A few statistics from the World Water Council:

In 2000, the World Health Organization estimate that of the world’s 6 billion people, at least 1.1 billion lack access to safe drinking-water and 2.4 billion persons live without access to sanitation systems. An estimated 14 to 30 thousand people, mostly young and elderly, die everyday from avoidable water-related diseases (e.g. diarrhoeal diseases). The lives of these people who are among the poorest on our planet are often devastated by this deprivation, which impedes the enjoyment of health and other human rights.

A short article on the day on BBC says

Most people equate water consumption with what they use in their homes and places of work, but the challenge facing the globe goes much, much further than that. The 2030 Water Resources Group, a collaboration between the private and social sectors to discover solutions to combat water scarcity, estimates that global water requirements will grow by over 50% over the next 20 years. Such levels of usage will be 40% greater than what can currently be sustainably supplied.

Of course this global figure is an aggregation: at a more local level the situation is far worse. For example, by 2030 one third of the global population, mainly concentrated in developing countries, will have only half the amount of naturally renewed water available they need.

What most consumers might not be aware of is that agriculture accounts for 70% of global water usage today, and how the need to feed the growing population of the world will put an even greater strain on already scarce water resources.

And in recent years food and water supplies have also been significantly affected by the use of agricultural land and resources on the production of biofuels.
The 2030 Water Resources Group also predicts that industrial use of water will almost double by 2030. It currently accounts for 16% of total usage – more than half of it for energy production – and this will grow to a projected 22% by 2030 with China alone accounting for 40% of the additional demand.

The challenge facing governments, businesses and – arguably – all of us, is how to close the gap in supply in a way that is both environmentally sustainable and economically viable. At the moment we are coping by ‘borrowing’ water supplies from non-replenishable aquifers or from water reserved for environmental needs, an approach which is clearly not a long-term solution.

Most people have a hard time thinking about natural resources and the constraints that exist. For instance, the BBC article quoted above is by Peter Brabeck-Letmanthe, Chairman, Nestle S.A. He writes, “the harsh fact is that we will probably run out of water long before we run out of fuel.”

That is demonstrably not true. We will never run out of a resource as abundant as water. What we will run out of — and only in the short run — is energy sources. In the long run, humanity would have discovered new sources of energy and that would release most of the natural resource constraints. Given cheap enough energy, the oceans can provide for all the water humanity will ever need for the foreseeable future. Not just water, the oceans can provide trillions of tons of minerals. One cubic mile of sea water contains — besides the 130 million tons of salt — 6 million tonnes of magnesium, 25 tons of gold, 135 tons of silver, etc.

[I guess from sources that I have read but since then forgotten, the total amount of gold hoarded by humans is around 93 thousand tons -- which is a cube about 17 meters on a side.]

In “The Fundamental Problem of Development” (Oct 2003), I wrote –

Constraints are all over the place. Physical resources are limited. It is interesting to ask if there is one single physical resource which if not constrained would release all other constraints. There are some basic limited resources such as land, labor, energy, water, etc. Of these, energy is that resource which if it were unconstrained, all the other basic resources constraints will be released.

If you had sufficient energy, you could transform whatever you had into whatever you wanted and recycle old stuff into new stuff. For instance, water. Using energy, clean the water; use the water; and then clean and reuse the water. You can use energy to desalinate sea water (lots of that around) and grow food hydroponically (don’t need too much land). You need basic minerals and metals? Use energy to get it by the millions of tons from the sea. Bottom line: if you had unlimited energy, you don’t have any real scarcity.

What we have to be concerned about fundamentally is energy. Humanity is at the point where it is running out of fossil fuels. But that is not a huge problem. Research and development already under way will yield results sometime in the future. My guess is that in about 10 years, there will be a major breakthrough which would become commercialized in 20 years and that would be the end of humanity’s dependence on fossil fuels.

That figure above — 20 years — is the boundary between the short and the long run. In that long run, most resource constraints will be eliminated because with the energy available, you can get all the water you need, substitute for most of the land needs, and get all the materials needed. Energy is the greatest constraint in the world of matter. Fixing our energy problem is a technical issue. Humans have always solved technical problems when the need arose. I am a technological optimist and don’t have the slightest doubt that humanity will solve the energy problem in the long run.

Related Post: Free Energy–Not Really.

Alternative sources of energy have to be found. Solar is it. Solar energy contributes very tiny amounts to the energy mix today. Given the state of the technology, it is three or four times more costly compared to say coal or oil. Even the most optimistic projections of solar utilization put its contribution to the energy mix in 10 years in the low single digit percentages. At first glance, solar just does not make sense.

But solar does not make sense if you take the static point of view. Solar can be made to make sense. Investments into R&D is needed to make solar make sense. Large amounts of investment. I have argued before that India needs to make that investment. Why? Because India has a large domestic market. Way back in Nov 2003, over six years ago, I wrote –

The “learning by doing for a large domestic market” is a very important point. India is a very large market since India accounts for around one-sixth of the world’s population. Practically every need of developing countries is represented in India itself, whether they be transportation, agriculture, or telecommunications. So we have a very large canvass to try out our ingenuity on and learn from doing that. Having developed solutions, we are well on our way to developing comparative advantage in those areas.

Is there any specific area that India should develop a comparative advantage in? There is. And that is in the area of alternative energy. More specifically, solar technology.

The case for India to invest in R&D for solar technology is so plain that I find it incredible that everyone and his brother is not shouting about it. Consider the following facts. First, India is conventional fuel poor. We do not have oil and have to import a good portion of our current needs. We cannot afford to rely on the whims of foreign oil producers. There is one 800-lb gorilla in the oil market and it has cornered significant sources of the global oil market. So for strategic reasons, India must reduce its dependence on foreign oil to meet its energy needs.

Second, rich nations have the resources to pay (one way or another) for the oil they consume, India cannot. For instance, the US pays for oil by directly paying the producers and indirectly by maintaining a huge military and using force strategically.

India is blessed (?) with a lot of solar energy delivered free. The sun shines too hard most of the time and very few people are making hay.

Finally, any desired technology can be developed if you throw sufficient money at it. That is a basic fact of the modern world. Everything that is theoretically possible can be developed given sufficient commitment in terms of time, effort and resources.

It is my considered opinion that energy is the most fundamental of all resources. If one can get free energy (or even cheap energy), there is no problem that cannot be solved. Energy is a substitute for land and labor. Don’t have enough land to grow food? No problem — use hydroponics and grow you food in factories. Don’t have water to do that? De-salinate sea water using energy. Don’t have enough labor? Use machines. Where do you get machines? Make them using energy.

I made this recommendation over six years ago:

My policy recommendation is simple. Set up a national goal to make India the Solar Power SuperPower (SPSP) in the next 10 years. (Pres Kalam, are you there?) To achieve that goal, spend Rs 500 billion (approximately $11 billion) to get an R&D started at space travel speed using the best brains that exist anywhere in the world. Hire the best scientists and pay them so much that they would not consider working on anything else. Create programs in all the top Indian research institutes and reward people with sacks of gold or whatever floats their boats to get them to devote all their talents to that one aim of making solar energy technology in India so good that we don’t have to import a single drop of oil and can tell our Arab “friends” to take a hike. Indeed, once the demand for oil falls, they will have to take a hike because they would not be able to afford cars.

Can it be done? You bet. All it needs is national will. Do we have leaders enlightened enough to create the needed national will? I am afraid not.

I have been pushing for solar for a while. Three years ago, in Dec 2007, I again argued for public investment in solar power:

India cannot continue to ignore reality: its continued economic growth and development is predicated on it developing the technology to exploit solar energy, and base its industrial, transportation, commercial, and household energy needs to be met through the derived electrical energy. Every bit of modern technology India uses has been developed elsewhere. It would be a welcome change if it developed the technology that would be its lifeblood. Developing technology is a matter of will, vision, and sometimes dire necessity. The Manhattan project and manned missions to the moon are examples of what can be achieved within a short time if the will exists.

India cannot afford not to develop solar energy technology for these reasons. First, eventually someone will, and then once again India will have to perhaps grovel for access to it. Second, and conversely, if India develops the technology, not only will it have it for its own use, it would be able to sell that technology to other nations. Third, India does not have a very large legacy infrastructure system built on oil. It therefore has the opportunity to build its infrastructure that is electricity oriented. For instance, India’s transportation needs can be met more rationally primarily by a rail network backbone instead of roads, cars, airports, and airplanes.

Developing solar technology is not going to be cheap. But the alternative is going to be immeasurably more expensive. Here’s the scenario using ball-park figures. India somehow acquires the vision and the will to invest US$100 billion and within the next five years develops efficient solar energy technology. That investment reduces its dependence on foreign energy imports on average by US$100 billion every year for the foreseeable future. The returns on investment will be immense. Furthermore, if India were to be the leader of solar energy technology, it could earn from licensing that technology to other economies.

The question naturally arises: why aren’t others doing it if it is such a great idea. First, the private sector cannot match the funding ability of a large government. Second, other large governments do not face the immediate necessity that India faces and besides they are invested in their legacy systems. Another question relates to why the market cannot be depended upon to create the solution. It is well known that markets fail when there are very high fixed costs. Only a government has the ability to fund the high fixed costs and thus correct for the market failure. Later the fixed costs can be recovered through taxing the inevitable increase in the national income.

With the will to invest US$100 billion, India can acquire the best brains in the world to work on the problem. That spending will have important forward and backward linkages that will have multiplier effects throughout the economy. Research and development capacity will be built in the private sector and in educational institutions. Millions of productive jobs will be created by the need to develop the infrastructure required for the new industries that result from such a massive project.

Will India do it? Nope. Indian leadership is of the blue-turbaned variety: they take orders from white bosses.

Anyway, smart people are concluding that investment in solar energy is important and critical. In yesterday’s Wall Street Journal, Bjorn Lomborg concludes his piece “Time for a Rethink on Global Warming:Mandated carbon cuts won’t work” thus —

If we really want to solve global warming, we need to get serious about developing alternatives to coal and oil. Last year, the Copenhagen Consensus Center commissioned research from more than two dozen of the world’s top climate economists on different ways to respond to global warming.

An expert panel including three Nobel Laureate economists concluded that devoting just 0.2% of global GDP—roughly $100 billion a year—to green-energy R&D could produce the kind of breakthroughs needed to fuel a carbon-free future. Not only would this be a much less expensive fix than trying to cut carbon emissions, it would also reduce global warming far more quickly. [emphasis added.]

India must invest in solar power R&D now.

Related Post:

The Future of Energy. Sept 2005. Very very highly recommended. My friend CJ makes his interesting points on energy.

Here’s the view of a former chairman of the Atomic Energy Commission, PK Iyengar, expressed in an article in The Pioneer. He says that India’s freedom to test will be curtailed. This is, in his opinion, undesirable as testing is essential for India to maintain a credible nuclear deterrence.

