There are three major challenges related to the production and use of energy in
today’s uncertain world. They are the political and economic security threats
posed by the world’s dependence on oil; the risk to the global environment
from climate change; and the lack of access by the world’s poor to the modern
energy services they need for economic advancement.
The generally accepted estimate is that of the six billion people in the world,
approximately two billion rely on the most primitive forms of energy. They consume
a much larger share of their time and economic resources in acquiring energy than
people in the more developed world.
The response to these three challenges should be to make the transition to a new
energy economy. The economic opportunities for making this transition are signiÞcant,
but we have to create the conditions for policy change. This means assembling
political constituencies that have a desire for change and are able to inßuence
the political process in that direction.
The United States is very concerned about its dependence on oil from the Persian
Gulf, although in fact the problem is much more serious in Europe and Japan.
What do we need to do? We need to move quickly toward advanced vehicles that use
fewer or no petroleum products. But we must understand the scale of the challenge.
When General Motors rolled out its new hybrid vehicle, the company bragged that
it might sell a million hybrids by 2007. But given that there are a couple of
hundred million vehicles in the United States alone, with sales of 15 million
a year, it will take a very long time to replace the entire ßeet at that rate.
If we want to change the oil and carbon performance of the U.S. auto ßeet, we
must take much more aggressive steps if we are to make any kind of impact in the
medium term, let alone in the near term. Sir Philip Watts, Chairman of the Royal
Dutch Shell Group, has said that hydrogen fuel is important for the long-term.
The question is how to get to the longer-term. The allure of hydrogen should not
distract us from the need for action now. It will take 15, 20 or, perhaps, 25
years for hydrogen to make a signiÞcant contribution to the energy infrastructure
of the developed world.
EfÞciency in vehicles will only get us part of the way to our objective. As long
as we are dependent on petroleum as the only means to move our vehicles around,
we will get limited beneÞt from advanced vehicles and from increased efÞciency.
Unless we stop using petroleum, or at least have a blended system with multiple
fuels competing, we shall remain dependent.
What other options are there? Cellulosic sugars, or bio fuels, are the potential
source for a variety of alternative products. It is not just a question of replacing
gasoline with ethanol. In fact, substitution is much more advanced in the Þeld
of polymers for plastics, Þne chemicals, and other commodity chemicals. DuPont,
Cargill, Dow, and other big American companies are working very aggressively in
this area.
A recent report forecasts that by 2010, industrial biotechnology will account
for about 20 percent of the worldwide chemical market, or about $280 billion in
sales. That is a huge number, much bigger than for medical biotechnology.
Why should we go for biomass? The environmental advantages are obvious. It is
stored solar energy; and the carbon cycle is closed. Cellulose biomass is the
most prevalent and abundant substance in nature. It has been calculated that,
of all the organic carbon on the planet, a full 50 percent is in the form of cellulose.
So if we can unlock cellulose, we really have a formidable entrant into the energy
market.
Cellulose biomass can come from a variety of waste products and will do so in
the near future. Over the longer term we could consider using specially selected,
fast growing crops like hybrid poplars. Switch grass is an example of a crop that
has a variety of water, soil quality and environmental beneÞts. As switch grass
is mowed to take off the biomass, those beneÞts remain behind.
Biomass fuels can greatly reduce greenhouse gas emissions. If at the same time
the efÞciency of cars is increased through hybrids and fuel cells, the need for
imports of petroleum can be substantially reduced.
The other advantage of biomass is that it grows practically anywhere. It will
not grow in the desert, but there is a vast abundance of biomass worldwide. The
potential impacts on developing countries and the geopolitics of oil are stunning.
There is another interesting idea about biomass and agriculture. According to
the World Bank, agricultural subsidies, which amount worldwide to $300 billion
a year, suppress world prices for agricultural products, and undermine developing
country exports.
Subsidies in the developed world are roughly six times the level of development
aid. The average European cow receives $2.50 a day in government subsidies and
the average Japanese cow $7.50 a day, while 75 percent of the people in Africa
live on less than $2.00 a day.
These subsidies are a big point of conßict in trade negotiations between the United
States and the European Union in the Doha Development Round. The World Bank estimates
that eliminating the subsidies would increase rural income in developing countries
by $60 billion a year.
If, over time, Þnancial support to farmers can shift from subsidies for producing
food crops to subsidies for producing energy crops, all three main challenges
- oil dependence, climate change and access to energy by the world’s poor
- could be dealt with in a single stroke.
A special problem is also presented by coal. There is a huge installed coal capacity
around the world, but it is only about half the level it will reach in 30 years.
Two-thirds of the capacity that will be available in 30 years has not yet been
built.
Very little new coal capacity will be built in the European Union and the United
States, but huge amounts will be built in China, India and other developing countries.
If we are to reduce carbon emissions over the next 20 to 30 years, new capacity
cannot be built using existing technology.
The issue is how to get the technology right and the cost down. The developing
world can then invest in technology that will at least be capable of capturing
and sequestering carbon emissions now, and there will not be a large installed
capacity using the old technology.
