The PRISM Framework for Systems Thinking

Through an articulation of societal priorities, the State creates incentives and disincentives for members of the polity to make choices. But the State does not have a monopoly on understanding the priorities of society. In fact, because it does not have such a monopoly, its position is always tenuous—subject to pressures to amend or even to abandon policies. Such adjustments are manifest as inconsistencies, often construed as hypocrisy by opposing interest groups.

Irrespective of economic and political systems, a modern State exercises considerable influence through instruments available to it.

Tax regimes, as impositions on citizens, enable the State to influence behavior of the participants in the economy it manages such that citizens would reduce their dependence on those activities associated with high taxes and gravitate to those activities with low or no taxes. The clearest example of the ability of the State to wield coercive power would be the imposition of some tax on the emission of carbon. Although States have the power to do this, certain segments of the polity may argue against such policy and propose to give markets a chance to set a price for carbon. The latter is illustrated by the European Climate Exchange for trading carbon dioxide emissions. Although the intention of the two approaches may seek to accomplish the same outcome (lower carbon emissions), a tax is essentially construed as a cost of doing business. Establishing a market price for carbon, in order to serve the societal justification of a market, must result in wealth distribution by presenting incentives for exchange. The market for carbon does not require all carbon emitters to participate unless the State imposes such a requirement on members of the polity.

Other instruments available to the State to influence any given context include:

By “resource,” we mean anything that can be put to some deliberate use, just as technology can only be put to use if there are resources that it can exploit. The resources that constitute the supply from which one may draw at any point in time or at any place on the planet span a set of opportunities that, although not universal, are numerous. The earliest examples of energy systems relied on muscle power as a resource – the muscle of humans or animals that humans managed to domesticate. The use of muscle power also led humans to other energy resources that could be put to use: vegetation that could be consumed or combusted to build fires to cook meals of available nutritional resources or to provide illumination or heat to warm living quarters. This simple example illustrates a basic, enduring aspect of the supply of resources for energy choices, namely, that it is limited only by what the human imagines that the human can put to some energy use.

Resources come in multiple types:

A large subset of the resource supply contains the artifacts of human exploits – what humans have produced at some place in some point in time. For example, the creation of a road from point A to point B requires elements of both science and technology, but as soon as it is built, the road becomes a resource for those who seek to use it to accomplish whatever they can by exploiting its existence.

Further, the existence of natural resources and their potential usefulness are not uniform. The plains dweller may be ignorant of the challenge of scaling a mountain; the mountaineer may struggle to imagine the ease of traversing a plain. Gaining access to a desired energy resource may be more difficult for some agents than for others. The CFO of a company in Kyoto may spend all of his waking hours seeking affordable fuel for an industrial plant, whereas the CFO of a U.S. competitor may find this task to be routine simply because of the differences the two CFOs face in gaining access to reliable and affordable supplies of natural gas, oil, coal, or hydro power.

Finally, something only becomes an energy resource whenever it is associated with a consumption or a production activity. Yet the association with a production or a consumption activity may render the energy resource as either favorable or unfavorable for the aims of either kind of these activities. This is the issue at the heart of the debate about the dependency that economies at all levels of development have on hydrocarbons that contribute to CO2 concentrations in the atmosphere, for example.

The search is on for energy resources that would appear to be favorable in supporting the pursuit of consumption and production aims of modern society. Yet, any decision-maker anywhere on the planet would face trade-offs – sometimes of the daunting variety – in determining which potential energy resources are, on balance, more favorable than others in supporting the pursuit of any given consumption or production aim.

We humans attempt to impose order on the otherwise disorderly world in which we find ourselves. That is, we develop practices, perceptions, beliefs, and assumptions relating to our world that we strive to institutionalize just for the purpose of simplifying our understanding of our own condition. Although this does not change our condition, we do this for economizing on our need to think, and to subscribe to some fantasy that we may recognize could be neither true nor immutable. An institution, thus, is a constraint that we impose on human interaction, and humans the world over have demonstrated for millennia a remarkable ability to create and to defend such constraints.

The Bretton Woods agreement after World War II is an example of a State-inspired institution that established a new global monetary system for fixed currency exchange rates using gold as the universal standard. The agreement reached into the conduct not only of diplomacy and geopolitics, but it reached into the establishment of financial markets, and of energy markets, into the quest for energy resources (especially oil), and of technologies to improve efficiency and productivity of the production and use of critical energy products. The Bretton Woods Agreement persisted as an order of international relationships in the developed world from 1945 until 1972 when its ability to sustain the order came to a breaking point. This was a State-inspired institution with an admirable track record enabling the reconstruction of two destroyed economies (Germany and Japan) to re-enter the community of nations as formidable economic powerhouses.

But not all institutions are State-inspired, some are established within market systems (e.g. standards), some are established for the resource endowment (e.g. uranium as the favored resource for nuclear power), some emerge as conventions of scientific progress (e.g. the Theory of Relativity) or technological innovation (e.g. digital computation replacing analogue systems).

In general, institutions can be formal or informal. Laws are formal institutions of the State. Methodologies are quasi-formal institutions that organize scientific discovery and technological innovation. Business models are informal institutions of the market system, and habitual consumption of specific resources are informal institutions that may simply identify a culture.

There are no natural laws that govern which side of a road one may choose to drive a car, but there is a formal institution reinforced by police and courts to assure that one does not approach the choice of lane with unbridled freedom. One may interpret green as ‘go’ and red as ‘stop’ just about anywhere one confronts a traffic light on planet Earth. But if you want to know if it is ok to leave the lights on as you depart the office in the evening, you might want to consult your co-workers for guidance, especially if they are American or German or Japanese.

