - might not have spread, if it had not been for one
further development. The long historical epoch when central government had been turned
to as the answer to citizens’ problems was now over.
The emergency dike construction which had avoided serious damage in thegreat Nile Delta floods of 2003 had been largely supervised by Bechtel and other great
construction firms; the genetically diversified grains which ensured that famines were
averted were recognized - as the late President Mandela of South Africa had declared,
in his final UN speech - as being due to the skillful research of Monsanto and otherrespected biotech firms.
Bursts of deregulation had begun in isolated countries in the ‘70s and ‘80sof the last century. Now, in 2005, only a few isolated lands resisted its spread. Govern60

JAZZ - Happy Virus

ment was back to the minimal caretaker role which it had last played a century before.
With all the parts in place - the model of Silicon Valley, dematerialization, the growing
profits from services, and now deregulation providing an open door - a new world could
now unfold. The business form
that was growing to dominate itcame to be called ‘Jazz’, after the
independently flourishing yet
subtly linked musical lines in ajazz performance.

“With all the parts in place - the model of
Silicon Valley, dematerialization, thegrowing profits from services, and now
deregulation providing an open door - a
new world could now unfold.”

61

ENERGY 2050 : Risky Business

II. ENERGY INDUSTRY TRANSFORMED ‘FREE’ ENERGY TO CONSUMERS

Energy companies were some of the last traditional industries to cautiously
step, blinking and gasping, into the new Jazz terrain. Once they did so, however, a“Most failed before the
new competition.”

merciless Darwinian winnowing took place. Most failed before
the new competition, but a few survived, and in the years till2020 they transformed immensely fast.

Strange Competitors
The key shift was to accept that they would no longer have only their traditional competitors to worry about. Deregulation had often been sought as a way of escaping from the restrictive, misguided regulations of“The key shift was to accept
that they would no longer
have only their traditional
competitors to worry about.”

government officers. But when you open the doors to a
field, it is not just firms that have traditionally beenon the inside who can operate more freely. Outsiders
too, scanning everywhere in the economy for areas
where plump profits existed, could try to push rightin. Their simplest technique was to just bundle energy

offerings along with whatever they had traditionally sold.
There had been hints of this in the ‘90s of the old century, when a few adventurous firms from entirely outside the energy field had begun to offer ‘free’ energy as
an enticement to new customers. In the UK, a mortgage firm offered zero-cost utilities
for three years, so long as the customer locked herself into a mortgage with the offeringfirm. In the US, credit cards which had long offered free air miles began to add ‘free’
energy to their services as well.
Soon there were many such newcomers, swooping in to pluck the most lucrative segments of the consumer market from its habitual suppliers. They arrived
from the strangest places. Sony stopped being a user of energy, and began to produce
goods with solar cells, or a lifetime credit for the electricity used. It had no stranded
assets in traditional systems, so had no reason to hold back. Large trucks delivering
refrigerated goods were engineered to reduce the extra gasoline their drivers had once

62

JAZZ - Happy Virus

needed to buy to run the powerful coolant motors, for solar cells and much improved
systems for recapturing braking-energy began to supply that directly.

Wal-Mart“Wal-Mart” became one of themost powerful of the new competitors. It
had long offered complete financial management for some of its customers, and by“Wal-Mart became one of the mostpowerful of the new competitors.”

2002 was also selling detailed school andcareer advice. As it moved into designing and outfitting complete houses for its customers from 2005 on - an expansion it understood in alliance with IKEA and a major Hong
Kong based firm - it was only natural for it to directly supply energy services for thesehomes as well.
People were comfortable with that customized bundling of services, for itmatched deep currents in their ordinary lives. Vows of serial monogamy had surpassed
marriage registrations in Sweden by 2004, and had achieved parity even in strait-laced
Ontario by 2010. (It was also increasingly accepted in China, in response to the overabundanceofsingle males, left
over from the onechild policy of the“Vows of serial monogamy had surpassed marriage
registrations in Sweden by 2004, and had achieved
parity even in strait-laced Ontario by 2010.”

Communist government decades before.) The habit of preparing for constantly shifting portfolio careers made people even more ready to expect customized services in the rest of theirlife. They were used to shifting away from long-term links, and getting a personally
tailored mix of what they wanted at the moment.

Commodities...and EscapeThe energy that was supplied in these bundling deals was not of course
actually ‘free’. But because it was contracted for earlier in the price chain, firms which
remained as traditional producers wereforced down to wholesale prices; no longer
able to sell at retail. Such snipping away atvalue chains had happened before, whenpowerful supermarkets had taken over much

“The energy that was supplied inthese bundling deals was not of
course actually ‘free’.”of the profits from lucrative food and hygiene
63

ENERGY 2050 : Risky Businessbrands, forcing them into lower profit in-house brands. (It had passed under the radarof energy-company executives however, since the travails of baked beans and napkins
seemed far removed from their concerns.)
The more nimble energy firms managed to fight back. Sometimes the solution was obvious. If the margin on supplying a building’s energy was 6 percent, but themarkup for improving the operation of the“It had passed under the radar ofenergy-company executives .”building was 25 percent, it was a straightforward choice to move along with the money.
Sometimes the shifts were more ingenious. A
number of countries spent more servicing theirdebt to international funders than they did on schools and clean water. In three cases inAfrica, energy firms that took over that debt, or helped refinance it, were rewarded
with preferential access to the country’s markets.
The ultimate danger was to be maneuvered out entirely. Here too there had
been some isolated examples years before. One OECD electricity company regularly‘paid’ a construction firm to offer lower-than-usual prices on homes, so long as gas mains
were kept away. The way they“One OECD electricity company regularly‘paid’ a construction firm to offer lowerthan-usual prices on homes, so long as gas
mains were kept away.”

did this was not to transfer
money to the construction
firm, but to guarantee lower
than usual electricity rates foranyone moving in. The con-struction company sold them more easily, and the electricity company got a captive
market. Only the gas company was left out. In 2010, with deregulation firmly in place,quick switches like that were coming faster.

64

JAZZ - Happy Virus

III. ENERGY INDUSTRY TRANSFORMED PRODUCTION AND FINANCE
Early-curve Technologies
The lure of new markets brought shifts in other areas, well upstream fromthat of final consumer choices. Coal-fired generators were near the end of a centurylong development cycle. Since they were close to their thermodynamic limits, additional
improvements were slow, and few outsiders were pulled to them as a possible growtharea.
Renewables however were different. Several were just near the beginningof a long, upward-stretching improvement curve.
As deregulation continued these effects became ever clearer, since subsidies
went down for nuclear power, as well as for the free road construction and maintenancewhich had boosted petroleum sales.
One large natural gas firm
had recognized this was happening, andinvested heavily in wind power back in

As the price goes down, shipments
rise, and price goes down...

the 1990s, though management prob-

megawatts

1997 dollars per wattlems and the difficulties of keeping staff
had led to slower than expected growth
for them. Two of the major oil multinationals however profited mightily fromtheir early positioning here, and by
2012 the massive wind generators they
had in place on modified offshore rigs
had forced the closure of many conventional, land-based generating stations
that could not compete. There were nowatching regulators to please: It was
an innovation driven by simple profit.

Source: Vital Signs 1998, Worldwatch Institute

Wherever demand shifts, products that had seemed perfectly good will beabruptly dropped. Clipper ships had been dropped, not because they were suddenly
worse than they had been before - if anything, the last models produced were better
than any previous vessel. Rather, steam had
made them unnecessary. Similarly for electric typewriters, or mighty Clydesdale
horses. It was the same thing as happened“Wherever demand shifts, productsthat had seemed perfectly good will
be abruptly dropped.”
65

ENERGY 2050 : Risky Businessto one highly developed ‘old-style’ energy technology after another now. They all were
undercut,“Clipper ships had been dropped because
steam had made them unnecessary.”

despitehavingachieved what - till just a moment
before - would have seemed extraordinary efficiencies.

BiotechChange feeds on itself, for once people see that one assumption they havedepended on need not be true, they realize there is no reason to keep from questioning
their other long-standing assumptions as well. This is why dictators allow no dissent one slight crack, and they know everything can crash. It is“Change feeds on itself.”

also why the first oil multinationals’ successes with alternate fuels led other firms, now including ones from very different fields, to examine ways of going further. Since exploit-

able oil was running low in the North Sea, and high quality reserves were becoming
hard to get even in Venezuela, what profits would be available for new competitors if oil
could be created at will?
Ethanol had long been popular in Brazil, but the biotechnology revolution
allowed an even more fundamental approach. Early in 2011, working in secrecy, thehigh-quality biotechnology institutes which Castro had left in Cuba began an expensive
joint project with a chemical giant. Scientists in the previous century had known thatmany of the primitive plants called algae could increase their numbers 30 times withina day, doubling every five hours. They had also known that other species of algae transformed half of their mass into oil. What they had not been able to do was geneticallycombine those two traits.
The first joint results overcoming this“To have a Merck/BASF allianceforce upstream oil operations
into bankruptcy was simply
more of the same.”were announced in a paper in Nature, in May,
2016, but progress ceased almost immediately
after that. Technical problems showed their firstpredictions to be over-optimistic, and the twogroups also fell out over the division of futureroyalties. The collaboration broke up. While

Cuba’s industry looked for new partners in Latin America, BASF quickly set up a further research unit with Merck pharmaceuticals, to utilize that firm’s expertise in the
self-cleansing of microbial batches. BASF had a special reason to keep the collaborations going. It was a direct industrial descendent of the firm which had produced thefirst artificial indigo - a feat of biosynthesis which had made Britain’s indigo plantations in India useless virtually overnight, and also opened the way for the growth of the66

JAZZ - Happy Virus

German chemical industry. To have a “Merck/BASF” alliance force upstream oil operations into bankruptcy was simply more of the same.

