Sunday Times: Putting energy back into focus

By Matthew Syed

Adam Smith’s “Wealth of Nations” is rightly considered an 18th-century masterpiece, but it is marked by one charming omission: In its 1,008 pages, the word “energy” is not mentioned once. The same is true of more modern classic economics books such as Knowledge and the Wealth of Nations by David Wars or The Origin of Wealth by Eric Beinhoeker.

This is strange when one considers that it is impossible to exercise economic activity—indeed, to sustain life itself—without energy. As Charles Hall, a professor at the State University of New York, says, “Energy is used at every step of every economic process.”

Hall is one of the researchers trying to put economics on a new footing. Instead of looking at their subject through the laws of supply and demand, they do it through the laws of thermodynamics. That is, energy. Some economists argue that energy is a secondary commodity, since the energy sector is equivalent to 5% of a modern economy. Hall and his colleagues respond that without that 5% the rest of the economy is doomed to grind to a halt.

If we step back and think about it, we realize that all revolutions were actually sparked by transformations in energy. The emergence of modern life was facilitated by the exploitation of energy in a new way: photosynthesis, which allowed single-celled organisms to store the sun’s energy in the form of sugars for later use. The invention of fire allowed us to burn one organism (dead trees) to release energy in another (the chemical energy in food). The industrial revolution was another energy revolution: We burned stored sunlight in the form of fossil fuels to build the modern world.

Energy caused the most recent financial crisis, but Hall argues that the problem is long overdue. When we first came into contact with oil, we extracted what was closest to the surface. In 1919, it took one barrel of oil in terms of energy to mine one hundred barrels. Today, with the same amount of energy, only five are mined. But when the amount of energy needed to power an economy increases, the non-energy sector must shrink. And this explains why productivity has stagnated in recent decades throughout the Western world.

What can be done? A brilliant book by LSE professor Michael Muthukrishna puts energy into focus. To reverse the decline in the number of barrels mined with the energy equivalent of one barrel, the use of nuclear fission technology would have to increase. The ultimate goal is to master nuclear fusion, which allows for nearly unlimited clean energy. Muthukrishna believes that innovation that unlocks new energy sources is quite different from innovation that exploits existing supply. The first is the only path to long-term development such as that which supports the 8 billion inhabitants of the planet. “The question,” notes the author, “is whether we have the capacity to reach the next energy transition, the next level of abundance and civilization.”

No one claims to have all the answers. However, as we move towards an energy crisis that will define the next half century, we should not focus on dichotomies such as Right/Left or tax cuts/public spending increases. The candidates for the leadership of the Conservative Party in Britain are not only asking the wrong questions, they are also speaking the wrong language.

Matthew Syed is a columnist for the Sunday Times