Renewable energy's black swan

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Throughout humanity’s long history, our societies have gone through great lengths to create a series of academic disciplines (economics, history, politics, etc.) that help us understand the world around us.  These disciplines train us to think that we should know what to expect in our world. Our expectations, though, are simply an illusion, according to Nassim Nicholas Taleb, a financial derivative mathematician by day, but a philosopher by night.  He is responsible for coining the concept of a black swan event.  A black swan event “refers to a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations”; the renewable energy revolution is just such an event. In a talk that he gave last year he further explained the concept, in relation to events, as those which are hard to predict but that make enormous impacts upon collective society; these are events with “low predictability and high consequence”.  He gives a few examples like the advent of the automobile, the onset of WWII, the Beatles, the invention of the computer, the Hubble telescope, 9/11; all of these events were unpredictable leading up to them, but looking back retrospectively at them, they were entirely likely, even predictable to some.

The basic premise of the black swan theory is that you cannot rule out a black swan simply because you have never seen one; it is a philosophical quandary with entirely real world applications.

In our modern world, we have grown entirely too comfortable in our fossil fuel kingdom; so much so that some people cannot even imagine a society powered by anything else.  How will we power our cars, heat our homes, search on Google, fertilize out agriculture, fight our wars, cook our food, or call our moms without fossil fuels?  Renewable energy, in its current state, is seen by many people as a hypothetical reality that may have a possibility of being implemented sometime in the future; but, for now, since our modern infrastructure is set up to revolve around fossil fuels, society has never seen a renewable energy economy. They do not know what one looks like.  Taleb’s black swan proposition asks us if this kind of thinking, where we rule something out simply because we have never seen it, is rational.

In an article written in Newsweek on the last day of 2008 (no doubt to try to inspire humanity to greatness in 2009), Vinod Khosla made the following statement: “Today, the world is in the midst of an economic, social, and environmental crisis that is overturning much conventional wisdom. The best course of action is to tackle it head-on with new ideas and paradigms, fostering an environment that rewards creativity and encourages ‘black swans’."  The best course of action has always been to acknowlede our black swans.

A revolution is under way; it is not a traditional revolution in that it seeks to overthrow the ruling regime in a violent manner.  In fact, it seeks to incorporate the very industries it wants to replace into the new paradigm.  The fossil fuel industry has run global economics and politics for more than a century now, but the tides are shifting.  Events are coming together in such a way as to make way for a transition of enormous magnitude for humanity.  The fossil fuel industry is well-positioned to aid in the transition by funding the switch to renewable nergy.  A century from now, when society looks back at the renewable energy revolution (currently in its preflight take-off procedeures), they will view this transition as entirely predictable.  From our current perspective, though, our course of action to get there is unclear; but the writing is starting to starkly outline itself on the canvas.

The business community began making its transition toward a triple-bottom-line philosophy in earnest a few years back; this philosophy includes environmental and social costs in addition to the financial concerns of a company.  Using this triple-bottom-line philosophy, the concerns of all stakeholders are brought into the manufacturing process; the entire lifecycle of a product is looked at, and the sustainability of any given practice is analyzed before it is brought to commercial scale.  Companies have been spending large sums of money retraining their staffs to think more holistically.  Hundreds of conferences have taken place over the course of the past few years, all trying to answer the same fundamental question: “How should decision-makers in large and small companies alter their long-term strategies in order to adapt to the continuous economic and political shifts on the horizon that will ultimately transform society as we currently know it into something that functions cleaner, more efficiently, and sustainably?”  One such conference, running today through Saturday in beautiful Santa Barbara, California is ECO:nomics; Creating Environmental Capital conference, presented by the Wall Street Journal.

Of course, executives would not all be sitting around discussing different shades of green if they didn’t see a need to be doing just that.  President Obama has given solid indications that he has “detailed plans to raise $80 billion annually from selling carbon allowances from 2012”, but the reality of a cap-and-trade market is still a question.  He has stated verbally that signing an international climate treaty is high on his wishlist of achievements for his presidency.  A cap-and-trade market is an essential tool for instituting the regulations necessary to meet internationally binding emission reductions.  Business executives see this scenario as a realistic probability and are making plans to adapt and adjust their strategies.

There are always students in the class that are behind the curve though, otherwise there would not be a class average.  A proxy statement is a “notice that a company sends to stockholders, allowing them to vote, and giving them all the information they need to vote in an informed way”; without proper information, investors cannot assess risk accurately, and conservative investors tend to look for more dependable investments, particularly companies that disclose information about their future practices.  This year, nine companies are being targeted by investors for...

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Read the full article at:

http://www.examiner.com/x-2903-Energy-Examiner
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