Hot, Flat and Crowded by Thomas Friedman, the Pulitzer Prize winning columnist for the NY Times addresses the problems of population growth and global warming with urgency not just for the challenges they represent to our environment, and quality of life, but as the greatest economic opportunity in the 21st century. Friedman argues that the countries with the most progressive policies will foster innovation, and lead the global economy. It’s a wake-up call for America to recognize this opportune moment in history.
Premium gasoline in Denmark in 2008, Friedman tells us, was $9/gallon, and the government added a CO2 tax in addition just for good measure. This deliberate policy to tax carbon raised the costs of fossil fuels to the point where it spurned innovation in alternatives. Today, 1/3rd of all terrestrial wind turbines in the world originate in Denmark, resulting in an export rich, nascent renewable energy industry. Their economy has grown 70% since 1981. Their unemployment rate was under 2% (in 2008), and 16% of the country’s energy needs are met by wind and solar power. In 1973, 99% of Denmark’s energy came from the Middle East, but today it is zero.
Friedman says “Green is not simply a new form of generating electric power. It is a new form of generating national power – period. What kind of America would you like to see – an America that is addicted to oil and thereby fueling the worst autocracies in the world, or a green America that is building scalable alternatives to crude oil, and thereby freeing ourselves from the grip of countries who have drawn a bull’s-eye on our back and whose values we oppose?”
Friedman quotes an old Chinese proverb, “When the wind changes direction, there are those who build walls and those who build windmills.” He asks, “What will we do? Build walls around our embassies…tariffs around our products, legal walls to protect our automakers…trade barriers to wall off our economy.” Do we turn inward and shun change, or embrace this unique socio-economic opportunity.
Evidence of global warming is abundant. One telling statistic involves ice samples from a thousand years ago showing C02 in the atmosphere at 280 parts per million vs. 2007, where it is 384 parts per million, and climbing 2 parts per million per year. There have also been major reductions in the amount of summer sea ice in the arctic, and the incidence of floods, droughts, heat waves and wildfires is growing. The general consensus among climate experts is that the earth is warming at an alarming rate. Ted Turner sums it up in his own blunt way. “We’re too many people – that’s why we have global warming. Too many people are using too much stuff.”
Growth of the Chinese middle class is also contributing to more warming. In 2006, 34 million Chinese traveled abroad, a 300% increase from 2000. By 2020, 115 million are expected to travel abroad, the largest block of tourists in the world. China alone expects to build 40 new airports over the next few years, and greenhouse gases from her planes are expected to increase 5 times by 2025. “The International Energy agency in Paris predicts world oil demand will grow to 116M barrels per day by 2030, up from 86M in 2007. About 2/5ths of the increases will come from China & India. “
The Weather Channel now tracks the number of record highs vs. record lows, and you can pull up almost any month and the number of record highs outpaces the number of record lows. During the week of March 15, 2008, for instance, 185 record highs were tied or set, but only 28 record lows were tied or set. Arnold Schwarzenegger summed it up this way. “If 98 doctors say my son is ill and needs medication, and two say ‘No, he doesn’t, he is fine,’ I will go with the ninety-eight.”
Friedman also points out that Saudi Arabia’s oil income is expected to reach $200B in 2008, and 15 of the Sept. 11 terrorist were of Saudi decent. In 1978 there were 3000 madrassas in Pakistan, and today there are over 30,000. Much of the funding of these religious schools originates from oil-rich Saudi Arabian backers who tend to promote fundamentalist Islam, often sympathetic with terrorism. The point being that there is a strong correlation between America’s heavy reliance on fossil fuels and the funding of terrorism.
Friedman also references Greg Mortenson’s same observations in “Three Cups of Tea.” In December 2000, a Saudi publication reported that Al Haramain Foundation had built 1,100 mosques, schools and Islamic centers in Pakistan and other Muslim countries, but was also accused by the 9/11 commission of funding the Taliban and Al Qaeda. Our excessive spend on petrodollars has provided great wealth to the Gulf States, particularly Saudi Arabia, whose hegemony has increased dramatically in the Middle East as a result. These dollars, in turn, can provide for the spread of a much more conservative, fundamentalist interpretation of Islam, promoting intolerance of Western views, and often relegating women to diminished roles in society.
Additionally, Friedman notes as a State’s reliance on oil exports increases, the less democratic the state becomes. The Arabian Peninsula is a perfect example, but so are countries such as Venezuela. Friedman references Michael Ross, a political scientist at UCLA, who argues that oil rich governments tend to use the oil revenues to relieve social pressures that might otherwise lead to greater accountability from representation. Oil backed regimes don’t have to tax their people for revenue, so these leaders are less accountable to the people vs the American Revolution, sparked by the motto “No taxation without representation.”
Ross also writes that women in the Middle East are underrepresented in the workforce and in government because of oil – not Islam. “When fewer women work outside the home, they are less likely to exchange information and overcome collective action problems; less likely to mobilize politically and lobby for expanded rights.” Ross shows that oil states typically have strong patriarchal cultures, and keep women subordinate in society.
