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Prospects for energy use and supply

Prospects for energy use and supply

Summary: Energy-related issues are causing rich countries to act in non-economic ways. The drivers of this are concerns about supply security, on the one hand, and pollution on the other. We have yet to work out the means by which to maintain economic balances where all trading nations do not act in concert. The potential for bad temper and accidents in this arena is high, and growing.

Energy is going to cost more than it has historically. This disadvantages the poor countries, which anyway need to spend enormous sums on energy-related infrastructure. If roughly half the world's population are to live in ways which are not damaging to the environment and security of the relatively wealthy remainder, then considerable investment will be needed. However, such investment must wait upon the emergence of credible institutions within the poor nations.



Energy production, transformation and use - and its sister, transportation - account for around a quarter of all value added. The planet abounds with low quality energy sources, but the high utility sources of supply are located in a relatively few countries. This degree of concentration is increasing. Oil production is in the hands of a price-fixing cartel. Gas supplies operate along tenuous thread-like pipelines, often passing through areas prone to anything from armed uprisings to banditry. Many of the energy-rich states are generically unstable, and importing nations must therefore be concerned about supply security.

Much is said about energy supplies "running out". If the entire planet was made out of oil, current compound economic growth would have used all of this up in around 400 years time. Practically, of course, other sources of energy will be developed, and price signals will operate in order either to shift consumption towards these. These signals will also serve either to increase the efficiency of energy use or to reduce economic activity. The issue is less one of supply than of economics - on the one hand - and the management of pollution on the other.

This said, there are vast arrays of hydrocarbon reserves - coal, tars, methane hydrates and the transformational technologies to make use of these - for the world to be powered by them for centuries. Naturally, this comes at a price, one paid more in pollution than in cash.

Energy systems are irretrievably connected with concerns about pollution. Some of these issues are local - as with smog, for example - whilst many are effectively global. China's coal economy creates local pollution easily visible from orbit, but also adds less visible carbon to the atmosphere. Solutions to this must go beyond national boundaries. The chief concerns are threefold: greenhouse gases, acidification and nutrient-rich rains. The same pollutant may play a role in all three spheres: for example, combustion-generated nitrogen oxides may act as a greenhouse gas, acidify rivers and oceans, and also play a role in stimulating plant growth, including the clogging of waterways and lakes with algae.

Effective energy production, transportation, transformation, distribution and use calls upon capital-intensive systems. Efficiency gains are almost always delivered through new capital investment, whether in town planning or energy-conserving equipment. This places the poor nations at a disadvantage. Energy requirements impact on them through the imports which they must buy and the investments which they must make. They are usually seen as risky for investment, implying expensive capital; and the goods and services which they export are seldom valued as much as the things - such as energy - which they need to import in order to grow. A future in which energy is expensive, and high cost equipment mandated, will make development hard for them.

There are, therefore, four structural issues with which we should concern ourselves.

Energy is, however, a complex field, and it is as well to begin with a primer on how to think about what makes energy demand, and where the crucial choices lie.

Understanding energy demand.

Understanding energy demand

Energy is almost never valued in its own right, but it used in order to achieve a goal: warmth in the home, mobility, a piece of machinery, the ability to type on a word processor. Energy is almost never delivered to its ultimate user in the form in which it is originally sourced - save with non-commercial energy, such as wood that one may have collected and chopped oneself, or the sun, used to dry laundry. The sources of supply are usually physically remote from the ultimate user. Colombian coal is shipped to Europe on an oil-fired vessel, and burned in a power station to light the lamps of London. A vast number of other energy sources contributed to the infrastructure which makes this possible, from the tungsten in the lamp filament to the glass that surrounds it. This is often called "embodied energy", and its costs, as much as the direct costs of supply, determine economic choices which consumers may make.

Energy sources and uses pass through a tangled skein of channels before their ultimate dissipation. Which sources are chosen depends on what history has established in terms of capital equipment and habit as it does on economics, considerations of supply integrity or other policy concerns. The nature of the economy itself, shifting from primary production to the service economy, changes both the quantity and type of energy used. The scale of economic activity largely determines how much energy is employed in it. The relative price, availability and security of particular fuels determine the proportion of them used in those situations where there is a choice: quickly, where fuel oil and gas can be switched back and forth under a boiler, slowly where a consumer can buy a diesel car or a petroleum-powered one.

