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Symposium 2009

Proposal - The Energy Crisis and Climate Change

The Challenge

The future global economy is likely to consume ever more energy, especially with the rising energy demand of developing countries such as China and India. At the same time, the tremendous risk of cl ...

The future global economy is likely to consume ever more energy, especially with the rising energy demand of developing countries such as China and India. At the same time, the tremendous risk of climate change associated with the use of fossil fuels makes supplying this energy increasingly difficult.

The term ‘energy crisis’ is used quite loosely so it pays to be clear about what’s under discussion. Broadly speaking the term poses three distinct questions:

Will we run out of energy?

We rely on coal, oil and gas (the fossil fuels) for over 80% of our current energy needs – a situation which shows little sign of changing over the medium-term without drastic policy changes. On top of this energy demand is expected to grow by almost half over the next two decades. Understandably this is causing some fear that our energy resources are starting to run out, with devastating consequences for the global economy and global quality of life.

The potential for crisis if we run out of energy is very real but there is still time before that occurs. In the past two decades proven gas reserves have increased by 70% and proven oil reserves by 40%. At expected rates of demand growth we have enough for thirty years supply. Moreover, better technology means that new oil and gas fields are being discovered all the time while enhanced recovery techniques are opening up a potentially huge array of unconventional sources, including tar sands, shale gas and ultra-deepwater. Ultimately, the near-unlimited supply potential of renewable energy sources should ensure that the world does not fall short of its energy needs.

How secure is our access to energy?

The security of global energy supplies continues to be problematic. Today, oil and gas reserves are in the hands of a small group of nations, several of which are considered political unstable or have testy relationships with large consuming countries. Eighty per cent of the world’s proven oil reserves are located in just three regions: Africa; Russia and the Caspian Basin; and the Persian Gulf. And more than half of the world’s remaining proven gas reserves exist in just three countries: Russia, Iran, and Qatar.

Concerns over energy security prompt policymakers to seek independence from foreign sources of energy. In Europe, new coal-fired power stations are back on the political agenda, partly because Russia is no longer seen as a reliable supplier of gas. In the US, home-grown biofuels have been promoted by successive administrations as an alternative to Middle Eastern oil imports, despite being more expensive. These reactions are a natural consequence. The more governments can extract themselves from the dependence on foreign energy resources, the more secure they feel.

How does climate change affect the energy we use?

Emissions of carbon dioxide into the Earth’s atmosphere – primarily as a result of burning fossil fuels for energy – are thought to be the cause of rising global temperatures. The scientific evidence to support this assertion has become increasingly compelling in recent years, suggesting a need for urgent and concerted action by all nations to prevent ecological degradation on a massive scale.

For the first time in history we face an energy crisis not because we might run out of energy, but because we are using it in the wrong way. Up to now the energy industry was judged by two metrics: its contribution to energy security and the cost of energy delivered to the consumer. To this we must now add a third: its success in reducing the emission of greenhouse gases, chiefly carbon dioxide, into the atmosphere.

Fortunately, finding solutions to these differing energy crises demands a broadly similar response:

Solution 1

Reduce growing energy demand through improved energy efficiency and conservation.

The first step to reducing global emissions is to arrest the growth in energy demand with an aim to eventually setting it on a downward trend. The key for continued economic progress is to learn how to create more wealth with less energy. This has additional benefits in improving energy security, preserving precious natural resources and saving money for businesses and the ordinary consumer.

However, unlocking the potential savings from improved energy efficiency will be very difficult without government coordination to change consumer behaviour. This will involve stricter product regulations as well as public education programmes to encourage people to think differently about energy. Governments should also address the issue of financing, providing cheap loans to households and small businesses with which they can carry out the necessary improvement works.

Solution 2

Research, develop and deploy a broad range of energy sources, both domestic and international, to work with properly functioning global markets to help meet future energy demands.

We need to look at both the short-term and long-term. In the short-term we can push existing technologies to help reduce carbon emissions. Fortunately we already have many technologies at our disposal: from wind, wave, solar and biomass for heat and power, to liquid biofuels, biogas and electric motors for transport. In the long-term, evolutionary technologies need to be further developed and research into revolutionary ones pursued.

A crucially important technology will be carbon capture and storage (CCS) which allows for the continued use of fossil fuels in the future energy mix. Coal is widely used to generate electricity in many of the world’s largest economies (especially the USA, China and India) and without CCS technology there is little chance that their energy demands can be met whilst at the same time reducing greenhouse gas emissions.

Solution 3

The so-called ‘developed countries’ along with large developing countries such as China, India, Russia and Brazil, should agree and adopt a common position on climate change, focused on reducing greenhouse gas emissions through an effective cross-border market and technology transfer mechanism.

Put simply, we cannot hope to avoid the dangerous consequences of climate change unless global emissions are halved from current levels by 2050. At current rates of population growth and with current technologies this will be impossible without a global agreement to limit and disperse the negative consequences. Developed countries must shoulder the initial burden with an agreement for immediate emissions cuts. In return, the largest developing countries must agree to cut their own emissions in the future, but only after having achieved some recognisable level of economic development.

All countries must agree to, and participate in, a carbon market framework with the aim of reducing emissions where it is most efficient and least costly. Whatever its design, the carbon market must create and defend a long-term price for carbon which is stable enough for businesses to factor it in to their forward planning. Where the flow of finance through the carbon market is insufficient to make the necessary reductions in emissions, additional funds should be made available. These should be used to allow non-OECD countries to develop alternative energy sources and help their citizens adapt to global warming. The OECD nations should seek to create a $100bn fund for this purpose.

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