These same interdependent relationships are seen in a nature as well. The American Naturalist and founder of the Sierra Club, John Muir is quoted in the book “when we try to pick out anything by itself, we find it hitched to everything else in the Universe.” An article in the Aug 5, 2007 NY Times examined the disappearance of Aspen trees in Yellowstone National Park, and their amazing rebound when wolves were re-introduced to the park. The Elk had devastated the Aspen tree population, but when the wolves came back, they kept the Elk population in check, allowing the Aspen trees to rebound.
When invited to speak at a Chinese auto executive meeting, Friedman sardonically encourages the Chinese to grow dirty, just as the Western world did during the Industrial Revolution. After all, it’s only fair, and this will also give America time to develop the next technology in green power, which we will gladly sell back to the Chinese to fuel our own future growth. Friedman surprised the Chinese with his endorsement of their polluting ways, but his sarcasm, and real message was not lost on anyone. Today, there’s a global race to develop the next great technologies in clean energy.
Jeffrey Immelt, CEO of GE, credits the more forward thinking policies of the European Union for developing their alternative energy market. Denmark, Spain and Germany required their utilities to produce a certain amount of alternative energy each year, and offered long-term subsidies. The Europeans created a market for wind-turbines in the 1980s, when America abandoned wind because the price of oil fell. Now, at least half the US requires their utilities to generate a certain amount of their power from solar, wind, hydro, geothermal or biofuels, but each state has different standards. When Congress tried to pass a uniform national standard for the entire country in 2007, it was defeated. The US has given the EU a big head start, but we are slowly realizing the significance of a progressive energy policy.
At the World Economic Forum in 1999, Bill Gates admitted there was likely an Internet bubble, “But you’re all missing the point. This bubble is going to attract so much new capital to this Internet industry that it is going to drive innovation faster and faster.” Indeed we know now there was an Internet bubble, but the massive investment and innovation in IT that resulted, has created a lasting, burgeoning, Internet economy, of which the US is arguably the leader.
Friedman takes a page from Denmark and Norway, advocating their carbon tax policies, even though detractors claim these types of taxes would disadvantage our economy making American exports, more expensive, and less competitive. He points out there are many factors that determine the cost of exports, and the value of your currency is paramount. Additionally, building upon the Scandinavian example, Denmark is the leading exporter of wind turbines as a result of their carbon tax policies that have stimulated this industry. Additionally, if needed, the US could place carbon tariffs on those countries that do not tax carbon yet, such as China.
Friedman summarizes the gas tax argument in the following quote. “Gasoline taxes help reduce consumption, shift people to more fuel efficient vehicles, shrink the amount of money we send to petrodictators, improves air quality, strengthen the dollar and balance of payments, help mitigate global warming, and give citizens a feeling they are contributing something to the war on terrorism.”
To appreciate the challenges we face to passing new energy policy legislation, Friedman quotes Machiavelli in The Prince. “It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in introducing a new order of things, because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. “
Friedman’s rebuttal to the age old complaint categorizing him as another liberal who favors more taxes is quoted in the following passage. “The American people certainly have been taxed quite enough. Right now, they are being taxed by Saudi Arabia, taxed by Venezuela, taxed by Russia, taxed by Iran, and, if we stay on this track, they’ll soon be taxed by Mother Nature….I’d rather my taxes go to the US Treasury, not the Saudi Treasury, or the Iranian Treasury…”
China makes thousands of locomotives, and they are much cheaper than General Electrics, but because GE’s are the most energy efficient in the world, with the lowest CO2 emissions, and best fuel mileage per ton pulled, China buys them from GE. Much of this progress can be attributed to the EPA’s emission standards, which fueled new technologies in locomotives. Now, GE Transportation workers receive double the average wage in their respective cities, thanks to $4M Evolution Series diesel locomotive, the most energy efficient locomotive in the world.
Friedman talks about the “Porter hypothesis,” named after the Harvard Business School professor Michael Porter. In 1991, Porter said that “appropriately planned environmental regulations will stimulate technological innovation, leading to reductions in expenses and improvements in quality. As a result, domestic businesses may attain a superior competitive position in the international marketplace, and industrial productivity may improve as well.”
An interesting dilemma involves the utility industry. Customers want to lower their utility bills by using less energy, but the utility is incented to produce more energy to sell to the public for more consumption. A new regulation called decoupling plus, which is now in place for electric utilities in California and Idaho, decouples profits and rising sales.
The way it works is an independent auditor determines the net dollar savings delivered to customers by a utility’s conservation programs. The utility in return is reimbursed for any out-of-pocket losses, and rewarded a proportion to reductions in customer costs delivered by the utility’s conservation programs. Poor performance exacts a penalty, and if utility sales rise un-expectantly, the extra revenue is returned in the form of lower future rate hikes. As a result, the utility is now incented to improve energy efficiency instead of boosting total overall energy consumption.