Arun Shourie makes the case that the Americans are bound by their Atomic Energy Act of 1954 and the Hyde Act, and that the 123 Agreement does not in any way invalidate them. (I don’t have a link to Shourie’s article, and so I will post his article below the fold until such time that I have a link.)

My view is that India should not sign the agreement. I find the arguments by Iyengar and Shourie persuasive. Just for argument’s sake, let’s assume that it is a bad agreement and India pays dearly for it down the line. What is the penalty that those who pushed India into such a bad deal face? None at all. Mr Singh and boss will never have the pay for the follies, just as their predecessors whose gross stupidity has caused untold misery on hundreds of millions of Indians got away with no penalty (and indeed they are celebrated as great visionaries and leaders.)

I think that the prime minister is not a deluded fool and knows fully well what the 123 Agreement will do to India. That forces me to conclude that he is dishonest in his insistence that it is good for India. But then it is not the least surprising to find dishonest politicians in India. That’s Indian democracy for you — and therein lies the only consolation for me: the people choose unwisely and it is they who will suffer the consequences of their choices.

It’s all karma, neh?

“But there is nothing new”

Arun Shourie

“But why now? Why on the eve of the NSG meeting in Vienna?” – the cry went up. Entirely predictably: when they can’t deal with the facts of a disclosure, the embarrassed always demand, “But why now?”! Should we not, on the contrary, be grateful that, at least at this penultimate hour, someone has awakened us to what the Government is bartering away in Vienna? Is there an inauspicious time for being awakened to the facts? “The secret letter has been revealed by a known opponent of the nuclear deal,” they say – as if the fact that the person disclosing the document is a known opponent of the deal, in some way dilutes the veracity of the text! And this from a newspaper that discloses secret documents every other week!

“But there is nothing new in the US Administration letter to the Congress,” say the spokesmen of the Government, and its apologists in the media. Actually, that very fact, as we shall soon see, makes things all the worse. Indeed, the American Ambassador, Mulford, has been more specific: he has said that the letter that the Administration sent to the US Congress contains nothing that has not already been shared with the Indian Government. In a word, the Government has known all these facts all along, and has yet continued to assert its falsehoods to the contrary for months on end. The US Administration letter, in fact, reveals more: on point after point, it reveals that the Indian Government, while asserting falsehoods to the contrary here in India, has not just been in the know of what the Americans were extracting, it agreed with the construction the Americans had put on the clauses in question.

“Falsehoods” is the right word, make no mistake.

“The Hyde Act does not apply to us,” Government spokesmen have been insisting. “We are bound by the 123 Agreement alone.” Indeed, as recently as July 2 this year, the Prime Minister’s Office asserted, “the 123 Agreement clearly overrides the Hyde Act and this position would be clear to anyone going through the provisions.” That is patent nonsense. Article 2 of the 123 Agreement provides that in implementing it, the two countries shall be governed by, among other things, their “national laws”. What are the national laws of the US in this regard? The Atomic Energy Act of 1954 and the Hyde Act. Does the Hyde Act apply or not?

But clauses apart, even a fool can see through the lie in that: does the Hyde Act apply to the Americans or not? That is all that is required for the consequences listed in the Act to follow. Suppose we test. What are the Americans bound to do in return by law? Both by the Hyde Act as well as the original Atomic Energy Act of 1954, they must immediately cease all nuclear commerce with India. By both these Acts as well as the Guidelines of the NSG, they must ensure that every other member of the NSG also ceases all nuclear cooperation with India. In a word, by the laws that apply to them, the Americans have to bring upon us the full weight of sanctions. What comfort is it that the sanctions fall upon us by laws applicable to them and not applicable to us?

That simple and brutal fact is compounded by the 123 Agreement. In Question 3, the US Congress asks the Bush Administration, “Does the Administration believe that the nuclear cooperation agreement with India overrides the Hyde Act regarding any apparent conflicts, discrepancies, or inconsistencies? Does this include provisions in the Hyde Act which do not appear in the nuclear cooperation agreement?” In turn, the Bush Administration says that the 123 agreement “is in full conformity with the Hyde Act,” that it is “consistent with the legal requirements of both the Hyde Act and the Atomic Energy Act” – both of them, incidentally, require that, to take just one example, the agreement be terminated forthwith the moment India conducts a test, even for “peaceful purposes”.

The Prime Minister has said over and over again that the cooperation shall be “full”, that it shall cover all aspects of the full nuclear cycle. In particular, that India shall have full access to “sensitive technologies”. Anything less, Manmohan Singh has said again and again, shall be inconsistent with the statement he had signed with Bush, and India shall not accept such a dilution. Persons like me have pointed out from the beginning that this just cannot be the case, that the Americans have an unambiguous policy in this regard, a policy that has been reiterated personally by Bush as well as by the US Congress – namely, that countries like India shall not be given access to technologies for enrichment, reprocessing or heavy water production. Manmohan Singh has gone on repeating, “Full means full”.

And as proof, the Government’s propagandists have been pointing to Article 5(2) of the 123 Agreement. This clause in fact is just a sleight of words. It says that these “sensitive technologies… may be transferred to India under this agreement pursuant to an amendment to this agreement.” Even then, the clause clearly records, the transfer “will be subject to the Parties’ respective applicable laws, regulations and license policies.” Hence, three conditions: (a) “may be”; (b) “pursuant to an amendment to this agreement”; and (c) “subject to the Parties’ respective applicable laws, regulations and license policies.” In spite of this, the Government’s propagandists have kept repeating that India has won access to these sensitive technologies

In its answers to not one but six questions (Questions 4 to 9) from the US Congress, Bush’s Administration says six times, that the sensitive technologies will not be transferred and that there is no proposal at all to amend the 123 Agreement!!

Similarly, Government spokesmen have maintained that our right to reprocess spent fuel has been recognized. Indeed, Manmohan Singh himself has said that our reprocessing rights have been recognized so much so that they shall be “permanent”. The answers to questions 26 and 29, as indeed Articles 11 and 12 of the 123 Agreement itself, indicate that we shall be able to reprocess the spent fuel only in a facility (a) set up at our cost; (b) under IAEA oversight; (c) and only in accordance with “arrangements and procedures” to which the US agrees. As for the right being “permanent”, the answer to question 44 gives the lie. The answer does not just reiterate that the “arrangements and procedures” under which the reprocessing may be done shall have to be agreed to by the US; it says, “the proposed arrangements and procedures with India will provide for withdrawal of reprocessing consent.” Permanent?

Manmohan Singh has insisted all along that India shall not accept any oversight or inspections other than what it shall agree to under the “India specific safeguards” in its agreement with the IAEA. Persons like me drew attention to the stern and absolutely unambiguous statements of Condoleezza Rice; to the Report of the joint committee of the US Congress; as well as to the provisions of the Hyde Act, which specifically provided that India shall have to accept “fallback safeguards” – that is, should, in the judgement of the IAEA or the US, the IAEA be unable to perform its inspections adequately, the US shall have the right to institute inspections and other measures of oversight through other agencies – its own or those of some other international bodies. Even as it was asserting the contrary, Manmohan Singh’s Government, agreed to have these additional inspections and restrictions through Articles 10 and 16(3) of the 123 Agreement. All that was done was that instead of the US inspectors being called “inspectors”, they were called “experts”. Through these clauses, India agreed to ensure for them the fullest access to sites and data that they wanted to inspect.

In its answers to questions 10 to 13, the US Administration has reiterated four times that, yes, there shall be these additional fallback safeguards and inspections. Not just that, the Administration tells the US Congress that, in addition to pledging that it is accepting IAEA safeguards and inspections in perpetuity, the Indian Government “fully appreciates that paragraph 1 of Article 10 of the Agreement does not limit the safeguards required by the Agreement to Agency (that is, IAEA) safeguards.” In a word, while we were being told the exact opposite – “We shall not allow American inspectors to roam around our facilities” – the Manmohan Singh Government had accepted that very roaming around.

Manmohan Singh and his spokesmen have said times without number that the US has assured India of “uninterrupted fuel supplies”. They have pointed to Article 5(6) as proof to say that the 123 Agreement enshrines this commitment. I had pointed out at that very time that the Article is just face-saving farce. Manmohan Singh had told Parliament that the Americans had assured him that they would ensure “uninterrupted fuel supplies”, and that this would be provided in the 123 Agreement. In the event, the Americans did not budge an inch. They refused to incorporate any assurance to this effect in the 123 Agreement. At the last minute, to pleas that something just had to be done to save face of the Manmohan Singh Government, they agreed to cut and paste his statement saying that in the 123 Agreement such an assurance shall be incorporated. But this was the 123 Agreement! What was to be provided in this 123 Agreement was left to some future 123 Agreement!

Yet, the people here were sought to be fooled – we have got the Americans to promise us “uninterrupted fuel supplies”. Indeed, the insinuation went further – it was almost as if fuel supplies could not now be stopped under any circumstances. In answer to question 15 and again in answer to question 18, the US Government states that only if fuel supply is interrupted for no fault of India, shall the US assist in resuming it. Thus, if some US firm fails to live up to its commitment to supply fuel, or if there is some disruption in global markets, the US will chip in. But if, for instance, we test; or we default in the account we keep of uranium we import, mine and use; or if we default on any of the numerous conditions prescribed in the 123 Agreement, the Hyde Act, the agreement with the IAEA, as well as under the Guidelines of the NSG, and, as a result, fuel supply is stopped, the US will most emphatically not step in to restore fuel supplies.

Similarly, while we have been fed the fiction that the US has agreed to our building “strategic reserves” of fuel so that our reactors are not subjected to the Tarapur experience, twice in this document – from answers to questions 19 and 20 – we learn that there is no assurance to this effect. That India can secure fuel only, as the Obama amendment in the Hyde Act provides, for “reasonable operational requirements”. Not just that. The replies reveal that what this phrase – “reasonable operational requirements” – implies is not clear at all!

Manmohan Singh has repeatedly asserted that, in the event fuel supplies are interrupted or other difficulties are created, India has the right to take “corrective measures”. What is this magic bullet? we have wanted to know. Of course, there has been no answer. The US Congress asked Bush’s officials the same question. What does the Indian PM mean by “corrective measures”? The suggestion has been that, if things don’t turn out to our satisfaction, we can always withdraw our reactors from safeguards.

The answer to question 25 and again the answer to question 42 show how empty a boast this is. The Indian Government has not described what the expression means, the US Government says. We expect India to live up to the letter as well as the spirit of its commitment that it shall adhere to the safeguards “in perpetuity”. Furthermore, says the US Government quoting the precise words to which persons like me had drawn attention in Parliament, the Secretary of State, Condoleezza Rice, has told the US Congress that “We have been very clear with the Indians that the permanence of the safeguards is the permanence of safeguards without condition.”