Innovation
The new business forms, now widespread in the 2010s, encouraged manysuch fresh developments. New alliances brought in fresh ideas, for each newly arrived
firm was switching on a searchlight from its own area of expertise, and then aiming it,bright and sharp, onto a fresh area of the world or of the market. What was out there
was lit up afresh, as with those biotech firms seeing possibilities which a drilling firm
would never have considered.
The increased dealing with customers helped as well. Each time there wasa new point of interface with a customer - new product lines, or new demands forcustomization - then a part of the firm was now ‘open’, in contact with the outside, andno longer submerged within as before. That produced a vast new surface area, allowing
for ever more innovation and fresh products.
A low-tech example had been the way that blue jeans came into existence
when a German immigrant (Levi Strauss), mixed a French material (sailcloth fromNimes, known as ‘de Nimes’), with an Italian style (Genoese sailor trousers), all with aneye on a new market (theAmerican West). The insights from four hitherto
separate developments
had to be joined for thatnew product to appear. A
higher tech example was“A low-tech example had been the way thatblue jeans came into existence when a German
immigrant, mixed a French material, with an
Italian style, all with an eye on a new market
and created jeans.”

the way that the old Bell
Labs had exploded its output once it was moved away from the stifling hand of AT&T.
Within two years of the separation, in contact with numerous fresh areas to work on
and learn from, it was pouring out fresh patents at the rate of 3.5 each day. Now, in the2010s, such efflorescences were happening all over.

Arbitrage and Free Income
The only obstacle with implementing the rush of potential new projects,
was that funding was often difficult, especially in the years till the Consortium Accords
of 2023. Lenders had little experience with the new areas that were opening up. As a

67

ENERGY 2050 : Risky Businessresult, energy developments which provided their own funding became especially attractive.
The funding possibilities were there because of the constant arbitrage differences which uneven technological advance was opening up. Early experiments withthis system had oc-“The funding possibilities were there because of
the constant arbitrage differences which uneventechnological advance was opening up.”curred under the
auspices of the European Bank for Reconstruction andDevelopment, in the 1990s, when the sudden collapse of Communism had first laid baresuch gaping differences.
In a typical contract, a French or German engineering firm would contact a
Russian hospital or other large municipal building, and offer to take over their heating
systems. The hospital did not have to pay anything, and was even guaranteed a lower
fuel bill in the process. It seemed like money for nothing, but the economics was impeccable. Where a civic building spent $1 million on fuel, it often wasted $600,000 of that,
because its pipes were not insulated, and“It seemed like money for nothing, but
the economics was impeccable.”its boilers were set on high 24 hours aday. (Such outcomes were typical of thelack of market incentives Communism
provided.) The French firm simply had

to put in the latest insulation and timers, or replace parts of the boiler. Waste was easily
cut by $500,000, and the firm and the hospital split the savings. The generation ofsavings from that future income stream was what paid for the initial investment.
The groups which first did this had been called ESCo’s - for Energy Saving
Companies. By 2015 there were dozens of them, scurrying the globe in hunt of theseself-funding differentials. Older coal-fired power plants were converted to higher efficiency; housing stock was retrofitted with insulation. Where electricity was sold to offices and homes on tariffs that varied from

“The groups which first did thishad been called ESCo’s : Energy
Saving Companies.”

minute to minute, ESCo’s helped install thecomputerized auction controls which allowed
users to select their optimal mix. There were
profitable markets in monitoring systems; in
reducing down-time in power plants; in con-trolling transmission losses. All forecasts for the growth of ESCo’s were favorable atthis point, since the problems that arose in 2020 - the waves of popular dissatisfactionthat arose against deregulation - were, as yet, utterly unforeseen.

68

JAZZ - Happy Virus

Small Power Plants
Small power plants became important, not simply because they were easierto fund than big units, but because they provided an excellent way of staying close to
the market - which was just what a service-centered world demanded. Sales of small
gas turbines boomed, as did modular systems in general.
Risk went down considerably. Since they were quicker to build than older
style coal or nuclear stations, there was no need to ‘guess’ or forecast so far ahead. The
advantages were much like those of the JIT systems which had long since become standard in the automotive industry. With less chance of being caught with an ill-sited
production unit, or an outdated technology, financing was even easier to find.
The shift was one with deep roots
in technological history, for it fit within the centuries-long move to find ways of responding“The shift was one with deep roots
in technological history.”even closer to what individuals chose. Coalfired trains had to be centralized, and follow rigid schedules; smaller, individually powered automobiles, could be dispersed, and follow whatever moment to moment directions their drivers wished.
In many areas, the home electricity market was entirely lost to traditional
distributors. Even in the late 1990s, fuel cells that would turn ordinary homes into mini
power stations had been prototyped in England, at reasonable cost; a one-house cogeneration system had been demonstrated
in Switzerland. IT improvements made such

“Where old-style electricity utilities
did survive, they merely served as asmall, risk-averaging backup.”

systems easy to service. The whole movement fit within the trend for dispersed, localized sources. Where old-style electricity utilities did survive in those areas, they
were mere remnants; serving as a small, risk-averaging backup.

69

ENERGY 2050 : Risky Business

IV. LOSERS...AND RESISTANCE
Losing Firms
It was easy to get it wrong, and a number of once-famous firms fell by theway. Electricity utilities were the first affected. Once it became possible to wheel elec-“When a gas station owner makes moremoney selling pasta than gas, the fuel forcars becomes a matter of choice, not lock-in.”tricity from one regional
producer to another, thentraditional cost evaluations
suddenly lost all foundation.
In the previous world, gen-erating plants had a known value, but now they were more like real estate properties.
Their value could suddenly plummet, the moment someone else, far away, created a
product - such as lower-priced electricity, or consumer-attractive ‘green’ electricity which was more desired. Soon it was similar for natural gas, for gasoline, and otherproducts.
It did not help that many firms had a“Airplanes were just ‘marginal
costs with wings on’.”mind-set which resisted these shifts. They had spentyears thinking of their products as solid objects, withdefinite value, and it was hard to move away from
that. This is a deeply ingrained human habit. Whenthe airline industry had first been deregulated, back in the 1970s, one company had
tried to protest that its Boeings had a particular value, and so they needed to be guaranteed the ticket prices that would pay for it. The Washington official leading the newlegislation was unmoved: airplanes were just ‘marginal costs with wings on’, he told thefirm, sharply, and the sooner the airline recognized that the better.
The change struck at the core of many engineers’ self-definitions. Some timein the 1990s an important threshold had been passed, when the bulk of the software
inside a jetliner was no longer there to run ailerons or fuel pumps or other such systems
essential too flight, but simply to run the entertainment systems that were carried
onboard. That was so nontraditional -“That was so non-traditional that someavionics firms that could have enteredinto the wider airline software field did
not even consider it.”so non ‘macho’ - that some avionics
firms that could have entered into thewider airline software field did noteven consider it. It was similar whensupermarkets and other outlets beganslicing into the gasoline retail market.

Very few men had gone to engineering classes and roughed it on drilling sites and thenbeen promoted into management of big, complex drilling or distribution systems, justso they could end up selling Twinkies. But only firms which fully accepted the need to70JAZZ - Happy Virus

concentrate on such new marketing - to accept that this could become a central, highprofit activity, every bit as productive as boring holes - managed to prosper.
Many of the firms that dabbled with
ESCo’s failed here. Taking true control of a user’s
energy costs ultimately turned into providing a
mini-government for them, especially as the con-

“It was hard for many firms tounderstand how strange thecompetition had really become.”

tracting parties soon became whole neighborhoods or towns. The successful ESco’s were soon setting prices in local shops; sendingout home visitors, and arranging with local governments to give them legal powers to
enforce the overall contract provisions. Political scientists and administrative law specialists were hired, working side by side with the power engineers.
It was hard for many firms to understand how strange the competition had
really become. For the point was not that Wal-Mart or a government consultancy had
become a competitor, and so Wal-Mart now had to be added to the list of opponents towatch out for. That would always keep
you one jump behind the market, forother unsuspected arrivals could rush inwhile you were focused on Wal-Mart. The
deeper skill was to understand how WalMart and Branson and the others man-

“The deeper skill was to understandhow Wal-Mart and Branson and theothers managed to pick out how new
configurations might arise.”aged to pick out how new configurations
might arise.

New Categories
One skill that was central here was to no longer be limited by old, familiargroupings. The old Fortune 500 was no longer printed, but it still prevailed in many
people’s minds. That was a mistake, for any such listing is simply a lock-in of the market at one moment. The futurist Stan Davis once pointed out that in the 1950s, it might
have made sense to look ata ‘Wages 500’ - the American
AFL-CIO, the British TUC,
the French CGT and thelike. By the 1970s and 1980s“A better way to segment the market was a‘Values 500’, which would have included such
powerful entities as the American Associationof Retired Person (AARP).”the Fortune 500 was more
important, but it too was only a brief snapshot, for it simply locked in the key actors
from the era just before deregulation really took off. A better way to segment the market was a ‘Values 500’, which would have included such powerful entities as the American Association of Retired Person (AARP): One of the most powerful lobbies in America,
71

ENERGY 2050 : Risky Businesswith several million members who also often used their AARP for recommended purchases.
Successful firms in the 2010s were able to view the market in a host of such
fresh ways. Overseas Chinese, for example, were estimated even in the late 1990s as
having a GNP of $450 billion, which would have made them the 9th largest economy in
the world. Thinking in terms of that

“Overseas Chinese, for example, were
estimated even in the late 1990s as
having a GNP of $450 billion.”grouping suddenly made a whole new
economy ‘pop’ into clear focus. Profitablefirms were also good at working with thedetailed, local mind-sets they found when

they arrived in a new area they had ‘found’. If an African rural area had a layered
notion of property rights - so that some people had the right to use water in an area,
while others had the right to pass through but not draw water for free - then the business arrangements would take that into account.

Hasty Decisions
Firms that felt themselves slipping often took frantic leaps into what they
thought might be better fields. But without a calm assessment of whether they had theskills to do well in the newly proposed area, those efforts rarely ended in success. Good
alliances were sought for, but not enough manag-“Firms that felt themselves
slipping often took frantic
leaps into what they thought
might be better fields.”

ers were skilled in handling them properly. It was
no good finding old-fashioned industry partners tojoin with, even if they had a complementary geographic expertise, for all that did was strengthen
each participant’s grip on standard, already-established markets. And even a fruitful, new-style part-ner could be dangerous, since firms that were too trusting, too willing to settle in with
the new partner for the long haul, were easily turned into simple commodity producers,
while the partner was the one who worked their product into a bundle, and tailored it
for final sale to the consumer, where the largest profit margins resided.
It also turned out to be wrong to assume that only dispersed or ultra hightech projects would do well. The essential point was simply to supply a need. Coal wasnear the end of its innovation cycle, but there was so much of it extant that distributionof modification opportunities often arose. Nuclear“The essential point was simply
to supply a need.”stations were large, and slow to build, but even in
the 1990s clusters of already extant ones were being revived in Jazz-style financial deals. Although72

JAZZ - Happy Virusdispersed geographically, they were organized - successfully - as part of a single, horizontally-branching group.

