Why Elemental Energy must become the center of national power
This week’s “Securities” column is written by our Lux summer associate Ken Bui. Ken is a rising senior at Stanford, an alumnus of Ohlone College and a former Air Force ROTC cadet. This is his second column, his previous one was IP, IP, Betray.
While the elements of national power are now centered on AI, chips, defense and economics, a fundamental resource behind all of them is built right into the term: power, as in energy. There will be no training of large language models without electricity, no warfare without fuel, and no offensive power projection without power distribution first.
Even so, the Biden administration’s 2022 National Security Strategy (NSS) only briefly touched on climate change and energy security, noting that officials have allocated billions — $20 billion, to be exact — for clean energy innovation and development. A more robust and comprehensive energy security policy is absent though, and this remains America’s Achilles’ heel.
While the fracking boom and becoming a net exporter of oil were signs of so-called “energy independence,” today the United States is woefully weak on energy security. The fracking boom is believed to have peaked, limiting any further gains, leading us back to the crux of America’s dilemma: the country makes up 5% of the world’s population but consumes 26% of the world’s energy. In 2023, the vast majority of that consumption (79%) is derived from nonrenewable fossil fuels. Nuclear represents a mere 7.8%, and all renewable sources (nuclear, solar, wind, hydro, etc) are 13.5%.
Oil has long been litigated as not just a huge pollutant and contributor to climate change, but also as a security issue, forcing us into strange geopolitical bedfellows we might not otherwise embrace in the name of democracy and human rights. Russia controls 24.3% of the world’s natural gas reserves — the most by far — with Iran in second place with 17.3% and the United States a distant fourth with only 5.3%. Both Russia and Iran are named and denounced as strategic opponents of the United States in Biden’s National Security Strategy, and Russian natural gas imports have been embargoed since its invasion of Ukraine. And yet, America remains entrenched in the global natural gas markets, markets that are dominated by the whims of Vladimir Putin and Ali Khamenei.
America’s industry and its strategy aren’t coherent. Beyond fossil fuels, let’s expand on two more hopeful areas for American energy security: nuclear power and solar power, or what we at Lux sometimes dub “elemental energy.” Both, unfortunately, exhibit the same challenge for the United States, namely the financialization of an industrial sector crucial for national competitiveness that has since lost its domestic productivity, leaving the U.S. with fewer options for control over the future of its national security. Something has to give.
The meltdown of fission
In order for the U.S. to make good on its climate and emissions-reduction pledges, the Department of Energy forecasted that the country needs to double renewables, especially nuclear.
Lux co-founder Josh Wolfe testified in front of Congress last month on U.S.-China competition, and when asked which areas of competition remained at the forefront, he chose not to highlight AI, quantum, space, defense, or chips, but rather nuclear energy. Elemental energy, as he’s branded it, is a critical vector for great power competition. Just days after his testimony, China’s State Council approved $17 billion dollars for six new nuclear power plants, bringing the total number under construction in China to 21.
As for the United States? We have just two under construction in Georgia. Two.
That’s not to knock innovations around small modular reactors (SMRs) or the work of American nuclear startups like TerraPower, but the CCP understands that in a world where it lacks regional friends and where its actions alienate the West, it requires allies elsewhere — especially in developing countries. The Belt and Road Initiative sought to engage in developmental diplomacy, and in 2013, the Party announced its intention to export nuclear power infrastructure worldwide. That outbound investment would center Beijing within nuclear supply chains and infrastructure, ensuring extended dependence on Chinese services for operating the plants.
Even as the United States has mostly failed to build a new generation of nuclear power plants, we have also lost the ability to supply the ones we already have through domestic infrastructure. We used to dominate the uranium enrichment market, until we decided to outsource that production to Russia, allowing them to cartelize half the global market.
Today, America pays billions of dollars every year for enriched uranium to Rosatom, the Russian state-owned nuclear agency. While the Biden administration placed embargoes on Russian natural gas, we couldn’t do the same for nuclear fuel, given America’s dependency. We acquire a third of our enriched uranium from Russia because it is the cheapest — and almost a dozen other countries also depend on Russia for more than half of their enriched uranium.
There is a common trend here that dovetails with semiconductors and photovoltaic (solar) cells, as we will see shortly. America invented the modern day semiconductor and silicon solar cell, pouring billions of dollars of research funding into these fields. Eventually though, we financialized both industries and outsourced production, only to find that we now pay the price for our lack of industry. We used to be able to go toe to toe with the Soviets in terms of total enrichment capacity, but their focus on hard sciences and R&D allowed them to come up with Zippe-type centrifuges that are 20-fold more efficient than our methods of gaseous diffusion, making the U.S. globally uncompetitive.
If the United States is to lead the world diplomatically, it must do so less from mere appeals to democracy and the liberal international order and instead, begin viewing its commitments from a materialist standpoint.
The meltdown of sand
Last month, China announced export controls on gallium and germanium, key metals used in the production of semiconductors and photovoltaic cells. The PRC has a virtual monopoly on the global production of photovoltaic components and raw materials, with 97% market share.
Once upon a time in 1975, the United States held up to 95% of the market share. That collapsed when we began to financialize the sector. As Max Jerneck writes in Science Advances:
While providing needed financial support, conglomerates changed the focus from existing markets in consumer applications to a future utility market that never materialized. Concentration of the industry also left it vulnerable to the corporate restructuring of the 1980s, when conglomerates were dismantled and solar divisions were pared back or sold off to foreign firms. Both the move toward conglomeration, when corporations became managed as stock portfolios, and its subsequent reversal were the result of increased financial dominance over corporate governance.