Those whose choices in aggregate drive the evolution of the system respond to a multitude of forces. It is possible to separate three basic levels at which these occur: that of the end user, that consequent upon the workings of the economy as a whole and those policy choices exercised chiefly by nation states, which are concerned chiefly with supply security, economic efficiency and pollution abatement.

Of these three, the 'end user' domain is the most straight-forward to understand in general terms, but also quite the most complex to understand operationally. The middle layer is the domain in which economic, social and technical change works to create aggregate energy demand. This has useful regularities that point to policy levers, and we shall spend some time on it. The third layer offers policy choices and subsequent sections examine the goals and the tools which are available by which to make interventions. The implications of these make up the succeeding sections.

Let us begin with the 'middle layer', of economic regularities. Demand for energy is extremely strongly coupled to economic activity. In general, this means that each unit of value added calls on an equivalent unit of energy. Doubling world output, which happens every 25-30 years at current rates of growth, implies a broadly equivalent increased call on energy supplies. All that can offset this is efficiency and, perhaps brought about by higher energy prices, slower growth.

Energy efficiency has, in fact, considerably mitigated the growth in energy demand over the past 40 years and overall, energy is now used more effectively than it was a generation before. Energy intensity - which is the ratio between energy use and value added - has fallen most in wealthy countries. This has occurred in part as a result of the shift between different kinds of industry, and partly due to investment in effective machinery and practices.

Energy prices have had some affect on this complex process, although modelling suggests that the chief impact of the price charged is upon which fuel source we use, and not how much energy we gain from it. Considerable amounts of so-called 'embodied energy' are shipped between countries - as, for example, refined metals, which took a great deal of energy to prepare but which are not obviously "energetic" as a finished product. Japan, for example, which was once a major steel producer has relocated its energy intensive industries in coal-rich Korea and equivalent countries, or simply buys these products from the open market. Energy-rich nations now tend to have higher intensities than energy importers. Nations once members of the USSR are also characterised by high intensities, due to the legacy of extremely inefficient systems which it imposed on them.

Efficiency gains are much less obvious in poorer countries. Poor countries are almost always less effective in their use of resources than are rich ones, and energy intensity is slightly higher in them. A unit of added value requires a standard amount of energy to make it. In other words, energy intensities are much the same in all countries, excepting the nations which were noted above. Energy-related efficiency gains are, therefore, hard-won. As with other forms of productivity improvement, it is a slow battle in which the major weapons are socio-economic change and investment in skill, effective practice and capital goods. These factors do not favour the poor economies, which are and will remain particularly exposed whenever energy demand growth drives up prices.

There is much for government to do in order to ensure a coherent energy policy. The energy industries themselves are driven as much by regulation as by technology or other factors which once held sway. Profitability is set by tax regimes and cost structures, often defined almost entirely by regulation. Energy companies are effective and cheap tax gathers.

Energy users are also very much in the hands of the state. New equipment standards are mandated - from vehicle to boilers - and both absolute and differential pricing regimes are established, often with the explicit aim of changing the portfolio of energy which is used. Finland has, for example, chosen to allow a private consortium to build Europe's first new nuclear power station, despite have access to abundant Russian gas. In addition, competition amongst suppliers is encouraged or resisted. Admonitions and controls are applied to alter citizen's behaviour, by for example, restricting parking and charging for road use.

Energy-related investments have a typical life-span of 8-30 years. It is, therefore, particularly important that government have not only a clear and technically-sensible view of what it wants to achieve through its energy policy, but that it sticks to this between political administrations. In the absence of clarity and trust, few initiatives will be undertaken on faith.

Additionally, the many facets of energy policy must be integrated together. Initiatives which are aimed at economic efficiency, the environment, supply security and social considerations are all fine things, but may pull the policy in four separate directions. In 1981, the British coal industry was producing around 110 million tonnes, with around 10-15 MT of these actually competitive with coal imported from abroad. The state maintained effective subsidy in the name of jobs and supply security. As a result, gas developments were held back by twenty years, emissions were accentuated and social change paralysed. The pendulum then swung to economic efficiency - and more or less incidentally, to environmental concerns - and Britain is now extremely short of natural gas, which was quickly substituted for coal.

