The philosopher Friedrich Hegel propounded the triad of thesis, antithesis, synthesis as one of the major logical processes by which knowledge gets advanced. We are now seeing its operation in the global energy market. From the thesis of a free-market energy menu consisting largely of fossil fuel energy sources and an antithesis of a highly interventionist system relying on cockamamie “new energy” schemes cooked up by an army of bureaucrats seeking to control the market, we are arriving at a “synthesis” in which some of the new energy sources have proved to be rationally based, while others are seeing their abundant government funding cut of by the rigors of the recession.

Unsurprisingly, while a few of the government subsidies have resulted in modest progress, it is the market force of high energy prices which has produced most of the changes that promise to revolutionize the global energy market for the first time in half a century.

Take oil, first. In 2006 the world’s oil industry appeared to face a twin problem. First there were developing signs of a major global oil shortage as Chinese and Indian automobile use ramped up, while the United States became more and more dependent for its oil on output controlled by unpleasant and hostile regimes. That was combined with a fanatic determination by Western governments to end the global dependence on oil through “cap and trade” controls of carbon emissions and force consumers either into battery powered automobiles or into conventional automobiles so flimsy they would be death-traps on major highways.

The plethora of government regulations has failed. “Cap and trade” emissions control schemes proved losers at the ballot box, since in practice they were gigantic handouts to favored constituencies. . Emissions trading schemes proved to be nothing more than rent seeking opportunities for the likes of Goldman Sachs and GE – not surprising, since the original scheme had been dreamed up by the corrupt brainboxes of Enron. Electric automobiles appear to be a pronounced market flop; even with a $7,500 subsidy handed out by a benign government, an automobile with two power trains, a claimed range of only 100 miles, and a practical range of much less in actual driving conditions was unattractive at its sticker price of $41,000, except to a small minority of rich self-flagellating nut-jobs.

However high oil prices, for a short period in 2008 reaching $147 per barrel and now for a more prolonged period once again creeping substantially above $100, may have succeeded where governments failed. They have not caused consumers to welcome the dangerous little tin-cans favored by government, which have remained loss leaders for their unfortunate manufacturers and a blot on the car dealer lots of America. Instead, they have produced answers on the supply side. Through more advanced techniques of “fracking” – hydraulic fracturing of shale deposits — oil companies have found ways to extract oil at a tolerable cost from the immense shale deposits in North Dakota, Pennsylvania and a number of other politically stable sources in the developed world. Canadian tar sands also have proved highly profitable once oil gets anywhere near $100 per barrel (while Venezuelan oil sands languish; an oil deposit controlled by a madman is worth little or nothing.)

These new oil sources have not proved sufficient to cap the price of oil – for one thing, production will take several years to ramp up – but they have already removed much of the shadow of oil dependence from the United States’ strategic position. Oil imports have begun to decline as a percentage of total consumption for the first time since they became a strategic issue in the 1970s. Thus high prices have succeeded where presidents from Nixon through Obama abysmally failed. Naturally, environmentalists are working night and day to create an environmental scare about fracking, and indeed about tar sands, but politically they may well be too late – the U.S. public is not about to abandon its SUVs if it doesn’t have to.

Connected to the oil business, of all the massive government expenditures in “green” energy, none has been so damaging as the ethanol boondoggle. Protected by both a domestic subsidy and a tax on foreign imports, the U.S. corn based ethanol business is not even “green” when you do the calculations correctly, because the process of extracting ethanol from corn is so inefficient. Further, by providing an alternative subsidized market for corn output it absorbs valuable cropland, driving up corn and meat prices, especially in a period when agricultural prices generally are high. Attempts to broaden the ethanol mandate (which would obsolete all the cars currently on the road, at a huge economic and environmental cost) are currently now being resisted, and one can hope that within a couple of years at most this subsidy program will be put out of its misery.

In natural gas, even though global demand has continued to grow and the fuel is moderately favored by environmentalists, the discovery of “fracking” technology enabling its cost-effective extraction from shale has revolutionized its price behavior. U.S. wellhead gas prices, which were around $6 per thousand cubic feet in 2006 and spiked above $10 in 2008, have remained well under control in the recovery, currently hovering around $4. Energy security has thus been improved for the U.S. More geopolitically important, it has also been revolutionized for Europe, through the application of the technique to massive Polish shale gas deposits. If Vladimir Putin’s energy sector minions are acting less menacing today, this is a major reason why; they can no longer threaten in every cold winter to cut Western Europe off from its energy supplies.