Instead of serving industrial development, finance had come to serve itself.
Finance is an essential component of industrial change because it allows technologies to be developed before they can generate a return. But if finance no longer serves industrial change but instead prioritizes rent-seeking (seeking to increase its share of existing wealth without creating new sources of wealth), creative destruction of the present carbon-intensive industrial system cannot occur.
Sand, a crucial component in concrete, glass, and most importantly, silicon, is running out. China alone is responsible for 58% of the world’s sand consumption, buoyed by its rapid modernization and its appetite for consumer electronics, photovoltaics, and gleaming skyscrapers where fishing villages once stood. When we talk about renewable power, solar panels are often at the forefront of attention, yet all the intricacies about how those panels get to market go all but unnoticed.
China’s photovoltaic (PV) industry is the most cost-effective and hosts the most complete supply chain, capturing the vast majority of the market share for production of solar panel modules, cells, wafers and polysilicon. Their cornering of the market has rendered all other PV exporting nations uncompetitive.
Of course, those who remember the word “Solyndra” and the American cleantech bust of the early 2010s would be right to approach the PV industry with some degree of caution. Yet, the lessons to learn from that era are not simple. In Solyndra’s case, it was the precipitous price drop of polysilicon — 89% in the span of 2 years — coupled with the single greatest economic recession in decades that made it uncompetitive and eventually insolvent. The U.S.’s burgeoning cleantech industry was wiped out by market forces alone.
The Obama Administration, which tried to champion Solyndra as the “winner” of clean technology, pumped $538 million into the company, and its failure reflected poorly on the “picking winners and losers” model of industrial policy. Yet while the Administration may have myopically tried to pin their hopes onto one company and embarrassed themselves in the process, Obama’s Department of Energy loaned a total of $34 billion to cleantech startups, and collectively the portfolio only had a 2.3% loss rate.
The key lesson across both nuclear and photovoltaics is that those who build products, build power. From there, the flywheel of deepening and durable supply chains ensures that these industries are locked in to their home countries for a generation. The United States has repeatedly ushered out its technological edge for a financial one, only to find that dollars can’t replace critical materials in times of need. Power is defined by power, and it’s time to put our energy back into rebuilding the national elements of power.
“Securities” Video: You are not as original as you believe
We’ve talked extensively about generative AI in the newsletter, including in HoffaGPT, The AI Arms Race That Wasn’t and Professional Prerogatives, but one of our most popular “Securities” columns based on feedback was ChatGPT as garrulous guerrilla, a commentary on the future of the creative class (prediction: bleak). We’ve now updated the argument and fleshed it out into a full video essay on YouTube — definitely check it out.
- While we are on the subject of fission, I finally got to see Oppenheimer in 70mm IMAX (damn, those showings are the hottest ticket in town, Taylor Swift notwithstanding). For those curious about director Christopher Nolan’s research and preparation for the movie, he did a delightful interview with the Bulletin of the Atomic Scientists as well as an FT lunch. And for those curious about historical inaccuracies, my Stanford advisor happens to be a top Oppenheimer historian and wrote a lengthy rebuttal to some of the film’s dramatic points.
- Oppenheimer is divided into two parts, “fission” and “fusion,” and on the latter, our summer associate Alex Marley points out another milestone in the race for fusion energy. This time, a group of U.S. scientists have repeated an earlier experiment and once again found that their approach produces a net energy gain. It’s still very early, but positive developments offer hope that the fusion world is incrementally approaching.
- In other exciting scientific conversations, LK-99 continues to be debated relentlessly. Brandon Reeves enjoyed Alex Kaplan of Cometeer’s analysis of LK-99 and its implications if it indeed does turn out to be a room-temperature superconductor.
- Deena Shakir recommends the Washington Post’s look at how doctors, nurses, and hospital administrators are using and fighting back against AI in care settings.
- Our scientist-in-residence Sam Arbesman highlights two pieces on the bio world. The first by Niko McCarty is a well-curated syllabus on the future of bio, "The Codon Guide to Synthetic Biology.” Second, Sam points to Katia Tarasava’s piece on “Reimagining the Bioreactor.” “What if rather than expecting microbes to perform at their best in tanks borrowed from the chemical industry we built bioreactors with biology in mind? What if we worked with biology, rather than against it?”
- Tess Van Stekelenburg recommends a Nature Nanotechnology research article, "Next-generation protein-based materials capture and preserve projectiles from supersonic impacts.” Materials like Kevlar have been used to protect soldiers and police, but does nature have even better materials for protecting against projectiles? The answer appears to be yes.
- Wildfires have destroyed Maui and swaths of Canada and the northern Mediterranean, increasing emphasis on our powerlessness against the weather. Our summer associate Yadin Arnon recommends an article in The Economist on “The high-tech race to improve weather forecasting.”
- Our summer associate Ken Bui recommends Matthew Moellering’s analysis at the Modern War Institute at West Point, “Hiding In The Noise: Preparing The Irregular Warfare Community For The Age Of AI.” “The AI age is here, and the technologies associated with it are already making it harder to conduct irregular warfare.”
- Finally, our summer associate Koko Xu recommends Anna-Sofia Lesiv’s overview at Contrary Capital on “Modernizing the Electric Grid” as well as an excellent analysis by Cedric Chin on Dell Inc.: A Masterclass in Capital Management. “They’re not as flashy as product revolutionaries or scrappy entrepreneurs leading the charge against Goliaths. But make no mistake—capital management is a superpower that can make all the difference in a company’s long-term prospects.”
That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.