The 'Lit' interview: Vijay Vaitheeswaran
An Economist writer is bullish on a green market in energy

By Matthew Hirsch

THERE'S AN ELEMENT of market environmentalism that appeals even to us ordinary greens who would rather ride a bicycle than drive a car despite the inconvenience. It's the idea that prices should reflect the true cost of producing goods instead of the highest cost society will bear. Consider an example from the recent past. Twenty years ago it was impossible to stop people from buying aerosol hair spray, because aerosol was inexpensive and it somehow made rock stars like Aerosmith's Steven Tyler attractive, even though chlorofluorocarbons from aerosol were ripping a giant hole in the ozone layer. Imagine if manufacturers charged a true price for aerosol, one that reflected the irreparable harm caused by ozone depletion. That price would include the costs of health care for treating skin cancer, damage to the Arctic habitat from melting polar ice caps, and the catastrophic consequences of global climate change. If that had happened, fewer people would have bought aerosol, and who knows, maybe bands like Def Leppard and Van Halen wouldn't have kicked so much ass.

Stylish hair won in the '80s because the market favors consumption. No, the market is consumption. But if prices for things like aerosol – or gasoline or coal – included the costs to the planet, then at least sustainable goods would have an advantage in the market. That idea is beginning to forge a new green alliance among strange bedfellows: environmentalists, labor, homeland defense types, and venture capitalists, all of whom believe clean energy is the next big business. For the past five years Vijay Vaitheeswaran, energy correspondent for the Economist, has been tracking the shift toward clean energy, backed enthusiastically by the president of the Sierra Club and the CEO of British Petroleum. Now Vaitheeswaran chimes in with his book, Power to the People: How the Coming Energy Revolution Will Transform an Industry, Change Our Lives and Maybe Even Save the Planet.

I met Vaitheeswaran two months ago while he was in San Francisco on a book tour. In fact, he was promoting clean energy, such as the fuel cell, which he said is poised to end the oil age for good – welcome news for those who call themselves green. But clean energy has always been popular, and that hasn't lessened our dependence on oil in the past. It has just given renewables a surge of interest and investment lately, particularly because of a man named George W. Bush, who trades blood for oil in Iraq.

In discussing fossil fuel prices, Vaitheeswaran identifies the crisis confronting capitalism and specifically the energy industry: that profit-seekers can no longer externalize their costs of doing business. But can anybody really afford those costs? He offers no clear answer to this question, and for good reason. I don't think one exists.

The problem with the clean-energy revolution, as Vaitheeswaran describes it, is that it relies on the commodification of everything on Earth, down to the tiniest electron. It assumes that all the ecosystems on the planet are part of one enormous Wal-Mart superstore, and everything in them comes labeled with a price: this much money for plants, a bit more (or a bit less) for people, a whole lot more for air and water. Valued as such, each of Earth's components becomes expendable for the right amount of cash. Scientists and economists could then go about estimating how much the entire planet is worth. And sure enough, according to Eddie Yuen in the new book Confronting Capitalism (Soft Skull Press, 2004), they have. So much for saving the whales or saving the redwoods. It's time now to save your money! The true value of Earth and everything on its surface, Yuen reports, is $28 trillion.

Bay Guardian: Why did you write a book about energy technologies, such as fuel cells, that have been around for quite some time?

Vijay Vaitheeswaran: I've written a book about the future of energy. Fuel cells are one part of it, and I describe them because they are one of the more interesting things happening in energy.

To be very clear, it's not a book about hydrogen and fuel cells; it's a book about how we make choices about energy, and I give hydrogen and fuel cells as one example of the kind of innovation that leads potentially to a cleaner energy future that might happen if we get the incentives right. The book is really about how we have distorted the energy markets in very environmentally unfriendly ways because of the choices we've made about how to price energy, how to regulate the energy industry, whether we stifle or encourage innovation.

BG: Who would you say is promoting rational ways to advance environmentally friendly policy in Washington, D.C., or in state government?

VV: In the American debate, I think we have a great lack of original thinking on all sides of the political spectrum. Europe has shown a lot more leadership, in my opinion, in being willing to break the taboo on environmental taxes. In Europe the environmental groups have had the courage to explain and win public support for things like carbon taxes, gasoline taxes, or chemical taxation. They've been able to do eco-taxation reform, as it's called. In America it's heresy, and even environmental groups are afraid to put their head above the parapet and say we've got to get this right or else there won't be a level playing field.

BG: Does the emerging energy revolution you discuss include higher prices for energy, as in Europe?

VV: I am a very strong advocate of honest prices for the energy that we use, and I use my words carefully because I really believe we don't pay honest prices. We pay an artificially low price in two ways: one is just the subsidies we hand out as pork-barrel projects to the fossil fuel industry. The Energy Bill is a good example. And we don't pay for the environmental damage done by fossil fuels. We don't pay for the damage to our lungs, to human health, the cost of keeping troops in the Middle East. Part of that should be paid by the price of oil at the pump.

BG: Why did you call your book Power to the People?

