Special Report: Peak Oil

A Sensible Alternative Part 2: Toward an International Energy Transition Plan

We need international and multilateral institutions and measures to deal with the terminal crisis of cheap fossil energy.

By Andrew McKillop
Published October 06, 2006

In Part 1, Andrew McKillop laid out the case for an International Energy Transition Plan that will take the world towards freedom from fossil fuels. Part 2 articulates the plan.

The Third Target: A Transition Program

The targets and programming will be different for Group A and Group B countries.

The fact that Peak Gas will occur some while after Peak Oil makes it more important to first ensure the application of the IETP to the oil industry.

Group A countries, which includes the OECD economies and several emerging economies, as well as several oil exporter countries, will set national policies, and either national or international programs to achieve their targets for fossil energy intensity reduction. In some cases reduction of coal intensity will be included.

These targets will be set and scheduled on a year-by-year basis, perhaps in 3-year or 5-year periods.

In some cases, notably in the United States, Japan, South Korea and most EU countries, the annual three- or five-year targets will have to be set very high: up to six or seven percent per year, which is more than 16% in the first 3 years.

This alone will be called 'unreasonable' or 'impossible', but depending on the profile of world oil supply decline after Peak Oil and geopolitical events in oil exporter countries, the reasons that high targets for intensity reduction should be set and programmed will become more evident.

Acceptance of 'impossible' targets will then be by fait accompli, forced on all parties. Civil or international war affecting the oil exporter countries will also have a major impact on gas supplies.

In Group A countries where oil import dependence is currently increasing quickly, or very quickly, these targets may in fact have to be further increased. This will require special IETP program instruments and facilities (notably the 'Oil Drawing Rights' facility - see below).

Group B countries will be considered by a two-part selection process taking account of their current oil and gas intensity and the rate of growth of these intensities. Where both of these are high and annual consumption of imported oil and gas is growing rapidly, special instruments and facilities will also apply, and include fossil energy intensity reduction plans and schedules similar to those for Group A countries.

Funding and Rights

The IETP will have to operate for several decades and perhaps for up to 50 years. It will also and necessarily be an international and multilateral effort, requiring adequate and assured funding.

This funding will be used to coordinate and reinforce intensity reduction actions and inventory all energy resources, as well as to identify, prioritize and then develop renewable energy resources in those Group B countries without adequate national economic resources or technical means and which agree to full participation in this effort.

Funding will from the start take account of the position of the oil and gas exporter countries. These countries will be subject to ever increasing political and economic pressure as we approach Peak Oil and Peak Gas, and may therefore regard the IETP with deep suspicion.

To remove this suspicion, and to ensure adequate and automatic funding of this world-scale and long-term international effort for Energy Transition, the oil and gas exporters must be reassured that the IETP does not seek a collapse in energy prices. This also applies to some extent for the world's major oil and energy corporations, which will also provide delegates to the Oil & Gas Agency.

A low price for oil and gas will not be the objective of the price setting committee. In fact, energy prices must remain high, and must also be stable while not leading to runaway inflation.

The only way to achieve this is to completely remove oil and gas from current market pricing (such as the NYMEX for most publicly traded oil). This again will immediately be called 'unreasonable', 'impossible', and harmful, wanton interference in 'efficient' market systems.

The proposed Oil & Gas Levy and the allocation of physical oil and gas supplies to importer countries should be operated by the IETP Oil & Gas Agency, which will be directed by a permanent committee, with national level delegates such as energy ministers from all importer countries and all exporter countries, delegates from the energy corporations, and various advisers and experts.

The Agency will decide and agree on quarterly physical supply quotas, on a transparent basis and at a fixed price for each (oil and gas) in a basket of world moneys, also expressed in Oil Drawing Rights (ODRs).

The financial aspects of the Agency's work and overall IETP funding will be operated and administered by the International Energy Fund (IEF), modeled on the IMF with its system of Special Drawing Rights (SDRs), available to countries under special conditions.

The ODR system, like the SDR system for countries in financial difficulties, will apply when a country falls behind in its planned, agreed, approved and published national program and targets for fossil energy intensity reduction.

Where there is serious underperformance for any reason considered justifiable, that country may request IEF support and aid, and notably increased physical supplies of oil and gas over a certain period. Based on the merits of the request, the country may receive special supplies of energy.

When ODRs are granted, where physical supplies are adequate and the requesting country has given adequate and justified reasons for the request, it will also be conditional that the country take immediate and effective steps to make up for its underperformance in achieving agreed national energy intensity reduction targets on schedule.

The IETP Authority will provide special assistance, including expert missions and technical aid with the aim of quickly and successfully resolving difficulties giving way to temporary underperformance in achieving the country targets for reduction of its fossil energy intensity.

Special Program for Renewables

Renewable energy development must be massively increased, and thus very large amounts of funding and scientific and technical resources must go towards it.

The special case of very large, but little developed, and in some cases almost totally ignored large-potential renewable energy resources in low income countries will receive special attention, funding, and technical resources.

The case for electric power grid construction, development and interconnection in the South, and in certain cases North-South interconnection, is very persuasive. Using mainly renewable-based electric power production, these interconnected power grids can play a major role in quickly reducing growth of intensity, then capping and reducing fossil energy intensity in lower income countries.

As two examples, an Asia-wide hydropower based electric power grid and interconnection program is entirely feasible, as is an African coastal OTEC-based program of the same type but with much lower total electric power capacity.

Direct solar energy intensities are far higher in the South than North. Wind energy resources are also poorly known and developed in the South. The major obstacle to faster development, as usual, is funding and technical resources.

In Our Interests

The IETP will be international and multilateral, with large and assured funding and technical resources. This will enable the major and long-term task of world renewable energy development to start quickly but efficiently, an task that cannot be carried out on a piecemeal basis by 'spontaneous market-only mechanisms'.

It will be in the interests of us all.

Andrew McKillop is a writer and consultant on oil and energy economics. Since 1975 he has worked in energy, economic and scientific organizations in Europe, Asia, the Middle East, and North America. These include the Canada Science Council, the ILO, European Commission, Organization of Arab Petroleum Exporting Countries, the UN Economic and Social Commission for Asia and South Pacific, and the World Bank. He is a founding member of the Asian chapter of the International Association of Energy Economics. He is also the editor, with Sheila Newman, of The Final Energy Crisis (Pluto Press, 2005).


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