Fueling the Next Industrial Revolution
Date: Monday, August 02, 2004 @ 17:54:16 GMT
Topic: General


By Michael Mandel (www.BusinessWeek.com)

It's time to place the blame for high oil prices where it belongs -- on the lack of progress in energy technology

It doesn't seem fair. If we've entered into the "Information Economy," why is crude oil -- black and gooey -- still so darn important? After all, it's just another dirty industrial commodity, produced in far-off corners of the world. Even the name -- "crude" oil -- seems leftover from the age of smokestacks and dirty factories.

Nevertheless, like the dog being wagged by the tail, the enormous and technologically advanced American economy is regularly shaken up by events in the world oil market. Usually it's turmoil in the Middle East that sends prices soaring. Most recently, however, it was a tax dispute between the Russian oil giant, Yukos, and the Russian government that caused trouble. The result: The price of crude oil on the futures market jumped to more than $43 per barrel.

STUCK IN A RUT. But even as they complain about high prices for gasoline, most people don't realize the real reason why high-tech economies are still so dependent on a low-tech commodity. The fact is, while information technology has leapt ahead over the past 30 years, energy technology has stagnated. The internal-combustion engine was invented in the 1860s. Thomas Edison built his first commercial electric power station in 1882. Gas turbines were first used for electric power in the 1930s. The most recently invented energy technology in widespread use is nuclear power -- and there have no new nuclear plants ordered since 1978.

Thus, the current situation is the result of a profound technological failure. We still have no adequate substitute for oil as an energy source, especially for transportation. Even if we adopted far more stringent conservation measures, we would still be importing large quantities of oil from volatile areas such as the Middle East and Russia. There's simply no way to significantly change the energy equation without the widespread adoption of new technologies....

R&D GAP. These ramifications suggest the only way to truly escape the geopolitical and economic consequences of oil dependence is by developing new energy technologies. ...

That's where government policies -- and the current Presidential race -- come in. Despite the incredible need for new energy technologies, government spending on energy research and development has collapsed, dropping in half since 1990 (after adjusting for inflation). Moreover, the private sector hasn't filled the gap. Industry R&D spending on energy still is mostly devoted to fossil fuels, while venture-capital funding for new energy technologies remains relatively meager...

All the great industrial revolutions have included a breakthrough in energy production and distribution, from the steam engine to the internal-combustion engine to electricity. Today's information revolution needs an energy breakthrough as well.
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