Countries
Germany was the great surprise winner. In retrospect, the move of the German capital to Berlin was a harbinger of that success. Bonn was where you went toescape from the world, and run a slow, carefully balanced economy. Berlin was different. The quick, anti-establishment language
which had long been a“In retrospect, the move of the German capitalto Berlin was a harbinger of that success.”

mark of its working
classes was ideally suited to the new economy, and the willingness to critically accept
new opportunities. Also, Berlin - and Germany generally - had a long tradition of welcoming energetic outsiders when a growing economy needed their power. In the late
1800s that had been ex-peasants from the German hinterland; in the 1960s it had been
ex-peasants from Turkey.
Now, anyone with a good idea for a deal felt they would get a fair hearing
there. Through the 2010s, developments in telecommuting, eco-friendly housing, newconcepts in urban living and in industrial processes opened vast growth opportunities
throughout Germany. The well-funded Max Planck Institutes for research played an
important role. The decades of persistent high unemployment that had begun in thelate 1970s were now over.
England had many of the same successes, though to a lesser degree. It too
had a tradition of bringing in outsiders when needed: Irish laborers and Scottish engineers to build its cities in Victorian times; Indian and Jamaican workers in the 1960s.
By the 2010s the one-time immigrants were often a conduit to the world’s fastest growing economies. What slowed it was the heavy hand of regulation from Westminster,which Germany - with its tradition of more independent regional governments - managed to avoid.
Japan was the great contrast, seemingly locked into permanent decline. At
first no one had expected this. After all, Japan’s post-WWII growth had shown it could
make alliances, give quick responses to new business environments, and accept that‘the customer is king’. But those attitudes had
been carried out when Japan’s population was
relatively young. Now it was old, and its demog-“Japan was seemingly locked
into permanent decline.”raphy was terrible for innovation. In 2020 its
average age reached 45 - making it the oldest society in the history of mankind.
Japan’s second problem came in the nature of those alliances. There is a big
difference between hunting within your country, and hunting on the outside. Where73

ENERGY 2050 : Risky Business

Germany had brought in guest workers from the 1950s, when its own manpower sourceswere reaching their limits, Japan had refused to do that, and rather had exported its
manpower needs, opening up branch factories in Malaysia and other countries from the
1960s on. That difference in ethos continued. Ideas could be brought into the country adaptation was still a Japanese strength - but yet, those ideas or business opportunities
were rarely allowed to enter in their original or raw form. This wariness towards theoutside, towards venturing full-heartedly into fresh ventures with foreigners, was aconstant brake. There were a few successes, as with the massive wind farms established in China using Japanese capital and technology, but even here they tended to be
one-off projects; slower in their follow-up than those which more open groups prepared.
The US had started out doing very well. Its entrepreneurial ethos seemed
ideal for the alliance-quick, fast-changing economy that was taking shape by the 2010s.
But soon it faltered, for decades of low federal investment in education, research andinfrastructure - it had fallen from 2.5 percent of GDP in 1981, to 1.6 percent in 1998,
and continued on down - meant that large swathes of the country were unable to takepart. The aging baby boomers, with their constant demand for security, also helped holdback new advances.
Instead, the 2010s and 2020s were becoming Latin America’s era, as well asthat of several parts of Asia, and Africa. It had been a long-promised awakening. Argentina in the 1930s had per capita incomes comparable with Australia and Sweden; Kenya
and Ghana and Nigeria in the 1950s had seemed poised for continued growth as well.
Now, with oppressive governments finally“The 2010s and 2020s were becoming
Latin America’s era, as well as thatof several parts of Asia, and Africa.”

gone, those countries’ natural vitality was
finally allowed to come out. Their populations and that of their neighbors wereyoung, and energetic; strong family group-

ings meant entrepreneurs usually had a first access to pooled capital; fast communications now meant their talents could be hooked into further capital sources anywhere on
the planet. Joint energy projects in particular flourished, since border tensions now
seemed archaic in the era of sustained growth. Miami became a financial powerhouse,
serving as the portal through which successful Latin American businesses served theincreasingly slowing US South.

ResistanceAt first the economic shifts had gone ahead without much political concern.
They seemed to take place in a world of their own; as a layer on top of the usual politicalactivities inside a country. By the late 2010s though their consequences were being
attacked directly. Many people even in prosperous countries were left out; small firms
had been squeezed aside by new international competition; the focus on money and74

JAZZ - Happy Virus

profit seemed cold even to many who were a part of the new system, or living wellwithin an enlarged ESCo. As Machiavelli wrote, in 1513: ‘Those who stand to profit by
the preservation of the old order of things will dislike the new...’.
Sometimes the problems were more direct. Many of the ESCo’s were notbenevolent at all. Their funding was basically that of leveraged buy-outs - they received
credit now, from savings in the future - and in one particularly unpleasant incident inIndonesia, those savings were enforced in unduly harsh ways. The raw Jazz approach
had little formal restraint. While most firms were content to seek out new opportunities, a few others tried to control the market for opportunities, and put up barriers toanyone else entering theirshifts in many countries, and“It must be remembered that there is nothing
more difficult to plan, more uncertain of
success, nor more dangerous to manage thanthe creation of a new order of things.”

a number of opposition

Machiavelli, The Prince (1513)

domain. The period 20192021 was a tumultuous one,with riots and parliamentarygroups came to power.
But how to resist? Old-style command economies were discredited, especially after Russia’s failed attempt to reinstall one during its troubles in 2005. Strict
anti-business slogans would not work either, since the boundaries between businessand local communities was increasingly unclear, as many local interest groups were
now part of the spreading networks. It was a Chinese parliamentarian who came up
with the dissenting slogan that finally took off: The new business forms were destroying our green world. Since they were aimed solely for profit, all the rest of us - all theworld’s citizens; all the world’s resources in land and water and education - were being
left behind.
It was a popular slogan - this call for the greening of the new economy - andit swept the globe. All the dispossessed could feel united under it. They also now had
powerful tools to share this feeling,using the Internet and other fast communications. Governments in northern China, the US, France, and sev-

“It was a popular slogan - this call forthe greening of the new economy.”eral regional administrations in Latin
America quickly locked on to the popular unrest. It was, finally, an allowable way forthem to get back their sovereignty which had been slipping away.

Unitary Taxation
The mechanism they used against the quick-changing alliances and entrepreneurs - against the locality-gripping ESCo’s as well - was based on what had hap75

ENERGY 2050 : Risky Businesspened in an earlier epoch of popular resistance to a new business form. This was theperiod when joint-stock railroads had been opening up the American West.
Rail firms of that time had often refused to pay taxes on the goods theytransported, and were only willing to be assessed on the value of the wood and metal of
the tracks that happened to be within a given state. What the Western states had done
to get around this was to estimate each firm’s total profits, then estimate how much ofits business took place within a given geographical area, and simply divide the two, towork out what the ‘true’ tax should be.

“It was called unitary taxation, and had
made regular reappearances over the years.”

It was called unitary taxation, and had maderegular reappearances over
the years. Now it came backwith a vengeance, spreading from its heartland in the US West; imposed at levels harshenough to slow the new business deals almost to a halt. The great number of links
across the Pacific - from families that spanned both sides; from the decades-long accumulation of university and other links - meant it quickly started spreading throughout
Asia as well.

76

JAZZ - Happy Virus

V. A CAUTIOUS EXTENSION: THE
GREENING OF JAZZ
Voluntary Greening
The outcome was in the balance for several years, with the new businessstyle held back even in its Latin America, central European and overseas Chinese strongholds. Several firms that had benefited in the 2010s wanted to fight the green opposition directly, but wherever they did it simply provoked public resentment even more.
There was no single accord that resolved it, for authority was too dispersed. By late2023 however, a substantial number of what

“It was a voluntary ‘greening’ of
the main business actors.”came to be called Consortium Accords had beenoutlined. These set out guidelines for how firms were to act on environmental and othersustainability issues. It was a voluntary ‘greening’ of the main business actors.
A few cynical firms tried to backslide from the provisions, pointing out thatthey were under no legal obligation to follow them. But the opposition groups that had
coalesced in 2019-2021 were increasingly skilled at using the Internet to keep an eye on
what firms were doing. It was hard to hide, since
the transactions that allowed new deals depended on highly transparent information sharing, which watchdogs could just as easily tap.
The power of sheer publicity on changing be-“The power of sheer publicity onchanging behavior had been
demonstrated years before.”havior had been demonstrated years before,
when the Toxic Release Inventory requirements of the US government in 1986 had
made firms publicize the amounts of their chemical emissions. Within four years then and entirely without added punitive laws - overall chemical industry emissions went
down 35 percent, with one of the largest firms dropping its emissions by 69 percent.
Now, by late 2023, it was difficult for any firm or new alliance to get insurance unless it could show that it had systems in place to guarantee compliance with themost respected Accords. It was simple self interest: the insurance companies had nodesire to become linked to firms that would suffer from substantial environmental criticism. Consumer choice was so easily exercised that even if a disliked firm was nothampered legally, buyers would simply shift - and quickly - to a competitor that showed
it was following the voluntary Accords.
Huge shifts in the attitudes businesses
take for granted are rare, but when they do comeabout, the shift is likely to be very fast. The last

“Huge shifts in the attitudes
businesses take for granted are
rare, but when they do comeabout, the shift is very fast.”
77

ENERGY 2050 : Risky Businessone on the scale of this voluntary greening had been two generations before. In the ‘50sof the last century almost all large firms had been unembarrassed about practicing
racial and religious discrimination when it came to promotion to their higher ranks. By
the late ‘60s of that century however, there had been a once and for all shift, and such
attitudes were considered abhorrent; something that was rarely aimed at even whenlaws did not explicitly guard against. It was similar here, with the greening of the new‘Jazz’ business world.

