Urban Renaissance Institute

Lawrence Solomon
National Post
September 29, 2006

‘If we don’t go nuclear, what type of energy will meet our future energy needs,” I’m often asked. “Do you think fringe fuels such as solar energy can take the place of nuclear? Or windmills? Bio fuels? Small dams? Tidal power? Burning garbage?”

My answer is “all of the above.” It rarely satisfies my questioner, who thinks I’m evading the question; neither does the question, which reflects a historical one-size fits-all bias, sit well with me.

For the last century, in most of the developed world, the only providers of power have been government-backed monopolies, both public and private. Being monopolies, they didn’t need to worry unduly about pleasing either their customers or their suppliers. Their primary concern was pleasing themselves.

Convenience ruled. When Ontario Hydro tired of managing its small hydro dams around the province, it dynamited or otherwise decommissioned hundreds of them. The far-flung dams were a hassle to run from afar, and also administratively expensive to manage from its Toronto head office. Hydro favoured big, centralized coal plants then, just as it would later favour big, centralized nuclear plants.

Likewise, other utilities in other parts of the continent closed down the windmills that once were common, and squelched independent power producers small and large who wanted to bring power to market. Among the larger concerns that they squelched was Fiat, the automotive giant, which in the 1980s manufactured home power plants able to run on any liquid or gaseous fuel.

The central planners at the state monopolies favoured a few large central generating plants over countless small ones, for administrative ease. Yet electricity production is inherently decentralized; different regions have different fuels at the ready, different industries have different power wants and, often, power-producing abilities of their own. The monopolies have had great success in suppressing decentralized power systems. But despite the restraints, small-scale power plants remained so attractive that they not only survived, they thrived, gaining market share against their heavily subsidized nuclear competitor.

Add up all the output from the world’s small-scale power plants and you find that they now total more than the world’s output from nuclear reactors. You also find that they are growing faster than nuclear plants – in 2004, they added about three times as much output, and six times as much generating capacity, as nuclear power added to the world’s electricity systems.

The gap will only increase in future. According to estimates from official bodies such as the International Energy Agency and World Nuclear Association, compiled by Amory Lovins at the Rocky Mountain Institute, within five years new nuclear additions will be dwarfed by any number of small-scale power technologies, including solar photovoltaics (the same technology that powers calculators). Small-scale cogeneration and wind power, which are becoming large players in the world electricity market, will each provide 20 to 30 times as much new capacity as nuclear plants.

In many countries, small-scale power plants have already made their presence felt big time. They now provide half of the electricity generated in Denmark, almost 40% of the generation in the Netherlands and Finland, 30% of Russia’s and between 15% and 20% of the electricity generated in Germany, Japan, Poland and China. Most remarkably, these large market shares came about despite resistance from the power monopolies: Some of them are token projects, built by the monopoly to preempt private competitors who were seeking permission to enter the electricity business, or in response to public pressure; some are public-private partnerships that had to surmount monopoly opposition; and some of them aren’t utility projects at all, but free-market power plants developed by businesses capitalizing on cost-saving opportunities to provide power for their own needs.

While many of the monopoly-built plants required subsidies, many more were economical yet rejected by the monopoly. Without the monopoly utility deciding who can produce power and who can’t, small-scale private producers would dominate the marketplace. Large buildings and shopping centres would routinely be generating their own power, just as they now produce their own heat. Just about the only technology that wouldn’t have a future in a de-monopolized, de-subsidized power system would be nuclear power.

Lawrence Solomon, author of the forthcoming book Toronto Sprawls, is executive director of Urban Renaissance Institute and Consumer Policy Institute, divisions of Energy Probe Research Foundation.; www.urban-renaissance.org.

Lawrence Solomon
National Post
September 28, 2006

If the United States imposes meaningful economic sanctions on Iran, let alone tries a military strike against its nuclear facilities, Iran threatens to play its oil card. Many fear Iran will make good on its vow to “halt oil supply to the last drop” through the Strait of Hormuz, conduit for 40% of the world’s oil exports; others fear Iran will cut back its own oil production. Either way, they believe, Iran would be demonstrating its determination to deliver “$200-a-barrel oil,” in the process buffeting the West’s economies and exposing its vulnerability to oil disruptions.

In truth, it is not the West but Iran that is wholly hostage to oil.

Should the day come that the United States, with or without Israel and other allies, feels impelled to bombard Iran’s nuclear facilities, Washington would likely precede its attack by taking out Iran’s air defences and missile launchers, to limit Iran’s ability to respond militarily, and it would likely also take out Iran’s energy infrastructure, to limit its ability to fund a later retaliation. Iran, following these events, would lose its outsized economic and military influence, much as happened to Iraq after the first Gulf War, but without any need for an American ground invasion or post-war occupation.

