Coal, oil and natural gas built the modern world. They are the buried remains of ancient life, holding energy gathered over millions of years. For about two centuries, people have spent that savings account at a furious rate.

Why fossil fuels won

The rise of coal and steam powered the Industrial Revolution. What matters here is why fossil fuels kept winning against every rival. Fossil fuels pack a great deal of energy into a small, storable, easily carried form, so they can be used wherever and whenever people want. A tank of fuel can sit for months and then power a truck across a continent. Wind and water power, by contrast, had to be used where and when nature offered them. They were also cheap: geology had already concentrated the energy.

Oil changes everything

In August 1859 Edwin Drake struck oil at Titusville, Pennsylvania, in one of the first wells drilled for the purpose. The early oil industry's main product was kerosene for lamps, which replaced costly whale oil and lit homes across the world. Gasoline was at first a nearly useless byproduct, sometimes simply dumped. The automobile changed that, above all after Henry Ford's Model T appeared in 1908.

John D. Rockefeller's Standard Oil, founded in 1870, came to control most of the American refining business through efficiency, secret railroad rebates and ruthless deals with rivals. In 1911 the United States Supreme Court ordered Standard Oil broken up into separate companies.

Oil soon became a matter of war. Before the First World War, Britain's navy began switching its warships from coal to oil, which gave more speed and range. Britain had plenty of coal but no oil of its own. Defending the decision in Parliament in 1913, Winston Churchill said, "Safety and certainty in oil lie in variety and variety alone." Churchill's point was that energy security comes from having many different suppliers, so that no single one can cut you off. The idea still guides energy policy today.

Oil and power

Huge fields were found in Persia in 1908 and in Saudi Arabia in 1938. In 1960 Iran, Iraq, Kuwait, Saudi Arabia and Venezuela founded OPEC, the Organization of the Petroleum Exporting Countries, to gain more control over prices and production that Western companies had dominated. Because oil is traded on a single world market, a disruption anywhere raises prices for buyers everywhere, even in countries that import none of the oil directly affected. Countries that depend heavily on oil exports, often called petrostates, face sharp booms and busts, and their rulers may govern with little need to tax or answer to citizens, part of what economists call the resource curse.

The hidden costs

Burning fossil fuels releases more than carbon dioxide. Coal smoke carries soot, sulfur dioxide and other pollutants. In December 1952 a cold, still spell trapped coal smoke over London for five days. The Great Smog killed about four thousand people within days, and later estimates put the total near twelve thousand. The disaster led Britain to pass the Clean Air Act of 1956, which restricted smoky fuels in cities. Today, studies estimate that outdoor air pollution from burning fossil fuels causes several million early deaths each year, though the figures vary widely by method. Add oil spills, mining accidents and the warming effect of carbon dioxide, and the price at the pump leaves out much of the real cost.

Plenty, not scarcity

For decades many people expected the world to run short of oil, and the fear of "peak oil" shaped policy. New drilling methods later proved those forecasts too gloomy. The practical lesson for energy policy is that the world holds far more fossil fuel than it can burn without severe climate harm, so the binding limit is the atmosphere rather than the supply. Natural gas from shale also replaced much coal in American power plants after about 2008, cutting carbon emissions and air pollution, though leaks of methane, a powerful warming gas, offset part of that gain.

Worked example: the oil shock of 1973

In October 1973, after war broke out between Israel and Egypt and Syria, Arab oil producers cut output and placed an embargo on the United States and the Netherlands for supporting Israel. Within months the price of crude oil roughly quadrupled. Drivers queued at gas stations and economies slid toward recession.

Apply the ideas. The embargo targeted only a few countries, but because oil moves on one world market, everyone paid more. Governments responded in ways Churchill would have recognized: they sought variety. Rich countries founded the International Energy Agency in 1974 to coordinate emergency oil stocks. France launched a crash program of nuclear power, and Denmark began its long turn toward efficiency and wind. Brazil started a large program to make ethanol fuel from sugarcane. The United States set fuel economy standards for cars. The shock shows that energy security and cleaner energy can point in the same direction, since less dependence on imported oil serves both. It also shows the opposite risk: some countries answered the crisis by burning more of their own coal.