Scenario working paper

Comments on energy:

There have been a number of comments on the energy paper, including some which I will not reproduce from activists who appear to view this web site as the voice of the energy industry, or perhaps Hell itself. In the latter case, we would of course have an endless source of energy on tap, although with sulphur to scrub.

I will reproduce most of the comments verbatim:

OK, a brief comment on your long and thoughtful working paper. It exhibits "demand elasticity pessimism" i.e. the idea that there isn't much that prices can do to hold down overall energy intensity even in the long term. I suspect that this is wrong - at $5/gallon, even Americans will drive 100mpg Toyotas - but am willing to be corrected. The real point is that in the circumstances you describe, this issue is so important that the working paper needs to tackle it head on. Either energy will be the effective brake on global economic activity at your time horizon (low elasticity case), or energy prices will be a bit higher and the world will use it more efficiently and go roistering on (high elasticity). I'm sure that your network is full of experts on this topic, and you need to deploy their expertise.
I am not clear what are the scenario variables. You say that supply security is an issue, but then say that supply is unlimited if we don't mind about CO2. Then you worry about supply security again. Into this, you throw in a whole lot about the poor nations. These have a real problem, and solving it seems certain to worsen the CO2 and supply issues. So how does all this fit together, then? My take is this. I attach a diagram, which I hope that you can read.

The triangle show the three issues raised. There is a comfort zone, basically where the rich world invests heavily, works on supply diversity and where the poor countries don't grow much. If they do grow, the arrow shows how we slide into supply insecurity, pretty much as we are doing now with China's growth. Question: how to get the comfort zone to go up to the top of the triangle? That's to say, how do we get e.g. India to develop on clean technologies? Or do we just hope that they see the light? Seems a big foreign policy issue.

Your paper does not give enough detail about renewables. Some are good, but you miss the whole intermediate technology area. I go overseas to our missions and I see villages with solar panels and solar heating, perhaps storing energy with batteries for the evening. It used to cost a huge amount, but now they can wire up a home for about a week's income. So it is not all gloom. Actually, cheap energy was a good reason for people to go on using it badly, and in the long run it's good that the cost has gone up.
The reason that energy should feature in the scenarios is because, in some way, it makes us change even more than other things that you might want to high light. Really, though, it isn't "energy" so much as "managing resources" which is the issue. And the whole resource cycle. If it was just supply then - poor nations aside - markets would manage the balance, and entrepreneurs would find better ways of doing things in a high price regime. As environmentalists say all the time, though, there is no price on pollution unless we make one - Kyoto is a start, and you don't talk about permit trading much b.t.w. But my point is that this is not just a market - price thing, or even an economic thing, but a deals thing. It's about deals which countries make and enforce. That means that some are players and some are not. So the scenarios should be around the deals which the players can make.

Who are the players? Not really the supplying countries, because they don't really have many choices, excepting perhaps Saudi, which has other kinds of constraints on it. Russia is exceptional because it is so influential on Europe, in an indirect way. But it's the big blocs which matter - the dozen biggest economies and the various alignments they get into. If they all settle down and integrate their policy so that the only way to trade is like this, the only way to invest is like that, then the rest will follow. So it may be a WTO-FDI-directed technology issue, with the main blocs seeing what it costs and what they are buying from this.

I ploughed through the energy lecture and was not much wiser at the end of it. Why not water? Food? They all matter. We are running out of 'choice space', and there are two outcomes - general disaster or a complete change in how we live.
Thank you so much for a really informative overview on energy. I have circulated it to my colleagues. It seems to me that the risks associated with the energy industry have changed from topical issues such as hurricane damage to much greater and more systematic ones, as the destiny of the companies who are our clients become entangled with the destiny of states, which are not. We need to rethink this.

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