The distinction between science and technology is the difference between fundamental knowledge (science) and applied science (technology). Although science is a practice of discovery, one might think of technology as the manifestation of problem-solving. For technology to be successful, however, that technology must respect science. For example, the laws of physics (science) cannot be contravened by any attempt to build a perpetual motion machine (technology) no matter how hard an engineer may try. Even if applying such techniques of scientific discovery as controlled experiments, the metallurgist cannot produce gold from lead.

Within the context of the global energy system, science inspires and underpins the technological innovation in the design of wind turbines, the configuring of solar arrays, the refining of petroleum as fuels for propulsion, and the design of building systems either to take advantage of or to counteract natural environmental conditions, to name a few examples.

Advances in fundamental knowledge, such as the discovery of the energy-mass equivalency, lay the foundation on which enterprising engineers and tinkerers may experiment – for better or for worse – by exploiting that knowledge. What is discovered or proved to work in any application (technology) of the fundamental knowledge (science) may inspire others to join a stampede or a slow, deliberate march to refine the application by making the tool more efficient or more productive or to make it relevant in a wider range of applications.

When considering this influencer, analysts must therefore consider both the underlying science, asking questions that start with “why,” as well as the application of science to a particular problem by asking questions that begin with “how.” The irrepressible tension of scientific progress and technological innovation is a dynamic influence on any complex system that requires attention both to historical events and new developments.

Energy resources are, thus, produced and consumed either in the form of market goods or market services. Note that the distinction among the first three activities is arbitrary, as it depends on the perch from which one sees the economic drama unfold. Why? Because every agent in the system is an economic schizophrenic: simultaneously a producer and a consumer! One may recognize this either literally or metaphorically as evidence of the law of conservation from physics.

What this does mean is that value exchange is pervasive. In order to produce anything, the producer must consume inputs from some energy resource. In order to distribute anything, the distributor must first consume some input from a producer, and then produce some output that a consumer would consider a resource. The consumer receives energy resources conveyed through distribution and seeks to produce some outcome that provides her intended value. In their aggregate interactions, producers, distributors, and consumers yield resources to which no formal value is attached through any kind of price mechanism. These are externalities.

Perhaps the most important feature of a market is that it is a medium for the exchange of value. The societal justification for markets is that they are institutions of wealth distribution, where wealth means value accumulation. Measuring value is the function of prices, as summary statistics.

In terms of energy choices, the market system is a complex combination of agents who produce, distribute, consume, and dispose of energy resources. That means, from the collective execution of the fundamental economic activities, the market system augments or diminishes the supply of resources. To sustain the market system, flows course through the system creating, modifying, and conveying the outputs, payments, information, rights and claims, and degree of risk to support production, distribution, consumption, and disposal. It is all very unstable, as agents throughout the system constantly adjust their positions to seek optimal or satisfying conditions for their respective enterprises.

Some decisions and discoveries in each of the five categories of influences may be relatively easy to anticipate and to guide the adjustments that decision-makers of all kinds may make. Some may not be easy to anticipate, and humans exhibit a tendency to avoid surprises. To make matters worse, any change in one category of influence can induce a change in any other category of influence.

We have already insinuated the interdependencies among science and technology, the resource endowment, market systems, and State decisions. To use a deliberate illustration of the dependencies, consider the case of electric vehicles (EVs). For example, ramping up the production of electric vehicles requires expanded use of such energy resources as lithium, cobalt, and aluminum for batteries. Where can these energy resources be found? How does this influence State decisions as EV growth begins to present geopolitical considerations related to key resources, just as it opens market opportunities for incumbents and new entrants in the energy resource supply chain? And how does the American cultural institution of car ownership limit the consideration of alternative solutions to EVs for reducing the collective carbon footprint?

The idea of “imagined reality” refers to the limitations of human faculties to discern a complex and dynamic reality. That is, humans are constrained by the capacities of our five senses: sight, hearing, touch, taste, and smell. As we humans also have some conscious appreciation of the passage of time, this means that, broadly, we could be capable of sensing any representation of any energy context in six dimensions. We have some, although limited, data storage capacity in the form of memory as well.

Impressive as this may seem, one wonders what humans cannot sense. Indeed, to grapple with this complex reality, we invent means of measuring selected aspects that we perceive (e.g. ambient temperatures) to give us a sense of meaning, we conjure myths (e.g. our origins and the preeminence of selected forebears) to give us examples of normative choices, and we proclaim rules of nature disguised by customs that we are taught to respect (e.g. rules about what we may choose to eat) to economize on thinking. The complexity of the natural world that confronts us far outstrips our collective and individual capacities to interpret it completely, consistently, or even accurately.

Often too expediently, we are, perhaps, satisfied by what we perceive as justifying a prescriptive inference. For example, because we may have dutifully recycled plastic waste for years, much of which has made its way to landfills or incinerators in China, are we justified in thinking we are contributing to cleaning the environment only because we cannot witness where our waste is delivered? Because we drive an EV that has no emissions, are we justified in inferring that we are contributing to reducing CO2 in the atmosphere, even though the aluminum in the body and chassis, the steel in the engine, the axles, and the battery pack use prodigious quantities of coal in production?

Reality is really our individual and collective artifice. We convince ourselves that we live in the reality we imagine. Our imaginations are pliable, as each of us responds to our specific circumstances and affiliations. Each of us frames energy choices and pays homage to energy norms that each of us postulates would be consistent with our own imagined reality. Of course, occasionally, Mother Nature intervenes to remind us that she is reality, by presenting us with a pandemic, for example.

There are many prisons. As constraining as that might seem to be, that also presents us yet another source of information for discerning the energy reality using the variety of lenses of individuals, groups, and entire societies that are all looking at the same phenomenon. By participating in Tilt Global super-accelerator, leaders of companies navigating the fast-evolving markets learn to leverage tools like the PRISM to make better decisions for an uncertain future.