We Can Put Sea Walls Around New York
What are the obstacles to cleaning up our planet? First, we must confront the idea that the American economy is inextricably entwined with the oil industry. Probably the most vivid illustration of this challenge came in the summer of 1979. Gasoline shortages were so severe that American drivers waited for as long as four or five hours to fill their tanks. The turmoil of the Iranian revolution had caused a slowdown in that nation’s oil production and helped push world prices to record highs. In the United States, stations closed on weekends for lack of supply. On the nightly news, viewers watched incidents of name-calling, fistfights, and worse. In Freemansburg, Pennsylvania, the wife of a gas-station owner was struck by a car that had been waiting in line. As the husband held his bleeding wife in his arms, motorists filled up and sped off without paying. Miami police arrested two thieves who drove into a gas station, parked over an underground tank, dropped a hose through a hole in the floorboard of their van, and pumped the precious liquid into a 350-gallon storage tank hidden in the back of their vehicle.1
Despite the high prices and fuel shortages, when a cardigan-clad President Carter asked citizens to turn down their thermostats and drive less, he was accused of fostering “an age of malaise.” Americans were vividly made aware of the risks of having an oil-dependent economy.
After Ronald Reagan defeated Jimmy Carter in 1980, oil prices began to fall, eventually reaching precrisis levels. America was once again hooked on oil. One of Reagan’s first symbolic gestures was to tear out the White House solar panels that Carter had installed. The oil crisis had presented an opportunity to transition to an economy driven by alternative energy. Solar and wind companies were being created. The Carter administration had invested heavily in synthetic fuels. But with the return of cheap oil, there seemed to be no appetite to move to unproven technologies.
The new president was sending a clear signal to the nation: the way to solve the energy crisis was not to develop clean technologies to replace fossil fuels; instead, the answer lay in finding and producing more coal and oil. Americans wanted sprawling suburban houses, big cars, and limitless air-conditioning. To meet those needs, a consortium of powerful politicians and industrialists, with remarkable efficiency, spent the next two decades turning an already oil-dependent nation into the planet’s largest consumer of fossil fuels, one that used nearly five times more than the world average.
Corporate giants such as ExxonMobil, Chevron, and ConocoPhillips created an infrastructure of tankers, pipelines, refineries, and gas stations so efficient that Americans can own 243 million cars and trucks2—more than two vehicles for every three citizens—and fill them up anywhere in the country in less than five minutes. Americans, in fact, consume more than a gallon of gasoline a day for every man, woman, and child. And that is in addition to the coal and natural gas we use.
Dominion in Virginia, Duke Energy in North Carolina, FPL Energy in Florida, and Pacific Gas & Electic (PG&E) in California built hundreds of coal or natural gas plants to heat America’s homes, cool its office towers, and run its factories. They helped to make our economy the largest in the world. Despite occasional blackouts, these power companies have been a model of industrial efficiency, providing electricity twenty-four hours a day during heat waves, droughts, storms, deep freezes, and blizzards.
Such abundance doesn’t come cheap. Over the last fifty years, the energy industry has invested hundreds of billions of dollars in power plants, refineries, and gas stations. As a result, American oil companies and utilities represent a staggering worldwide economic force. As of 2006, Fortune 500 oil companies alone generated nearly $1 trillion in sales and $88 billion in profits,3 and employed 299,000 people. America’s utilities generated $330 billion in sales and $24 billion in profits, and supported 400,000 jobs. That does not take into account the automotive industry, which depends on an unlimited stream of oil. The U.S. motor vehicles and parts industry chalked up $580 billion in sales in 2006 and employed 1.5 million people. In all, big oil, big power, and big auto represent roughly 15 percent of the U.S. economy and employ 2.2 million people, more than enough to populate the city of Houston.
The world’s thirst for energy grows each day. If we continue on our current course, the global oil, utility, and auto industries will produce and burn ever more fossil fuel and emit enough greenhouse gases to irrevocably change our climate. A private equity conference for the energy industry, held at New York City’s staid Union League Club in early 2007, presented a stark picture of the world’s future need for oil and coal.4 John Rice, vice chairman of GE, was the keynote speaker that day. His division builds power plants and equipment; it also provides financial services for the energy industry and has annual revenues of $47 billion. Rice said, “We’ve never seen anything like the current global energy demand, and there are no signs of it abating. Demand is strong in China, India, South America, and the Middle East. In places such as China and Saudi Arabia, the governments don’t want blackouts or brownouts because the populations there won’t tolerate it. People see that the ‘haves’ have power and they want it too. Politicians who don’t address this will be voted out of office. Some two billion people in the world don’t have access to affordable power. All this will require big energy infrastructure investments.”
