Cautionary advice from California

Making sense of the California energy situation is hardly more fruitful than trying to understand California itself.

For many citizens, the energy drama was demeaning and confusing. To use the word "tawdry" to describe the maneuverings and pronouncements of the larger energy suppliers might be too kind. To use the word "inept" to describe the California governor may be equally charitable. After securing long-term contracts for electricity at the top of the market, California is now selling its surplus electricity at a loss.

Having been gouged the first time, Gov. Gray Davis must have looked like a "mark" to the professional dealers, who proceeded to fleece him a second time.

In short, the crisis had none of the virtues or vices one could like. But, as with all crises, there are cautionary points to bear in mind:

1. Energy has always been a boom-and-bust commodity, because of the lag between demand, supply, and investment. When prices are low, economies are stimulated to use more, which soaks up supply, eventually causing price increases. As supply shrinks and prices rise, it brings on new investment in supply. Before supplies come on line, high prices suppress demand. As demand falls and new supply becomes available, prices plummet. The cycle repeats itself time and again.

2. Energy is the nation's most politicized commodity; politics and markets are dreadful bedmates. Never confuse price volatility and a free market. In fact, it is this volatility that curbs free markets. OPEC's raison d'être is to prevent an open market.

Even a cursory reading of the events surrounding California's blackouts and surpluses reveals how energy supplies were manipulated, carteled, and controlled by corporate interests with one end in mind: windfall profits. What California endured, what the country experiences, is a coercive market owing to the absence of energy policy.

3. American's expectation that energy be cheap and abundant greatly reduces the opportunity for a long-term policy that would lead to less pollution and more energy security. We are the world's spoiled children when it comes to gas and electricity prices. We howl when we can't get our candy. It's unbecoming, and prevents us from learning from countries such as Germany, Switzerland, and Sweden, all of which have considerably higher energy prices, greater energy productivity, and better standards of living.

Although encumbered and manipulated markets are present in every society, what is uncommon about the US (and California) is the absence of an energy blueprint. Developed countries such as Germany, France, and Japan have energy plans extending far into the future. Sweden has announced policies that will make the country essentially carbon neutral within 25 years.

The US strategy, crafted in secret at Vice President Cheney's office by industry lobbyists, is no plan at all. It is simply a combination of concessions and corporate welfare to the energy industries of the past. Nothing that emerged from California resulted in a game plan that will make the state more self-sufficient, less polluted, or more stable. Welcome to the next crisis.

In the rush to reenergize California, there was no mention of carbon emissions or global warming. While Democrats quickly denounced President Bush's renunciation of the Kyoto Protocols, possible Democratic presidential hopeful Gray Davis hasn't even discussed the issue.

In 1979, the Energy Department said, "carbon dioxide from unrestrained combustion of fossil fuels potentially is the most important environmental issue facing mankind." It still is. US antipathy to responsibility for global warming has been greeted with incredulity by the rest of the world. Australian Sen. Bob Brown put it succinctly: "The world's got a pretty simple choice here. It's between President Bush and our grandchildren."

The greatest loss in California was not the billions of dollars flowing into Texas-based energy companies. It was the loss of leadership. If ever there was a moment to enjoin citizenry to engage in a real dialogue about California's future, its needs, and its responsibilities, this was the time.

A crisis, whether personal or national, is an opening, a moment when the scattered pieces from the past can be put together in new ways that can lead to transformation. Since California is the economic equivalent of the fifth-largest country in the world, it would have been appropriate for Bush to participate collegially and thoughtfully.

Despite the need to solve the power crisis, Governor Davis had the opportunity to remind us that energy is not only a matter of price and availability, it is also a moral issue that will indeed affect our grandchildren and their grandchildren to come.

Paul Hawken is a businessman and author of 'The Ecology of Commerce' (HarperCollins, 1993) and six other books.

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