by Andrew McKillop
Founder member, Asian Chapter, Internatl Assocn of Energy Economists
Former Expert-Policy and programming, Divn A-Policy, DGXVII-Energy, European Commission
Former Director of Information, OAPEC subisidiary AREC, Abu Dhabi, UAE
January 12, 2009
Energy Transition away from fossil fuels is driven by two crises – declining resources of both oil and gas, whose prices are able to attain extreme highs whenever global economic growth is strong, then crash to extreme low prices when economic growth falters; and the intensifying crisis of climate change, which the IPCC and other sources warn may become catastrophic within less than 30 years. While public and political acceptance of the urgent need to mitigate climate change is nearly total, neither peak oil or peak gas are widely accepted as being, if anything, more urgent because the lead time to very serious impacts from declining export supplies of both these current pillars of the global energy economy is so short – no more than a few years.
These crises are intertwined and inter-dependent. The only lasting solution is Energy Transition away from fossil fuel dependence, to a fast-growing utilisation of alternate low carbon, and zero carbon renewable energy sources, developed on a worldwide basis taking account of local and regional availability of the renewables. This of course requires massive, stable, coordinated and long-term investment without extremes of market-induced volatility, within a plan that firstly targets the reduction of oil and gas intensity (average per capita demand) in the OECD countries.
Through 2008 oil prices attained an all-time high of about 147 USD/bbl (WTI grade, front month contract, Q2 2008) before crashing to well below 40 USD/bbl in December 2008. This fall of about 75%, similar to the massive deflation or contraction in value for many equities, for world cargo shipping rates, base metals such as nickel or copper, and most agro-commodities, is usually hailed by political leaders and mass media in the consumer societies as a 'good thing'. At these price levels for oil, and related price levels for gas or coal, however, almost any alternate or renewable technology, such as windfarms (specially offshore), solar electric power, waste dump methane recovery, electric cars and linked battery technology, and other non-fossil energy sources and systems become totally uneconomic. As we have seen with the biofuels or agrofuels, and possibly soon with windpower in Europe, investor support and mobilization for continued growth of these alternate and renewable energy systems has quickly fallen away.
In a context of massive asset price volatility and therefore uncertainty, it is easy to forget the 'fundamentals', but for oil these are very clear. While the 2008 price peak exceeded the previous all-time peak of early 1980, which in 2008 dollars was around 100-120 US dollars/barrel, there were many differences between the two situations. The biggest difference was that the 1980 price peak had a single and simple cause: the ‘Iran crisis’ of 1979-1980, during which the overthrow of the Chah's regime slashed Iranian oil production and exports by about 60% for 6 months. Exports fell about 2.5 million barrels/day (Mbd), which at the time was well over 7.5% of world total export supply or 'offer'.
No similar, geopolitically caused, very sharp loss of export supply can be offered as the reason for the constant increase of oil prices through nearly a decade, from 1999.
Another major difference is that global economic growth had already collapsed in 1980, notably due to extreme high interest rate policies, at the time of the 'Iran crisis' which drove oil prices to peak highs. Through 2005-2007 global economic growth was at record highs, and continued until an essentially financial and banking crisis triggered a collapse of economic growth. Constant reductions of interest rates to historic lows have, so far, done nothing to restore conventional or 'classic' economic growth, but may lead to extreme high rates of inflation whenever there is any recovery in conventional economic growth as measured by conventional indicators like steel production, car sales, house sales, airline miles traveled, shipping cargo rates, etc.
We can therefore note that constantly rising oil and commodity prices, in 2005-2007, did not 'damage' the vintage economic growth of the period, nor produce exceptionally high inflation, but in fact tended to intensify conventional economic growth, in a process that I call Petro Keynesian growth. To be sure, oil prices of well beyond 125 USD/bbl in 2008 increased inflation, led to big falls in consumer confidence, and most certainly aggravated other existing problems in the economy, but the general process of rising oil, energy and commodity prices most certainly contributed to rising global economic growth, particularly in the period of 2005-2007.
New trends and Factors
Underlying the constant rise of oil prices we have a sometimes denied, but real depletion crisis well described and studied by ASPO groups in different countries. This relatively newly recognized, but long-term process is joined by climate change, as another long-term, newly recognized factor which will very surely affect world energy and the global economy for decades to come. Back in the 1980s, we can note, anthropogenic climate change was an unknown subject, even if Milankovitch's astronomic climate change theories were well known. By 1992 however, at the Rio environment conference the subject emerged.
Some 16 years later, after heroic attempts at 'climate change denial' by the Bush administrations of 2000-2008, and studied ignorance of the subject by emerging economy leaderships, climate change has become an integral part of effective political response to the basic challenge of oil depletion and natural gas depletion. Depletion is of course is not openly acknowledged as the driver for mounting calls to quickly, and massively develop alternate and renewable energy, particularly oil substitution and oil saving sources and systems. Other reasons for oil saving are usually preferred: for example energy security and dependence on Middle Eastern oil, high oil prices and their inflationary impact, and "long term" problems of "possible" oil depletion are more often communicated as the reason for seeking to urgently substitute oil in the energy economy.