When the text of the 123 Agreement became public, I had drawn attention to the minatory Article 16. This provides that, should India, in the judgement of the US, step outside its commitments, even if the Agreement is terminated, even if it expires, even if India repudiates it, the US shall have the right to get back every bit of nuclear material, every bit of non-nuclear material, every reactor, component, every ounce of fuel it has supplied under the Agreement. This position is reiterated in answers to questions 41 and 42.

Manmohan Singh keeps repeating, and so do the managed parts of the media, that India’s right to test remains unaffected. The US Congress as well as officials of the US Government have made it absolutely clear times without number that the moment India tests, even if it is for peaceful purposes, the 123 Agreement will be terminated, and all nuclear commerce will stop. These consequences shall follow immediately. This position is reiterated in this document not once but four times – in answers to questions 16, 17, 37 and 38.

But it is not only in regard to tests that the Government has woven falsehoods. The answers make two further things explicit. First, a test by India is not the only circumstance which triggers these consequences. It is just one of the circumstances that will invite the termination of the Agreement and the stoppage of all nuclear commerce. Other circumstances will be, such as a “material violation of the 123 Agreement, or termination, abrogation, or material violation of International Atomic Energy Agency safeguards.” Notice the “such as” that I wrote in the preceding sentence: these are not the only circumstances that will trigger the consequences. The answer refers to them with vital prefatory words, “for example“. Second, as the answer to question 38 puts it, that this is the import of Article 14 of the 123 Agreement is clear and well understood by India as much as by the US.

The final blow, the one that comes in response to the last question, number 45, is devastating as it shows how blatantly the Manmohan Singh Government has been lying. The Government has been maintaining that in the 123 Agreement, if nuclear commerce with India is stopped, the US Government has pledged that it will assist India to get the supplies, etc., from other members of the NSG. This sort of an assertion could be made only on the belief that everyone concerned is an idiot. Yet, not only has it been made, it has been swallowed and spread by sections of the media.

The Hyde Act binds the US Government to ensure the opposite – namely, that, if it terminates the 123 Agreement and stops nuclear commerce with India, it shall ensure that India cannot get the supplies from any other member of the NSG. That position is reiterated, and the pledge that the US Government will indeed ensure this is repeated in answer to question 45. The US Government has drawn attention of the Congress to the Guidelines that exist in the NSG, and pledged that they will apply in case the US stops nuclear commerce with India.

Paragraph 16 of the NSG Guidelines, the US Government says, “provides that suppliers should (1) consult if, inter alia, one or more suppliers believe there has been a violation of a supplier/recipient understanding; (2) avoid acting in a manner that could prejudice measures that may be adopted in response to such a violation; and (3) agree on ‘an appropriate response and possible action’, which could include the termination of nuclear transfers to that recipient.” If the NSG agrees to the exception for India, the US Government assures, this Guideline “would apply in the case of any nuclear transfers by a Nuclear Suppliers Group supplier to India.”

And yet the falsehoods continue.

The nuclear deal is by now clothed in two layers of sin. The layer of the cash-for-votes sin. And the ever thickening layer of falsehoods.

I can only plead with much sadness in my heart to the media: do not lend yourself to spreading such falsehood.

– Arun Shourie, 6 Sept. 2008

Related post: About the nuclear energy deal.

There’s good news out of MIT on the solar front. MIT News reports that their researchers have made a “major discovery” which mimics photosynthesis. (Hat tip: Reuben.)

Until now, solar power has been a daytime-only energy source, because storing extra solar energy for later use is prohibitively expensive and grossly inefficient. With today’s announcement, MIT researchers have hit upon a simple, inexpensive, highly efficient process for storing solar energy.

Requiring nothing but abundant, non-toxic natural materials, this discovery could unlock the most potent, carbon-free energy source of all: the sun. “This is the nirvana of what we’ve been talking about for years,” said MIT’s Daniel Nocera, the Henry Dreyfus Professor of Energy at MIT and senior author of a paper describing the work in the July 31 issue of Science. “Solar power has always been a limited, far-off solution. Now we can seriously think about solar power as unlimited and soon.”

Investment in R&D is what matters. I keep saying that India needs to do a “Manhattan Project” type of deal and throw about US$ 100 billion into the pot for the next 10 years and then sit back and reap the rewards. Think big and all that sort of thing. What sort of investments went into this little bit of advance at MIT?

The project is part of the MIT Energy Initiative, a program designed to help transform the global energy system to meet the needs of the future and to help build a bridge to that future by improving today’s energy systems. MITEI Director Ernest Moniz, Cecil and Ida Green Professor of Physics and Engineering Systems, noted that “this discovery in the Nocera lab demonstrates that moving up the transformation of our energy supply system to one based on renewables will depend heavily on frontier basic science.”

The success of the Nocera lab shows the impact of a mixture of funding sources – governments, philanthropy, and industry. This project was funded by the National Science Foundation and by the Chesonis Family Foundation, which gave MIT $10 million this spring to launch the Solar Revolution Project, with a goal to make the large scale deployment of solar energy within 10 years.

Just $10 million backed with real science and engineering talent and there you have the possibility of a major breakthrough. Imagine.

He, and others like him, will of course make a truck load of money from such investments. But his profits will be only a small fraction of the huge amount of wealth that will be created. That is what private enterprise is all about. You take a share of the wealth you create. Private enterprise can be distinguished from other organized activities. Governments, for instance, don’t create any wealth. At best, they create the conditions which allow private enterprise to flourish; at worst, they hinder growth (example: India and other poor countries) and merely redistribute wealth by stealing from the rich and passing some of that to the poor.

I hope that Indian private sector movers and shakers will soon be thinking and doing at scales comparable to the Americans.

Pickens is heavily investing in wind energy. See the size of this massive wind turbine. Right click on the image and open the link in a new tab to see the scale of the blades.

Update: (Aug 1st) Here’s a report from the LA Times with some disclosures about Pickens’ plan. Thanks Rohit for the link.

Other stuff:

Here’s a widget that gives you a graph of crude oil prices — mouse over the various time periods at the bottom of the graph (1 month, 1 quarter, 1 year, etc) to change the time range.

Here’s a NYTimes article by Tom Friedman which refers to Pickens and his plan.

Good luck, Mr Pickens.

In the mail today was a piece by a retired chairman of the Atomic Energy Commission. It is reasonable to suppose that he knows what he is talking about. So here’s what he calls “Ten misconceptions about the nuclear deal” by P. K. Iyengar below the fold.

In spite of the fact that the Indo-US nuclear deal is not in the national interest, many in the country, and in Parliament, support it because of misconceptions about the deal, which need to be clarified.

1. The nuclear deal is an agreement between India and the US for the US government to supply nuclear fuel and reactors to India.

Contrary to common perception, the nuclear deal or the 123 Agreement is not a commitment on the part of the US government to provide us with uranium or nuclear reactors. Presently American law prohibits nuclear cooperation with India because we have not signed the Non-Proliferation Treaty (NPT). All the nuclear deal does is to grant a ‘waiver’ from that law, so that American companies can now pursue nuclear trade with India. However, if India conducts a test at any time, the waiver is revoked.

2. Imported uranium and nuclear reactors will be cheap and cost-effective.

Even if the nuclear deal is made operational, the actual sale of uranium and nuclear reactors will be governed by market forces – there are no guarantees of cheap or competitive nuclear power. To the contrary, there is every reason to believe that it will be expensive. The cost of uranium in the international market has gone up four-fold in the last few years, and will rise further with further demand. The same is true of the cost of steel and other materials used in a reactor. Manpower costs are much higher in the West. The example of the Dhabol power plant has already shown us that importing power plants from the West is not necessarily a viable option. We would do well to learn from that experience.

3. The nuclear deal will safeguard our energy security.

It is true that nuclear energy is green energy, and therefore essential for our long-term energy security. But this does not translate into the nuclear deal will ensure our energy security. Power from the nuclear reactors that we buy will definitely be more expensive than indigenous nuclear power. Further, to keep the reactors running, we will always be dependent on imported uranium, which is controlled by a cartel – the Nuclear Suppliers Group (NSG). Therefore, the nuclear deal, by making us dependent on the cartel, will only compromise our energy security. Only our indigenous nuclear power programme can truly ensure our energy security. And in any case, for the next few decades, nuclear power will not exceed 6% of our total electricity production.

4.Importing nuclear plants is a quick-fix solution to the present power crisis.

Nuclear technology is sensitive. Even if the nuclear deal goes through, it will take time to buy and setup new reactors. We have examples of the French reactors in China, and the Russian reactors in Kudankulam, India. It will actually take longer to setup foreign reactors compared to indigenous ones. Just the negotiations and legal formalities could take years. It will be at least eight years before we see the first power. So importing reactors is certainly no quick solution. For the short term, we will still have to rely on coal and hydroelectricity.

5. The nuclear deal does not stop India from further nuclear testing, and therefore does not compromise our national security.

It is very clearly stated in the 123 Agreement it will be subject to national laws, and the Hyde Act is a law of the US. Therefore, the 123 Agreement is certainly circumscribed by the Hyde Act, which very clearly states that if India tests a nuclear device, all further nuclear trade is to stop, and the nuclear materials that have already been sold to us have to be returned. No future Indian government would dare to jeopardise such a huge investment in nuclear power, by testing. So, for all practical purposes the nuclear deal caps our strategic programme – which is precisely what the Americans intend.

6. We can pass a national law to counteract the Hyde Act, and this will protect our strategic programme.

Just as the Hyde Act is not binding on us, our laws are not binding on the US. We can certainly amend our Atomic Energy Act to enable participation of the private sector in nuclear power. But if we pass a law saying that we will retain the right to test, it will have no influence on the actions of the US. If and when we test, they can simply quote the 123 Agreement and the Hyde Act, and pull out all their nuclear materials, leaving us devastated. The only option here is to renegotiate the 123 Agreement and have the clause inserted there. However, the Americans are unlikely to agree to this, since it goes against their non-proliferation policy.

7. The nuclear deal and the safeguards agreement give India the status of a nuclear power.

While the 18 July 2005 Joint Statement did indeed talk about India being treated as an equal by the US, neither the 123 Agreement nor the IAEA Safeguards Agreement, have borne out those optimistic statements. In fact, the IAEA safeguards agreement that has been negotiated is closely based on the model agreement that IAEA has for non-nuclear weapon states. The safeguards agreements that the nuclear weapon countries have signed with the IAEA require them to put very few reactors under safeguards, and allow them to take reactors out of safeguards. India, however, will have to place most of its reactors under safeguards for perpetuity. Therefore we are certainly not being treated as a nuclear weapons country.