VV: In the first chapter I explain the very Stalinist command-and-control model of electricity that we have adopted that stifles innovation, that rewards utilities for shoving more electricity down our throats. There's no incentive for conservation, there's no incentive for new technologies, for clean technologies or for investing in research and development. The industry invests less than 1 percent in R&D, the least innovative of any big industry in the world. If you look at information technology, if you look at the Internet business, cell phones, pharmaceuticals – it's over 10 to 15 percent.

That's how you get clever ideas. You reward the green companies, and you turn over capital stock, the dirty coal plants that have been hanging around for 30 years.

We just need to compensate the losers, the people who own the coal plants, and reward the winners, who should be people who come up with the clean technology. And that happens to be smaller-scale, distributed, nimble kinds of technology, the way Thomas Edison originally envisioned power. In a sense it's a return of power to the people, where we began 120 years ago with Edison's first plant in New York.

That's really the idea behind the book. As I began to look at it, so much of what we have wrong in energy is a result of where we went in the middle of the century. We locked in very centralized, very dirty, very brittle systems. In computing we moved away from mainframes to laptops and distributed networking; we are just doing it slowly in energy. That's the power to the people I'm talking about.

BG: You've spoken in favor of federal energy regulation. Wouldn't a shift to federal control jeopardize California's progressive energy policies?

VV: When you say progressive, I assume you mean policies that are more environmentally minded, green energy and so on. Let me push back on your point because that is, in my view, part of what's gotten California into its problems, thinking that it's special. You're not the first place in the world to deregulate. Scandinavia has the most liberalized electricity market in the world – it's had it for 20 years, and it's entirely compatible with lots of renewable energy.

There are examples from elsewhere that suggest getting competitive and rewarding environmentalism is the smart way to do it, the sustainable way to do it.

BG: What are your thoughts on Arnold Schwarzenegger, who had some interesting energy proposals during the recall campaign?

VV: The first thing I would say is try to be skeptical of a man who drives seven Hummers who claims to be environmentally friendly. Having said that, his environmental campaign promises were quite green. Someone actually went and looked at his campaign manifesto and apparently – I haven't checked myself – 22 percent of all the words of the manifesto relate to the environment. It's about the only part of the manifesto that has any specific targets and figures and so on.

BG: It was very provocative to see Schwarzenegger at his inauguration flanked by the Kennedys on one side and Pete Wilson on the other.

VV: You notice the first words in his platform on the environment are that growth and protection of the environment are not incompatible, and it's that idea that I think sometimes is lost in the debate. A lot of that has to do with the market mechanisms I talk about in the book that have undeniably in the last 10 to 15 years helped us tackle acid rain. You don't hear much about acid rain anymore; there are still local hot spots, but the problem has been dramatically reduced because of mechanisms that almost every environmental group opposed.

BG: A lot of environmentalists and market ideologues believe the scarcity of fossil fuels is the only factor that will push the market to renewables, but you reject that assumption in the book. Why?

VV: Because it's demonstrably false. First of all the premise is wrong. There isn't a scarcity of fossil fuels. It's wishful thinking. And secondly, I actually want to make an even more environmental promise, a call to get off of oil before it runs out because its the right thing to do, because there's a better alternative. And that's what history shows the last 30 years. Many, many environmental initiatives have failed because they kind of hoped there would be the crutch of oil running out and so we would invest in whatever renewable projects came along. Well, the harder case to make is without that crutch, and that's the case environmentalists need to make. If you make that case, you will win. But if you rely on the crutch of fossil fuel scarcity, I've got bad news for you. We've got a thousand years of coal left in the world. The U.S. has tons of coal, and so does China. So if you really make the case just on fossil fuel scarcity, you can't win. It ain't gonna happen.

BG: Last question: how did the war against Iraq change the environmental debate?

VV: I had the privilege to deliver a keynote address at a conference in Washington on exactly this topic a couple of weeks ago – 300 to 400 activists from around the country talking about oil, money, and politics, that was the theme of the conference. I was honored they invited me to talk. It's not often a guy from the Economist is invited by a left-wing think tank and 400 activists want to hear what he has to think. I think that's a sign of the times, because the case I'm making for ending business as usual is not one that the Bush administration is very keen to hear, but it's something that people who want to see change in an environmentally positive direction are hearing.

Look at what's happened with 9/11, security in our country, homeland defense, and suddenly we have a whole other kind of political coalition emerging, saying, "What's this hydrogen stuff?" And they suddenly see that it can be made in America in a dozen different ways, whether it's wind or biomass, renewables, nuclear, or coal. Probably natural gas will be the first phase, but nonetheless, you suddenly see that it's hardly a threat to vested interests; it can be an opportunity for vested interests as well. Middle America, conservative right-wing types, and domestic security types can say, "You know, it might make sense to get off of oil, and here's a way that America could profit to get off of oil." It happens to be one that is an environmentally benign future and gets us off our addiction to fossil fuels.

Interesting alliances come about when we see changes in industries and in the way we do things. I think we're at such a tipping point in energy, and that's why I call it a revolution.

Power to the People: How the Coming Energy Revolution Will Transform an Industry, Change Our Lives and Maybe Even Save the Planet
By Vijay Vaitheeswaran. Farrar, Straus and Giroux, 358 pages, $25.

March 31, 2004