Integration between mixed goals, time frames and what is technically practical constitutes much of the art of setting an energy policy. Regulatory concerns therefore focus on achieving a balance amongst three specifically energy-related issues:

Summary: Energy demand is strongly coupled to economic activity. Reducing these links is a long-term issue, addressed with many tools. However, world growth will greatly expand energy demand, placing stress on sources of high quality energy. Low grade energy supplies are costly to use, and the result will be higher prices. This will drive faster conservation, and will hamper the development of the poor countries. In addition, energy sources are concentrated geographically, often in politically unstable places. A further consideration is the pollution that derives from current energy forms. The major actors in solving these issues are nation states and their energy policies, as well as their foreign relations; and also markets, with their capacity to innovate, to allocate resources effectively and to respond to regulation.

Supply-related solutions.

Supply-related solutions

We began by asking ourselves three questions: how to ensure growth without pollution; how developing countries are to invest as needed; and how to achieve the supply diversity that will avoid instabilities and rising costs? In addition, we noted a fourth point, which is that it will become progressively more costly to supply a unit of energy.

Plainly, all of these issues are closely related: if a viable source of fusion power was suddenly defined for us, then at least two and probably all three of the issues would be considerably mitigated. It might or might not affect the cost of supply. This is, however, not likely to occur either suddenly or at low cost, and so solutions will almost certainly be innately piecemeal.

Let us focus on the first issue - of how to achieve economic growth whilst limiting the pollution which is due to energy use. The figure shows some of the major components of this, contributing - ultimately - to reduced energy intensity and reduced reliance on polluting fuels. Red lines and swathes show positive contributions, purple lines show negative consequences. Other than the sheer complexity of what has to be managed, this figure shows us two things. First, many issues have paradoxical consequences: if one reduces Sulphur emissions, one probably increases transformational losses; if one encourages an economy that contains proportionately fewer energy intensive industries, one increases electricity as a proportion of the energy portfolio, which implies much increased transformational costs.

Second, a large number of purple arrows point to the issue of international competitiveness and the need for accords. If one nation is to take on these overheads, then all must do so or else that nation will forced to raise tariffs and other forms by which to protect its industries. Unhappily, both of these cost money, and the unilateral solution costs the most. We discuss this below, under 'international implications'.

The 1997 Kyoto agreement on carbon emissions extends the United Nations Framework Convention on Climate Change, and its ratification in 2005 is one of a series of further steps. It manages the emissions of five greenhouse gases, and creates a framework both of targets and emissions trading. See here for a good summary of what is involved.

The treaty is not without its critics, notably in the US. A typical critique, published here estimates U.S. GDP losses from implementing the Protocol at between $20 billion and $90 billion annually in 2010 and between $45 billion and $105 billion annually in 2020. Discounted global consumption losses through 2100 could total between $1 trillion and $2.5 trillion (1990 dollars).

The physical theory behind climate change is convincing. Models which are based on this theoretical background tend to show equivalent warming, as one would expect of them. Climate change has yet to be measured convincingly, however, and the popular press attribute many random events to it. Historical records are, however, far more convincing, as shown by the figure. Drill cores in the Arctic cut through layers of snow deposited over millennia. Carbon dioxide levels are measured from trapped bubbles in these layers. The heavy and light isotopes of Oxygen in sea water evaporate at different rates, and the balance between these is affected by the temperature of the sea surface. Measuring the ratio between these isotopes in the snow layers gives a proxy for the temperature of the sea at the time.

The figure shows the results of such investigations. Two things are evident: first, that the carbon levels track the temperature variations; and second, that temperatures have been extremely volatile. We know that factors related to the Earth's orbit control much of this volatility, but the linkage with carbon levels is striking. (Volatility of climate rather than explicit warming would seem to be the issue on which we should most focus our attention.)

There are other lines of evidence. When the Himalayas were thrown up 45-50 million years ago, the world experienced a 10-15 million year period of extended and extreme cooling. This can be shown to be due to the chemical absorption of carbon from the atmosphere by the rapidly eroding rocks. This phenomenon in fact offers considerable scope for active absorption of carbon from combustion, as the relevant rocks are plentiful and they are very effective when used in powdered form on fixed sources, such as power stations.

Climate change is, of course, only one of the issues that are involved. Nitrogen oxides are produced during high temperature combustion in, for example, vehicle engines. Locally, they cause lung damage, erode buildings and play a major role in the creation of smog. More generally, they are fertilizers that can alter ecological balances, notably in bodies of water such as fresh water lakes. Natural background sources fix some atmospheric nitrogen, and without it, most plant life would cease. However, combustion has doubled this world wide, and is set to quintuple it by 2020. Sulphur, a contaminant of hydrocarbons, is now also widespread in rainwater. Its chief impact is on already acid soils, from which nutrients are leached as well as toxic levels of elements such as Aluminium. These pass into ground water, lakes and rivers, killing fish and altering balances.