One participant estimated that in the United States alone $700 billion had been invested in energy to date and predicted that $800 billion more would be invested by 2020 in coal and nuclear power plants, in oil refineries, and in other fossil fuel infrastructure. As I listened to these numbers, I turned to a private equity banker sitting beside me and asked, “What about global warming?”
“We’re going to keep looking for oil and building coal plants unless people want to stop driving their cars and live in the dark and in cold houses,” he replied.
I pressed on. “What about melting ice sheets and rising sea levels?”
Without missing a beat, he said, “We can put seawalls around New York and the shores of New Jersey. We can afford to do that. The Dutch have lived that way for hundreds of years; they built walls to keep themselves safe from the sea.”
“But,” I said, “global warming is going to hit the Southern Hemisphere the hardest. The Pentagon is analyzing how to deal with the millions of refugees displaced by floods and famine who might head north toward the U.S. border.”
“Well,” said the banker, “I’m not saying it’s going to be pretty, but we can live with it.”
To avoid such a bleak scenario, today’s small scrappy clean-energy start-ups must grow big enough to compete against ExxonMobil and other huge conglomerates. In the meantime, Rex Tillerson, Exxon’s CEO, is determined to keep the world’s oil wells gushing far into the twenty-first century. A growing number of environmentalists, scientists, politicians, and investors are attacking big oil, urging these companies to pursue green energy on a massive scale. So far, there has been no significant response—though, for example, Britain’s BP now stands for “beyond petroleum.” BP, Royal Dutch Shell, Chevron, and other members of the big-oil fraternity have invested in biofuels, wind power, and solar power. Shell has put $40 million into Iogen, a maker of biofuels headquartered in Ontario, Canada. Yet it is hard to give too much credence to the sincerity of companies whose wealth derives from fossil fuels. John Melo, who ran BP’s massive gasoline distribution system in the United States before he defected to a biofuel start-up, explains big oil’s indifference to alternative energy: “The refiners care about one thing. They care about processing crude and making more products. They don’t care, and, as a matter of fact, they’re not very interested in what’s happening to renewable fuels. If anything, that is a distraction, something that gets in their way, and it shows up very, very actively in the attitude and in the investment choices they make.”
ExxonMobil’s case illustrates what he is talking about. Up until late 2006, the company’s leaders scoffed at the notion of global warming. Public documents show that Exxon gave money to organizations that publish papers, run Web sites, and write letters contending that global warming isn’t happening, or isn’t proven, or isn’t connected to human activity. The company says it has since stopped funding such organizations. At a 2006 energy conference Tillerson finally admitted, “We know our climate is changing, the average temperature of the earth is rising, and greenhouse gas emissions are increasing.”
But he is adamant about not investing any meaningful portion of the company’s massive R&D budget in alternative fuels. In a 2007 Fortune magazine interview, Tillerson said, “We’re only going to invest our shareholders’ money where we think they can get the kind of returns they expected when they invested their money with ExxonMobil.”5 It is clear that Tillerson simply doesn’t believe he can get the same kind of returns by investing in solar, biofuels, and other types of alternative energy that he can by pumping oil. The company is worried that if oil prices drop dramatically, as they did in the 1980s, alternative energy would turn out to be a bad investment. The company would rather put its scientists to work figuring out how to reduce CO2 emissions from oil and gas by improving gas mileage in cars, for example.
But there is more to worry about. While new sources of fossil fuel such as tar sands and oil shale might help meet our future energy needs, they would exacerbate global warming. Royal Dutch Shell, ConocoPhillips, Chevron, and Imperial Oil, which is owned largely by ExxonMobil, have received permits for massive tar sands projects in Alberta, Canada. This plentiful, carbon-rich fuel can be found in an area the size of Florida in the western United States and Canada. Geologists estimate that tar sands constitute the second largest oil reserve in the world after what lies beneath Saudi Arabia. But mining these vast fields will lead to environmental degradation. Furthermore, processing and burning a barrel of tar sands emits as much as 40 percent more carbon dioxide than a barrel of oil. Oil shale, which can also be converted to fuel, generates twice as much greenhouse gas as oil.6
Converting the world’s electric grid to clean energy won’t be easy, either. Most large utility companies have plans to build new CO2-spewing coal plants. In the United States alone, power producers have 150 such plants on the drawing boards. Coal plants provide half of America’s electricity,7 and the country has at least a two-hundred-year supply of coal, now the cheapest fuel used to generate power. Without government incentives to clean up its act, the utility industry will keep building dirty coal plants. A few companies are working on a technology that enables the carbon from coal plants to be buried and stored underground (see chapter 7). But this expensive, difficult technology isn’t likely to be pursued under current market conditions. If burning carbon is free, why would a utility pay to put it underground?From the Hardcover edition.
Excerpted from The Plot to Save the Planet by Brian Dumaine. Copyright © 2008 by Brian Dumaine. Excerpted by permission of Crown Business, a division of Random House LLC. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.