Trust Authorities
The new business form had one more major lacking it had to overcome before its renewed spread could continue. In previous decades it had been easy enough tofind out if a potential partner was trustworthy. Either you were in the same industry,
and knew each other directly, or you had contacts in common who could vouch for theother one; if there was not such direct knowledge, you still were likely to be under thesway of an agreed legal system.
With fresh and quick-changing alliances all over the world, those traditional
establishments were not enough. The positive mood which the 2023 Accords had produced finally led, two years later, to a protocol on informal ‘trust’ authorities. These“Each TVS (Trust Validation System)
publicized its track record, and thecriteria which it used.”

were a new sort of entity, neither business nor government nor strictly judicial, which however served as a mechanism to vouch for the trustworthinessof the various partners considering a

coalition. Each TVS (Trust Validation System) publicized its track record, and the criteria which it used. Ones which were easily manipulated or misled were soon left behind,as firms gravitated towards the ones which showed they facilitated deals which held.

Transport and AcceptanceWith the TVS’s established in this way, the new business forms continued
their earlier growth. By the end of the 2020s, the turmoil that decade had begun with

“TVS’s also matched society
so well: the move towards
serial monogamy; the belief
in portfolio careers.”

78

was nearly forgotten. The new Jazz business forms wereno longer considered ‘new’. They had simply become
the accepted way of doing business. Partly this was
because they delivered wealth on a scale which no predecessor had, even if this was not always spread

JAZZ - Happy Virussmoothly. They also matched society so well: the move towards serial monogamy; thebelief in portfolio careers.
Above all, people came to accept as second nature the links between oncedisparate firms which only the new business forms allowed. In transport, for example,
you paid for ‘getting there’, and not for the particular vehicles that were used along theway. For a business trip to a distant city, a transport consortium would book your planeticket, arrange for a rental car of the quality you expected to be waiting, and of course
have a parking spot reserved at your final destination. (The primitive 20th century
system where parking places were either found by chance, or ‘bartered’ as a reward
within a company, were now longgone.) It was not the end of cars on the contrary, a user-friendly
world liked cars more than ever but rather an attitude that cars
were just one part of the mix you“The primitive 20th century system whereparking places were either found bychance, or ‘bartered’ as a reward within
a company, were now long gone.”used, towards the ultimate purposeof getting to your destination.
Any service that was desired was now something to be bought. It was thought
as odd to bother about who provided your electricity or your gasoline as it once had been
to bother about which make of bolts or nails were used in your house. What was desired- and paid for - was the maintenance of a given comfort level of temperature and humidity, but the decisions about how to do that were made by the contracting firm. To delve
into those details was left to the rare enthusiast, similar to the individuals who had
once built their own radios out of personally chosen crystals, wires & dry cell batteries.
Politicians who accepted this and promised to lead these seemingly inevitable currents were brought to power. Often they were very young. In a previous era ofworldwide fast change - the late 18th century, where the world’s great empires werebeing transformed - even the majestic British empire had turned to a 24 year old youngster to serve at its Prime Minister, and guide it through the turmoil. In the 2030s,
India, Belarus and Argentina now also elected charismatic leaders of that young age.

Happy viruses: Hunting social software
Where resistances remained, the new business forms had the ability to leapfrog over them. Each business opportunity - a new distribution system for energy; afresh mix of services fulfilling basic transport or shelter needs - was, after all, something that could usually be created on a smaller than national scale. If Alberta had a 60
percent majority still supporting punitive unitary taxation, but Quebec had a majority

79

ENERGY 2050 : Risky Businessthat was willing to encourage the new business forms, then it was towards Quebec thatthe investments would now turn.
Investors in the 20th cen-

“In the 2030s, investors spent moretime hunting out regions where goodsocial institutions - where good social‘software’ - could be found in place.”tury had often been attracted to thehard physical resources of a country:
pools of hydrocarbon, or potentialities
of water power. In the 2030s, investors
spent more time hunting out regions

where good social institutions - where good social ‘software’ - could be found in place.
Transparent legal systems, functioning democracy, a well-educated population: That
was the necessary raw material to make the new ventures work.
It worked like a ‘happy virus’. Where the invigorating business deals took
hold, neighboring regions often tried to introduce the social software that would attract
this beneficence to themselves. There was nothing new in this. In the latter quarter ofthe 20th century, Hong Kong, Taiwan and to some

“It worked like a ‘happy virus’.”extent Thailand had made similar decisions toimprove their social software, so that the valuerich Japanese investments of the time would landin their territory, rather than elsewhere. Now, new technology and open trade often
made small regions economically viable, and instead of civil war, they simply informally, gradually, began separating from the larger nation from which they differed.

But Yet...
Despite the successes, there was something unsettling about the new business forms’ energetic advances. So much depended on private loans, that often only
relatively low price hurdles were jumped. Giant liquefied natural gas terminals hadtaken a long time to build up, and then once they were in operation, there was little
incentive to plan ahead, for what might happen if those reserves finally did run out.
Spot markets were now long established in electricity, since computerized switchingsystems allowed instantaneous auctions. But this meant that the future price of electricity was impossible to plan for, which again slowed down investment. And whilesome regional separations went ahead peacefully, in other areas resentful central powers tried to keep dominance by force.

“There was a nagging concern that
although great swirl of new business
operations was powerful, was it reallythe best which the science of the 2040s
could produce?”
80

The future seemed to beleft to its own devices. There was a nagging concern that although great swirlof new business operations was powerful, was it really the best which the sci-

JAZZ - Happy Virus

ence of the 2040s could produce? Research and development was costly, and for longterm projects it was costlier still. In the 20th century the foundations left over from theera of heavy industry - the Rockefeller Foundation, the Ford foundation - had provided
important funds for long-term research, but that had
always depended on major universities which, ultimately, received most of their money from the state.
In the 2040s, the foundations which the late, great“Most of all, it was odd to feelthat no one was in control.”Silicon Valley billionaires had left behind - the Melissa Gates Memorial Foundation; the Larry Ellison Foundation - were pouring out tremendous amounts, but there was so little other funding for long term research thateverything was slower than before; again, more short-term. And since so many deals
were in the form of alliances, it could be hard to get funding: any one participant could
only promise a small percent of control over how the invested funds would be handled.
Most of all, it was odd to feel that no one was in control. Traditional governments were weaker than ever; increasingly sidestepped. Already there had been a few
terrifying oscillations in the economic system, admittedly for only brief periods, but of asort which had left several leading chaoticians quietly worried. Dematerialization proved
not to be the unmitigated wonder it had once seemed either: highly available cars led toeven more dispersed housing in once-scenic areas; light-weight appliances were moreeasily thrown away, which meant constant attention had to be paid to selecting andbuying replacements. And although the new business style was locally clean, who waslooking out for its overall effects?
Many people - the old especially - felt a great nostalgia for the past, whenlife had seemed slower, and day to day changes had been more manageable; easier tocomprehend. For the young though - and especially inthe fast-spreading cities of Asia, Latin America and“Their world was wide open.”parts of Africa - fast change was all they were used to.
Their world was wide open.
And they were confident that the future would turn out for the best.

81

ENERGY 2050 : Risky Business82

Appendices83

ENERGY 2050 : Risky Business

Plausibility
If anything like these stories are likely to come true, then firms will need to
begin basic policy shifts. That is such a major undertaking, that it is only natural towant to be very sure about the evidence backing it all up.
What I’ll do in this section is simply list much of that evidence. Some of it
has appeared already, spread through the various stories or summaries you have now
seen; some will be added afresh.
A cynic would interrupt, and“A cynic would interrupt, and ask
why we need to bother with this atall. After all, will not there always bea market for low-priced oil, and lowpriced electricity?”

ask why we need to bother with this atall. After all, will not there always be amarket for low-priced oil, and low-priced
electricity? (That is the actual question
one of our participants recounted a suspicious colleague asking.)

It sounds sensible, until you start looking at some historical comparisons.
IBM executives reassured each other, in the 1960s and 1970s, that there would always
be a market for low-cost computing power. They were right in that, but missed the factthat it would not have to be supplied via the mainframes they were expert in. The
personal computer revolution took away their market.
Nuclear electricity ex-

World Nuclear Reactor Construction Starts
Gigawatts

ecutives of the time also reassured
themselves that there would always
be a market for low price electricity.
Again, they were only partiallywrong: there was such a market, butother forces - a mass consumer resistance they had not foreseen acted against their products, almost
entirely stopping their growth.
The point is that trends
rarely continue forward in straightlines. The 1950s were a time of greatsocial stability in many countries,

Source: Vital Signs 1997, Worldwatch Institutebut it was followed, with nary apause, by the great upsets of the
1960s. Bill Gates in 1994 was con-

84

Appendices: Plausibility

vinced personal computers were the inevitable victors in the computer wars - andin that pride almost entirely missed thegrowth of the Internet.

“At one time, quality was considered
too costly, too complicated, and too‘foreign’ a concept to be importantfor customers.”

The energy field has repeatedly gone through such shifts.
Also, many tasks that seem onerous or unnecessary can quickly come to betaken as second nature. At one time, quality was considered too costly, too complicated,
and too ‘foreign’ a concept to be important for customers. At other times, lean manufacturing was similarly waved aside.
So how to answer our cynic? His question is almost certain to end up being
rephrased. The point is not that people ‘always want low-cost gasoline’. Rather, they
always want ‘something to help them conveniently complete their journeys’. It might begasoline, but it might be batteries, or odd new rental consortia (where the gasoline
providers are simply low-profit commodity suppliers). What scenarios can
do is help prepare us, for whichever
one of these - or other possibilities - it

“What scenarios can do is help prepare
us, for whichever one of these - or otherpossibilities - it turns out to be.”turns out to be.