This is not the place to dwell on abatement measures in detail. One carbon-related possibility is discussed above. Nitrogen oxides can be managed with catalysts, at a 5-7% efficiency cost to the motor so fitted. Sulphur can be scrubbed from fuels, but at the cost of three tonnes of carbon emitted for each tonne of sulphur saved.

New sources of supply may or may not be "renewable" - that is, may or may not regenerate themselves from energy from the sun, or from hot material in the deep earth. They may also be more or less polluting: arguably, wind power is renewable but locally polluting, killing birds and emitting infra-sound. Biomass energy recycles carbon, accumulating energy from the sun. However, its cultivation requires large amounts of land to be cleared.

Most alternative energy sources that are renewable in less than geological time deliver their energy in poorly concentrated form. They have to be converted to something helpful, such as electricity, which is invariably costly when compared to other options. There is a growing need for technologies which will store energy, as many sources are intermittent - as with wind power, for example, or out of phase with demand, either due to the day-night cycle or the seasons themselves. Suggestions include the use of hydrogen as the storage medium, created by electrolysis, turned into electricity in fuel cells.

Grand technological solutions - such as nuclear fusion, space-based solar, large scale ocean thermal - all offer far-off promise, and are also likely to be costly. However, existing activities, such as burning coal in power stations, can be transformed through technology. It is worth giving a little detail on this so that readers can sense the potential which is inherent in this.

A moderately efficient coal fired power station turns something under a third of its thermal energy into electricity, and the rest goes up the chimney as carbon dioxide, soot, sulphur and heat. A better process turns the coal into gas in a gasifier, a device whish burns the coal with minimal air to create a mixture of methane and carbon monoxide. This costs virtually no net energy, and the hot gas is fed into a jet engine, which drives a generator. The exhaust gas is used to raise steam, which runs a further turbine. The outcome gets around 40-50% of the energy out of the coal. (If the carbon is to be trapped, around 15% of this gain energy is lost.)

An even better, speculative process takes the gas and adds steam, passing the mixture through a catalyst to create hydrogen and carbon dioxide. The two are easily separated by absorbing the carbon into lime, and the hydrogen is used to drive a fuel cell, which operates at anything up to 80% efficiency. This generates a great deal of waste heat, which is used to burn the calcium carbonate back to lime and carbon dioxide, which is now physically segregated and pure. It can be reacted with basic rocks - as discussed above, injected into deep strata in the earth or used in industrial processes, including glasshouse horticulture. The waste heat is finally used to raise steam, bringing the gross efficiency to over 80%, perhaps 70% with carbon sequestration. That is, this scheme is over twice as (economically) effective as extant power stations, and has near-zero (gas) emissions. Plainly, reality will modulate this more than somewhat - sulphur has to be removed, for example, least it poisons the fuel cell.

The technology behind conventional nuclear fission power has advanced substantially in the past decades, such that new plant are likely to take safety to an unprecedented level. Popular views - or those of campaigners - have yet to understand this. Nuclear power became unpopular because, in part, the USSR spent hundreds of millions of dollars in the period 1950-70, supporting campaigning groups in the West, doing so under the belief that to paralyse nuclear power was to strike a blow a capitalism. This elided with the (largely meaningless) conceptual link between nuclear power and atomic weapons - and the rejection of "big" engineering but some sections of the population. Chernobyl was the coup de gras applied to the industry, which is now used in the media to exemplify 'bad technology' and unacceptable industry: see Mr Burns in The Simpsons, for an example.

Nuclear power has one huge advantage, which is that it emits no greenhouse gases during operation, and by substitution for coal fire power, 'pays for' the carbon released during its construction in around one year of operation. Nuclear plant are extremely expensive to build and decommission when compared to gas fired stations, but their all-in cost of operation is comparable with clean coal and much lower than most renewable sources. (Nothing can beat hydroelectricity, of course, but sites are now all but exhausted.)

Nuclear power has two great negatives associated with it. First, the Uranium (or Thorium) on which it relies is in quite scarce supply, and a major development of nuclear power would not be sustainable. However, the 'useless' isotope of Uranium can be transmuted into Plutonium, using what is called a fast breeder reactor. There would then be quite enough Uranium for all. Unhappily, Plutonium is extremely dangerous, in that it is easy to purify to a weapons grade material, and could be used to make bombs. There are well-developed schemes to carry out Plutonium breeding under conditions of strict security, and to dilute the product in ways which make its reprocessing much more difficult. These schemes have yet to be proven, and a mass Plutonium trading scheme would be hard to manage with complete confidence.

