Harpers has an article by bubble follower Eric Janszen on The Next Bubble, which he tips to be in the alternative energy sector. Personally I think an alternative energy bubble (or at least a very large boom) is our best hope of solving the problems this blog focuses on, so I, for one, will be cheering it on if it does occur.

Our economy is in serious trouble. Both the production-consumption sector and the FIRE sector know that a debt-deflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression.

We have learned that the industry in any given bubble must support hundreds or thousands of separate firms financed by not billions but trillions of dollars in new securities that Wall Street will create and sell. Like housing in the late 1990s, this sector of the economy must already be formed and growing even as the previous bubble deflates. For those investing in that sector, legislation guaranteeing favorable tax treatment, along with other protections and advantages for investors, should already be in place or under review. Finally, the industry must be popular, its name on the lips of government policymakers and journalists. It should be familiar to those who watch television news or read newspapers.

There are a number of plausible candidates for the next bubble, but only a few meet all the criteria. Health care must expand to meet the needs of the aging baby boomers, but there is as yet no enabling government legislation to make way for a health-care bubble; the same holds true of the pharmaceutical industry, which could hyperinflate only if the Food and Drug Administration was gutted of its power. A second technology boom—under the rubric “Web 2.0”—is based on improvements to existing technology rather than any new discovery. The capital-intensive biotechnology industry will not inflate, as it requires too much specialized intelligence.

There is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water. Indeed, the next bubble is already being branded. Wired magazine, returning to its roots in boosterism, put ethanol on the cover of its October 2007 issue, advising its readers to forget oil; NBC had a “Green Week” in November 2007, with themed shows beating away at an ecological message and Al Gore making a guest appearance on the sitcom 30 Rock. Improbably, Gore threatens to become the poster boy for the new new new economy: he has joined the legendary venture-capital firm Kleiner Perkins Caufield & Byers, which assisted at the births of Amazon.com and Google, to oversee the “climate change solutions group,” thus providing a massive dose of Nobel Prize–winning credibility that will be most useful when its first alternative-energy investments are taken public before a credulous mob. Other ventures—Lazard Capital Markets, Generation Investment Management, Nth Power, EnerTech Capital, and Battery Ventures—are funding an array of startups working on improvements to solar cells, to biofuels production, to batteries, to “energy management” software, and so on.

The candidates for the 2008 presidential election, notably Obama, Clinton, Romney, and McCain, now invoke “energy security” in their stump speeches and on their websites. Previously, “energy independence” was more common, and perhaps this change in terminology is a hint that a portion of the Homeland Security budget will be allocated for alternative energy, a potential boon for startups and for FIRE. ...

Of course, alternative energy and the improvement of our infrastructure are both necessary for our national well-being; and therein lies the danger: hyperinflations, in the long run, are always destructive. Since the 1970s, U.S. dependence on foreign energy supplies has become a major economic and security liability, and our superannuated roadways are the nation’s circulatory system. Without the efficient transit of gasoline-powered trucks laden with goods across our highways there would be no Wal-Mart, no other big-box stores, no morning FedEx deliveries. Without “energy security” and repairs to our “crumbling infrastructure,” our very competitiveness is at stake.

Going back 2 booms in time, one of the chief cheerleaders of the dotcom / technology boom was Wired. Their infamous (amongst those who took a lot of joy in the bursting of the tech bubble) story on the Long Boom immediately came to mind when I read the Harpers article - as the last stage of the long boom it described was an alternative energy boom.

The intervening booms were supposed to be in biotech and nanotech, though neither has really made it to the boom stage - instead we had a global real estate boom, coupled with an oil "boom" of sorts, both of which are largely responsible for the current mess we are in (especially if you include Bush and Cheney's oil grab in Iraq as an aspect of the oil boom).

Wired's alternative energy boom already has a slightly retro feel to it, given the heavy focus on the hydrogen economy instead of the real revolution for vehicles that is slowly getting started - electric cars - and didn't have the imagination to envisage the switch to an entirely clean energy economy that we'll like undergo in the next 3 decades.

All four waves of technology coursing through this era - computers, telecom, biotech, and nanotech - contribute to a surge of economic activity. In the industrial era, a booming economy would have put a severe strain on the environment: basically everything we made, we cooked, and such high-temperature cooking creates a lot of waste by-products. The logic of the era also tended toward larger and larger factories, which created pollution at even greater scales.