The relative share of energy carriers has shifted before
Primary energy shares

Source: Technology & Global Change, Arnulf Grübler, pg 250 Fig 6.19

85

ENERGY 2050 : Risky Business

Plausibility: F.R.O.G.
The“The basic assumption of F.R.O.G.
is one that almost all historicalevidence backs up.”basic

assumption

of

F.R.O.G. - that attitudes continue prettymuch as they are into the near future - isone that almost all historical evidence backs
up. Intellectuals and strategists like to insist that society is at a great turning point,

and that momentous shifts are about to take place. But how right have they been mostof the time? Social trends that seem of dire importance today, have a way of fading
away, with little notice, surprisingly soon thereafter. The world has a great amount ofinertia.
The triggering event moving the F.R.O.G. scenario forward - its unexpectedjolt, so to say - is that the developing nations undergo a major change, and that this
impinges on the rest of the world. Such a development would also be consistent withpast experience. Wealthy countries have regularly entered new markets, wherever free
trade has allowed it in the last century, and this has changed the nations on the receiving end considerably. Japan was once a poor, barely developing“The world has a greatamount of inertia.”

nation, with its exports a byword for shoddiness. That certainly
has changed. More recently, China’s telephone switching industry, which was ‘backward’ and seemed an easy export market for outmoded western products at the start of the 1990s,

was, by the end of the decade, successfully competing in a number of sectors with themost advanced good from outside. Education and skills easily shift, as noted on page 15(of the main scenario). Aside from various small university towns, Seoul has one of thehighest densities of Ph.D.s, per capita, in the world.
Even aside from those advances, developing nations cannot be counted on
to become our engines of growth. The expectation that they would do this is a very oldone, going back to the foundation of European colo-“Developing nations cannot
be counted on to become ourengines of growth.”

nial empires. But simple economic downturns there
have repeatedly led to disappointments. In 1981, forexample, when OECD countries were going througha recession, oil companies were convinced that developing nations would maintain high enough demand

to keep oil prices high. But when commodity prices crashed, and the debt crisis struck,
this hoped-for salvation faded away.
Without regulation or major shifts in habits now, sustainability pressureswould emerge. Water use has gone from 2.6 cubic kilometers to 4.2 cubic kilometers in
86

Appendices: Plausibility-F.R.O.G.

the past quarter century,and there just is not thatmuch more fresh water
available. City air is often“Water use has gone from 2.6 cubic kms to 4.2
cubic kms in the past century, and there just is
not much more fresh water available.”

unpleasant in many Asianand African cities, yet this is when only 8 percent of the world population has cars.
Even if birth control becomes much more widespread than it is now, there
will be an inevitable bulge of population as the current generation of children reachadulthood, and start having children of their own. China’s total population, for example,
will reach 1.3 billion in 20 years - even if it continues its very small family size - and thisis greater than the whole industrial world today. Educational systems will be hard put
to keep up. At the moment, some 40 percent of the world’s population lives in about 200
river basins shared by more than two countries. As those populations become denser,
historical experience does not suggest this will encourage harmonious and polite agreements on sharing. In 1998 alone, Egypt has
threatened military action against Ethiopia if ittakes more water from the Nile; Syria has threatened Turkey, because of its dams and irrigation
systems on the Euphrates; Kazakhstan and“China’s total population, willreach 1.3 billion in 20 years andthis is greater than the wholeindustrial world today.”Uzbekistan are engaged in often bitter negotiations over the Aral Sea.
Such effects could easily be large enough to spread. You do not need famine
to produce large emigrations. A steady slow-down in jobs available for growing families
in the past has sent many millions of energetic but untrained individuals towards OECDborders, be it from Mexico, Algeria, Romania, or the like. Air pollution spreads easily inearth’s atmosphere; squabbles over fishing rights and in some areas over timber reserves have already begun. Fast growth almost always produces financial world-wide
financial instability at some point. Corruption is almost inevitable when economies
enlarge quickly, and funds get misplaced - which can be hidden for a while, but will
always be recognized when the returns which those funds were to produce do not comeabout. It happened repeatedly as the US was industrializing in the 1800s, almost bringing down several of the largest UK banks of the time; there have of course been signs of
it from the currently developing nations more recently.
The next stage in the F.R.O.G. scenario - that ecologically-triggered tensions can lead to local barriers being raised - is also quite plausible. In the past, eventhe threat of wars or economic problems has often led to countries or ethnic groups
turning inwards; looking unkindly on dissent. Shortly after Saddam Hussein invaded
Kuwait, opinion polls in Britain and America showed that there were a large number of‘undecideds’, when it came to choosing what course of action was best. Once the Allied

87

ENERGY 2050 : Risky Businessforces were in place and near war-footing though, the number of ‘undecideds’ fell almost
to zero.
The reflex of major economic blocs putting up trade barriers has happened
before, most notably in the early years of the worldwide 1930s Depression. It is a reflex
that is turned to whenever there is a feeling“The reflex of major economic
blocs putting up trade barriers
has happened before, most notably
in the early years of the worldwide
1930s Depression.”of danger somewhere in the outside world.
Strongly nationalist leaders in all countries
can often get support by picking up on a moodof resentment; by charging that the other nations, out there, are not doing their part, andthat it is their fault we are suffering now.
Already at treaty conferences,mutual recrimination is common when issues of the environment or international tradecome up. Representatives of developing countries can be heard saying that OECD countries are very wasteful, so why should we be picked on. ‘There are those who are unwilling to see China progress,’ wrote the China Daily, in 1997, ‘and who are trying to contain its development by pointing their fingers at the world’s environmental problems.’
There is a lot of residual hostility here. Malaysia’s Prime Minister famously told one
German environmentalist: ‘Stop being arrogant and thinking that it is the white man’sburden to decide the fate of the peoples of the world.’ Many politicians back in thewealthier countries are quite willing to return the recriminations, charging that the
problems of unemployment, or acid rain, or over-fished waters are due to unreasonable
foreigners as well.

“Within the changed world thatdevelops in the F.R.O.G. scenario,
liability and litigation can quickly
close down innovation.”

Within the changed world thatdevelops in the F.R.O.G. scenario, liability
and litigation can quickly close down innovation. The halt in nuclear power plant construction in numerous countries outside Japan and France due to incessant litigation

is well-known, and could easily spread to other energy sources. A suspicious mood easily feeds on itself. In 1998, Dow Corning had to pay over $3 billion to settle personal
injury claims from its breast implants - even though epidemio-“A suspicious moodeasily feeds on itself.”

logical studies subsequently showed they had produced no real
injury at all. The private airplane industry was almost forced toclose in the US due to a few enormous liability cases in the

1980s. As stresses continue, it would only be natural for such suspicion to spread. Fierce
nationalism could also cut back the number of scholarships and visas given to foreign

88Appendices: Plausibility-F.R.O.G.

students at American and European universities, with cascading effects as noted for
Korean science postgraduates on page 22-23.
Partial oligarchies easily return, as page 30 of the frog scenario text showed
occurred after previous deregulations, in the airline industry in the 1970s, and in theoil industry in the 1920s. The latter example is especially relevant to the F.R.O.G. scenario. Before WWI, when the international environment was harmonious, there wasgreat indulgence in the US for stakeholders
lobbying against centralized oil firms. In theturmoil of that war and its aftermath“Partial oligarchies easily return.”though, such indulgence abruptly ended.
That massive energy shifts regularly arise when risk is too great was recounted on page 25, with the examples of supertankers replacing pipelines, oil replacing coal, and investments (temporarily) leaving developing countries - all because of
sudden bouts of risk. Such jumps can be surprisingly fast, as with the example of Europe moving from overwhelmingly coal use to overwhelmingly oil use in the 15 years
from the late 1950s. With today’s more advanced technology, a risk-induced shift backto coal could be even faster.
If times get really rough, international trade can easily be threatened. A few
dozen primitive US submarines destroyed almost all Japanese shipping in World War II.
Just one or two rogue modern submarines, if“With today’s more advanced
technology, a risk-induced shiftback to coal could be even faster.”

not guarded against by the very few countries
that have worldwide naval capacity, could easily raise insurance costs to impossibleheights. Even the brief assaults on international shipping near the end of the Iran/Iraq
war had grave insurance effects. In a F.R.O.G. world, there would be no international
coalition bringing that to a halt.

89

ENERGY 2050 : Risky Business

Plausibility: GEOpolity
Eco-shocks already seem to be occurring at a greater rate than a decadeago, as evidenced by records kept by the major insurance companies. Even the slightestof further sea-level rises would have grave effects in the low-lying - yet densely populated - regions of the Nile, Ganges and Mekong deltas. Crop losses would be hard to
replace, since world grain reserves are now at their lowest point in more than four
decades. This is not a matter of temporary fluctuations, or land kept out of use, since1996 and 1997 saw bumper harvests, and American set-asides have been almost ended.
Rather, rising populations took up those gains.
Scientists would easily

CO2 levels DO rise
percent/year

CO2 Rate of Change

attribute storms or rising sea levels
to global warming. Ice core samples
from the Antarctic, published in Nature, show earth’s air temperaturerising and falling in close accord withatmospheric CO 2 concentrations
throughout the period from 160,000
BC till now. CO2 levels are now higher
than at any point in that period, andtemperatures - according to the mostconservative models - are rising at
about three times the rate which occurred during the great melting at
the end of the last Ice Age.