The second issue of nuclear power is that of safe containment and waste disposal. The worst escape to date is that of Chernobyl in 1986, where something in the order of 8 Curies of radioactive material were dispersed in a plume. We now have access to enormous amounts of data about the impact of this escape. It can be compared to additional data, from East German doctors who meticulously recorded the life histories and exposure of Uranium miners two decades of USSR exploitation. These studies point to risk, to be sure, but much lower risk than might have been anticipated from earlier studies. The chart shows that deaths in the parts of the Ukraine that were affected by Chernobyl were in fact less than in control regions. (The upward overall trend is due to increased poverty and to an aging population.)

These studies have received remarkably little publicity. Indeed, commentary on the Chernobyl study largely asserted the opposite to what the figures in fact showed. Where comment was rational, it dwelt on areas where morbidity was higher than in the control area, such as thyroid cancer. Our approach to risk is hopelessly flawed. It should be noted that burning coal and oil releases quite large amounts of naturally-radioactive materials, and that digging a normal foundation for a house on granitic soils will ensure that the structure is permeated by Radon.

Waste disposal is often cited as a major difficulty for nuclear power, and so it is. However, the amount of high level waste created by all European reactors through the course of their lives could be fitted into five London buses. The technology of local containment (vitrification) and overall management (deep burial and geologically-stable structures with appropriate ground water states) is also well understood. Finland, for example, buries waste in geologically-ancient granite, 700m below the surface at the end of a 7 Km tunnel. Nuclear power faces problems, but they are problems more of perception than of fact. We can expect a limited nuclear revival, although the full, global implementation of the Plutonium cycle may be so impractical as to limit this to a marginal role.

Something must be said about Hydrogen, not least because so much is said about it in the media. It is supposed, by non-technical writers, to be the "fuel of the future" for transport. At best, however, it is an energy storage medium that is not well suited to transport applications.

The chief positive point to be made about Hydrogen is that it burns to generate only water. If burnt in a fuel cell, then the conversion to electricity is highly efficient, although current technology requires innately bulky fuel cells and some means of storing power for peak demand - such as a flywheel - if that bulk is not to be overwhelming. However, the negatives are considerable: it is explosive, hard to contain and store, embrittles materials that come into contact with it, of low energy density as compared to other chemical fuels.

These problems aside, the key issue with Hydrogen is where the energy is come from that creates the gas in the first place. It is usually made by stripping oxygen from water, either by a chemical reaction - typically, one which creates carbon dioxide - or by electrolysis. Electrolysis is as clean as the energy source that makes the electricity that drives it: from solar power or from the most primitive coal fired power station. Using hydrogen powered vehicles might reduce inner city pollution - although much cheaper technologies would achieve the same end - but it would do this at the cost of whatever ultimate source of energy was used in order to make this hydrogen. Perhaps cheap, safe fusion power might one day lead to this solution; or to the use of battery-powered vehicles. In both instances, one needs to think hard about the concept of urban transport before introducing solutions which have strong overtones of "yesterday's future".

Growth without pollution is, therefore, a complex hope in search of equally complex solutions. Enthusiasts often suggest that such solutions can, in fact, cost less than do current energy systems. "Negawatts" - energy saving - actually save money, whilst watts cost a great deal. If this is so, then natural economic processes will put them in place. Detailed assessments of energy saving-related investments do, very frequently, point to real lifetime savings. However, equally frequently they do not do so, and regulation is required where the state has decided that energy saving is required, at whatever cost. It is anyway sometimes necessary to mandate a scheme if it is to be economically viable, for example with combined heat and power, where waste heat from industrial processes are used to warm the homes and offices in a neighbourhood.

Many energy systems enjoy major economies of scale, whilst others enjoy the "experience curve" effect, whereby unit costs of production fall with the cumulative volume produced. This is certainly true of solar power, where the technology has advanced to a state where solar panels can be expected to cover roofs and to be set up as 'farms' in some desert sites. Simple calculations show that one needs a relatively small area which is dedicated to solar power in order to provide significant fractions of US or EU electricity needs in this way. However - once again - the issue is one of storage and transport, for the solar power delivers energy in the day, when the demand may be at night, and the suitable sites are far from centres of population. Electricity is expensive to transport, and hard to store: perhaps here is a role for Hydrogen?