Of conventional energy sources, the two with no adverse impact on “global warming” were nuclear energy and hydro-electricity – both with environmentalist objections of their own. During the agitation for “cap and trade” energy controls we were told that part of the solution was a massive nuclear energy building program. This always looked unlikely, since the U.S. has started no new nuclear plats since Jane Fonda killed the industry single-handedly with her 1979 “China Syndrome” polemic. In the four years since the release of the fourth IPCC report in 2007 gave “cap and trade” major political momentum, several nuclear power plants have been proposed, but none has looked close to being given the go-ahead to start construction. Following the Japanese earthquake/tsunami and its nuclear consequence, a major U.S. nuclear power program now looks extremely unlikely.

The struggle to get the Fukushima Dai-ichi power plant back under control has been lengthy, alarming and very expensive, and some of the near-meltdown’s consequences have been very troubling, in particular the total evacuation for an extended period of a 20km zone around the plant. The costs of the disaster appear close to bankrupting TEPCO, Japan’s largest electric utility. Nevertheless, in terms of human lives lost, even the most pessimistic official estimates of the accident’s toll are less than the average of 133 annual deaths from the collapse of hydro-electric dams (in the Japanese earthquake/tsunami, one irrigation dam collapsed, killing about 8 people, but there were no hydroelectric dam collapses.)

The Fukushima Dai-ichi disaster occurred after the fourth most powerful earthquake in recorded history, accompanied by a tsunami that caused most of the damage at the plant. Rationally, we should continue with nuclear power, albeit incorporating design improvements and safeguards from Fukushima Dai-ichi experience. In reality the environmentalists, the regulators and the lawyers had made nuclear plant construction in the United States uneconomic since 1979; it is even more uneconomic now.

The three “new energy” sources favored by environmentalists for combating global warming are geothermal, wind and solar power. In all three areas, the meeting of economic thesis and environmentalist antithesis has produced a new synthesis, but not one that could have been predicted.

Geothermal power is an environmentalist’s dream, favored by President Obama, which in practice appears unlikely to make a meaningful contribution to power needs. The process of extracting geothermal power reduces heat from natural reservoirs at over 10 times the natural rate and causes its own environmental damage; for example New Zealand’s Wairakei geothermal power plant opened in 1958 has caused the area’s natural geysers to shut down almost completely. More seriously, modern techniques of geothermal water injection have been shown to cause earthquakes, especially when used at the great depths needed to produce meaningful amounts of power. A trial project in California was shut down in December 2009, and it seems likely that in spite of huge government funding, this avenue to clean energy is more or less a dead end.

Wind power is feasible, but it is both environmentally intrusive and very expensive. Four years of huge government subsidies have not made any appreciable dent in power needs. More important, they have also not produced any cost breakthroughs. It is becoming increasingly clear that, unless the cost of power soars to two or three times its current level (in real terms) wind power will remain a hopelessly uneconomic alternative. Laws like that recently passed in California mandating 33% of electricity to be generated from “renewable” sources by 2020, will undoubtedly raise the cost of power high enough to make wind power feasible – at the cost of emptying the state of both industry and productive residents. Even under such conditions, however, it’s likely that wind power will lose out to other alternatives.

The leading available “new energy” alternative for power generation, whether on the domestic or the macro scale, is thus solar. While the cost of solar thermal power is still around twice that of power from conventional sources, economies of scale in the manufacture of solar panels and improvements in their design are bringing that cost down fairly rapidly. Spain and Italy almost bankrupted themselves by providing over-generous subsidies to solar power generators in 2006-10, but the result has been a massive increase in solar power generation capacity. For example Italy reached its 2020 target of 8 gigawatt-hours of capacity by the first quarter of 2011. The subsidies are being reduced, but the installed capacity will remain, and the costs of installing further capacity are steadily declining. The point at which solar power becomes truly economic is as yet unclear, but in areas with lots of sunshine like southern California and Arizona it is likely that only land costs will constrain its adoption, even without further subsidies, by the latter part of this decade.

The overall effect of the Hegelian triad is thus clear. We have made very substantial progress on the immediate and real problem of Western energy dependence, whether U.S. oil dependence on OPEC or EU gas dependence on Russia. We have made much less progress on the murky and long-term problem of global warming, and have wasted huge amounts of resources in making the attempt. However, the likelihood of truly damaging energy legislation and regulation has lessened (and more or less disappeared in polities which, unlike the European Union, have adequate democratic control over their legislators.) What’s more, not quite all of the money has been wasted; in the area of solar power we have made genuine progress towards a more sustainable energy future. The most difficult problem, as was always bound to be the case, remains in the area of transportation, where available technological solutions are unattractive to the public. Even here, however new battery technology has produced the possibility of adequate two-wheeled electric vehicles, which may well alleviate the problem of transportation in the teeming cities of the Third World.

High energy prices! They can do more for the world than governments ever could.

-0-

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)