Similar to Denmark, in Japan the cost of gasoline is twice as much as in America because of government taxation and price controls. The government, in turn, has invested these revenues in renewable energies like solar and home fuel cells. The high energy prices have also fueled demand for low-energy appliances such as washing machines, televisions, and hybrid vehicles. Companies like Mitsubishi Heavy Industries dominate the highly efficient electric turbines market, steel blast furnaces, and other industrial machinery. The environment ministry forecasts exports will turn energy conservation into a $7.9B industry by 2020.
Thanks in part to a green sticker program; consumer’s pressure to improve efficiency is constant. The avg. air conditioner uses 2/3 less electricity than in 1997, and the avg. freezer, 23% less.
Even the US army in Iraq is taking notice. Because the electric grid in Iraq is so unreliable, the US military requires generators to operate, and the main reason so many soldiers perish as a result of IEDs is because they are constantly required to deliver fuel to power all the generators. By greening the army, replacing diesel powered generators with wind & solar, fewer soldiers on the road would be needed where they are most vulnerable to attack.
China is 1/5th of humanity, and it’s now the biggest carbon emitter and the second-largest importer of oil, right behind the US. As such, Friedman points out, as China goes, so goes the planet earth. Currently there are 1.3B people in China, twice as many as 50 years ago. Acid rain falls on 1/3rd of China, ½ the water in its seven largest rivers is useless, 1/3rd the population breaths polluted air, and less than 20% of the trash in cities is treated and processed in an environmentally sustainable manner. 5 of the 10 most populated cities in the world are located in China. In Beijing alone, 70-80% of all deadly cancer is related to the environment. Lung cancer is now the number one cause of death in China.
However, in 2006, China instituted a national renewable energy mandate requiring provincial govts to develop and adopt renewable energy, namely wind, hydro and biomass, to 16% of total energy production by 2020 (7% today). Also, new rules were imposed on power plants to burn the cleanest fuel first, natural gas, solar or wind before resorting to the cheapest and dirtiest fuel, coal. China is also in the process of shuttering their most inefficient power plants. Overall, China has quickly realized the mounting problem facing them, and has taken steps to institute incentives to develop their burgeoning alternative energy industry.
Meanwhile, the American energy bill is hung up in Congress, slave to the wealthiest lobby. Daniel Kammen at the University of California, Berkeley, an energy policy expert, points out that if you add all the federal dollars going into energy research, which includes oil, gas, coal and solar, it would total about $3B, and $5B from the private sector, which equates to about nine days of fighting in Iraq.
Mike Ahearn, the CEO of First Solar, one of the US’s leading solar manufacturers which started in 1992, almost went bankrupt until John Walton of Wal-Mart invested, enabling them to complete their first manufacturing facility in 2004, after a total investment of $150M. In the three years since its completion, their revenues have grown from $6M to over $500M by end of 2007, and have cut the cost of solar modules from $3 per watt in 2004, to $1.12 per watt by the end of 2007, which is when they went public with a market capitalization approaching $20B.
In 2003, Mike Ahearn said they started looking for markets that would provide the scale they needed. Japan had the world’s first solar incentive program dating back to 1990. But Sharp, Kyocera, Sanyou and Mitsubishi were local leaders, and Sharp already owned a dominant share of the Japanese market. Japan had the biggest solar market in the world, but it was effectively closed to non-Japanese companies, per Ahearn.
Headquartered in Arizona, with its main factory in Ohio, First Solar wanted to exploit the American market, but world demand for solar was elsewhere. Ahearn said they went to Washington, and many states in the Southwest, and to utilities, but the same incentives fueling the Japanese market, were absent in the US.
In 2004, Germany created “feed-in” tariffs, which required local utilities to pay consumers for any local solar system at a price determined by national law for twenty years. Now consumers had an incentive to erect their own solar systems on their own homes and businesses, and the utility not only had to interconnect to it, but they also had to pay the consumer for any power they generated back to the utility (in excess of whatever they used).
First Solar ended up partnering with German scientist and engineers, and today over half the equipment used in their production line originates from German manufacturers and suppliers. Spain, Italy, France, Greece and Portugal all quickly followed suit with the German feed in tariff model. It’s no surprise First Solar built their second plant in eastern Germany, and now provides 540 lucrative jobs to the Germany economy. Ahearn is quoted “Countries all over the world are now contacting us to build our next factory there, but so far no one has called from the US…”
Wal-Mart is sighted as an example of a major US corporation embracing energy efficiency. They focused on promoting energy-efficient, compact fluorescent light bulbs and sold 100M+ in 2007. They estimate that the energy savings from these bulbs has the same effect as removing 700,000 cars off the road. In 2005, their stated goal was to make their fleet of 7200 tractor-trailer trucks 25% more fuel -efficient by 2008, and 100% more efficient by 2015. Wal-Mart has taken a leadership position in energy efficient initiatives, and it’s improving their bottom-line.
Friedman is convinced that clean power and energy-efficient technologies will become the defining measure of a country’s economic standing, environmental health, energy security, and national security over the next 50 years. “The ability to design and build, and export green technologies for producing clean electrons, clean water, clean air, and healthy and abundant food is going to be the currency of power in the Energy-Climate Era – not the only one, but right up there with computers, microchips, information technologies, and planes and tanks.”
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