Mark Mills is the co-author (with Peter Huber) of The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy. The book, published in 2005, offers insights into the business of energy, and why that business is so misunderstood. Mills now works as the chairman of ICX Technologies, a Washington, D.C.-based company that provides security products. He has worked in the energy sector since the 1970s, and was a co-author of the Huber-Mills Digital Power Report, published by Forbes magazine and the Gilder Group. Mills talked with ET’s managing editor Robert Bryce in January, in a noisy coffee bar in Bethesda, Maryland.

ET: Everyone loves the idea of increased energy efficiency. One of the main points in The Bottomless Well is that greater efficiency won’t mean we use less energy but rather that we will use more energy. Why does efficiency mean more consumption?

MM: It’s always true that rising efficiency means greater consumption at the macroeconomic level. Always has and always will. Period. The reason, and the reason it’s confusing, is that improving efficiency means that you reduce the cost of inputs to accomplish the same thing, whether it’s dollars or tons or barrels. Being more efficient means I can get the same output, the same miles, the same whatever, whatever the output is, with less input.

ET: Which means that you become more profitable.

MM: Right. And whenever something is cheaper, they use more of it. So what you have done is made energy cheaper from the view of the operator. Efficiency reduces energy costs. That’s all it does. Always. Always. Always.

ET: And when it’s cheaper people end up using more of it?

MM: Right. The only time that doesn’t happen is if you prohibit the use of something….Everyone has trouble with the idea of efficiency. So both parties [Democrats and Republicans] have problems with efficiency. They embrace it. They genuflect to it. “It’s how we’re going to save the world” and all that bullshit. It’s nuts. Government programs aren’t needed to improve efficiency. Markets love efficiency….That’s what engineers always do. They always want to either invent new things or to make old things better. And better always means more efficient, less inputs, so you can do more of it.

ET: I don’t say this about many books, but some of the points in your book are profound.

MM: We’d hope to think so. The point of the book is to try to make it last. These are fundamental facts about energy that are immutable. Or if they’re not immutable, they are close. All of these graphs [in the book] have a very long time axis. The things we are trying to examine are about centuries-long trends.

ET: Why is it that energy is so misunderstood?

MM: Energy is a very difficult concept….We measure energy in our economy by using a metric, BTUs or its equivalent. That would be the same as measuring wheat and gold in tons only. Now which is more valuable? Duh. Okay. So which is more valuable: 1,000 BTUs of electricity or 1,000 BTUs from a wood fire? Well, you know the answer to that.

The difference between heat and electricity involves two things. What we pay for it; we can measure that. The other is entropy, which we can’t measure. The bizarre thing about energy is entropy. The more order I add to energy, the more valuable it is. But there is no measure for entropy. A laser beam is the highest ordered energy we produce in our economy. It is nearly entropy-free. We pay roughly $200,000 per kilowatt hour for the protons in a laser beam. We pay roughly 3 cents per kilowatt hour for the energy that comes out of the wall plug from the coal plant. We pay 0.1 cent for the heat in the coal plant. So if we were measuring energy value, we’d measure it by what we pay….So what we’re actually measuring is the absence of entropy, the order of the thing. And that metric is weird; entropy is such a weird thing that people don’t understand it.

ET: So what does that mean?

MM: People talk about barrels of oil as energy. It’s not. A barrel of oil or a ton of coal is a physical unit. It has no inherent energy value. But we call that energy in our lexicon. It isn’t. Energy is hard to define. Look up the word “energy.” All of the definitions are wrong. They all suck. Because nobody really understands it.

ET: Okay, so how should we go about defining energy?

MM: The value of an energy resource isn’t material until you can measure what you do with it at the point of use and what you pay for the energy to do the thing you want to do. What we do know is that our economy has voted with its pocketbook that electricity is the form of energy they want to use to do productive things. But electricity, if you are talking about energy efficiency, is inherently inefficient. You automatically throw away three units for every unit you use. So why would we want to use electricity? Are economies stupid? From a BTU metric, it means markets are stupid. From the energy efficiency metric, you should ban the use of electricity because it’s inefficient. But are you going to do laser surgery with a lump of coal? You can’t do it. That’s why we play with this idea of refining energy. Energy is meaningless until you refine it.

ET: In his State of the Union address President Bush talked a lot about ethanol. The Democrats are pushing hard for more ethanol. What are your thoughts on it?

ET: You don’t address it directly in The Bottomless Well but you imply that the arguments about peak oil are misplaced.

MM: We aren’t running out [of oil]. You continually run into the limits of your capabilities to extract any resource with a given technology. Oil in the North Sea, and oil in the Arctic Ocean, and oil below 10,000 feet of water, didn’t exist 40 years ago. There was nothing we could do to get to it. It just didn’t exist. If you look at today, you say, “well, we’ve reached the limits of our current technologies to extract oil.” You say, “well, we’re finished.” But what you are essentially saying is that it’s the end of our technical limits. What some people are saying is that we’ve reached the limit of the geophysical resource. But we don’t know. Even if that were the case, based on the known resources of hydrocarbons, today, without any new technologies, there are still 4,000 billion barrels.

ET: The issues of fossil fuel use and global warming are, obviously, closely tied. What’s your take on global warming?

ET: Given that, what should be done to fix the problem?

MM: To me there are two issues: Efficiency won’t stop rising energy use. We’ll use more. So if you think we should be using less energy to stop global warming, then be honest. It’s an economic issue. We’re cutting economic growth. There’s no getting around it. Second, if you want to use non-carbon fuels, or you want to decarbonize fuels, then that’s fine. But be honest about it. It’s going to cost money. If you take half the carbon out of coal, you are throwing away energy and you are using energy to do it. And it’s going to have a big cost. And we don’t have enough of anything else to replace it. So the only way you have less carbon is to spend more money. If everyone thinks that’s a good thing to do, then let’s be honest about what the costs are.