Reinventing Energy

Amory B Lovins is back in Oxford. It’s been over 40 years since he first arrived here as a student.

“I actually transferred here, because Harvard, which I was halfway through as an undergraduate, wanted me to specialise too much”, he explains. “But once I was a Junior Research Fellow at Merton College, I wanted to do a Doctorate in Energy, and the University said: ‘Energy. What’s that!? It’s not an academic subject. We haven’t a Chair in it. Pick a real subject.’ At that time there was nowhere in the world you could study energy, there were no government departments of energy as such, and energy policy was what resulted from the actions of energy companies.

“So I said, ‘Sorry I think it’s going to be really important rather soon and I think I need to go to it anyway.’ I resigned the Fellowship, moved to London for what turned out to be 10 years.” It was 1971, two years before the first oil price shock.
When I catch up with him, Lovins is back in Oxford to speak at the ReSource conference, alongside other notables including a Nobel Prize winner and the 42nd President of the United States. In fact, the first sight I catch of Lovins, before we meet, is William Jefferson Clinton greeting him with a warm embrace. They’re old friends. Later Lovins reveals that he “also knew Hilary before Bill did”. For some people this would be a claim to fame, but in his case it’s a passing fact. After all, this is a man whose advice is often sought by the great and the good.

These days Amory Lovins lives in Colorado, employed as Chairman and Chief Scientist at the Rocky Mountain Institute (RMI), working on “what Ray Anderson [the industrial ecologist] called the alchemy of turning stumbling blocks
into stepping stones”.

He and his RMI colleagues have just published a book, Reinventing Fire (see review on page 35), that offers a blueprint for successfully decarbonising our economy. “It’s about a $6 million (£3.7 million) effort plus a lot of free support from industry in both content and peer review”, he says, emphasising the team effort involved. Its thesis ought to be compelling for any environmentalist: “We showed how to run a 2.6-fold bigger US economy in 2050 with no oil, no coal, no nuclear energy, one-third less natural gas, 82-86 per cent lower fossil carbon emissions, a $5 trillion lower net valued cost in business as usual (assuming that carbon and all other externalities are worth zero), and requiring no new inventions and no national legislation, no Act of Congress, but the transition lead by business for profit.”

But rather than making a moral or environmental case, RMI has focused on the economic argument. At present, Lovins states, fossil fuels enjoy significant subsidy, making “fuels cheaper than they ought to be”. It’s a point made in one of his previous (and so far most celebrated) books, Natural Capitalism. These subsidies should be removed, as he puts it, “to smoke out corporate socialists masquerading as free marketeers”.

To some extent, the market has begun to do this: “OECD oil use peaked in 2005, US petrol use peaked in 2007, and in 2009 Deutsche Bank forecast that world oil use could peak around 2016.” In making this point, Lovins offers up an example from economic history, which almost serves as a parable: “In 1850 most US households and many in Europe were lit by whale oil lamps, but whales were becoming shy and scarce and the price of whale oil drifted up.

“So, nine years before [Edwin] Drake had even struck oil in Pennsylvania in 1859, at least five-sixths of the whale oil lighting market quietly went to oil and gas made at the time from coal. Then the whalers were astounded to discover that they’d run out of customers before they ran out of whales and the remnant whale populations had been saved by technological innovators and profit-maximising capitalists. To be sure, 20 years after Drake, Edison’s electric light saw off the use of synthetic oil and gas as well.”

Lovins’s contention is that use of fossil fuels will ultimately go the same way. In many cases, renewables are already competitive with fossil fuels. He points to the fact that in the US, some wholesale contracts for wind energy are under three cents (2p) per kilowatt. Photovoltaics are already competitive, though he observes that in America the installed system cost is twice that in Germany, because of soft costs, such as design permitting, negotiations, financing – “All the things you hire lawyers, accountants and engineers to do.”

One of the most intriguing points is how investment in renewables has an extra hidden feature that is worth 1-2 pence per kilowatt. Simply by not having to pay for fuel avoids price volatility associated with it. That is to say, because fossil fuels are traded and supply manipulated, the markets factor in variability of supply when offering the final product, be it petrol or electricity. With renewables, you don’t purchase wind, solar or tidal energy, it’s just there.

Lovins notes how incumbent electricity companies have been slow to respond to the potential of renewables, allowing lighter-footed competitors to sweep in and win customers, for instance installing solar panels on their roofs at no cost and in the process reducing electricity bills.

He reflects that the market for waste could yet go the same way, intrigued at the idea of what would happen if this model was extended to the waste market. “I think it wants to start by defining the end-user services provided and figure out how to eliminate and design out the whole concept of waste and get a reward of doing that.”

Already, there have been successes for companies offering their customers services rather than products, in the process achieving just this. For instance, the Dow Chemical Company, which began “leasing you a dissolving service instead of selling you a solvent. So if they can make it go around 100 trips and not lose much each time, instead of once and then throwing it away, then obviously, they gain market share, they have higher margin, lower cost, you have lower cost, everybody is happy.”
There are many more examples, even if on first impression they seem a bit kooky: from roofing companies “instead of selling a roof, they maintain it”; “highway companies that provide a pavement service rather than selling a road”; or a lift company [Schindler] “leasing a vertical transport service instead of selling you a lift”. Lovins observes there is a barrier when it comes to individuals, though notes: “We’re starting to see a little bit in furniture, especially the kinds that can be cosmetically refreshed whilst the underlying structure remains the same.”

A common and vital ingredient, it seems, is to make the product supplier retain some ongoing responsibility. It’s common sense. “Well you really would like a set of incentives that rewards producers for producing zero waste and part of the way you get there is a ‘solutions economy’ business model, where both the provider and the customer for a service are rewarded for doing more and better with less for longer”, he says, adding: “So they both make money the same way, rather than one having an incentive to sell you more of something that won’t last very long whilst you have an incentive to buy less of it and have it last a long time.”

At the heart of this approach is a willingness to see things differently, but often producers have been involved with their product for so long they don’t know how to do this. “There are of course wonderful opportunities to design out waste, even retrofitting processes and in value chains, and that’s part of our consultancy [at RMI], because when you develop special muda spectacles – muda, it’s the Japanese word for waste, purposelessness and futility – you can spot things that may not have been obvious to the designers immersed in the process for decades, you know, the fish doesn’t know it’s in the water.”

But it’s not just designers. When it comes to realising how to efficiently use resources and energy, we may one day say the same was true for governments, organisations and individuals. Amory Lovins challenges us to better understand our situation and possibilities for changing it. He wryly reflects that, unlike 40 years ago, today Oxford has a Chair in Energy! It seems likely that in 40 more years, the time horizon Reinventing Fire is set over, the world will look a lot more like the one he imagines it could be.