8. Without the nuclear deal, we cannot get adequate uranium for our domestic nuclear programme.

The Department of Atomic Energy has always maintained that we have enough indigenous uranium for 10,000 MW of nuclear power for 30 years. We are not yet close to that number. The present mismatch in uranium availability for operating reactors is a consequence of poor planning, and inadequate prospecting and mining. There is talk of importing 40,000 MW of nuclear power, which will cost not less than $100 billion or Rs. 4 lakh crores. If even 10% of this money were spent on uranium mining in existing mines in Andhra Pradesh and Meghalaya, on searching for new uranium deposits, and negotiating with non-NSG countries, there will be enough uranium for a robust indigenous nuclear power programme, until such time as thorium reactors takes over.

9. The safeguards agreement with the IAEA guarantees fuel supplies even if India conducts a nuclear test.

The safeguards agreement only notes, in the preamble, that India’s concurrence to the safeguards is linked to getting fuel supplies. However, the IAEA has no role in this matter, and certainly, no such commitment is given in the safeguards agreement. It also notes that India may take ‘corrective measures’ in the event of a disruption of foreign fuel supplies. It does not specify what these measures will be, it does not provide for any role for the IAEA in this, and it does not bestow legitimacy on any such measures that India may take. It may well be that any such measures that we suggest, such as importing fuel from another country, will be disallowed by the nuclear cartel (the NSG). The only tangible corrective measure is for India to explore and mine more uranium, and to enhance the enrichment capability to provide fuel for those reactors. The latter is subject to uncertainty.

10. The nuclear deal has no impact on our foreign policy.

The Hyde Act states clearly that it is the policy of the US to secure India’s cooperation on a number of issues involving Iran, including its capability to reprocess nuclear fuel (in spite of the fact that Iran, as an NPT signatory, has the right to enrich uranium for use in light-water reactors). This has nothing to do with the nuclear deal, and can only be related to influencing our foreign policy. Recent statements by Gary Ackerman, Chairman of the US House Foreign Affairs Committee, regarding Indo-Iran gas pipeline, only add fuel to such suspicions.

It can therefore be seen, that the Indo-US nuclear deal is not in the national interest. It presents the very serious danger of capping our strategic programme. That alone is reason enough not to go forward with the deal. Additionally, it does not guarantee the energy security that we are seeking, and, in fact, may only end up making us as vulnerable to the nuclear cartel, as we are today to the oil cartel.

It is easy to see why the US wants this deal so badly. At virtually no cost, since there is no commitment towards fuel supplies, they can cap our strategic programme, bring us into the NPT net, through the back door, as a non-nuclear power, keep a close eye on our nuclear activities, including R&D, through intrusive IAEA inspections, and subjugate us to the wishes of the nuclear cartel. If there were no cartel, we could have easily extended the Kudankulam agreement for more reactors, and avoided the present situation. If these are not reasons enough not to go ahead with the nuclear deal, then there are no reasons that reason can find.

The advanced industrialized economies were lucky to have had their development fuelled by cheap fossil energy. Today’s developing economies have a much tougher challenge. It was a very short window of opportunity which opened just about 150 years ago and is likely to close in the next 40 years, by when the known reserves will be depleted at current levels of consumption.

All told, 200 years is a very brief interlude considering thousands of years of human civilization and hopefully hundreds of thousands of years yet to come. At some time in the distant future, they will look back and remark that the age of fossil fuel was a short inflection point, a point at which humanity passed through the bottleneck of dependency on oil from the ground. Before that point, humanity’s primary source of energy was the sun, and so it will be after that point.

The full article is below the fold.

The price of crude oil rose above $140 a barrel this month. The world at large is getting used to high prices at the pump, and even the Indian government finally decided to let the Indian consumer have a taste of what is to come by marginally increasing the prices of petroleum products.

Various theories are being advanced for this unprecedented rise in the price of petroleum — from the machinations of speculators to the derived demand for energy due to the growth of economies such as China and India. The rise in global oil prices even provides a handy excuse to the Indian government for the recent double-digit inflation.

India urgently needs to develop. Energy and economic vitality are conjoined twins. Energy is the binding constraint that faces all of humanity, not just the developing economies. Of course, given the projected increase in demand and the decline in the supply of fossil fuel energy, the price of energy will continue to move up — with predictable adverse effects on the growth prospects of the emerging economies.

The advanced industrialized economies were lucky to have had their development fuelled by cheap fossil energy. Today’s developing economies have a much tougher challenge. It was a very short window of opportunity which opened just about 150 years ago and is likely to close in the next 40 years, by when the known reserves will be depleted at current levels of consumption.

All told, 200 years is a very brief interlude considering thousands of years of human civilization and hopefully hundreds of thousands of years yet to come. At some time in the distant future, they will look back and remark that the age of fossil fuel was a short inflection point, a point at which humanity passed through the bottleneck of dependency on oil from the ground. Before that point, humanity’s primary source of energy was the sun, and so it will be after that point.

All sources of energy — fire, coal, oil, nuclear — for human use have been the result of discovery and invention. Some entity somewhere invests what it takes for research and development, usually some corporation in search of profit, and invents the technology to exploit some new source of energy. All indications are that solar energy will be the major player in the next stage.

Solar energy is non-polluting, abundant, widespread and inexhaustible. India’s development, if it has to happen, will depend critically on whether it has the technology for converting the abundant incident sunlight — insolation — into usable energy. The question is whether India will develop that technology for domestic use as well as for export or, as it has done for all the previous technologies, wait for others to do so and then import it.

It is important to remember that governments do not develop technologies. They do not have a comparative advantage in the type of skills needed for invention and discovery. Which is not to say that governments have no role to play in the process. On the contrary, private players succeed or fail in developing technologies to a large degree on the conditions created by the government. Governments help by outlining the broad goal, assisting with funding, and encouraging competition among private players. Public policy creates the necessary conditions for private enterprise to deliver.

High oil prices can be reasonably expected to continue till the end of the age of oil. For prices to fall, either the supply has to increase or demand has to fall, or both. There are really no reasons for oil producers to increase the supply. Oil is an exhaustible resource whose optimal rate of extraction is dictated partly by revenue requirements of the producers. At current high prices, they meet that goal at low levels of production. If prices climb higher, paradoxically the supply may contract even further.

The road ahead is steep for India, made steeper by rising energy prices. But this is a blessing in disguise because it is a wake-up call. There is time to prepare for a post-peak oil future. Independence from foreign energy — whether oil or nuclear fuel — is not an option but an absolute must. That will only happen if India develops the technology for solar energy use in all its forms, such as concentrated solar thermal and solar photovoltaics.

Solar technology is at its infancy. Costs are constantly declining but it will be several years before it achieves “grid parity” — costs comparable with conventionally generated electricity. Costs have fallen by 20% for every doubling of installed capacity. Projections indicate that by 2020, installed solar capacity will be 20-40 multiples of current levels. Even then, solar electricity would account for only 3-6% of total electricity generation. Solar energy has a long and promising future. How quickly that potential is realized depends on national will.

India has a lot of advantages in this regard. It is a large country and can afford the human and financial capital required for the challenge. As John F. Kennedy had observed regarding the manned mission to the moon, we must do this not because it is easy but because it is hard. Challenges don’t come any harder. India needs the vision to face it and win.

Sunlight is by far the most abundant global carbon-neutral energy resource. Solar has the significant advantages of wide distribution, it is the most environmentally sound energy source, and solar has the potential to meet the large scale energy needs of the future. More solar energy strikes the surface of the earth in one hour than is provided by all of the fossil energy consumed globally in a year. Sunlight may be used to power the planet by its conversion into electricity and chemical fuel. But there is a problem. A response to the “grand challenge” of using the sun as the future’s energy source faces a daunting challenge – large expanses of fundamental science and technology await discovery for sunlight-based energy systems to be enabled and a robust energy policy must be developed that permits new solar technologies to be implemented in a competitive energy market.

The course description goes on to note that significant investment in R&D is required for solar energy to compete with other forms.

The solar opportunity represents a high payoff direction with significant reward but there is no escape that the development of this energy source faces tremendous challenges and substantial breakthroughs are needed. Any viable solar energy conversion must result in a 6 fold decrease in the cost-to-efficiency ratio for the production of electricity and a 10-20 fold decrease stored fuels and must be stable and robust for a 20-30 year period. To reduce the cost of installed solar energy conversion systems from $0.25 – 0.40/kW hr to $0.02 – 0.10/kW hr, a cost level that would make them economically very attractive in today’s energy market, will require truly revolutionary technologies that do not exist at the present time. With the current science and technology landscape for solar so wide open, and no obvious “silver bullet” solution to the problem on the horizon, a comprehensive understanding of the solar energy problem and the science that underpins its solution will be the focus of this course.

I believe that someone someday soon enough would do the R&D needed. Why not India? If not India, once again it will find itself going around begging for the technology — as it is doing in the case of nuclear power.

Talking of nuclear power, I am not at all convinced that it is a long-term solution for India’s energy needs. My guide into this issue is Amory Lovins of the Rocky Mountain Institute. Read his non-technical summary article titled “Forget Nuclear” (Hat tip: Amit) in which he compares “the cost, climate protection potential, reliability, financial risk, market success, deployment speed, and energy contribution of new nuclear power with those of its low- or no-carbon competitors.”

He argues that nuclear is uncompetitive in terms of costs and CO2 displacement, is of questionable reliability, and require high subsidies to off-set high financial risks. But even given the subsidies, he notes that investors are not interested in nuclear.

. . . the private capital market isn’t investing in new nuclear plants, and without financing, capitalist utilities aren’t buying. The few purchases, nearly all in Asia, are all made by central planners with a draw on the public purse. In the United States, even government subsidies approaching or exceeding new nuclear power’s total cost have failed to entice Wall Street.

I think India needs to rethink its energy policy and figure out where nuclear fits into the larger scheme of things. The India-US nuclear deal is not a done deal yet — and that may be a good thing. Here’s Amory Lovins’ conclusion:

So why do otherwise well-informed people still consider nuclear power a key element of a sound climate strategy? Not because that belief can withstand analytic scrutiny. Rather, it seems, because of a superficially attractive story, an immensely powerful and effective lobby, a new generation who forgot or never knew why nuclear power failed previously (almost nothing has changed), sympathetic leaders of nearly all main governments, deeply rooted habits and rules that favor giant power plants over distributed solutions and enlarged supply over efficient use, the market winners’ absence from many official databases (which often count only big plants owned by utilities), and lazy reporting by an unduly credulous press.

Isn’t it time we forgot about nuclear power? Informed capitalists have. Politicians and pundits should too. After more than half a century of devoted effort and a half-trillion dollars of public subsidies, nuclear power still can’t make its way in the market. If we accept that unequivocal verdict, we can at last get on with the best buys first: proven and ample ways to save more carbon per dollar, faster, more surely, more securely, and with wider consensus. As often before, the biggest key to a sound climate and security strategy is to take market economics seriously.