Capturing carbon is not something new. In the North Sea, a Norwegian company is
capturing carbon dioxide (CO2) released in natural gas production and re-injecting
it below the seabed. There are coal-based technologies that essentially separate
the CO2 from the hydrogen stream.
As a result, if we can get the economics right, the coal industry could in the
long term become a highly competitive producer of low-cost hydrogen. The coal
industry could supply fuel to the transportation sector in a way that it has never
done before.
There are several possible policy options for encouraging these developments to
move faster. We should adopt incentives and requirements for carbon capture and
storage to engage the private sector. Transition strategies are critical for our
existing coal industry. We also need to develop a multilateral initiative to make
the new technologies available at an affordable cost to developing countries.
Another priority is to modernize electricity grids. In the United States, it is
estimated that outages and various other disruptions in the power system cost
more than $100 billion a year. The system is antiquated. It is based on 50 year-old
technology. It is insecure and easily disrupted, and it is not meeting customer
needs. The grid needs to be updated to support an increasingly digitally controlled
society.
This would have the ancillary beneÞt of opening up the grid for distributed generation.
It is not possible to start throwing fuel cells, wind turbines and various other
distributed energy resources onto an electric grid and expect the grid to pick
up and manage these new resources. This is particularly difÞcult because of a
lack of controls in the U.S. grid today.
It would probably cost between $50 million and $100 million over a ten or 20 year
period to install the controls in the U.S. electric grid that are needed just
to know where the power is going, much less to manage it. If this could be done,
however, there would be very substantial beneÞts. The Electric Power Research
Institute suggests that this kind of investment would help reduce energy intensity
and increase the efÞciency of the grid. This would have signiÞcant payoffs in
terms of productivity, economic growth and lower carbon emissions.
An international working group established by the Energy Futures Coalition is
focusing primarily on the poorest two billion of the world’s population,
which, with population growth, might rise to three or four billion by the middle
of the century. How do we get clean, affordable, reliable, energy or any kind
of modern energy services to that population?
One of the possibilities the group is considering would be an energy and development
council consisting of a coalition of corporations, labor organizations, faith-based
organizations and non-governmental organizations (NGOs) to support clean energy
development, both as a market opportunity and for reasons of good governance.
The council would support the implementation of the commitments to partnerships
that were made at the Johannesburg World Summit on Sustainable Development in
the energy sector. It would encourage strong U.S. government support for clean
energy, and mobilize private sector resources. It would also improve domestic
understanding of energy poverty and climate issues.
A new class of investment securities, perhaps to be called global development
bonds, could be created in order to mobilize private capital for these purposes.
The aim would be to establish a tax-favored, risk-insured category of investment
securities that could both attract private capital and leverage U.S. government
programs, such as the Millennium Challenge Account.
There is a general sense that we tend to reinvent the wheel in trying to deliver
energy services to rural areas in the developing world. We propose to establish
a global rural energy best practices fund to catalyze Þnancing for 100 million
unserved rural households over the next 10 years. The fund would focus on what
works and build on successful models emerging in developing countries.
Pilot programs would be Þnanced through local credit and micro-credit institutions,
energy service providers, local governments and NGOs. There could be an overlap
between the global development bonds and the best practices fund because the fund
might identify projects that the global development bonds would be able to support.
Another proposal under consideration is a change in the terms of Þnancing by export
credit agencies and other multilateral institutions. The OECD lending guidelines
should be revised to provide extended-term Þnance for clean energy projects.
All energy projects are currently limited to 10-year lending, except for nuclear
power, which managed to lobby its way to 15 years. Clean energy projects should
also have 15-year Þnancing, if not more. We need to engage NGOs, clean energy
businesses and the U.S. government in an effort to advance this change within
the OECD by deÞning the trade and climate beneÞts.
There are also discussions, which tie into work that has been done at the UN,
about linking international energy resource centers and bringing them together
through information networks. The feeling is that it is often a shortage of know-how
that is preventing energy from reaching the poorest areas, rather than a lack
of capital or technology. Modern information and communication tools could be
used to bridge those gaps.
It will be crucial to strike the right balance between the roles of the public
and private sectors. Some people say that the proper role of the federal government
is long-term research and development that the private sector would not undertake
by itself. That is an important function, but it is not the only appropriate role
for government. The public sector can, in effect, reßect our widely held societal
goals and set a different path toward those goals that unleashes the private sector’s
creativity, its power and its capital in positive ways.
Government does not do this with punitive regulation. Rather, it Þnds ways to
encourage good behavior, reduce investment risk, and increase certainty about
what the future will bring. That will, in turn, unleash a lot more investment
by the private sector than the government would ever want to contemplate.
Reid Detchon is a consultant for the Better World Fund, coordinating the development of the Energy Futures Coalition. Before that, he was Director of Special Projects in Washington for the Turner Foundation, managing a portfolio of major grants aimed at increasing the effectiveness of environmental advocacy and encouraging federal action to avert global climate change. He has served as Principal Deputy Assistant Secretary for Conservation and Renewable Energy at the U.S. Department of Energy.
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