Source: State of the World 1999, Worldwatch Institute

The distinctive assumption of the GEOpolity scenario is thatafter such crises - or simply after the media have given the impression of such crises - aseries of new, globally powered institutions could be set up, to shift world-wide practices so they would be less likely to happen again. If that response seems implausible,
then all the rest of the GEOpolity scenario - all the details in the full text we have seen
- will not really matter. It is worth looking, accordingly, at what possible reasons there“It is not that surprising to have powerful
new international organizations set up, orfor prior ones to get their agendas shiftedto deal with new problems. It has happened
plenty of times before.”90

might be for thinking it could
come to pass.
First of all, it is notthat surprising to have powerful new international organizations set up, or for prior ones toAppendices: Plausibility-GEOpolity

get their agendas shifted to deal with new problems. It has happened plenty of times
before, and indeed usually after the periods of great stress that GEOpolity is imagining.
After the decades of Napoleon’s wars, Western Europe’s leaders set up institutions toresolve future conflicts by peaceful means. Aside from three brief exceptions in the1860s, it was an agreement - an attitude - that held for almost exactly 100 years, until
the guns of August, in 1914. After the 1930s Depression and World War Two, the Bretton
Woods agreements establishing an international monetary system were accepted, andstrictly bided by, for 30 years. (They are still loosely abided by even today.)
Voters can easily accept a bureaucracy that reins in the free market. Strong
sentiment against free-trade has always been around. Most university students cannot
quote the standard economic
arguments about free-trade
being to the advantage of bothsides. This is not due to an especial dullness on campuses. It“Most university students cannot quote thestandard economic arguments about freetrade being to the advantage of both sides.”seems only logical, in the popular mind, to believe that one party must gain, and another lose, whenever there is atransaction. If the eco-shocks that set off the Geopolity scenario are seen as being linked
to such free market economics, then that waiting sentiment could be brought to thefore. The financial turmoil of 1998 - and the calls for international control on unregulated markets which it led to - are but the most recent example of such feelings.
People are used to governing institutions telling energy companies what todo. As we saw in all the ex-Communist countries it is simply the default assumption:
what had been assumed as the
only way to proceed for decades.
That is especially the case in Asia,
where traditions of deference to“People are used to governing institutions
telling energy companies what to do.”authority run deep. Even in ostensibly ‘free market’ parts of OECD economies though, rural electrification has manyfavorable memories. The Tennessee Valley Authority in the U.S. is perhaps the largest
example of a respected energy-directing organization that was neither government nor
business, but a new-style hybrid of both.
Taxes designed to shift
fuel use can readily be accepted.
Sweden, Denmark and the Netherlands already have a range of energy taxes in place, to wide public“Sweden, Denmark and the Netherlands
already have a range of energy taxes inplace, to wide public acceptance.”

acceptance, and of course it was aplank in Schroder’s electoral campaign in Germany. Even during Margaret Thatcher’sstrongly pro-capitalist government of the mid 1980s, the UK Treasury supported a policy

91

ENERGY 2050 : Risky Businessof sharply higher taxes on non-leaded gasoline, with the explicit intention of shifting
consumer demand.
The Geopolity bureaucracy is likely to be pres-“Such strict directives arelikely to work at first.”

sured to start with powerful measures, aimed to quickly
solve the worst problems. Such strict directives are likely
to work at first. CO2 emissions dropped swiftly in theearly 1990s throughout Russia and Eastern Europe, when the end of the Soviet empire
stopped subsidies for fossil fuels there; CO2 slowed considerably at Chinese power stations in the late 1990, through efficiency gains forced by policy-driven cuts in statesubsidies for coal as well. Page 39 looked at further examples, for car emissions, and
CFCs.
As to the likelihood that an international organization of this sort would
eventually have to change - as suggested in the switch to NEW“It is easy to pick thewrong project to back.”

GEOpolity within the scenario - this too is only to be expected.
It is easy to pick the wrong project to back. France’s Grande
Ecole elites wasted billions on one wrong turn after another inthe computer industry; South Africa’s synthetic fuel program

did not stop, even after costings showed it was impractical, and the easing of sanctions
made it unnecessary Britain’s industrial policy-makers constantly got the semiconductor business wrong; on page 48 we saw the Japanese MITI lock-in on irrelevant mainframe computers as well. The problem is not that governments are inherently worse
than private firms in choosing winners. Both sides have a track record of some successes, and many failures.

“Large governmental bureaucracies find it
exceptionally hard to admit they were wrong,and so disengage from a failed policy.”

Rather, large governmental
bureaucracies find it exceptionally hard to admit they
were wrong, and so disengage from a failed policy.

An eco-shocked world would likely have rushed GEOpolity into its first policy
choices, and this would simply make it worse. Hasty decisions are rarely optimal. The
US, for example, locked onto light-water reactors for its commercial nuclear program in
the depths of the Cold War, simply because they were already available on submarines.
Their lackings in safety, and cost-effectiveness, were recognized later. Corruption could
easily make all such decisions worse, as the experience of the UN has made only too
well known.

“Details of NEW GEOpolity are of course
speculative, but they pick up on ideas
emerging from current think tanks,
which have a habit of preceding action
by many years.”
92

Details of NEW GEOpolity are of course speculative, butthey pick up on ideas emerging fromcurrent think tanks, which have a
habit of preceding action by manyAppendices: Plausibility-GEOpolity

years. In a few cases, the suggested practices have only just begun. NEW GEOpolity’s
use of mortgages, for example, is based on two new practices in the 1990s. One is theway the US Department of Energy experimented with pushing a few large financial
institutions to give loans for retrofitting housing stock. The loans were not given directly, but rather to the small number offirms which the multitude of homeowners
then dealt with. It meant retrofits were
widely available, yet with minimal bureaucratic oversight. The other is the way“The hoarding of tradable permits
has already been experienced in the
New Zealand fisheries industry.”

which ‘Fannie Mae’, the large US secondary mortgage provider, has been giving easier mortgage terms to individuals with moreenergy efficient homes. The savings in utility bills leave them more money - and somake them a better risk - in paying back the mortgage. All of the Pacific Gas and Electric examples, on page 53, are based on the actual company of that name. The favorable
consequences associated with widespread raising of electrical usage, on page 55, arebased on extensive correlation studies by Barbara Heinzen, member of the project coreteam.
As to the unintended consequences of NEW GEOpolity’s proposed actions,current experience has been carried far enough for a few of those to be seen as well. The
hoarding of tradable permits has already been experienced in the New Zealand fisheries industry; some of the problems with reforestation have been researched by John
Moncrieff at the University of Edinburgh, and further outlined by Nigel Dudley andothers at the World Wide Fund for Nature.
Perhaps the most powerful ‘plausibility’ is that we are already living within
substantial parts of the GEOpolity scenario, even without recognizing it. It is a common
occurrence. Reagan left office convinced he presided over a pure capitalist society, eventhough, when he was a young man, the 1980s America which had social security, unemployment benefits, an income tax
and state funding of universities
would have been considered asocialist’s utopian dream. Similarly here. Opinion polls today“We are already living within substantial
parts of the GEOpolity scenario, even
without recognizing it.”would probably show little detailed
public knowledge of the Montreal Protocols on CFCs, even though ordinary appliances
have been refabricated in accord with them. Preferential taxes for lead-free gasoline
have come to be accepted as a fact of nature, as have fishery quotas of some sort. Further taxes on engine size, on carbon emissions, on non-insulated homes - or almost
anything else a powerful authority might come up with - could easily come to be thoughtof in the same way.

93

ENERGY 2050 : Risky Business

Plausibility: JAZZThe central assumption of Jazz is that a new business style can quickly
spread. It is an enormous assumption, and all one can say is that it has happened
before, in the first industrial revolution, when steam engines and centralized mass
production were the stunning new techniques that transformed the globe. It helps whenno great obstacles are in the way. During the first industrial revolution this was because old-style mercantilism and“The central assumption of Jazz is that a
new business style can quickly spread.”aristocracy were fading; in the
spread of Silicon Valley-styleoperations, the end of regulated
markets played that role.

It also helps when the new technique is more powerful - and profitable than what was in place before. The great power of the steam engine swept everything
before it, as commentators from Adam Smith on up have described. Firms which haveembraced the latest deregulated and computer-linked techniques have also acquired
great strength. The Central Electricity Generating Board once dominated the UK electrical industry. Its main successor firms, following the new style, have barely a third of
the staff levels, yet far greater output, and correspondingly greater profits.
Today’s new“Today’s new style will often lead to standard
customers being ‘stolen’ by new-comers.”

style will often lead to standard customers being ‘stolen’ by new-comers. Thiscan occur in adjacent fields,

as with gas firms now selling electricity, and vice-versa. Increasingly though, it arises
from further afield. The main players in the UK insurance market were thrown when
Richard Branson - known for his music stores and airline - suddenly established a large
firm to sell their product by phone. Before they could parry this, almost half of theircustomers had left them.
A common technique used will be giving away of ‘free’ energy. The mortgage
firm referred to on page 63 is the very large Alliance & Leicester Building Society,which in late 1998 began offering to pay the electricity and gas bills of any new customer who switched to their discount mortgage, so long as the customer agreed to staywith the firm for five years.

“Giving away’ is increasingly
common in the economy.”
94‘Giving away’ is increasingly common in
the economy. Home improvement firms give away ‘free’loans for their work (where they pay the interest, notAppendices: Plausibility-JAZZ

the customer); computer retailers give ‘free’ insurance; airlines
give ‘free’ limousine rental for first class passengers. It also
has deep roots. In the US, for example, TV programs had long

“Giving products away
also has deep roots.”been paid for by advertisers, and given away ‘free’; in many
countries, newspapers were just a vehicle which advertisers ran to better distribute
their ads as well. It is simply the application of this technique to new areas - which
deregulation and IT allows in the energy field - which is striking.
In the world of the Jazz scenario, there
will be time for these developments to take place,
before any sustainability limits are hit. The main

“But that is only a limit facedwith current techniques.”

evidence here is what is often called the reverse
Kuznets curve.
From numerous regression studies, it has been found that sulfur dioxide,
particulate emissions and several other indicators of pollution rise quickly as a region first industrializes, but then goes
down, as it shifts away from heavy indus-

World Photovoltaic Annual Shipments 1950-97
megawatts

try, and as it becomes wealthy enough toafford control measures.
The possibilities that food
limits will be hit in the near future could
also be circumvented. World grain reserves have been going down in the 1990s- as noted in the ‘Geopolity’ plausibilities- but that is only a limit faced with current techniques. What the biotech revolution does remains to be seen. If it raises

Source: Vital Signs 1998, Worldwatch Instituteoutput as much as the green revolutionof the 1970s, then a breathing spacelasting a decade or more could result.
Economic growth, so long as it is spread

World Wind Energy Annual Additions 1950-97
megawatts

evenly - and especially to women - hasoften slowed population growth. If that
occurs, the breathing space offered bybiotech and other enhanced technologies would not quickly be used up.
In this changed world, apush towards renewables is likely, forthe reasons noted on page 65: they aretechnologies at an early stage of their
Source: State of the World 1998, Worldwatch Institute95

ENERGY 2050 : Risky Businessgrowth, which gives great space for profits as“Modular and dispersed energy
systems will spread.”they are further advanced. They are alreadygrowing quickly, as the accompanying chartsshow on the previous page.

Modular and dispersed energy systems will spread, and not just by the analogy to cars replacing trains. They are part of a deeper trend. There is been a steadymove over time towards energy

Global Energy Intensity
GNP 1990 US$ / kg oil equivalentthat is been more mobile, anddenser in calories released. You
can measure the sequence interms of the hydrogen/carbon ratio: it moves up from wood, to charcoal, to coal, to oil, to natural gas.
Each step makes it more userfriendly - it is a closer match to thefinal use required. (Even the plastics industry fits neatly in that sequence. Instead of burning hydrocarbons, you turn them into dis-

Source: Technology & Global Change, Arnulf Grübler, pg 287 Fig 6.32

persed, finely-targeted goods.)
Small-scale units for final use issimply more of the same.

