The energy challenge

Secretary-General of the OECD

The Ministerial Council meeting and Forum this year provide a rich menu of issues for consideration including investing in energy, structural adjustment in response to globalisation, development challenges, as well as the progress of trade negotiations under the Doha Round.

These are all important. But my focus in this editorial is on the energy discussions within the OECD, which will for the first time bring together ministers of finance and of energy. Why is that important? Because the most recent World Energy Outlook of the International Energy Agency, a sister organisation of the OECD, concludes that meeting projected energy demand will require a cumulative investment of some $16 trillion between 2003 and 2030.

How will such an investment be financed? Public funds, private capital, partnerships of both? And in what areas will the investments be made? Several facts that emerge from the projections are of great concern.

It is suggested, for example, that even after this major commitment of capital there will be virtually no change in the energy mix under the business-as-usual scenario. This means that without a radical change in direction, fossil fuels will continue to supply the bulk of energy demand. This in turn would suggest that greenhouse gas emissions, especially CO2, will continue to rise, perhaps above the threshold beyond which many scientists believe that global warming will be irreversible, somewhere between 400-600 parts per million (ppm) of CO2 in the atmosphere. Business as usual will see levels passing 400 ppm within seven years!

We hear much of the future of renewable energy such as wind, sun, biomass, wave and some hydropower. However, on this score the projection is most discouraging, suggesting that the proportion of energy generated from these sources will remain at its current level of around 14% in 2030. Given a projected increase in energy demand of 60% over the intervening period, this still represents a massive investment in renewable energy; but it is clearly not enough to reduce our reliance on fossil fuels.

Another factor to consider is that most of the increased demand will come from rapidly developing countries outside the OECD. For the major economies such as China, India, Brazil and Russia, the necessary investment in energy may be manageable. But the poorer countries will not join the mainstream of developed nations without a considerable investment in energy infrastructure. Finding sources for that investment will be quite a challenge, one that energy, finance and development ministers must address together in a coherent way.

Some scientists of considerable authority and widespread respect, such as Nobel Prize winner Burton Richter and James Lovelock, see nuclear as the most logical and proven technology to help address the twin challenges of meeting energy demand and reducing greenhouse gas emissions. This technology, however significant in some countries, such as France where it supplies some 80% of the electricity, remains controversial. But can we afford to ignore it, given the alternative scenarios we face, especially climate change?

Other environmentalists, such as Lester Brown, look to wind energy as the best answer to these challenges. However, while others see it of growing importance, many doubt that it can ever be capable of supplying the base load required by industrialised and industrialising countries. Clearly, some well-informed debate is needed on these questions, so that the facts at least can be definitively established. The policy choices would then be clear.

These issues also need to be discussed before making decisions about investments in research and development, as we need to explore promising alternatives to the dismal scenario which is currently unfolding.

Of course, some of that investment will be in the thermonuclear experimental fusion reactor, the ITER project, pursuing fusion as a future “silver bullet” that might meet our energy requirements. But this looks a long way off–almost certainly too far to prevent the emissions of fossil fuels reaching critical levels, unless we take other measures in the meantime. Nevertheless, it would help if the international consortium could settle on the site for this project, so that the real work can begin as soon as possible.

Given the fact that climate change is on the G8 agenda at the summit taking place in July in the UK, this discussion at the OECD may provide some useful preliminary insights, as should the meeting at ministerial level of the Roundtable on Sustainable Development, scheduled for early June.

We are fortunate at the OECD to be a unique organisation with the capacity to address all issues dealing with the future of energy. Here we have as sister organisations, the International Energy Agency and the Nuclear Energy Agency, as well as the expertise concerning technologies within the Global Science Forum and the OECD’s fundamental expertise in economic analysis, financial markets and, of course, the environment. It would be a missed opportunity indeed were members not to combine all these assets into an integrated approach to addressing one of the most important global challenges of the 21st century.

©OECD Observer No 249, May 2005




Economic data

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