The energy challenge

by Daniel Yergin*

The energy challenge certainly ranks at the top of the world’s agenda. What makes it particularly difficult to deal with is that it is created by two forces.

Though not usually put in these terms, one is globalization--and, in particular--the success of globalization. High growth rates, the emergence of large middle classes in countries like China and India, the continuing integration of the global economy--all this is powered by energy. To keep it going requires energy, lots of it.

But the second is the flip side, the consequences of the use of energy. Modern industrial societies have proved that--with willpower, innovation and capital--they are good at mitigating local and regional pollution. And they are continually getting better at it. But the build-up of carbon in the atmosphere is something else. Over the last year or two, a global consensus has come together that this is truly a global problem and that responding is urgent.

It is these cross-cutting concerns--the need for energy, and the need to manage the consequences of energy use--that are creating the energy challenge that will dominate the decades ahead. And the magnitude is daunting. Every day the global economy requires 86 million barrels of oil per day, and that is only 40% of the total daily world energy consumption.

With a challenge so large and so complex, it should not be surprising that there is no single answer. Nor even just a few. Some of the solutions are clearly on today's list; some will emerge as surprises. And, no doubt, some on which hopes are pinned today may, in the end, just not pan out. That is why Forbes.com's "Solutions" is so timely. Like other readers, I am keenly interested in seeing what participants with such different expertise and perspectives will offer and how they will rank the choices.

For starters, I will put three ideas on the table. But, before doing that, let us consider the scale of the enterprise. For it is not just the energy the world consumes today, but how much more it will consume in the future. At Cambridge Energy Research Associates (CERA), we've developed new energy scenarios out to the year 2030. The implications are daunting.

In a world of good economic growth, even with greater conservation, world energy demand grows by 75%. This reflects, more than anything else, the tremendous increase in automobile ownership and electricity consumption that will come with rising incomes.

Consumption grows the fastest in Asia, as it comes to represent over half of world GDP. In line with that, more than half of the total growth in oil demand will be in Asia, and two-thirds of the new electric power capacity. There’s nothing theoretical about this prospect. Over the past three years, China has added 200 gigiwatts of coal-fired electric power capacity--equivalent to 20% of the entire installed capacity of the United States.

Assuring that the energy supplies are there to underpin economic growth is, in itself, a big and expensive challenge. The International Energy Agency points to a $20 trillion price tag.

But how to meet these needs and, at the same time, cope with carbon? We will hear many ideas in the course of this roundtable, but let me point to three.

The first is a renewed emphasis on energy efficiency, whether in the established infrastructures of the U.S. and Europe, or in the ones that are now being built in China and India. Energy conservation, efficiency, savings--whatever you want to call it is--is a very large resource in itself. It is, without doubt, the biggest near-term way to reduce CO2. The United States is twice as energy efficient as it was in the 1970s. Why not double that again? China has made energy efficiency one of its top priorities, but implementing it is not proving easy. Expect more to come on this front.

The second is what I’ve taken to calling the "great bubbling." This is the surge in research and development and innovation that is now taking place all along the energy spectrum--whether in conventional sources or for renewables and alternatives. These research dollars--whether from government, industry, research organizations or the new entrant, venture capital--are adding up. If this level of commitment is maintained, the impact could be considerable, even dramatic. But the timing is not easily predicted. One of the imperatives is to continue to develop not just renewables, but the commercialization of renewables, which ultimately need to demonstrate that they are competitive in the marketplace.

The third is to push for the development of carbon capture and storage technologies. Though there is much hope for them, they are still at the early stages. Pilot efforts are underway. To have a major impact, these technologies will have to prove doable on a very large scale. A good deal of effort will also be required to figure out how to price and regulate such aspects as the sequestration of carbon underground.

We'll learn much from the discussion ahead. It will become clear how much--and how many different things--will have to be done meet this double challenge. Whatever the solutions, markets will be central, for they will bring forth the ingenuity and creativity to get things done and, hopefully, more quickly than would otherwise be the case.

FORBES

*Daniel Yergin is chairman of Cambridge Energy Research Associates, an IHS company. He received the Pulitzer Prize for his book The Prize: the Epic Quest for Oil, Money, and Power and is also the author of Commanding Heights: the Battle for the World Economy. He is writing a new book on energy and geopolitics.

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