As far as I am concerned, the answer to the question–solar or nuclear–is a no-brainer. It has to be solar. Otherwise India is up the proverbial creek without a paddle.

To some this is old hat. For a while people have been arguing against corn-based ethanol. Mother Jones magazine did a story on it in November 2007 (where I had come across the term “dot corn”). The graphic below from there succinctly makes the case against corn-based ethanol.

[Click on the image; you will get a new image which you can click once more to enlarge it.]

The story in the above image is simple. Due to mandated increase in the use of ethanol as fuel in the US, the increase in the derived demand for corn pushes up the price of corn, and consequently the price of food. Some estimates state that an additional half a billion people could suffer chronic hunger by 2025 as a side-effect.

In a post on this blog in August 2006, I had written about Vinod Khosla’s investments in corn-based ethanol. In that article I had reasoned from basic economics. (It is a fairly long post but I think it is well worth reading, even if I say so.) I concluded that article with the postscript:

I am postponing the “food versus fuel” issue for later. Basically it says that if resources are used in growing biomass for fuel, food production will suffer and adversely affect those who are already hungry and poor. Khosla rejects that trade-off and maintains that there is sufficient food but the ability to pay for it is lacking. In a future piece, I will explore why I agree with Khosla.

The TIME cover story gives some details about how the dotcom equivalent of corn is playing out. It is a mix of politics, economics, and public perception. There are powerful lobbies in the US that support ethanol. Last year, TIME reports, the subsidies for corn-based ethanol amounted to around $8 billion.

My position is the same as before. If prices at the pump are undistorted, then the market will figure out the socially optimal solution. But subsidies distort prices and therefore the market outcome cannot be trusted to be optimal. I should make clear that I am not against subsidies per se. There are economically valid justifications for subsidies, such as if they internalize some positive externalities or if there are high fixed costs that would prevent the market from reaching an optimal solution. If the subsidy of $8 billion were given to research and development of technologies that improve the process of extracting ethanol efficiently (corn based or cellulose based) so that ethanol becomes competitive relative to gas, there can be little argument against it. But the subsidy currently being given is not of that type. Therefore the outcome is most likely to be economically bad. It could be just a scam.

So what about the food versus fuel struggle? Let’s take the present case first which involves subsidies given to growers of corn and manufacturers of corn-based ethanol and their distributors. These subsidies increase corn production — which means that growers will substitute corn for other foodstuff. Since all of the increased corn production and more will go into fuel, it will reduce the supply of both corn and other foods in the marketplace and thus the price of food will go up.

How this shifts the supply of fuel depends on what the energy balance of the new mix of fuels is. If corn production itself uses a lot of oil, then the increase in the aggregate fuel supply will be lower than the additional ethanol supply. On the demand side, an increase in the price of fuel will certainly shift the demand lower no doubt. But there is a psychological element here which could perversely push up the demand. People may mistakenly believe that the consumption of ethanol based fuels is not as harmful to the environment as using gas, and thus be reluctant to economize on driving needlessly. Feeling virtuous, they may swallow the advertisers’ line about “the more you spend, the more you save.”

All this would have the predictable effect of shifting food from some mouths in the poor countries and into gas tanks in the rich countries. But wait, there is more to this story which we will go into in a bit.

Now let’s consider an alternative scenario: subsidies are not given to growers of corn, and manufacturers and distributors of corn-based ethanol — but instead public funding is given to R&D of alternative fuels, including ethanol. Suppose the R&D bears fruit and in a few years, bio-fuel technology is sufficiently advanced such that all sorts of substitutes for fossil fuels are able to compete honestly.

This alternate scenario does not guarantee that the food supply will not be adversely affected by the shift to biofuels. There are no free lunches in our universe. Unless the total productive capacity increases, the increase in the production of something necessarily means a decrease in the production of something else. You cannot stop using fossil fuel (either due to non-availability or due to policy) and start using biofuels without having to shift some stuff from the plate and into the gas tank.

There are a bunch of facts that frame the whole debate about food and fuel. First, food and fuel are substitutes in production. For any given productive capacity, more of one can be produced only at the expense of the other. So if more of both have to be produced, there is no alternative to increasing the productive capacity. Productive capacity can be increased in the case of fuel by two distinct ways. Either enormous new reserves of fossil fuels are found or the technology is developed for alternative fuels (or both.) Even if new fossil fuel reserves are found, their price will essentially track the prices of non-fossil fuel alternatives. If solar power is available at $20 a barrel oil equivalent, then a barrel of oil will be priced at $20; if solar power is available at $100 a barrel, then a barrel of oil can sell for $100 a barrel.

The lesson is that if you want cheap fuel in the future, you have to invest and discover cheap alternative fuels.

Second, the price of fuel will go up. Demand is definitely going to continue to rise because a couple of billion people are getting into cars and also because as the global economy is getting larger, the demand for manufactures and food is rising — which necessarily involves energy. Rising populations coupled with increasing standards of living cannot but mean more energy consumption. The same holds for food: more people eating higher up on the food chain means more demand for food. Increased demand means higher prices.

Sure higher prices also induces increase in the supply. How much the supply changes as a result of higher prices (that is what is called the “price elasticity of supply”) depends on factors such as the availability of land, water, energy, and food production technology (such as high yield seed varieties). Land and water are already in short supply. Therefore one can reasonably expect that the price of food will rise without inducing a great deal of increased supply (that is, the price elasticity is low). Higher food prices mean that poor people will have to make do with less.

Third, the availability of food for a population is a function of how productive the population is — which is another way of saying how much income the population has. Chronic hunger in a population is a consequence of low incomes. Expecting rich economies to continually provide food to poor people is not reasonable. So it does not matter whether the rich drive their SUVs using oil or ethanol; what matters is whether a certain population has enough income to buy food. If a billion people produce enough stuff (whatever it may be) that gives them an income, that itself will be sufficient motivation for farmers wherever to produce food if that is what the billion people want.

So what is in store for India? India’s over one billion people need a lot of food and a lot of fuel. Only if India’s income — the aggregate production of a billion+ people — is sufficiently large for it to be able to afford food and fuel, there will be sufficient food and fuel for it. Because India is a large economy, it has to be necessarily self-sufficient. No large economy can actually import all or even most of its food and fuel without being poor. As India is not naturally endowed with fossil fuel reserves, the only option is alternative fuels. That means, India has to invest in the R&D, which can only happen if the political will exists. Note that India does not have neither the land nor the water for doing what the US is doing — attempting to grow energy in the cornfields.

I should underline one fact which I have argued before: that the only real constraint in the world is energy. All things are readily available if there is sufficient energy. Given sufficient energy, you can have as much fresh water as you want, as much food as you want, as much of pretty much anything you want. So the biggest problem that India should aim at solving is the problem of energy. Conversely, if India is unable to achieve energy self-sufficiency, there is little hope for India.

This is a brief response to a couple of comments to that post. First, let’s recognize that the current state of the art does not allow the harnessing of solar energy on a scale that will make conventional fuels obsolete or even make a significant dent in their demand. That is precisely why more research and development is required. If doing the R&D were cheap and easy, we would not be having this discussion because it would have been done by some enterprising corporation already. The reason I put the figure around US$100 billion is because it is going to be a hard problem — you have to solve all sorts of related issues, from storage technology to fabrication of photo-voltaic devices to the mass manufacture of associated equipment.

Second, public investment does not mean that a bunch of government entities will be doing the R&D. Funding is public but the actual work can be entirely in the private sector. The hard problem is to create the mechanism which would allocate the funds to the most productive teams. One way would be to create an independent authority or an institution along the lines of the National Science Foundation or NASA of the US.

Technology does not spontaneously arise out of thin air. Someone somewhere at some time has to have the will to make the effort to develop it. So far for all practical purposes all the modern technologies are developed in the West, particularly in the US. It is time for us to pause and wonder why it never happens in India. Are Indians incapable of developing technology? Surely they are not dumber than any other large aggregate of people. Are they lacking resources? Not really, because India is a large country, even though it is poor in per capita income and wealth. So what is the missing ingredient? I think it is a lack of vision, a lack of national pride. Sometimes in a dark mood I think that Indians are a nation of followers, not leaders.

The greatest constraint that developing countries face is that of energy availability. Energy is the primary resource in the sense that all other resources – land, water – can be substituted to a considerable degree by energy. Yet billions of people cannot hope to satisfy their energy needs by emulating the developed countries simply because they are late in the game. Their only hope lies in exploiting energy sources that are secure and renewable. One such source is clear as broad daylight – solar. The annual solar energy incident on every square mile is approximately equivalent to 4 million barrels of oil. To capture that efficiently enough to make it commercially viable requires technologies that do not exist today.

India imports about 70 percent of its current oil needs. It can barely afford that, to say nothing of what it will be like when oil prices continue to hit higher peaks and its needs increase in pace with its growing economy. It lacks nuclear technology and nuclear fuels, and has to debase itself begging to be given access to them.

India cannot continue to ignore reality: its continued economic growth and development is predicated on it developing the technology to exploit solar energy, and base its industrial, transportation, commercial, and household energy needs to be met through the derived electrical energy. Every bit of modern technology India uses has been developed elsewhere. It would be a welcome change if it developed the technology that would be its lifeblood. Developing technology is a matter of will, vision, and sometimes dire necessity. The Manhattan project and manned missions to the moon are examples of what can be achieved within a short time if the will exists.

India cannot afford not to develop solar energy technology for these reasons. First, eventually someone will, and then once again India will have to perhaps grovel for access to it. Second, and conversely, if India develops the technology, not only will it have it for its own use, it would be able to sell that technology to other nations. Third, India does not have a very large legacy infrastructure system built on oil. It therefore has the opportunity to build its infrastructure that is electricity oriented. For instance, India’s transportation needs can be met more rationally primarily by a rail network backbone instead of roads, cars, airports, and airplanes.

Developing solar technology is not going to be cheap. But the alternative is going to be immeasurably more expensive. Here’s the scenario using ball-park figures. India somehow acquires the vision and the will to invest US$100 billion and within the next five years develops efficient solar energy technology. That investment reduces its dependence on foreign energy imports on average by US$100 billion every year for the foreseeable future. The returns on investment will be immense. Furthermore, if India were to be the leader of solar energy technology, it could earn from licensing that technology to other economies.

The question naturally arises: why aren’t others doing it if it is such a great idea. First, the private sector cannot match the funding ability of a large government. Second, other large governments do not face the immediate necessity that India faces and besides they are invested in their legacy systems. Another question relates to why the market cannot be depended upon to create the solution. It is well known that markets fail when there are very high fixed costs. Only a government has the ability to fund the high fixed costs and thus correct for the market failure. Later the fixed costs can be recovered through taxing the inevitable increase in the national income.