Biotech, on the other hand, uses more moderate temperature realms and emulates the processes of nature, creating much less pollution. Infotech, which moves information electronically rather than physically, also makes much less impact on the natural world. Moving information across the United States through the relatively simple infotechnology of the fax, for example, proves to be seven times more energy efficient than sending it through Federal Express. Furthermore, these technologies are on an escalating track of constant refinement, with each new generation becoming more and more energy efficient, with lower and lower environmental impact. Even so, these increasing efficiencies are not enough to counteract the juggernaut of a booming global economy.

Fortunately, the fifth wave of new technology - alternative energy - arrives right around the turn of the century with the introduction of the hybrid electric car. Stage one begins in the late 1990s when automobile companies such as Toyota roll out vehicles using small diesel- or gasoline-fueled internal-combustion engines to power an onboard generator that then drives small electric motors at each wheel. The car runs on electric power at low RPMs but uses the internal-combustion engine at highway speeds, avoiding the problem of completely battery-powered electric vehicles that run out of juice after 60 miles. The early hybrids are also much more efficient than regular gas-powered cars, often getting 80 miles to a gallon.

Stage two quickly follows, this time spurred by aerospace companies such as Allied Signal, which leverage their knowledge of jet engines to build hybrids powered by gas turbines. By 2005, technology previously confined to aircraft's onboard electric systems successfully migrates to automobiles. These cars use natural gas to power the onboard generators, which then drive the electric motors at the wheels. They also make use of superstrong, ultralight new materials that take the place of steel and allow big savings on mileage.

Then comes the third and final stage: hybrids using hydrogen fuel cells. The simplest and most abundant atom in the universe, hydrogen becomes the source of power for electric generators - with the only waste product being water. No exhaust. No carbon monoxide. Just water. The basic hydrogen-power technology had been developed as far back as the Apollo space program, though then it was still extremely expensive and had a nasty tendency to blow up. By the late 1990s, research labs such as British Columbia-based Ballard Power Systems are steadily developing the technology with little public fanfare. Within 10 years, there are transitional hydrogen car models that extract fuel from ordinary gasoline, using the existing network of pumps. By 2010, hydrogen is being processed in refinery-like plants and loaded onto cars that can go thousands of miles - and many months - before refueling. The technology is vastly cheaper and safer than in the 1960s and well on its way to widespread use.

These technological developments drive nothing less than a wholesale transformation of the automobile industry through the first quarter of the new century. Initially prodded by government decrees such as California's zero-emission mandate - which called for 10 percent of new cars sold to have zero emissions by 2003 - the industrial behemoths begin to pick up speed when an actual market for hybrid cars opens up. People buy them not because they are the environmentally correct option but because they're sporty, fast, and fun. And the auto companies build them because executives see green - as in money, not trees.

This 10- to 15-year industrial retooling sends reverberations throughout the global economy. The petrochemical giants begin switching from maintaining vast networks that bring oil from remote Middle Eastern deserts to building similarly vast networks that supply the new elements of electrical power. Fossil fuels will continue to be a primary source of power into the middle of the 21st century - but they will be clean fossil fuels. By 2020, almost all new cars are hybrid vehicles, mostly using hydrogen power. That development alone defuses much of the pressure on the global environment. The world may be able to support quite a few additional automobile drivers - including nearly 2 billion Chinese.

The Economist has an article on Matt Simmons. The most surprising part (other than Matt's retreat to a doomstead in Maine) is them quoting him saying "globalisation must stop". Isn't that considered the ultimate heresy in St James ?

Simmons & Company, the investment bank Mr Simmons went on to found (along with Michael Huffington, an oilman and politician), helped to funnel money and financial advice to the nascent “oil services” industry, which performs tasks such as seismic surveys and drilling wells on behalf of oil firms. Indeed, Mr Simmons says it was his bank that coined the very phrase “oil services”. It has handled over 500 merger-and-acquisition deals in the industry—49 of them last year alone.

All this means that Mr Simmons can draw upon long experience and deep knowledge of the oil industry. He does not dispute the main criticism of the “peak oil” theory: that improvements in technology, spurred by high prices, will eventually allow new fields to be found, more oil to be recovered from existing fields and artificial oil to be conjured from substances such as tar sands, coal and shale. But he thinks such advances will take longer to appear and have less of an impact than his detractors assume.