Summary: Radical changes to the way we use energy and supply it present problems to which solutions will be innately slow, costly and probably messy. There is no one single problem, but rather many issues to satisfy; and no one solution, but rather accommodations which must be made between extant assets and skills and longer-term needs. The vehicle fleet, for example, the mechanics who support them and the plant that make them represent a huge fixed asset which it is not straightforward to replace. The figure shows a WEC-IIASA estimate of how far things could be pushed by 2030, in a variety of policy and economic environments. The changes are significant, but less than revolutionary.

The wealthy world has these issues under active assessment, if not active management. Supply security, pollution and competitiveness are all deep concerns to any industrial economy, and their policy profile is higher today than at almost any peaceful period in the past. The poor nations, by contrast, have major obstacles to overcome. These range from how to plan the infrastructure that they need to how to be able to pay for it. Here, solutions are much less clear and are as much embroiled in issues of external trust in local governance as they are related to poor assessment, uncertain plans and weak instruments.

International implications

International implications

Efficient, less polluting energy supplies will demand consistent investment of very large sums over extended periods. This will add to the costs of already expensive supplies of primary energy. In addition, concentrated energy sources - such as Gulf oil or Russian gas - will allow active supply management - cartels - to operate with greater effectiveness.

We discuss the implications of this for the poor nations below. The relatively wealthy countries, however, have a set of tools to hand with which to position themselves. The issue for them is the balance of outcomes which they may wish to seek. For example, they can make huge efforts to assure their energy needs from politically and environmentally friendly sources, and to use energy in costly but non-polluting ways. To do this, however, they place themselves at economic disadvantage as compared to countries which continue as before. One cannot even see this as an issue of discount rates - of grasshoppers who sing in the summer sun of cheap energy and the winter-prepared ants, who save for a darker future - because putative climate change, for example, will not spare those nations which have invested in emission abatement.

Kyoto and the treaties which follow it are important as much for the policy predictability that they project as for the action they may create. Ambiguity and uncertainty are the enemy of the long term, consistent and vast investment that is required in order to address these issues. The investment is inherently non-economic. Those who are asked to make it have nothing to show for their extra costs, and can only get these back if consumers cannot buy cheaper goods that have not carried these overheads from elsewhere. As we have seen, energy is traded directly and in an embodied form, so a finished good may have more or less energy and emissions embodied in the materials which make it up: a consumer would be unable to tell, even if they were minded to do so.

Societies which impose costs on their economy have three strategies open to them: they can defend their domestic industries with quotas, tariffs and the like, they can enter into agreements with trading partners that all will impose the same targets, or they can accept the loss of activities that they do not want to other places, and buy the finished product from these locations whilst keeping the unpleasantness at arm's length. The first two strategies make the ultimate consumer pay for the costs which have been imposed. The third leads to local improvements, usually with only small cost increases. However, it also leads to de-industrialisation in the sector so affected, and moves the problem rather than solves it. The example of Japanese steel manufacture has already been discussed. European and Gulf-based petrochemical plants are undergoing a similar relocation of activity and responsibility.

Nations have always accepted relatively small cost impositions in order to assure supply diversity, or to support internal energy production. What is changing are, perhaps, two factors. First, the need to manage climate change through emission abatement. There are the direct costs which are involved in investment in mandated, efficient equipment. However, Kyoto and local initiatives also aim to price energy in ways which cause its users to seek efficiency in other ways. This is done through energy taxes and through the trading of emission permits, thereby putting a price on pollution and a profit in its abatement. As we have noted, economies are price-inelastic in the medium run, and the charges which have to be imposed are therefore substantial. Whilst the money so raised is available to the state for reinvestment, most would feel that their capacity to do so in ways which directly add to economic performance is less than that of industry left to its own devices. These overheads will slow growth and put nations are acute disadvantages in ways which historical distortions did not.

Second, we are entering a world of relatively high energy supply costs and of focused sources of supply. The political risk associated with oil supplies has been high and is likely to remain that way. However, the luxury of padding these difficult sources with a diversity of others, such that disruption of the entire system was unlikely, may also be a thing of the past. States may - will - choose to invest heavily in order to achieve equivalent risk spread through domestic supply, energy conservation and the like. This raises the stakes in the game, and make sensitivities to 'cheating' and to actions likely to increase instability that much more acute.