Global Energy Carbon Intensity
kg C / kg oil equivalent

The dematerialization
all this depends on is a deeply-rooted
trend as well, even beyond the recent
items noted on page 58. The real
weight per dollar of US imports
started going down swiftly as early
as 1970, and has been shrinking by
an average 4 percent in almost every year since then.
The further innovationthat emerges could be immense. The
vast population pools that can be
drawn on from the developing coun-

Source: Technology & Global Change, Arnulf Grübler, pg 287 Fig 6.32

tries was referred to on page 79. It
has happened before. In the interwar
period, the Lower East Side of New
York was decried by respectable crit-“The dematerialization all this depends
on is a deeply-rooted trend as well.”96

ics as a useless agglomeration of
backward Irish, Italian, Jewish andAppendices: Plausibility-JAZZ

Greek immigrants. Within a generation - and funneled through the publicly funded education system
in New York - those ‘backward’ groups produced one“The further innovation thatemerges could be immense.”of the highest density of Nobel Laureates the world has seen. With modern communications, there will no longer be need for that physical concentration. The talent base of theentire planet can be hooked up.
The ‘stress’ which occurs in developing countries can be especially useful.
Engineering skills are often honed when operating under constraints. The gas turbines
now used in power generation were first developed in the airplane industry, where weight- and so maximum efficiency - was at a premium. Similar
constraints in developing countries - in water scarcity; in“It has happened before.”temperature extremes - can only be expected to boost creativity as well. (There is more on creativity from developing countries on page 15, where
it made an abortive appearance in the early stages of the F.R.O.G. scenario.)
In countries rich and poor, the multiple openings which a Jazz world offers
give a further boost to new products. We saw this briefly on page 67 with the example ofthe old Bell Labs in the 1990s. It is a basic pattern. Even the modern petroleum industry depended on a similar ‘opening’. Thermal cracking - which could double theamount of usable gasoline from each barrel of oil - had been invented by an in-house“Engineering skills are often honedwhen operating under constraints.”

scientist at Standard Oil. But when John
D. Rockefeller controlled the firm as a monolith, his executives refused to let the newprocess be used. Only when Standard was shattered apart, by a previous wave of deregulation, in the 1910s, did thermal cracking find a fresh company that would use it.
Mass growth in car ownership would have been considerably slowed if that had not
happened.
Seemingly stagnant economies revitalize, when such new business forms
unleash their power. Germany’s proposed resurgence has good precedent. Early in thiscentury, France had seemed doomed to permanent stagnation. Starting in the mid 1950s,
however, it entered a 20 year boom, as an entire new wave of technology was introduced:
The latest dams (and the financing instruments to back them); the infrastructure for“Seemingly stagnant economies
revitalize, when such new business
forms unleash their power.”

new-style airports; entire new industries tosupport greatly increased car ownership.
The fact that many established companies handle the transformation poorly
is only to be expected. As seen on page 72, whenever the world’s changing quickly, andthere is a fear you might be the one slipping behind, cautious judgment is easily forgotten. Rolls-Royce raced to get contracts for a new jet engine in the 1970s, without engag97

ENERGY 2050 : Risky Businessing in the testing which would have shown it was vulnerable to sudden fracture; Exxon,
famously, wasted over one billion dollars in just two years on a shale oil project, on the“Firms become desperate to recapture an establishedmarket, rather than genuinely develop the capacity
to enter into a new one.”Western Slopesof the Rockies,
in a decision it
raced into as
well. Firms be-come desperate to recapture an established market, rather than genuinely develop thecapacity to enter into a new one.
It is especially easy to miss the role of services. The avionics case on page 59
is one example; another is the way that Detroit’s first response to rising imports ofJapanese cars was to feel it had to compete on price. Years“It is especially easy to
miss the role of services.”

passed before the American auto industry realized that customers were deserting it on grounds of superior reliability
and service, instead.

There will be deep obstacles to all these advances, as there have been withprevious large-scale shifts in the world’s economic patterns. The industrial revolution
even in its milder locales, led to unions and company taxes; in its rougher outpourings,
it led to riots, punitive taxation, and uncompensated nationalizations. Jazz would no
doubt provoke some range of analogous“Jazz would no doubt provoke somerange of analogous resistances.”

resistances, as noted on page 70: from theregions which are left out; from the firms
which see themselves being marginalized.
In the worst cases, Jazz’s lack of central

authority could lead to a situation like Russia of the late 1990s, where new alliancesand entrepreneurs were universally despised.
The self-repair capacities in a Jazz world, however, could easily be strong
enough to overcome that. As noted on page 77, Jazz lives by the Internet and fast communication, and that can be used by watchdogs to help keep it on the straight andnarrow. In the Brent Spar episode of the early 1990s, when Shell was criticized for its
method for disposing of an off-shore oil storage unit, consumers in Germany easily followed calls to boycott the firm. Although that particular“Jazz lives by the Internet
and fast communication.”

criticism was based on an erroneous analysis - calmer
evaluation, later, showed Shell’s disposal method was fine- insurance companies increasingly began to demand thatfirms ‘prove’ they were following the most-desired standards of action. Giant timber
firms, such as Canada’s MacMillan Bloedel, agreed to follow sustainable timber codesof conduct. Nike signed up for codes of good manufacturing conduct.
That suggests the greatest strength, and likelihood of Jazz surviving. When
DuPont announced that it, unilaterally, was going to get out of producing CFCs, how
98Appendices: Plausibility-JAZZ

could its competitors keep any public respect by saying that they were not? That option
was closed off. Precedent and the availability of alternatives makes it hard to slip away.
A market that lacks central organization does not have to descend into chaos. It is apoint backed by Adam Smith noless - that notably successful
theorist of the first industrial“A market that lacks central organization
does not have to descend into chaos.”

revolution. So long as firms engage in a minimum amount of self-policing - which could be easy enough in Jazz, assuggested above and on page 78 - there is every reason to expect their output to be
impressively superior to the more regulated, bureaucratically controlled system whichcame before.

99

ENERGY 2050 : Risky Business

Plausibility: Sustainability
It used to be that the energy business was simply a matter of competing on
availability. There were natural monopolies of distribution, universal service, high entry costs - the whole situation we took for granted not so long ago.
That is changed. Competing on price has“It used to be that the energy
business was simply a matterof competing on availability.”

not taken up the slack, and we rarely see a successful strategy based on being cheaper than the next
supplier. Nor has quality succeeded as a determining characteristic.

The latest trend has been to compete on mass customization. We try to give
clear brand images to what we offer, and convince the customers that they are who weare in business to serve. But even that has not worked very well.
Margins are thin, and have been falling - which is a sure sign that
we have become commoditized.
Those problems have led to a wave of mergers,
downsizing and general cost reductions. At times it can seem to be
the only alternative, but it is relentlessly difficult, and hard to maintain for long.
What our industry needs is a new dimension of value something that goes beyond simple availability, or price, or quality,or mass customization. It needs to be something more than a fad aswell, for otherwise it will not help us for more than a short while.
In our judgment, sustainability can be this lasting new
dimension of value. It is a common enough view - as demonstrated
not least by the large number of companies that have joined the
WBCSD. But there are reasons to think it is more than just a good
guess.
On the purely physical side, there is all the evidence wehave now seen that direct effects of climate change or other environmental shifts might reach levels that will impinge on future events.
But sustainability goes beyond that, which is why limits being hit or avoided - in matters of education, political participation and fi-

100Appendices: Plausibility-Sustainability

nances entered so naturally into the main stories as well. We are moving from a material constrained world to a meaning-constrained one.
It is not the sort of thing you can ever prove in advance. The point is adifferent one. If sustainability turns out to be an important factor in the future - andthis seems likely enough - then exploring what happens within its constraints will havebeen wise.
It is true that some people are leery, and want to stay away from it as adetermining strategy, simply because it opens up so many ambiguous possibilities. But
think how inadequately one would have strategized about the
future without its insights in the stories we have just seen!
Sustainability really can be a ‘lens’, to help a firm look atcurrent and future reality, and end up seeing more powerful“Sustainability’s signals
are often pretty weak.”strategic opportunities than its competitors. Standard approaches simply set you fighting over a few market share points. Sustainability however - when properly used - is the sort of insight that can end up determining who owns
an entire market.
Sustainability’s signals are often pretty weak, and this is a further reason
they are sometimes left aside. For weak signals are hard to interpret. Sometimes theymark something which is objectively weak - which will never amount to anything. But
sometimes they are weak merely because they are the beginning of a tidal wave, whichmerely happens to be some way off. Only in the next decade will we be able to select theright answer to our dominating question: “Sustainability is...
→Nothing?

→

A tidal wave?

→

The birth of a new surfing industry?”“... we are the first species to become a geophysical force,
altering Earth’s climate, a role previously reserved for
tectonics, sun flares and glacial cycles.”E.O.Wilson

101

ENERGY 2050 : Risky Business

About Scenarios
Forecasting is not enoughOld-fashioned forecasting works fine in the short term. You can often accurately predict how much sales will rise or fall in different areas, and make your plansaccordingly. The problems come when

“Problems come when you want to movebeyond the short-term, or when yourworld is changing quickly.”

you want to move beyond the shortterm, or when your world is changing
quickly.
One common response isto hedge your predictions, and prepare for high/medium/low alternatives. But even thisis not as good as it seems. An army, for example, might suspect that an attack by enemy
soldiers is most likely from the east, but just to be sure, it might hedge its bets, and“But what happens if instead of an attackby soldiers from the north, or the east, or
indeed from any other compass direction,
it now suddenly finds itself disabled by acyber-attack?”

position a few troops to thenorth, just in case there is an attack from that direction. But
what happens if instead of an attack by soldiers from the north,or the east, or indeed from anyother compass direction, it now

suddenly finds itself disabled by a cyber-attack, where its computers have been hacked
and taken out of action? As James Webb, the long-time NASA chief executive put it: ‘It
is the risks that you do not consider that get you’.
The problem has arisen often enough in the history of energy. The precursorof the European community prepared a large study around 1950 to forecast Europe’s
energy situation a half-century hence. They concentrated on working out what the mix
would be between coal and nuclear. They were even sensible enough to say that they
had to hedge the exact details. But what they utterly missed, in their detailed calculations, was the great popu-“But what they utterly missed, in their detailed
calculations, was the great popular reaction
against nuclear energy.”larreactionagainstnuclear energy. Many
planning departments in
the 1980s missed the consequences of deregulation.

