Reinventing energy [Archives:2008/1149/Business & Economy]

April 24 2008

By: Jeffrey D. Sachs
The world economy is being battered by sharply higher energy prices. While a few energy-exporting countries in the Middle East and elsewhere reap huge profits, the rest of the world is suffering as the price of oil has topped $110 per barrel and that of coal has doubled.

Without plentiful and low-cost energy, every aspect of the global economy is threatened. For example, food prices are increasing alongside soaring oil prices, partly because of increased production costs, but also because farmland in the United States and elsewhere is being converted from food production to bio-fuel production.

No quick fix exists for oil prices. Higher prices reflect basic conditions of supply and demand. The world economy – especially China, India and elsewhere in Asia – has been growing rapidly, leading to a steep increase in global demand for energy, notably for electricity and transport. Yet global supplies of oil, natural gas and coal can't keep up easily, even with new discoveries. And, in many places, oil supplies are declining as old oil fields are depleted.

Coal is in somewhat larger supply and can be turned into liquid fuels for transport. Yet coal is an inadequate substitute, partly because of limited supplies and partly because coal emits large amounts of carbon dioxide per unit of energy, making it a dangerous source of man-made climate change.

In order for developing countries to continue enjoying rapid economic growth and for rich nations to avoid a slump, it is necessary to develop new energy technologies. Three objectives should be targeted: low-cost alternatives to fossil fuels, greater energy efficiency and reducing carbon dioxide emissions.

The most promising technology in the long term is solar power. Total solar radiation hitting the Earth is about 1,000 times the world's commercial energy use. This means that even a small part of the earth's land surface, notably in desert regions, which receive massive solar radiation, can supply large amounts of electricity for much of the rest of the world.

For example, solar power plants in America's Mohave Desert could supply more than half of that nation's electricity needs. Solar power plants in Northern Africa could supply power to Western Europe, while solar power plants in the Sahel of Africa, just south of the vast Sahara, could power much of West, East and Central Africa.

Perhaps the single most promising development in terms of energy efficiency is plug-in hybrid technology for automobiles, which may be able to triple the fuel efficiency of new automobiles within the next decade.

The idea is that vehicles would run mainly on batteries recharged nightly on the electricity grid, with a gasoline-hybrid engine as a backup to the battery. General Motors may have an early version of this by 2010.

The most important technology for the safe environmental use of coal is the capture and geological storage of carbon dioxide from coal-fired power plants. Such carbon capture and sequestration, or CCS, is needed urgently in major coal-consuming nations, especially China, India, Australia and the U.S. As key CCS technologies already have been developed, it's time to move from engineering blueprints to actual demonstration power plants.

For all of these promising technologies, governments should be investing in the science and high costs of early-stage testing. Without at least partial public financing, the uptake for these new technologies will be slow and uneven. Indeed, most major technologies that we now take for granted – airplanes, computers, the internet and new medicines, to name just a few – received crucial public financing in their early stages of development and deployment.

It's shocking and worrisome that public financing remains slight because these technologies' success could translate into literally trillions of dollars of economic output.

For example, according to the most recent data in 2006 from the International Energy Agency, the U.S. government annually invested a meager $3 billion in energy research and development. In inflation-adjusted dollars, this represents a decline of roughly 40 percent since the early 1980s and now equals what the U.S. spends on its military in just a day and a half. The situation is even more discouraging when we look at the particulars. U.S. government funding for renewable energy technologies (solar, wind, geothermal, ocean and bio-energy) was a meager $239 million – or just three hours of defense spending. Likewise, spending on carbon capture and sequestration was just $67 million, while spending for energy efficiency of all types (buildings, transport and industry) was $352 million.

Of course, developing new energy technologies isn't America's responsibility alone. Global cooperation on energy technologies is needed to increase supplies and ensure that energy use is environmentally safe, especially to head off man-made climate change from using fossil fuels.

This not only is good economics, but also good politics, as it can unite the world in our common interests, rather than dividing it in a bitter struggle over diminishing oil, gas and coal reserves.

Jeffrey Sachs is an economics professor and director of the Earth Institute at Columbia University. Copyright: Project Syndicate, 2008.