Chinese growth has, for example, driven up oil prices by $20/bbl over what they would otherwise have been by its breakneck growth and inefficient systems of energy use. As discussed above, its use of coal is a notable and growing source of pollution. It is easy to see political consequences following on from a combination of aggressive Chinese trade, based on goods in which energy pollution is not fully priced, when China is also driving up the costs of supply and also, effectively, increasing supply instability

In summary: The choices are: either we segregate our markets, or we co-operate on common standards, or we fail to achieve meaningful regulation in any markets. None of these options are going to be painless, and the temptation to cheat - or to deem others to have cheated - will be great. We shall need international institutions which work because we want them to work, and which deal with default and intransigence with transparency, patience and sharp teeth.



As we have seen, it takes broadly the same amount of energy to create a dollar of value added in almost all economies. It requires around 0.2 kilograms of oil equivalent (kgoe) of energy to generate a dollar of purchasing parity corrected GNP. That is, a person who lives in a society which changes its income per capita from US$1 per day to US$2 per day will need 73 kgoe more energy per citizen in order to achieve this. Around 1.5 bn people live at this level, and so a doubling of their living standard would need 110 million tonnes of oil equivalent of energy per annum, equivalent to the output of Kuwait in 2004 if all of it were to be oil. More to the point, at US$50 per barrel, this fuel would cost these poorest of the poor around $40 bn. each year to buy. That is slightly under 10% of the income increase which we have imagined, but still an immense sum for these, the poorest of the poor.

However, many energy sources need not only fuel, but also plant such as refineries or generation and transmission systems. As a rule of thumb, it costs between US$750 and 1000 per installed kWh to build such capacity. To the annual bill described above, therefore, one has to add investment of around a trillion dollars, obviously spread over a number of years and amortised over three or more decades.

Energy is, of course, only one of many other calls on the capital which these nations can deploy. There are equally acute needs for water and sanitation, housing and transport, factories and schools. Added together, this need extends far beyond domestic savings (or feasible aid transfers, soft loans and the like.) External investment will be needed if they are to meet the challenges implicit in both economic development and political aspirations. In the absence of such investment - of managerial skill as much as money - then these challenges will not be met.

Would the reader put their personal pension fund into, shall we say, Zimbabwe? Probably not, for reasons that are all too obvious. Consequently, Zimbabwe will not meet its challenges, matters will become even less attractive to potential investors and a vicious cycle will be established. By contrast, countries which have shown themselves stable, ready to remit dividends and to respect property rights are those which attract foreign investment, and are also able to retain domestic savings for local investment. None of the current new Asian market economies were markedly much richer than most African countries in the period after World War Two. Singapore now has an income per capita which surpasses those of many of the old market economies. It achieved this through sound institutions and a tranquil society, both dedicated to - amongst other things - the creation of collective and private wealth. It, and its peers, entered 'positive' spiral, one to which once-peer nations such as the Philippines failed to adopt, and one which has eluded most of Africa.

Development brings with it increased energy demand, but also much cleaner technologies. Where natural materials such as wood are harvested, this is done in a way which does not exhaust the resource. Poor nations, however, are driven by desperation, and employ whatever means come to hand. Their equipment is obsolete and often poorly maintained; and their impact on their environment is often catastrophic. Deforestation, water pollution, local air quality are all issues which are more and not less acute in poor nations.

The world of 2030 will support around 8-8.5 bn people. Some 1.5 bn will live in complex market economies, using a great deal of energy in extremely efficient ways. They will be spending a great deal on pollution abatement. Something around 3bn people will live in nations which are rapidly developing both their economies and their societies onto their version of the market economies. They are adapting themselves to costly energy, and the need to comply with at least some of the pollution abatement regulations to which they are notional signatories.

It follows that something around 4bn people will be confined to areas where income and population growths are closely parallel, so that income per capita grows slowly, or where even a doubling represents a pitifully small increment in real spending power: from $1 to $2 per day, as above.

Comments on the energy paper:

Comments on the energy paper:

We received one interesting comment on a technical issue associated with climate change to which no modeler has yet been able to give a satisfactory response. If true, it undermines the entire "CO2" debate.

The illusion of CO2-driven climate change?

Thank you for your survey of energy, pollution, development and just about everything else. You suggest that managing energy needs whilst refraining from emitting carbon dioxide will be both a hot topic and a source of international tension in the decades ahead. I know that this is conventional wisdom, but I am going to suggest a different way of looking at this.