102

Appendices: About Scenarios

Going beyond forecasting is not pure guesswork
This problem does not mean that you cannot plan ahead. Clearly we would
like planning departments in the 1990s to do better. You just have to go about it differently. A good scenario exercise shifts the question away from ‘Whether x will happen’, to‘What would we do if it did happen’.
What helps in this process is that many aspects of what is liable to occur inthe future are already around. In the early 1970s, for example, no mainstream politicalcommentator was predicting Thatcherism. (Even Thatcher was not: her speeches thenstill supported the old, middle-line consensus.) But a keen observer would have notedthat there were a number of small think-tanks appearing, in Britain and in America,
which were outlining a new approach to government. The thinktanks were talking about suchstrange, unheard-of concepts as“A good scenario exercise shifts the question away from ‘Whether x will happen’, to‘What would we do if it did happen’.”privatization, and tax incentives
for privately-funded pensions, and much of the rest of what ten years later really did
become the new Reagan/Thatcher consensus. It would have been foolish for an observer
to have insisted that the rumblings from those think-tanks would definitely become
policy a decade down the line. But it certainly would have been useful for them to imagine what would happen if those proposals did start getting introduced.
It happens in technologies as well. Dominant technologies have often beenaround for a long time, in simpler or experimental form, and in theory they could havebeen looked over for
their possibilities
back

then.

Internet

The

seems

‘new’, but it had been

“The Internet seems ‘new’, but it had been used byacademic scientists, for emails and chat rooms, insome forms at least since the early 1960s.”

used by academic scientists, for emails and chat rooms, in some forms at least since theearly 1960s. Even something as ultra-modern as the Stealth fighter, is actually built up
from a 1960s mathematical idea, using 1970s software, and with hydraulics put in by adesigner following techniques he had learned in the 1940s.

Good choices
The trick is to find which aspects of things around now are the ones that arelikely to become more important in the future. It is never easy to pick out these rightprecursors. Sometimes what
seems a powerful trend
quickly fades away (remember
when Japan’s economy was‘inherently’ more dynamic“The trick is to find which aspects of things
around now are the ones that are likely to
become more important in the future.”103

ENERGY 2050 : Risky Businessthan America’s?) Sometimes dormant technologies that seem about to take off prove to
be non-starters - think of the proposed new media technologies in the mid ‘90s that did
not make it.
That is why sce-

“Some firms will use the scenarios to stresstest their current strategies, seeing how
robust they are in different settings.”

narios work best if instead ofpicking just one possibility, we
imagine two or three quite different ones. (And of course although the future often builds

up on selected aspects of the past, utterly new factors often have to be envisaged asentering in as well.) To do this well of course entails a great deal of groundwork. Thereis no advantage if your choices are simply built on personal guesswork, or chance.
When it works it is great. One’s no longer stumbling through a jungle atnight; fearfully guessing what might be in store. Instead we have infrared night-vision
goggles on, and can see what is lying in wait. Some firms will use the scenarios to stresstest their current strategies,“Others will be opening in-house discussions
to create new strategic options.”

seeing how robust they are indifferent settings. Others will
be opening in-house discus-

sions to create new strategic options. Whatever final use is made will have to be customized for each firm’s own needs - which is why the main report only gave overall
indicators of strategy within each scenario.

‘Levels’ of innovation
Scenarios have to tread a fine line between being exciting, yet also being
sensible. If you are going to bet several hundred million dollars on a fresh strategic
choice, you want there to be good reason for it. But they are also not worth botheringwith unless they do surprise you, stretching your mind to new ways of thinking. One
way of doing this is to look at central topics in more than just their usual way.
In these energy sce-

“In these energy scenarios, for example,
innovation was constantly examinedalong two levels.”narios, for example, innovation wasconstantly examined along two levels. There was innovation in physical products, but also there was innovation in organization. It is the dif-ference between hardware, and software. Knowing the state of a country’s roads andtelecoms is important, but knowing how well it observes contracts, and what its educa-

104Appendices: About Scenarios

tional level is, is important as well. The first is a country’s hardware, but the second is
the software needed to make that hardware work.
The importance of keeping an eye on that organizational ‘software’ is clear
if you imagine someone 20 years ago having been granted a glimpse ahead into thefirms that later became ABB, the immensely successful Swedish-Swiss engineering firm.
To have been able to see the particular technical products they ended up building would
certainly have been useful, especially if the viewer was trying to make electrical generating equipment of his own. But to have seen how much ABB was shifting its operations
out of Europe would have been equally interesting, while to have glimpsed the new andhighly flattened management structure which one then unknown young man named
Percy Barnevik was soon to put into effect - when he subsequently became CEO - could
have been the most important insight of all.

One part at a time
As we mentioned earlier, it is virtually certain that no one of the scenarios
presented here will be entirely true. The Nobel Laureate Peter Medawar pointed out atleast one basic reason for this. The future depends very much on what happens in science, yet even the world’s top scientists cannot say precisely what will be found - if they
could, they would no longer be in their labs, but would be publishing their final results.
What we are really doing
is a bit like boosting the gain on different sections of an electric circuit, toexamine how its different parts work.
In the first scenario we focused in fulldetail on one possible aspect of what

“What we are really doing is a bit likeboosting the gain on different sectionsof an electric circuit, to examine how
its different parts work.”might arise, and then, when we hadfinished that, we shifted in the next scenario to focusing on another possible aspect.
Real life is always going to be a mix. But a good way to prepare for it, is by understanding how those core components are likely to work.

105

ENERGY 2050 : Risky Business

106

People107

ENERGY 2050 : Risky Business

Interviewees
Anova Holding
Frank Bosshardt

Ian london

Ken McCreadyMike Della Rossa

Stephan Schmidheiny

Pat McNeil

BG plcChris Rose

Rod Taylor
PowerGen plc.

Jackie Henshaw

Carol Wood

Mike Patterson

David ParryPeter Schwarz

Kelvin Beer

Steve Copley

Mike Gibbons

Steve Lucas

Mike Lewis

General Motors

Tom Hainey

Bill Blatt

Tony Cocker

Denny Minano

Rocky Mountain Institute

Jim Pasek

Amory Lovins

Mustafa Mohatarem

Hunter Lovins

Remy Schosmann

SHV Holdings N.V.

Terry Pritchett

A.J. Rijnvis

Tom Marx

A.M. van Vlissingen

Norsk Hydro ASA

J. Visser

Bjørn Sund

J.S. Harris

Bjørn Tretvoll

P.C. Claver

Kjell ØrenW. Peek

Sigurd Andenæs

W.IJ. Baan

Trygve Refvem
Ontario Hydro

108

Ontario Hydro(cont)StatoilArve Thorvik

Anda Kuksis Kalvins

Eldar Saethre

Bob Ferguson

Geir Pettersen

Gerry O’ Hearn

Martin Bekkeheien

Helen Howes

Stig BergsethPeopleSuncor Energy Inc.
Arnie Godin
Barry Stewart
Earle McVicar
Eric Axford
Gordon Lambert
Rick George
Tom Ryley
Tepco
Johannes Waltz
Kazunori Yumoto
The Wuppertal Institute for Climate, Environment & Energy
Ernst von Weizäcker
UBS
Boris Spycher
Bruno Bebié
Inge Schumacher
Vattenfall AB
Bengt Hanell
Carl-Erik Nyquist
Inger Holmström Lindgren
Kerstin FrenningStaffan Nordin
Ulf Boman

109

ENERGY 2050 : Risky Business

Workshop ParticipantsArie F. Brand, SHV Holdings N.V.
Bjørn Sund, Norsk Hydro ASA
Darren Rudkin, What If
Deborah Wilson Cornland, Stockholm Environment Institute
Eric Axford, Suncor Energy Inc
Frank W. Bosshardt, Anova Holding AG
Frede Cappelen, Statoil
Gordon R Lambert, Suncor Energy Inc
Heinrich Hugenschmidt, UBS
Helen Howes, Ontario Hydro
Inge Schumacher, UBS
Jan-Olaf Willums, Storebrand ASA
Johannes Waltz, Tokyo Electric Power Company Inc.
John Williams, General Motors Corporation
Karen Jochelson
Ken McCready, K.F. McCready & Associates Ltd.
Maeve Chappell, BG plc
Marcelle Dons
Martyn Hill, BG plc
Mike Patterson, BG plc
Mike Wright, Imperial Chemical Industries plc
Ngaire Woods, Oxford University
Ole Berrefjord, Statoil
Raffael Jovine, ZPM Inc.
Richard Heede, Rocky Mountain InstituteRonghu Wang, Sony Corporation
Sarita Bartlett, Storebrand ASA
110

PeopleSigurd Andenæs, Norsk Hydro ASA
Tareq Emtairah, UBS
Terry Pritchett, General Motors Corporation
Tom Hainey, PowerGen plc
Tom Ryley, Suncor Energy Inc
Ulf Boman, Vattenfall AB

Core Team
Anouk Pasquier, WBCSD
Barbara Heinzen, Consultant
David Bodanis, Consultant
Franz Knecht, E2
Hans-Christian Lillehagen, WBCSD Foundation
Karen Lange, WBCSD
Pallavi Hiremath, WBCSD
Philippe Vandenbroeck, Global Business Network Europe
Ulrich Golüke, WBCSD
William S. Kyte, PowerGen plc

111

ENERGY 2050 : Risky Business112

Bibliography
Of all the books about energy and change, there are three you should read:

Smil, Vaclav, 1993, Energy in World History, Boulder, Westview.

Grübler, Arnulf, 1998, Technology and Global Change, Cambridge University
Press.

Pine II, Joseph and Gilmore, James, 1999, The Experience Economy, Cambridge,
Harvard Business Press.

The best data source is www.worldwatch.org, which can also lead you elsewhere.

113