With the will to invest US$100 billion, India can acquire the best brains in the world to work on the problem. That spending will have important forward and backward linkages that will have multiplier effects throughout the economy. Research and development capacity will be built in the private sector and in educational institutions. Millions of productive jobs will be created by the need to develop the infrastructure required for the new industries that result from such a massive project.

India today is a large economy with a GDP of around US$ 1 trillion. The majority of its billion plus population is stuck at a subsistence level and faces an energy constraint. India’s economy cannot grow to US$ 10 trillion—what it minimally has to be if it is to be become a developed economy—without it having a secure, renewable, non-polluting, affordable source of energy. Investing US$100 billion may appear large but in the context of the Indian economy of the near future, it is small change. Per capita that investment works out around US$100, an amount that is well worth the thousands of dollars of returns it can generate every year.

The biggest challenge India faces is not a lack of ability to create the energy technology which will ensure a prosperous future. It is rather the lack of vision to foresee the future and then muster up the will to—for once—being the leader. India has to ask itself: isn’t it time for it to create, innovate, transform and lead instead of being a large country of followers in the field of science and technology?

+_+_+_+_+_+_+

NOTES:

This piece also appears in the Dec 07 issue of Pragati.

A previous post on solar energy from over 4 years ago (wow! it’s been a while): Solar power super power.

Keith Hudson, the author of the outstanding Daily Wisdom postings, recently commented on the matter of free energy. With his permission, I am sharing his post with the readers of this blog.

“An Irish company has thrown down the gauntlet to the worldwide scientific community to test a technology it has developed that it claims produces free energy. The company, Steorn, says its discovery is based on the interaction of magnetic fields and allows the production of clean, free and constant energy — a concept that challenges one of the basic rules of physics. It claims the technology can be used to supply energy for virtually all devices, from mobile phones to cars. Steorn issued its challenge through an advertisement in the Economist magazine this week.” –Scientific American (22 August 2006)

Almost 30 years ago when I had some funds at my disposal I was approached by an engineer who had devised a new type of gearbox and wanted my organisation to make a model. He showed me his drawings and I was almost totally persuaded that this would be an innovation that would revolutionalise the whole automotive industry (in which I had spent years of my life) — and much else besides. He was enthusiastic and obviously sincere because he told me en passant of engineering firms who’d turned him down. So I ‘phoned some of them but none of them were very helpful until I managed to get through to the research director of a well-known engineering institute. Initially, he huffed and puffed and was evasive as the others in speaking to a stranger on the ‘phone but in this case our conversation went on long enough for a degree of trust to be established and he finally confessed: “To be frank, this is yet another version of the perpetual motion machine.”

I thanked him and turned the engineer down. But the inventor had been so persuasive that, for many years afterwards, I often wondered whether the innovation was, in fact, sound. This was until I learned that a highly successful businessman and millionaire — of great public eminence today — had been made bankrupt earlier in his career after investing in this idea. (Perhaps I needed to have had confidence in the idea myself in order to become a millionaire myself in later years!)

All new ideas, good or bad, meet with resistance at first and this is the ploy that inventors of “free energy”, rather like faith-healers, consciously or unconsciously use when trying to convince others. They seem more committed to persuading others (and describing the opposition they meet) rather than getting on with the ideas themselves. I realise now that my engineer could have actually built a model himself — albeit fairly expensively over a long period — and I also wonder why, out of the hundreds, indeed thousands, of faith-healers in the country, not a single one of them has become tempted by their successful treatment of others to become, not just a millionaire, but a multi-billionaire.

The same applies to the Irish firm. They had already apparently discovered their system of free energy in one of their existing products. Why spend a great deal of money in challenging the world?

Keith Hudson, Bath, England.

Believing that something can come out of nothing is magical thinking. The illusion of a rabbit out of a hat taken seriously. Wishful thinking leads to popular delusions such as that there is an omniscient benevolent power out there which is personally interested in human affairs, and which power can be petitioned to and if done sincerely enough, that “Big Daddy up in the Skies” will arrange stuff more in accord with our personal satisfaction.

Wishful and magical thinking is pretty pervasive and universal in time and space. “Give me your troubles, and I will take care of them” proclaims the guy with the head scarf and trimmed white beard. “Believe in me and you will have eternal life” says the guy nailed to a tree. “Do exactly as I say and you will have unlimited sex” says the guy whose image is verboten. The list is pretty long and apparently varied. But the subtext is the same and it gets tiresome merely recounting the popular delusions that we are susceptible to.

The recipe is simple. Take three cups of greed (finely processed), add two pounds of laziness (canned variety can be substituted), mix well with a whole bunch of stupidity (sliced and diced), throw in some fear (properly aged atavistic type is best for this), and bake for a good few years in a conventional oven.

That someone else will solve our problems is basic laziness. Believing that if you pray sincerely enough, you will get stuff is greed. Fear of non-existence is so primal and insistent that some will kill others to ensure continued existence in an afterlife.

Even people with very limited intelligence have figured it out that humans suffer from these cognitive diseases. Nigerian scamsters make a pretty decent living out of it. Huge billion dollar organizations with immense power owe their existence to the gullibility of billions. It may take an Einstein to figure out the basic laws of the universe, but figuring out how to make money out of the bounded rationality of humans is not rocket science.

While I grant the possibility that the universe may be the ultimate free lunch, within the universe there is no such thing as a free lunch. No amount of futzing around will get you two out of one. Free energy is as likely to happen as the resurrection of a dead guy.

”But,” the argument goes, “isn’t it true that many things that were thought impossible in the past turned out to be incorrect?” Sure lots of false beliefs were demonstrated to be false. However that does not mean that every apparently illogical idea stands a pretty good chance of being shown to be correct in the future. It is a silly misuse of inductive reasoning to say that we have changed our minds about things in the past, and therefore we will change our minds on this, that or the other specific notion as well.

Engineering problems can be solved using technology, and technology continually pushes the frontiers of what is doable. But no amount of engineering can route you around a logical impossibility. Perpetual motion machines are logically impossible and therefore technologically intractable.

What brought this line of thinking was my post on “Free Energy?” and the related comments. Sure, we will discover new energy sources which we cannot dream of now. But free they will be not, in the sense that there has to be a source which supplies the energy and the availability of energy here will be more than paid for with an increase in the over-all entropy of the system.

Something only appears “free” when in the analysis one stops too early. I wish that we could get free stuff (books, for instance) but that would be wishful thinking.

The magical universe exists but magic unfortunately doesn’t.

Perpetual motion machines of the first, second, and third kind? Not going to happen.

Economists have a mantra which says “Markets work” and mumble under their breath the disclaimer “subject to a bunch of conditions, of course.” By “markets work” they mean that when a whole lot of buyers and sellers get together and buy and sell stuff, magic happens through Adam Smith’s invisible hand, and everyone ends up better off than they were before the trades took place. Each market participant has to be concerned with only his objective (maximizing utility in the case of consumers, and maximizing profits in the case of producers) and the maximization of social welfare is assured.

When you go to buy, say, fuel for your home, you check out the alternatives and buy what suits your purpose cheapest. Basically, subject to the thickness of your wallet, you demand a quantity based on the price which you take as a given and which you cannot alter. You really don’t care how the fuel was produced or mined, how it was transported, how it was stored, and a million other things that went it to the process of getting that fuel to the store. All you care about is the price, and rightly so, because the price encapsulates within itself all the information you need to make the decision.

The question then is “how is that price discovered or determined?” If there are a lot of suppliers, then the price is determined through the interaction of the aggregate supply and the aggregate demand: the market-clearing, or equilibrium, price is that which equates the quantities supplied and demanded. If the demand exceeds the supply at a particular price, that is not the equilibrium price. When there are lots of suppliers and demanders, no one of them can determine the price; they are all “price takers.” And the market price is pretty close to the average cost of production. But if there is a very small number of suppliers, each controlling a large part of the supply, then they can set the price. In the extreme case of a monopoly, a market with only one supplier, the price is entirely up to that firm. The price has essentially nothing to do with the costs of production. (This is being typed on a machine running Windows™. See what I mean?)

One basic fact of the universe is that fortunately there are substitutes for pretty much anything we need. Rice and wheat are substitutes; chicken and lamb; so are cars and buses; electricity and gas; capital and labor – the list is endless. Take any category of consumables and you will find a collection of substitutes. Consider the category: liquid fuels. There is gas (also called petrol), diesel, kerosene, vegetable oils, biodiesel, etc. Oh, let’s not forget ethanol produced from biological sources. It is the ethanol issue that sparked the foregoing brief Econ 101 lecture.

Khosla versus Rapier

What happened was my friend Suhit Anantula alerted me to an online debate between Robert Rapier who works for a fossil fuel company and blogs at The Oil Drum, and Vinod Khosla.

Vinod Khosla is an Indian American venture capitalist who is considered one of the most successful and influential personalities in Silicon Valley. He was one of the co-founders of Sun Microsystems and became a general partner of the venture capital firm Kleiner, Perkins, Caufield & Byers in 1986. In 2004 he formed Khosla Ventures.

Vinod was featured on Dateline NBC on Sunday, May 7, 2006. He was discussing the practicality of the use of ethanol as a gasoline substitute. He is known to have invested heavily in ethanol companies, in hopes of widespread adoption. He cites Brazil as an example of a country who has totally ended their dependence on foreign oil.[Source.]

Rapier’s quarrel with Khosla is outlined in his post Khosla Debunked: Ethanol is NOT the Answer. His concern is that Khosla has the power to influence the US energy policy and people may be making a mistake in not scrutinizing the claims that Khosla is making about ethanol. Rapier fears that people—including policy makers—will be lulled into complacency and therefore not pay attention to the looming crisis following peak oil. He believes conservation (among other things) will be neglected.

Rapier’s thrust was to convince Khosla that corn ethanol is a bad thing. Khosla, on the contrary, believes that corn ethanol is a good thing and is an important intermediate step (which will demonstrate the feasibility of ethanol as a substitute for liquid fossil fuels) towards the ultimate goal of cellulosic ethanol which will reduce the US dependence on foreign oil. Khosla is putting some of his considerable wealth where his mouth is.

Khosla agreed to take up the challenges Rapier made in his debunking and debated Rapier on the phone. The details of that conversation are available in A Conversation with Vinod Khosla. Rapier acknowledges that, like himself, Khosla deeply cares about energy independence. They are also in agreement that current energy policy needs a dramatic overhaul. This include (among other things) the imposition of a carbon tax and the elimination of grain ethanol subsidies. They both support funding for research in energy storage devices.

