Rare Book Monthly
The Most Important Book You Will Ever Read - The Oil Endgame.
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What the oil companies face is a process described as "creative destruction." That is when new technology overwhelms businesses based on an old technology. The authors cite the rapid destruction of an earlier oil business, whale oil, after the development of kerosene. We all can name numerous other examples, horse-drawn carriages, the Pony Express, the telegraph, typewriters, that have experienced this. Lovins points out that of the twelve original members of the Dow Jones Industrial Average, only one company, General Electric, survives today. His suggestion is that oil companies think of themselves as energy companies instead, and prepare to play a role in a post-oil energy world. He cites BP's (British Petroleum) new motto, "Beyond Petroleum." The oil industry may have much political clout, and the reality is that yesterday's technology still has the money to influence elected representatives, while tomorrow's technology does not, but this change is rolling down the track, and it will come, like it or not.
The other major vested interest, and less sympathetic one, is the American automobile industry. They have been watching foreign manufacturers who make a point of getting out ahead of the curve eat their lunch for the past three decades, and still they resist change. Where once (1970) Detroit controlled 90% of the American automobile market, it is barely over half today. We all know how Japan stole their share. They built better cars. Still, American manufacturers cling to the old ways. They responded by convincing Americans to buy SUVs and assorted heavy gas guzzlers. The authors point to a comment about hybrid cars from General Motors, calling them an "interesting curiosity," while postponing production until 2007. Meanwhile, backlogs build for the Toyota Prius. As bad as the situation has been for Detroit in America, it has fallen even further in the rest of the world. While Americans purchased Hummers and the like, fed by still relatively cheap gas, the American behemoths have been rejected by the rest of the world that has had to deal with expensive oil for a longer time. To Detroit, the authors recommend producing cars that are relevant to the world as it is, not as it was.
The next issue is how seemingly overwhelming is the task at hand. How can we possibly make the level of changes needed? First, the book points to earlier cases of "creative destruction." When these happen, they occur with blinding speed. Next, we see some specific examples from the past. Isn't it unrealistic to expect Detroit to turn out a new generation of efficient cars in anything less than many years? They look at World War II. In six months, Detroit's auto plants were turned from pumping out automobiles to rolling out tanks and airplanes. They can't convert to efficient cars? Sure, back then we were at war. Wait a minute. We're at war today.
Then they point to the nation's response to the energy crisis of the 1970s. From 1977-1985, when, as the authors say, "the U.S. last paid attention to oil," use dropped by 17%, even as the gross domestic product increased by 27%. Imports declined 50% over eight years. That was the period when higher mileage was mandated by the government. The automobile companies screamed, but efficiency rose 50% anyway. The pricing power of OPEC was broken for years. "Today we can rerun that play, only better," the book states. Unfortunately, once oil prices declined, we lost interest. Instead of continuing the trend toward efficiency, Detroit began focusing on "light trucks," a class of vehicle not subject to the aforementioned mileage standards. Since 1985, there have been no further mileage requirements, except one that now requires a miniscule 1.5 mile per gallon improvement for light trucks by 2007. While Detroit fought any additional requirements beyond the current 27.5 mpg, European manufacturers voluntarily committed to a 39 mpg average by 2008. Meanwhile, the Japanese automaker Toyota has produced the hybrid Prius, with its 55 mpg in a five-passenger car. Yes, it can be done. It's just that we are no longer the ones doing it.