As it is, he points out, all the world’s drilling rigs are working flat out, and old ones are being retired faster than new ones can be produced. The same is true of geologists and many more of the industry’s essential inputs. This is slowing the development of new fields and pushing up the cost. By the same token, the technology being used to extract oil today has been in the works since the 1970s. It will take a long time for the next generation of clever kit to come into widespread use. Besides, many technological improvements seem to have simply speeded up the extraction of oil, rather than increasing the share of each reservoir that can be recovered.

In short, as Mr Simmons readily concedes, the debate between proponents and critics of “peak oil” boils down to an argument about timing. The optimists think that technology will advance quickly enough to offset declining production from mammoth fields such as those Mr Simmons studied in Saudi Arabia. But he and his disciples think the declines will come too soon, and be too sharp, for the world to adapt in time. The whole row could easily be solved, he says, if Saudi Arabia would only allow independent auditors to assess its reserves.

In the meantime, Mr Simmons is taking no chances. He plans to start up a farm near his house in Maine, in case the supply chain that provides America with food breaks down for lack of fuel. He plans to fertilise his fields with manure, rather than chemicals derived from oil and natural gas. He thinks globalisation must stop, and that as much trade as possible should be conducted by boat, to conserve whatever oil remains.

But Mr Simmons has not despaired. He holds out great hope for wave energy, and believes that at least one of the many different species of seaweed found along Maine’s coast will yield oil that can be turned into biofuel. He has got Simmons & Company involved in alternative energy. It is a brave choice for someone who is so pessimistic about technology.

The Economist also recently had a special issue covering energy issues - The power and the glory - which had a look at a range of alternative energy options.

In the space of a couple of years, all that has changed. Oil is no longer cheap; indeed, it has never been more expensive. Moreover, there is growing concern that the supply of oil may soon peak as consumption continues to grow, known supplies run out and new reserves become harder to find.

The idea of growing what you put in the tank of your car, rather than sucking it out of a hole in the ground, no longer looks like economic madness. Nor does the idea of throwing away the tank and plugging your car into an electric socket instead. Much of the world’s oil is in the hands of governments who have little sympathy with the rich West. When a former head of America’s Central Intelligence Agency allies himself with tree-hugging greens that his outfit would once have suspected of subversion, you know something is up. Yet that is one tack James Woolsey is trying in order to reduce his country’s dependence on imported oil.

The price of natural gas, too, has risen in sympathy with oil. That is putting up the cost of electricity. Wind- and solar-powered alternatives no longer look so costly by comparison. It is true that coal remains cheap, and is the favoured fuel for power stations in industrialising Asia. But the rich world sees things differently.

In theory, there is a long queue of coal-fired power stations waiting to be built in America. But few have been completed in the past 15 years and many in that queue have been put on hold or withdrawn, for two reasons. First, Americans have become intolerant of large, polluting industrial plants on their doorsteps. Second, American power companies are fearful that they will soon have to pay for one particular pollutant, carbon dioxide, as is starting to happen in other parts of the rich world. Having invested heavily in gas-fired stations, only to find themselves locked into an increasingly expensive fuel, they do not want to make another mistake.

That has opened up a capacity gap and an opportunity for wind and sunlight. The future price of these resources—zero—is known. That certainty has economic value as a hedge, even if the capital cost of wind and solar power stations is, at the moment, higher than that of coal-fired ones.

The reasons for the boom, then, are tangled, and the way they are perceived may change. Global warming, a long-range phenomenon, may not be uppermost in people’s minds during an economic downturn. High fuel prices may fall as new sources of supply are exploited to fill rising demand from Asia. Security of supply may improve if hostile governments are replaced by friendly ones and sources become more diversified. But none of the reasons is likely to go away entirely.

Global warming certainly will not. “Peak oil”, if oil means the traditional sort that comes cheaply out of holes in the ground, probably will arrive soon. There is oil aplenty of other sorts (tar sands, liquefied coal and so on), so the stuff is unlikely to run out for a long time yet. But it will get more expensive to produce, putting a floor on the price that is way above today’s.

Other articles in the section cover most of the way forward (ocean power, biogas and cradle to cradle manufacturing being the most notable exceptions, while "negawatts" were deliberately omitted):

* Trade Winds - "Wind power has come of age. But to make the most of it, electrical grids will have to be overhauled"
* Solar Energy: Another silicon valley?
* Beneath your feet: Geothermal could be hot
* Bespoke biofuels
* Electric cars: The end of the petrolhead