Some 80% to 90% of Iran’s export earnings, and 40% to 50% of its budget, come from sales of energy. With the U.S. military destroying Iran’s oil and gas pipelines and blockading its oil tankers, Iran would face bankruptcy – the same situation as in the late 1990s when oil prices plummeted. Even with today’s high energy prices, Iran is struggling economically with double-digit inflation, double-digit unemployment, and a per-capita GDP that is 25% below the Iran of the 1970s.

An American attack on Iranian infrastructure would also expose Iran’s surprising vulnerability to energy shortages of its own: The Islamic Republic imports one-third of its gasoline, keeping a mere 45-day supply, and is a net importer of natural gas. The loss of oil revenues would not only force upon Iran draconian domestic rationing, it would squeeze its own military – already deprived of funds for spare parts – and limit Iran’s ability to finance its proxy armies in Iraq (al-Sadr’s Mahdi Army) and in Lebanon (Hezbollah), immediately strengthening the prospects for democracy in those countries. With Islamic terrorists losing their largest funding source by far, the level of terror could well subside. Candidates for making up the terrorists’ shortfalls, such as Syria, would think twice before inviting Iran’s fate.

Many argue that the United States does not have a credible military option in Iran, claiming that without a ground invasion the best that the U.S. military could do would be to set back Iran’s nuclear program by several years. But several years could suffice to cause the Iranian public to reassess the wisdom of the mullahs’ rule. With Iran having lost its status as regional superpower, and the mullahs seen to have brought not glory but disgrace to Iran, reformers would be validated. (In Lebanon, the public began to turn against Hezbollah immediately after its war with Israel ended.)

While regime change may not follow an attack on Iran’s infrastructure, debilitating the Islamic Republic of Iran – America’s chief enemy since the end of the Cold War – would be accomplishment enough. A militarily and economically humbled Iran can be contained, albeit imperfectly, as was Iraq between the two Gulf Wars. The alternative – risking Iran’s acquisition of nuclear weaponry – carries risks too grave to countenance.

Yes, military action by the U.S. may cause Iran to unleash thousands of suicide bombers against the coalition forces in Iraq, and the West, as it has boasted it could do. Yes, Iran could also unleash the Mahdi Army against coalition forces in Iraq and rain down missiles on Israel. Yes, it could severely disrupt oil exports if its military is not quickly neutralized in any attack. But the mere presence of these clubs in Iran’s arsenal are evidence enough of the threats that America and its allies will need to contend with sooner or later. Better to deal with this gathering storm before it reaches whirlwind intensity, and at a time of America’s choosing, than to pray it will dissipate with time.

Others argue that the Western economies would take a grievous hit from the hyperexpensive oil that would follow a major disruption of exports from the Middle East. This alarm is overblown. We already pay a large oil surcharge for living with the fear of disruption – some believe the risk premium exceeds $20 a barrel – and any closure of the Strait of Hormuz, the U.S. Defense Intelligence Agency testified last year, would be short-lived. Iran’s own exports of 2.5-million barrels a day, meanwhile, could be offset by the world’s strategic petroleum reserves. America’s reserves, by far the world’s largest, amounts to 600 days worth of Iranian oil exports.

Diplomacy is unlikely to prevent the need for an attack on Iran. But, to give diplomacy a chance, the logic of an attack on Iran must be brought home to Iran’s chief backers, Russia and China, both of whom have large investments in Iran. They need to understand that their investments in Iranian oil infrastructure will be best protected by bringing the mullahs to heel.

Russia – a much larger oil exporter than Iran and likewise dependent on oil wealth for its stability – would in any case be conflicted at the prospect of an American-Iranian War: Moscow stands to gain more than lose in the near term from the higher energy prices that would accompany a halt to Iranian oil exports. And it doesn’t want a nuclear Iran on its southern flank, where separatists and terrorists already provide threat enough.

But Russia – which has played good cop to America’s bad cop in efforts to pacify Iran’s nuclear program – has no incentive to push Iran hard if it believes that the U.S. will not act militarily. Diplomacy cannot succeed without a military threat looming large. Whether the end game is diplomacy or war, America must brandish its oil card.

Lawrence Solomon, author of the forthcoming book Toronto Sprawls, is executive director of Urban Renaissance Institute and Consumer Policy Institute, divisions of Energy Probe Research Foundation.; http://www.urban.probeinternational.org

A reader responds

Mr. Solomon’s argument that the West should call Iran’s bluff. May I suggest, however, a different way of calling it? Instead of spending billions on another war, the West should induce emigration of the best and brightest Iranian scientists, engineers and entrepreneurs, and imbue them with an appreciation for free and open societies. With Iran’s economy already on the verge of collapse, a downward spiral would begin. Iran would pump more oil to compensate. Falling oil prices would hasten its decline and boost the global economy. With its economy in tatters, funding for Hamas, Hezbollah and the Iraqi insurgency would dry up.

Another front in the Middle East war might work, but the time has come to explore alternatives.

Steven Salamon, Toronto