Each of Rapier’s two posts generated around 300 comments. I was somewhat surprised that none of the comments addressed the issue from an economic viewpoint. The debate of course is between an oil man and a very successful venture capitalist, neither of whom is an economist. My aim here is to inject some basic economic reasoning to the issues they discussed.

When Markets Fail

The first question is: Is ethanol, whether grain or cellulosic, the answer to the matter of energy independence? The answer from an economist’s point of view is simple: The market knows. Essentially, consumers will vote with their dollars. If at the pump, they find ethanol to be a cheaper substitute, they will buy it. It all depends on the price. And if the price is “right,” ethanol will win and consumer behavior will assure a socially optimal outcome. But—and here is the clincher—will a socially optimal be assured if the price is tampered with?

One can tamper with the price in a number of ways. For instance, you could impose a tax (or a subsidy) on the thing itself or on its substitutes. Or you could tax (or subsidize) some of the inputs that are required along the long production process of the thing or its substitutes. If you do so, then the price does not reflect the full cost of production: it can either be higher (in case of taxes) or lower (if subsidized). Then the market outcome may not be socially optimal. In effect, you have not met one of the conditions that are necessary for markets to work. (It is the “no externalities” condition.)

Let’s confine ourselves to ethanol and gasoline (the stuff that gushes out of oil wells.) The price you pay at the pump for gas has, you would suspect, some relationship to the cost of discovering crude, mining, transporting, refining, storage, and distribution. It is not entirely clear though whether the price you pay is equal, higher, or lower than the total cost. What if in the supply chain, some inputs are not included in computing the costs? For instance, there is a cost associated with assuring supply of Middle East oil and the protection of the oil interests of the US. Wars have to be fought and blood split. The wars can be considered an “externality” associated with the supply of Middle East oil. Is a certain amount (tax) added to internalize the “defense expenditure” to the cost of the gas you pump at the station? If not, then it could then well be that the price you pay is lower than the cost and in effect, the more gas you use, the more subsidy you enjoy.

Then there is the externality associated with the consumption of the gas. How much is the cost of the greenhouse gas emissions associated with the burning of a gallon of gas? It is not at all a trivial exercise to arrive at that number. Yet, strictly, that cost has to be added if we are to claim that we are pricing gas at full cost. One instrument for internalizing the cost of that consumption externality is the carbon tax.

Finally, and not the least, is the question of how much is the cost of mining the oil, which is but the first step in the production process of gasoline. Note that crude oil is “mined” and not “produced.” There is a finite (perhaps unknown) amount of crude oil in the ground. The net present value of that oil stock depends on the present (and future) availability of substitutes. Imagine if we were to find a source of very cheap energy—cold fusion, for instance. Then the value of the stock of crude will go down substantially. Contrariwise, if no substitutes are found, then the price of fossil fuels will sky-rocket.

Similar concerns are associated with ethanol. Is there a subsidy (or tax) associated with it along its supply chain? Are the farmers getting a subsidy for growing corn? That’s a direct subsidy. Is the fossil fuel which goes into the production of the corn itself somewhat subsidized? That’s an indirect subsidy. What about the “blender’s subsidy”? That drives a wedge between the cost of production and the price.

It appears that it is a very, very complicated matter to figure out the true full cost of either of the fuels. So the market may fail to grind out the socially optimal result. It is of course conceivable that all those numerous taxes and subsidies and un-internalized externalities will somehow cancel each other out and the prices will reflect the true costs of production. In which case, the market will give us a winner. But I somehow doubt it.

Having recognized that the price may be “inaccurate” given the convoluted taxes, subsidies, and externalities, it is still true that at the pump the consumers will simply compare the prices of ethanol and gasoline and go for whichever gives them more bang for the buck. As it happens, the historical rack price of ethanol has been consistently higher than that of gasoline for the period 1982-2004 (see Rapier). For the record it must be mentioned that there is a $0.60 per gallon “blender’s subsidy” associated with ethanol. Does this subsidy go along some way to rectify the mis-pricing of gas? Would it be better to remove that subsidy and instead add on an additional tax on gas? This will have distributional consequences. Fuel companies, both gas as well as its substitutes, will see their profits decline, the consumer will pay more, and the public treasuries will gain. These are policy issues which are generally resolved in favor of whichever lobby has the most political power.

Fixed Costs

One of the guiding principles that Khosla follows in his recommendation is that the solution to energy independence has to be practical and therefore must suit the current fleet of vehicles. He believes that the auto companies will oppose any solution which requires re-tooling of their existing manufacturing facilities. In other words, there are higher fixed costs associated with some substitutes of gasoline, and Khosla’s position is that these are lower in the case of ethanol. Aside from the fixed cost of using ethanol, there is also the fixed cost of distribution of ethanol. The infrastructure of pipes which delivers gasoline cannot deliver ethanol for technical reasons. Setting up a parallel delivery system is a major fixed cost and will be a barrier to the adoption of ethanol.

The existence of fixed costs negates one of the conditions necessary for the market to grind out the social optimal. That is, if firms have to recover their fixed costs as part of the price of ethanol, then they will be at a disadvantage relative to firms which supply gasoline and whose investment in the distribution system for gasoline is a sunk cost and thus do not affect their bottom line. One way to level to playing field is to pay for the ethanol distribution system through public funds. However, the use of public funds have opportunity costs which need to be evaluated. More about this later.

There is another very important cost associated with petroleum substitutes: discovering them. In the case of ethanol, research has to be funded and processes discovered for continually improving the efficiency of transforming grain or cellulose into ethanol. Again these are fixed costs. For market efficiency, the fixed costs have to be paid for from a source other than at the pump. And here is where choices have to be made at a policy level. Where should government and society place its bets and how much? Should it be ethanol? Or should it be solar? How about butanol? Should government fund a wide range of potential substitutes and let the chips fall as they may? But then, public funds are not unlimited. Research funding could be too thinly spread out for any of them to be successful. Choices have to be made. Granted these choices are not made in a vacuum of ignorance; many terribly knowledgeable brains can help out with assigning probabilities to the bets. And it is venture capital geniuses such as Khosla who influence to no small extent which way the government bets will be made, and eventually make a pile when the chips fall.

Scale Economies

Coming back to the matter of when market competition leads to socially optimal outcomes, there is another condition which must be satisfied, and that is, there must not be “scale economies.” More specifically, if there are increasing returns to scale, then markets may not work as advertised. Here is a hypothetical scenario. Imagine that the cost of production of gasoline is $1.50 a gallon when one billion gallons of gasoline is produced. Assume that the final price is $1.50, equal to the cost. Now assume that only one million gallons of ethanol is produced. Let’s say it costs $2 a gallon, and the final price is $2.00 a gallon. Clearly, at these levels of production, ethanol would lose out to gasoline. Ethanol will not substantially replace the use of gasoline.

Now assume that someone spends $100 million on research and develops a very efficient process for converting cellulose to ethanol which brings down the marginal cost of production of ethanol to $1 a gallon. Then if we produce two billion gallons of ethanol using the new process, then the average cost of a gallon of ethanol is $1.05. In other words, we have constructed a scenario where there are scale economies in the production of cellulosic ethanol, and these scale economies arise because of the $100 million fixed cost of research and development. Given this scenario, the availability of 2 billion gallons of ethanol priced at $1.05 a gallon competes very well with the one billion gallons of gas priced at $1.50 a gallon. In fact we will have up to $0.45 per gallon of ethanol to play around with to pay for the any additional cost of distribution and use. Consumers will substitute their fuel demand from gas to ethanol and thus reduce the dependence on gas.

Conclusion

Here is a recap of the story so far. Ordinarily, the market can be relied upon to decide whether ethanol will indeed reduce our dependence on fossil fuels. However, the required conditions for markets to work are not met in this case. They are so because first, the prices are distorted due to externalities, taxes, and subsidies. Second, there are scale economies and fixed costs. Therefore all the usual talk about the market grinding out the optimal do not hold. This calls for intervention in the market, though I should hasten to add that the intervention does not have to be governmental. The main intervention has to be in the funding of the fixed costs for the development of ethanol production processes and the removal of factors that distort the prices. The latter involves rational taxation policy.

Khosla’s position, in my considered opinion, can be justified on economic grounds: he is intervening in a market which has market imperfections. As a venture capitalist, he is positioning himself to gain from the possible success of ethanol as a potential substitute for fossil fuels by investing in ethanol production. He is, in effect, paying for some of the fixed costs associated with ethanol. His lobbying efforts also go towards getting the government to fund research and development. Furthermore, his promotion of ethanol will likely catalyze some research investment in ethanol production processes. He cannot be faulted for doing what a venture capitalist does.

It does not matter whether Khosla’s motives are purely altruistic or not. As far as I am concerned, self interested behavior and social welfare are not necessarily mutually antagonistic. His case for ethanol also does not depend on the extent to which Brazil has succeeded in the use of ethanol. His position is also immune to any EROI (energy return on investment) arguments. This is so because the quality of energy input differs from the quality of energy returned. Simply stated, if one is spending $10 to convert 10 units of energy to produce 7 units of energy which is valued at $2 a unit (total value $14), then even though the EROI is only 0.7 (less than unity), the economic gain is $4.

So is ethanol the answer? We don’t know for sure. The great challenge is to get the price right. And for that, we have to determine the full cost of the alternatives. Having gotten the price right, we can depend on the market to determine the optimal solution from various alternatives. The alternatives are also discovered though a process which depends on the market. By that I mean not just the market for ethanol and its substitutes, but also the market for ideas which is the more important market. Through informed debate and dialogue, based on solid research, it is possible that we will converge to a solution – if not the perfect solution, to a close approximation of it. The best thing about a liberal democratic market-based economy such as the US is that the process of making public policy is itself market based. You have to defend your ideas against competing ideas and the ones which can withstand scrutiny survive.

Rapier’s challenge to Khosla and Khosla’s response is an excellent illustration of the basic process which underlies the enormous success of the United States: debate and inquiry. It has been a learning experience for me.

Post script: I am postponing the “food versus fuel” issue for later. Basically it says that if resources are used in growing biomass for fuel, food production will suffer and adversely affect those who are already hungry and poor. Khosla rejects that trade-off and maintains that there is sufficient food but the ability to pay for it is lacking. In a future piece, I will explore why I agree with Khosla.

CJ likes to make those kinds of superficially profound statements. We were meeting after a long time. I was in Delhi for a conference and caught up with CJ at the Taj Mansingh Hotel coffee shop. We were discussing the spike in the gas prices.

“Dead or not, seventy dollars a barrel for crude was bad news for India considering that India imports about half of its energy needs. Will slow down the economy a bit, won’t it?” I said.

CJ is a contrarian. Never seen him see an issue the same way that prevailing wisdom indicates. You can count on him to prepare to make hay when the clouds come rolling in.

