The new Great Game–A technology race

The global energy technology race has profound implications for the economy, workers, the environment, and national security. History often turns as a result of energy innovations—beginning, of course, with fire. Each time a major new energy technology has emerged—be it steam, electricity, or oil—the balance of power among nations has shifted, while entire new industries have been spawned. The technology-driven revolution in efficiency management, unconventional fossil fuels, and clean energy could rearrange the chessboard again.

For both nations and companies, secure, stable energy supplies will become ever more important as new sources of instability are introduced into the equation. Evidence of these are legion: from the budding “trade war” between the U.S. and China over solar energy, to attacks on energy grids that have raised the specter of a “cyber Pearl Harbor,” to the brake on energy development that could be placed by environmental concerns.

But instability has always been a factor in the energy game. What’s new is that technology is making greater energy resources available to a greater number of actors than ever before. This holds the promise of generating much greater energy security for countries, companies, and individuals. But which countries and companies will emerge as kings and queens, and which as pawns, is still unclear. In a recent survey by Deloitte—the reSources 2012 Study—more than one-third (35%) of companies generate some portion of their electricity on-site from renewables, co-generation or other methods, with another 17% planning to do so.

Energy security, stability, and safety would be rich enough prizes. But the job creation potential of the energy technology revolution presents a reward of enormous value to our societies. Until now, this paradigm shift has benefited China above all, thanks to its low-cost jobs and its skill in appropriating and scaling up technology developed by others.

Nonetheless, it is not too early to discern what might separate the winners from the losers in the ‘Great Game 2.0’.

For governments, the keys to success will be:
• Developing a visionary and stable national policy framework:
What matters above all is a robust, long-term energy vision. Stable, forward-looking legislative frameworks are critical in this regard. Absent a federal energy framework—a national energy policy—companies cannot realize the investment potential of the future. Certainty matters. For example, China’s dominance of the solar and wind industries was built in just five years on central government mandates. China is not only increasing its cleantech capacity but is also building powerful industries to export renewable and alternative energy components around the world.

•Building national infrastructure:
In additional to legislative frameworks, governments should also lead in enabling the creation of state-of-the-art energy infrastructure. Case in point: In the U.S., 30 states have developed renewable energy mandates, with targets of between 15-25 percent by 2020. But it is very difficult to upgrade the electric grid. The grid, which was built on a regulatory structure that dates to the 1930s, has emerged as an ill-matched patchwork defined by decisions made at the state level. For the U.S. to tap the potential of wind and solar resources that may be several states away from the big load centers, this must change. Presently, no single agency, no single entity, is charged with looking at the broad national energy interest.

• Making deep, long-term commitments to R&D:
High-octane research budgets are needed; the private sector alone cannot sustain investment and propel breakthroughs in the midst of volatile energy markets and pressure to create profits. Take the shale gas revolution, which was made possible by the federal government. Between 1978-2007, the Department of Energy (DOE) spent $24 billion on fossil energy research. In doing so, it helped pioneer massive hydraulic fracturing in 1976 with its Eastern Gas Shales Project. Horizontal drilling and well installation also was enabled by air-based drilling and drill bits developed by the DOE. And 3-D imaging also was a DOE innovation. All these projects were widely condemned as failures in the 1980s and 1990s when natural gas was cheap. But today they appear prescient—and have positioned the U.S. to have at least a shot at becoming energy independent. In fact, the federal government has been determinative in almost every energy transformation over the past century.

• Referee the level playing field:
A legislative framework creates a level playing field, and deep commitments to R&D broaden the horizon of that field. With the rules in place and the innovation pump primed, the government’s next job is to get out of the way and let the players in the energy game determine which technologies win and which lose. (Of course, the government will provide the referees in this battle, too.)

• Enforce transparency and accountability to turn the public into an ally:
The controversies over the environmental impact of hydraulic fracturing are due, in part, to misperceptions. This is understandable given that the technologies are new and it will take time for the public and environmentalists to fully understand their impact—and in the interim, advocates are likely to dwell on the most dire evidence to advance their case. But governments can accelerate the process of public education by compelling companies to disclose full data on the effects of drilling on water supplies, geological stability, and the environment more generally. Since the technologies are still in their early days, their environmental impact will be substantially mitigated over time—as has already been the case with hydraulic fracturing in its first four years of widespread use. It is likely that publics, once able to accurately weigh the costs and benefits of hydraulic fracturing, will become more supportive of it. Facts can and should prevail over fear. >>>

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