THE HIGHER THEY GO - THE BETTER WE’LL BE .... EVENTUALLY

A few days ago, I visited The Ukraine to discuss with politicians and officials, Ukraine’s bid to join the World Trade Organisation. It was minus 20, that’s cold. The Government can’t afford to heat buildings -in the outside offices it was barely 1 degree. Anti-Russian feeling is high because the Russians have threatened to dramatically increase gas prices. Feelings are even higher in ex-Soviet satellite Georgia, Stalin’s place of birth, where gas lines have been sabotaged by mysterious explosions. Russia is also close to joining the World Trade Organisation, one sticking point is that Europeans are worried that Russia doesn’t charge market rates for energy to domestic industry which gives them a competitive edge.

The same Europeans attack Russia for demanding market rates for her ex colonies. It’s tough, raw politics and business. Not now, the Doha Development Trade Round must be the priority, but one day the energy industry must be put under the same predictable rules of trade under the WTO, as other industries. Same goes for the airline industry, but don’t hold your breath. When Director-General of the WTO, an Ambassador from an ex-Yugoslav republic, stopped me and said he had good news. His country was taking another ex-Yugoslav member to the WTO to settle a dispute. “How can this be good news?” I asked. “It’s the first time in hundreds of years we are settling a major difference through a legal, binding mechanism,” he smiled.

Energy issues are fundamental to sustainable economic and environmental success. President Bush, in his State of the Union address, like many Presidents before him, warned of the U.S. addiction to oil. Record profits have been reported by the oil giants - again.

Sorry but history proves that only pricing forces up effective alternatives. The only time the major economies dropped energy consumption dramatically was after the oil crisis of the mid-1970’s. Commentators last year wrote of a major recession if oil hit $50 a barrel, it’s now over $60 and the world economy has hardly blinked. China, a decade ago, imported no oil, now it’s the 2nd largest importer. Within 20 years, energy use will double. That’s why natural gas consumption will explode, giving space for the fascinating research on hydrogen to expand. But that will only happen if oil prices stay high. This is a double-edged sword, we won’t get progress without corrective price pain.

The U.S., which represents just 5% of the world’s population but 25% of energy consumption, the U.S. is twice as energy-intensive as the EU and Japan. Japan is the most energy-efficient, industrialised state. China devours 9 times as much energy per unit of GDP than Japan, 3 times that of the U.S.

The average American uses the equivalent of 7,500 gallons of oil a year compared to the average Chinese who uses 800 gallons. China is catching up with more than 1,000 new cars a day being registered in Beijing along. In the U.S. it’s the low cost of oil that has seen an explosion of SUV’s, (only 1% ever go off-road) just 15% of the energy in a gallon of gasoline ever reaches the wheel of a car, and as Paul Roberts in his ‘must read’ book, “The End of Oil” points out, a less than 3 per mile gallon gain in the fuel economy would liberate the U.S. from Persian Gulf imports. The future is in the hydrogen economy, clean coal technologies, the next safer, more acceptable nuclear option. Perhaps rich countries’ agricultural subsidies will eventually be redirected at bio-energy solutions. France gets 80% of her electricity from nuclear, Finland and Switzerland 40%. Within 20 years nuclear will be supported by the Greens, some in Europe already do. Energy pricing is nuts, profits come from using more, not saving. The minor costs of efficiency are ignored because of the initial cost of a product, despite its longer term savings, this is true of energy efficient light bulbs, appliances, buildings. Solar and wind alternatives will make useful savings but at present, technologies and prices are prohibitive, it would take 20,000 windmills to power half of London.

Higher energy costs are the hope of alternatives, only then will the most expensive brains and best companies go to work to find profitable solutions. Let’s hope the oil producers save the world by making oil $100 a barrel ... eventually.