“I think it is a great deal of luck that oil is peaking,” he said. “That is one of the best things that has happened lately. It is good for the world, and it is going to be excellent for India. The only guys who stand to lose are the bad guys.”

“O yeah? The bad guys are making money hand over fist, aren’t they?” I said.

“That’s alright. It won’t last. In fact, it is a pity that the shock to the system came so late. Shocks are good. Makes things interesting. Every shock to a system makes it stronger. Neitzsche, you know. Everything that does not kill me, only makes me stronger.”

“You mean, that the oil industry will become stronger?” I said.

“No, the shock to the global economy will make the global economy more secure. More and better things will follow. The oil companies will morph into something else as they follow the dinosaurs. Fossil fuel is called so not without a reason.”

“Fossil fuels are not made up of dinosaur bones, you know. It was the carboniferous period that petroleum began its life-cycle,” I said.

“Doesn’t matter. It is the shock to the system that we need to focus on. Shocks make the world go round. The evolution and diversity of life is connected intimately with shocks. Shocks are what I call the Shiva Hypothesis,” said CJ.

“Shiva hypothesis? Isn’t that already taken? Shiva as the Creator and the Destroyer?”

“Let me explain this. At the end of the cretaceous period about 65 million years ago, a pretty big chunk of rock slammed into the earth. That shock killed off the dominant life-forms and cleared the stage for the little rodent-sized mammals to gain a foothold. Dinosaurs exit stage left, mammals enter stage right.”

“I know that. That is like a soft-reboot of a system. Lots of stupid processes running wild and hogging resources. So just kill off those and clean up the system,” I offered.

“Silly analogy,” CJ replied. “What you really need to consider is the economics of the situation. I suppose you have not forgotten Econ 101 now that you have been out of Berkeley for two years.”

“Shall we walk around the shops here?” I asked.

The Mont Blanc shop was right around the corner from the coffee shop. It was brightly lit and tastefully appointed and devoid of any shoppers. The sales lady brightly greeted us and came over to chat.

Here was a nice piece of luggage, a black carry-on. How much I asked. I suppose it was one of those shops where if you have to ask the price, you have no business being there. She said it was a new arrival and was modestly priced around $1000. Pretty good, pretty good, said I as if the idea of a carry-on costing about two years of the average Indian’s annual income was so ho-hum. I am as sophisticated as the next guy. The coin purse under the glass case with a magnifying glass mounted on rails was next on my list of price inquiries. It was an affordable $300. You would have to carry gold coins in it for the coins to match the cost of the coin purse, of course.

The case displaying pens and watches held a watch that I thought I fancied. Only $3,000. I had a thought. I realized that I could spend about $5000 in the shop and walk out without having to haul stuff away in a truck. Here was a place that was alien to me and to about 99 percent of the world’s population.

The economics, as CJ had said a little while ago, is what matters. But I wanted to get back to the oil shock discussion.

“So, CJ, how do you see the economics of the peak-oil business?”

“Simple really. Markets respond by increasing the supply of substitutes when the price of a good goes up. Suddenly the market for alternative energy forms will look pretty good and you will have a substitute for the polluting carbon-based fuels.”

“Yes of course. Solar energy will make a lot more sense if the price of oil is not the ridiculous $20 a barrel,” I said.

“OK, let’s get this thing straight. It is all solar energy. Carbon is just the working medium. Fossil fuel? Came from the sun through photosynthesis. Your own energy? Ultimately you are powered by photosynthesis. Wind energy? Powered by the sun. Tidal? Sun powered.”

“Ah but nuclear energy is not solar in origin. That is perhaps the energy source that originates outside the solar system.” I said.

“You are right, I think. The heavy elements which power nuclear fission reactors originated outside the solar system. But the rest are solar. In fact, fusion could be considered extra-solar as well. Anyway, perhaps now we will move beyond fossil energy. I think that the age of what I call the ‘Direct solar energy’ age is here.

“Instead of photosynthesis, a process which involves carbon dioxide and has its attendant problems of global warming and such, you have to go directly to solar energy. Photovoltaics is going to get a boost. I think the slogan I would promote will be ‘Photovoltaics, not photosynthesis.’ Get some t-shirts printed with that logo, will you?”

“I agree that cutting out the carbon from the middle and going directly to tapping solar energy is a good idea, CJ. But it will take too long. What happens in the meanwhile is what bothers me.”

“The meanwhile will not be a such a long time. The pace of technological change is accelerating at an accelerating pace. Second order acceleration, if you can get your mind around it. It boggles the mind. The smart money will be on developing direct solar energy solutions such as photovoltaics and a few somewhat indirect solar energy solutions such as wind energy. I would say that in the next few years, you will see a gradual shift to alternate technologies available commercially.”

“And that would be good for India?” I asked.

“Actually this is great for all economies that currently depend on imported fossil fuels. Indian movers and shakers don’t have the foresight to actually develop alternative energy solutions. India should have done so years ago. After all, India is a large economy with the energy bill annually running into several tens of billions of dollars. Imagine that India had invested massively in direct solar energy (DSE) research and development. Just a few billion dollars well spent on energy research would have paid enormous returns. A huge domestic market is a given, of course. And the conditions are such in India—280 sunny days a year on average—that direct solar energy makes a heck of a lot of sense.”

“I know what you mean. Investing in DSE research would make a lot more sense than ‘let’s send an Indian to the moon by 2010’. But I suppose Indians lack imagination, primarily. The US has cars and the US has highways and the US has sent people to the moon. So we in India have to have cars, and we have to have expressways, and we have to send a man to the moon. That we should have a good public transportation system instead of cars, a great rail system instead of expressways, a national goal of developing alternate energy source by 2010 instead of sending a man to the moon—that is not part of our thinking. Of course, if I say that I think Indians are collectively stupid, I get called names.”

“You call them names, and it is not surprising that you will get called names. But I wouldn’t worry about being called names. Just words, not sticks and stones, etc. Anyway, here is what I think. Because Indians are too stupid to imagine a different scenario and are fated to ape the westerners, now there is some hope for India.

“Basically, given the pressures of high oil prices, the US and other developed countries will develop the direct solar energy solutions. That is why they are called developed economies, by the way. They develop solutions. The developing economies merely copy the solutions that the others develop. They should be called the ‘me too‘ economies instead of developing economies.

“Then the developed economies will license the DSE to economies like India. Basically, India will import the technology, instead of importing the oil. And that I believe will be cheaper than importing oil and thus supporting jihad around the world. The world wins and except in the short run, even the developing countries win.

“So as I was telling you, fossil fuel is dead. It is direct solar energy that will rule from now on.”

We walked out of the airconditioned comfort of Hotel Taj Mansingh into the steam bath conditions of the midday Delhi sun. I look forward to the day that the smart people in the western world develop the direct solar energy solutions. Until then, we just have to sweat it out in the sun.

Bye, CJ, and have a good trip back home.

Postscript: For another conversation with CJ, see Choosing between WCs and PCs.

Bajaj Auto’s 3-wheeler utility vehicles are about to be released in the US.

Now that is precious, ain’t it?

A number of interesting lessons can be drawn from that. First, and foremost, that Indian innovation is not something that can be easily dismissed. Indian firms can come up with solutions that have wide applicability. Second, that of learning by doing and the importance of a large domestic market for creating comparative advantage. Third, the need to think and act locally and then move to act globally.

Bajaj is good at making autorickshaws because it has learnt how to make them by supplying to the domestic market. The “learning by doing for a large domestic market” is a very important point. India is a very large market since India accounts for around one-sixth of the world’s population. Practically every need of developing countries is represented in India itself, whether they be transportation, agriculture, or telecommunications. So we have a very large canvass to try out our ingenuity on and learn from doing that. Having developed solutions, we are well on our way to developing comparative advantage in those areas.

Is there any specific area that India should develop a comparative advantage in? There is. And that is in the area of alternative energy. More specifically, solar technology.

The case for India to invest in R&D for solar technology is so plain that I find it incredible that everyone and his brother is not shouting about it. Consider the following facts. First, India is conventional fuel poor. We do not have oil and have to import a good portion of our current needs. We cannot afford to rely on the whims of foreign oil producers. There is one 800-lb gorilla in the oil market and it has cornered significant sources of the global oil market. So for strategic reasons, India must reduce its dependence on foreign oil to meet its energy needs.

Second, rich nations have the resources to pay (one way or another) for the oil they consume, India cannot. For instance, the US pays for oil by directly paying the producers and indirectly by maintaining a huge military and using force strategically.

India is blessed (?) with a lot of solar energy delivered free. The sun shines too hard most of the time and very few people are making hay.

Finally, any desired technology can be developed if you throw sufficient money at it. That is a basic fact of the modern world. Everything that is theoretically possible can be developed given sufficient commitment in terms of time, effort and resources.

It is my considered opinion that energy is the most fundamental of all resources. If one can get free energy (or even cheap energy), there is no problem that cannot be solved. Energy is a substitute for land and labor. Don’t have enough land to grow food? No problem — use hydroponics and grow you food in factories. Don’t have water to do that? De-salinate sea water using energy. Don’t have enough labor? Use machines. Where do you get machines? Make them using energy.

“You have problems?”
“Yes. Lots of them.”
“You have money?”
“Yes, by the truckloads.”
“You have no problems.”

Substitute ‘energy’ for ‘money’ in the above and there you have.

OK, we were discussing the need for cheap or nearly free energy. Solar power is the answer. India needs solar power. It has a very large market for cheap solar power. India should invest in developing solar power. If India invests say $10 billion, the return on investment would be mumble billion $. First, India would save on energy imports. Then India would develop comparative advantage (and perhaps competitive advantage) in the field. Thus India would be able to sell that technology to other countries. There is a first mover advantage in being the leader in this field. Fortunately, the US and other developing countries are not taking the development of alternative energy sources very seriously. So the field is not crowded and India has a tremendous advantage.

My policy recommendation is simple. Set up a national goal to make India the Solar Power SuperPower (SPSP) in the next 10 years. (Pres Kalam, are you there?) To achieve that goal, spend Rs 500 billion (approximately $11 billion) to get an R&D started at space travel speed using the best brains that exist anywhere in the world. Hire the best scientists and pay them so much that they would not consider working on anything else. Create programs in all the Indian research institutes and reward people with sacks of gold or whatever floats their boats to get them to devote all their talents to that one aim of making solar energy technology in India so good that we don’t have to import a single drop of oil and can tell our Arab friends to take a hike. Indeed, once the demand for oil falls, they would have to take a hike because they would not be able to afford cars.

Can it be done? You bet. All it needs is national will. Do we have leaders enlightened enough to create the needed national will? I am afraid not.

Is anyone listening? Or as they all too busy congratulating themselves about how India is an IT Superpower and singing Mera Bharat Mahan?