This is the post that concludes the themes raised in the immediately preceding two. Part I posed the dilemma of creating a rational energy policy in a net oil consuming nation given the lack of free competition in current international energy markets where the power over the key raw material inherently lay with some countries and not others, and the fact that alternative energy sources such as solar and wind do not present a favorable financial case on a return on investment basis and therefor, despite obvious strategic imperatives, are not good substitutes on a price elasticity basis for traditional carbon based fuels. Part II attempted to lay the foundation for a resolution to this dilemma by examining how we assign value to both seemingly different and seemingly similar goods in the marketplace.
Succinctly stated, the conclusions are these: (1) if we are to be successful in developing a sufficiently robust market for sustainable energy, we have to move from thinking of it as a substitute for or alternative to oil and gas to seeing it as a fundamentally and technologically different market with different value propositions driving its demand and price; and (2) given the greater fluidity in a market for sustainable energy production than is possible in a market based on extracting oil, this new paradigm could provide the basis for a dynamic and competitive international market for sustainable energy technology.
When the PC with word processing first came into the office environment, it presented an extremely expensive replacement for the typewriter, at least on an equipment for equipment basis not adjusted for increases in other productivity. The key is that, while the PC did in fact ultimately wipe out the traditional typewriter as an office tool, it was not bought because it provided a price elastic substitute for the typewriter. Instead, the PC provided an entirely new value proposition around the production, sharing and management of all sorts of data. It was an entirely new technological paradigm for the office. If it had been sold strictly as an "alternative" to the typewriter, I don't think businesses would have shelled out the money for all the work stations at a cost many times the price of a typewriter.
When the iPod hit the market, you could buy a pretty decent portable CD player with headphones for about $20. You could also fairly easily carry a CD "wallet" in your car or carry-on bag with more than enough music to last you for your average trip across town or across the country. If the iPod were merely an alternative music player, people would not have paid up to $500 for an iPod to replace a CD player that cost 1/20th as much. Again, the fact is that the iPod was not a price elastic substitute for the portable CD player. It was an entirely new technological paradigm with its own value proposition around buying, sharing, storing and playing music entertainment.
And so it is with sustainable energy. So long as it is pitched as an "alternative" to fossil fuels, it will be a long time until its cost is reduced to the point that it will function as an acceptable substitute for traditional oil based energy on the basis of return on investment and the price elasticity of demand. But I think it can be so much more than that. It needs to be viewed and analyzed as an entirely new technological paradigm with its own value proposition around quality of life and strategic control and other emotional motivators that cause consumers to value a product.
If properly positioned and correctly understood, it shouldn't matter that it costs $10 to produce through solar the same quantum of energy that we can derive from a $4 gallon of gas anymore than it matters that we can get the same gallon of water out of a tap for free that we are willing to pay $10 for in a clean looking attractively labeled bottles. They are different products, not strictly substitutes.
If sustainable energy in its many possible forms were to tale off to the same extent as PCs or iPods, it would spawn a truly dynamic global market that would have far more economic fluidity than the oil market.