“Creative destruction results from verdicts at the intersection of supply and demand. Outside of the free market, energy elitism has created a political market, a sub-industry whose activity results from special tax favors, government grants, and/or mandates.”
Creative destruction, a term popularized by Joseph Schumpeter, is the market process whereby bad is eliminated, the better replaces the good, and past performance gives way to new strategies and victors. No firm is forever, and financial loss is a characteristic of capitalism, as is the more used term profit.
Energy is the story of creative destruction. Coal gas and later coal oil replaced a variety of animal and vegetable oils, including whale oil, camphene oil, and stearin oil. Crude (mineral) oil then displaced manufactured (coal) oil, just as later natural gas would displace manufactured (coal) gas.
Coal itself displaced primitive biomass (burned plants and wood) and other forms of renewable energy, such as falling water and wind. Fossil fuel was a concentrated, continuous-burn industrial-grade energy.
The intensity of fossil energy can be understood as a stock of the sun’s work over the ages, not a dilute flow from the sun (solar, wind)–or a low-density mass from limited years of sunshine (biomass). “The ancient resource pattern depends primarily on animate energy and hence on current solar radiation,” Erich Zimmermann explained. “The modern resource pattern is built around stored-up solar radiation.”
Beginning with Jevons (1865)
W. S. Jevons explained how coal (and by implication, gas and oil) were uniquely suited for—and indeed, prerequisites for—the machine age. “[T]he economy of power … consists in withdrawing and using our small fraction of force in a happy mode and moment,” said Jevons, the father of modern energy thought.
Given fossil fuels, the unreliability of wind power and water flow were overcome. “The first great requisite of motive power is, that it shall be wholly at our command, to be exerted when, and where, and in what degree we desire,” Jevons explained. “The wind, for instance, as a direct motive power, is wholly inapplicable to a system of machine labour, for during a calm season the whole business of the country would be thrown out of gear.”
But even if wind were consistent and storable, it was still too little from too much. Jevons explained:
No possible concentration of windmills … would supply the force required in large factories or iron works. An ordinary windmill has the power of about thirty-four men, or at most seven horses. Many ordinary factories would therefore require ten windmills to drive them, and the great Dowlais Ironworks, employing a total engine power of 7,308 horses, would require no less than 1,000 large windmills!
Biomass was no escape. “We cannot revert to timber fuel, for ‘nearly the entire surface of our island would be required to grow timber sufficient for the consumption of the iron manufacture alone.’” And on geothermal: “The internal heat of the earth … presents an immense store of force, but, being manifested only in the hot-spring, the volcano, or the warm mine, it is evidently not available.”
Water power had reliability problems compared to coal and locational issues as well. Explained Jevons:
When an abundant natural fall of water is at hand, nothing can be cheaper or better than water power. But everything depends upon local circumstances. The occasional mountain torrent is simply destructive. Many streams and rivers only contain sufficient water half the year round and costly reservoirs alone could keep up the summer supply. In flat countries no engineering art could procure any considerable supply of natural water power, and in very few places do we find water power free from occasional failure by drought.
Furthermore,
The necessity … of carrying the work to the power, not the power to the work, is a disadvantage in water power, and wholly prevents that concentration of works in one neighbourhood which is highly advantageous to the perfection of our mechanical system. Even the cost of conveying materials often overbalances the cheapness of water power.
Dense Energy, Real Energy
In reference to California’s energy in the 1920s, the father of the modern electricity industry, Samuel Insull, explained how so-called white coal (hydroelectricity) required steam-plant backup for reliability. And so it came to be in 2000/2001 when a bad water year in California triggered an electricity crisis in light of government retail price ceilings.
Steam plants, Insull added, could be situated near the load, unlike hydro production, which was at the river.
Jevons’s energy-by-energy analysis is as true today as it was when penned in 1865. Coal could be burned continuously and evenly, avoiding the intermittency of wind or sunshine. Coal did not depend on the season or on a weather condition, as did water flow. Coal was storable and transportable. Coal production and combustion needed far less surface area than would a similar amount of renewables.
In short, there could not be a return to the chancy, inflexible, dilute energies of the past—which were, ironically, all renewable from a physical viewpoint. [1] Seizing upon this point, Jevons was the first intellectual to question the ability of renewables to serve as primary energies for industrial society.
Coal as Wonder Fuel
“Coal, in truth, stands not beside but entirely above all other commodities,” Jevons concluded. “It is the material energy of the country—the universal aid—the factor in everything we do. With coal almost any feat is possible or easy; without it we are thrown back in the laborious poverty of early times.” As the “source of fire … of mechanical motion and of chemical change,” coal was “the Mainspring of Modern Material Civilization.”
This wonder fuel, Jevons added, was “the chief agent in almost every improvement or discovery in the arts which the present age brings forth.” The iron age was really the age of coal, since “coal alone can command in sufficient abundance either the iron or the steam.” Substitute carbon-based energy for coal—add oil and gas to coal—and Jevons’s conclusion is clear and correct for today.
Coal creatively destroyed renewables as primary energy. The carbon-based energy era introduced creative destruction between coal, manufactured gas (coal gas), manufactured oil (coal oil), crude oil, and natural gas.
Other Creative Energy Destruction
Thomas Edison’s electricity rocked the manufactured-gas industry across an ocean, as witnessed in London by a young Samuel Insull. It was coal versus coal once removed, with gas distilled from coal competing against coal-generated electricity. Later, natural gas would go head to head with coal to generate steam for producing electricity.
In transportation, creative destruction encompassed the gasoline-powered internal-combustion engine, which knocked electricity off its perch. Try as they might, Edison, Insull, and even Henry Ford could not make electric vehicles viable against petroleum-powered cars and trucks. Batteries were heavy, costly, and slow to recharge compared to the energy from on-board motors.
Neither could electricity break into the railroad market, despite the entreaties of Samuel Insull. Wood, then coal, then diesel burned on board was simply too economical for rural locomotion, as opposed to urban street locomotion.
Samuel Insull’s standards of excellence made him an agent of creative destruction. The “creative rearranger” improved his industry over multiple decades. Early in his Chicago career, Insull persuaded manufacturers, retailers, traction companies, and farm villages to stop generating their own power and to buy instead his cheaper, more reliable supply. Insull’s new-and-improved electricity reached across the energy market, pressuring both kerosene and coal gas in the illumination market to improve or perish.
But Insull’s best efforts could not make electricity competitive for transportation outside of streetcars, and his battery packs at power plants proved to be a very expensive, limited option to serve peak demand. Electricity had to be consumed the moment it was produced, creating a different set of economics that über-entrepreneur Insull addressed via two-part rates and other strategies.
Conclusion
Creative destruction results from market verdicts at the intersection of supply and demand. Innovation and expected profit drive supply; price, availability, and quality (including reliability) attract demand.
Outside of the free market, energy elitism and legislative votes have created a political market, a sub-industry whose activity results from special tax favors, government grants, and/or mandates. Uneconomic energies are a form of postmodernism under which market-rejected, politically correct offerings spring to life—liabilities parading as assets.
[1] Also see Robert Bradley, Capitalism at Work: Business, Government, and Energy (2009), pp. 194–98.