I trained as a physicist, so I know how convincing the conventional arguments are. Plainly, the Earth is warmer than it would be if it was a shiny ball of rock, like the Moon. Greenhouse gases, chiefly water, act as a blanket at night, and evaporation soaks up heat during the day. If you add more greenhouse gases, therefore, you ought to get more warming. If you build models that reflect this process - as you point out - then you get a hotter Earth. And so you ought - that is what the model is built to show, after all. However, it assumes a one-to-one relationship between what there is to absorb and what is put into the atmosphere in order to absorb it.

The issue is really about what are called 'extinction curves'. That is, if you add something that absorbs radiation - let's say, ink in water - then how much absorption you get from an extra drop of ink depends on how much of it there is in the water already. If - say - 99% of the energy that the ink can absorb is already taken out, so the water look dark blue - then the next drop will change this total very little. If the water was completely clear, however, then the ink drop would change the amount of light that was absorbed by a lot. It would have a lot of unabsorbed light to work on.

Carbon dioxide absorbs and emits infrared light at very specific wavelengths - collectively called its 'spectrum'. If you use an energy source which uses carbon dioxide the way a light bulb uses a filament, then what comes out of it are precisely those wavelengths. A carbon dioxide laser is just such a source. Carbon dioxide that is in the air will absorb these wavelength, but not any others. It is transparent to these other wavelengths, just as it is "black" to the wavelengths that it can absorb, those in its spectrum. That means that a carbon dioxide laser is a good measure of how avidly the atmosphere mops up these wavelengths - it puts out only the infra red that carbon dioxide can absorb.

It turns out that the atmosphere is like water with a lot of ink in it: it attenuates a carbon dioxide laser to nearly nothing in a matter of kilometres. That is, adding some more carbon dioxide to the atmosphere is just like adding another drop of ink to an already-black glass of inky water. It won't have much affect, because almost all of the light has already been taken out.

I have been trying to get "chapter and verse" on where we are on the atmosphere's extinction curve. If we are at the bottom of it, then adding more carbon dioxide will have a big affect. If we are at the top - like the glass full of inky water, then adding more will have very little results. Nobody seems to know the answer. Truly, though, this matters to the debate. If we have an atmosphere which has already combed out almost all of the relevant wavelengths of infra red, so that there is essentially no more left to to absorb, then adding more carbon dioxide will make virtually no difference at all. If the infra red streams out unimpeded, for the most part, then adding more will have a big affect.

If we are at the bottom of the extinction curve, then greenhouse warming is a likely fact. If we are at the top of the curve, then it isn't. And nobody seems to know which of these is true!

Note: A letter to Nature, Gleckler et al [Nature (439) 675 9th Feb 2006] review the impact of the 1883 Krakatoa explosion, which threw immense quantities of dust into the stratosphere. Contemporary observers noted that the result of this shading changed the climate, creating the "year without a Summer" in the Northern hemisphere and making the subsequent years noticeably cooler. The authors of this paper review the longer term impact of the eruption on the temperature of the ocean, using twelve separate and sophisticated climate models to do so. A 'cold anomaly' in the deep ocean is detectable nearly a century after the event.

If the authors are correct in this estimate, it follows that a component of - perhaps much of - the temperature change which has been observed in the second half of the Twentieth century may be attributable to the disappearance of the cooling effects of Krakatoa, and not the warming due to green house gases. Indeed, it may well be impossible to separate out these effects.

Additional comments

There have been a number of additional comments on the energy paper, including some which I will not reproduce from activists who appear to view this web site as the voice of the energy industry, or perhaps Hell itself. In the latter case, we would of course have an endless source of energy on tap, although with sulphur to scrub.

I will reproduce most of the comments verbatim:

The triangle show the three issues raised. There is a comfort zone, basically where the rich world invests heavily, works on supply diversity and where the poor countries don't grow much. If they do grow, the arrow shows how we slide into supply insecurity, pretty much as we are doing now with China's growth. Question: how to get the comfort zone to go up to the top of the triangle? That's to say, how do we get e.g. India to develop on clean technologies? Or do we just hope that they see the light? Seems a big foreign policy issue.

Who are the players? Not really the supplying countries, because they don't really have many choices, excepting perhaps Saudi, which has other kinds of constraints on it. Russia is exceptional because it is so influential on Europe, in an indirect way. But it's the big blocs which matter - the dozen biggest economies and the various alignments they get into. If they all settle down and integrate their policy so that the only way to trade is like this, the only way to invest is like that, then the rest will follow. So it may be a WTO-FDI-directed technology issue, with the main blocs seeing what it costs and what they are buying from this.


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