11/07/2011 08:34 am ET | Updated Jan 07, 2012

We Need Decentralized and Renewable Energy

The surprise snow storm that hit the Northeast of the United States at the end of October resulted in massive power outages and reminded us of our dependency on energy. Without plentiful, easily accessible energy we must do without heat, cooling, refrigeration and light. We also lose television, the internet and the ability to recharge our smart phones. While we can get a lot more efficient in our use of energy, our dependence on energy and use of electronic technology continues to grow. And not just here in the United States. As nations such as India and China grow their economies, they increase their use of energy as well. Unfortunately, as we discovered here after the recent storm, we are dependent on a centralized massive energy infrastructure, one that is more vulnerable to disruption than we would like to think.

Let's focus on the issue of centralized, capital-intensive production facilities. With the growth of the 21st century's globally interconnected economy, we find that large multi-national corporations are developing differently than companies did in the 20th century. They are less identified with their nation of origin, and often rely on a large number of smaller companies to provide them with essential elements of their production process. These smaller suppliers are located all over the world. This "networked" style of management has been made possible by a number of key technologies: Low-cost computing, the internet, smart phones, satellite communication, containerized shipping and bar codes. These complex production networks are still vulnerable to disruption, such as the supply shortages faced by the auto industry after this year's massive earthquake in Japan. However, they are far more resilient than the highly centralized, capital-intensive energy system we all depend on. In a global supply chain, if one supplier is unavailable, others often can be found. Electricity doesn't work that way. If your utility stops sending you power, there is no store across the street you can switch to.

In the case of the recent energy outages in the Northeast, the problem was not with the generation of energy, but with its distribution. The weather knocked out power lines and other transmission equipment. Power generators were not disrupted. In summer heat waves, however, most of the problem stems from inadequate generation of power.

In the 2011 version of the energy crisis, we face problems with both power generation and distribution. In some places, during certain times of the year, energy use puts a strain on energy generation facilities. In addition, energy generation poses risks to human health and ecological systems first when we extract fossil fuels from the earth, and again when we burn the fuel. Seeing this danger, some environmentalists have taken another look at nuclear power. Then came the nuclear disaster in Japan which reminded us of the risks of nuclear power. The probability of risk is low, but once incurred, the intensity of risk is quite high. The Gulf Oil spill, mountaintop removal for coal, and hydrofracking for natural gas are vivid examples of the environmental impact of extracting fossil fuels from the crust of the earth.

The very real dangers of climate change are a warning that we need to begin the transition from fossil fuels to renewable energy. The trick is doing this while the worldwide consumption of energy continues to grow at a ferocious pace. The other trick is to convince companies that have billions of dollars in sunk costs in the current energy system to stop lobbying against renewable energy and start investing in it.

It is silly to think that anything short of economic or natural catastrophe can stop increased energy use across the globe. People tell me all the time that the answer to this energy and sustainability crisis is to reduce consumption. I see no signs of that happening. It is possible to shift individual consumption to less resource-consumptive and less environmentally-damaging behaviors, but an overall reduction in economic consumption is not going to happen in the United States and is certainly not going to happen in Asia and Africa. Particularly while the population is growing and people struggle to escape extreme poverty. If economic consumption shrunk it would be economically and politically destabilizing.

So what do we do? Is there a solution to this crisis of sustainability? I think there is. The heart of the issue is energy. We need to decentralize production and increase the resiliency of the energy distribution system. A massive public-private partnership is needed in the United States to develop smart-grid, distributed generation technology. We also need to work on the development of decentralized, small scale energy generation. Ultimately, each home and business should be capable of generating, storing and sharing energy. Solar, wind, geothermal, and perhaps some other technology yet to be invented must be subsidized to make them cheaper than fossil fuels. At some point, the subsidies will no longer be needed.

Communities, households and businesses must be encouraged via the tax code to become energy generators. There is of course a precedent for such a massive government intervention in the private market place. It is called home ownership. In 1940, 43.6% of all American Households owned their own homes. By 1960 that had reached 61.9%. This was made possible by making mortgage interest tax deductible and by government-backed mortgage insurance. Yes, I know that during the past two decades we made huge mistakes in housing finance and policy that led to the massive foreclosures of the last several years. That still does not mean that the basic policy of facilitating home ownership was a mistake. We need similar policy creativity to increase the percentage of people generating energy from renewable sources.

As the rest of the economy moves away from capital-intensive, highly-centralized production facilities, we need to do the same with energy. As we take that step, let's also replace our dependence on fossil fuels with renewable forms of energy. Let's increase government spending on the basic science and R & D needed to develop the breakthrough technologies needed for the transition off of fossil fuels.