In fact, the challenge of oil and gas depletion is at least as real as, and nearer-term than the onset of catastrophic climate change - which could start by 2025-2035, if world fossil fuel burning is not seriously curbed, and atmospheric concentrations of CO2 are allowed to spiral up to 500 ppm. Other impacts of global climate change, to be sure, will act well before these dates. However, uncontrolled reduction of oil and gas burning simply through depletion will occur a lot sooner than 2025, with the first onset of annual falls in export supply availability of oil and both LNG or pipeline gas in the period 2010-2012. The severity of the present and ongoing global economic recession may 'stretch' these dates a little, but not a lot.
We can be sure that political parties and consumer media editorialists feel that climate change is acceptable for mobilizing public opinion for an uncertain, and fast-changing economic future, and a useful way to not mention oil and gas depletion as the reason why alternate and renewable energy must be urgently developed. However, we are forced to admit that the process of free market asset growth and decline, that is boom followed by slump will surely penalize the fast-growing "Cleantech" asset sector (that includes alternate and renewable energy financing). In fact, unimpeded market freedom could lead to the "Cleantech" sector collapsing, with general equities and other investment sectors, if oil stays for any length of time at under 40 dollars-a-barrel.
Need for Safeguards
What are needed are safeguards. These will include state, bilateral or multilateral frameworks, subsidies, legislation and intervention aimed at ensuring rapid but efficient growth of non-fossil energy supplies on a worldwide basis while preventing, or limiting extreme price volatility for oil and gas supplies. Without these safeguards, and with continuing low traded prices for oil, gas and coal, the alternate and renewable asset bubble will almost certainly, and quite soon collapse in an inevitable slump, like the dotcom asset bubble of 1998-2001, or the housing and property bubble of 2002-2007.
If we look at world traded oil and gas supply, both are considerably smaller than total production and consumption, more so for gas than oil. The major exporters, and importers of both oil and gas supply and consume a very large proportion of both. For oil we find in 2007 that the 20-largest exporters, and 20-largest importers were responsible for over 90% of world total export supply, and over 90% of total imports. For gas we find an even larger concentration (over 95%).
World export supply of both oil and gas require visibility (that is predictability) regarding the volumes available, and unit prices. Due to the large concentration of total exports and total imports by a small number of countries, this process could be quite efficiently set in any forum able to bring together permanent delegations from the 20-largest exporter countries, and 20-largest importer countries. This would take oil and gas pricing out of, and away from the speculative market currently involving many thousands of participants or 'players', all seeking short-term gain, with no political responsibility for their actions, and no interest in the effects of extreme oil or gas price volatility on other sectors – for example long-term investment in alternate and renewable energy.
As to the so-called 'efficiency' of the private market pricing system, we can note that in 2008 it was able to shift oil prices by at least 75% each way in about 9 months ! Volumes of 'paper oil' treated by speculative traders, counting all major oil markets (Nymex, ICE, IPE, Dubai Mex, Tocom, etc) in 2008 were at least 100 'paper barrels' for each 1 barrel of physical oil changing hands. Adding the markets for petroleum products we easily arrive at well over 150 barrels of 'paper oil' treated for 1 barrel of physical. If this is 'efficient' the word obviously has special new, arcane or mystical meaning. We can simply note that low trading costs per barrel, which is a favorite defense of free market price setting without state or multilateral intervention, has to be set against trading around 150 times total real world deman for crude and products. This amounts to about 150 X 51 million barrels-per-day (close to 7.8 billion barrels per day).
World total physical oil consumption in the full 365-day year of 2007 was about 31.5 billion barrels.
Bringing the main exporters, and main importers together in a permanent, UN-level entity will very obviously help to prevent sequences of extreme and uncontrollable volatility, due to the market-only system based only on speculation. Numerous models and precedents in fact exist for this type of multilateral mechanism, taking the long period of 1945-2008 into account.
To be sure in late 2008, and even more surely in 2009 it is the global financial and economic crisis that occupies most headlines and column inches. Few if any analysts and economic or financial authorities such as the European Central Bank and US Federal Reserve today forecast that economic recovery is 'just around the corner'. Less often stated in official press statements, we can be certain that world traded oil and gas prices will not stay for long at the derisory price levels of Dec 2008. Long-term trends of increasing depletion, and slower, smaller net additions of supply capacity (particularly export supply capacity) will quite soon lead to structural undersupply. For the moment of course, the massive slump in world economic activity, and therefore oil demand can hold prices down – for as long as the exporters cut their supply by 'too little and too late' – but this supposed 'happy interval' for consumers will not be durable or sustainable.
In other words and more simply, oil and energy prices will not stay depressed at the same price levels they stayed at through 1986-1999. The one-time chance of Cheap Oil through 1986-1999 is very unlikely to ever return again. At latest when structural undersupply intervenes, perhaps by 2010, the inevitable free market response – bidding prices to extreme highs – will lead to a sharp increase in world inflation and rapidly falling economic growth in a context of extremely high borrowing by national governments in response to the current economic crisis. To be sure, calls for oil supply volumes and pricing to be 'controlled' will almost certainly emerge. With further shortage of oil and gas supplies due to depletion, free market pricing will tend to be reduced, or abandoned, but in a context of open and constant crisis favouring uncoordinated bilateral, or perhaps regional supply and pricing arrangements.
Acting before this de facto abandonment of 'free market pricing' should be the focus of coherent and responsible proposals, today. Intervention in free financial and economic markets to try limiting the collapse of economic growth is now very certainly accepted by political deciders – the same is needed to safeguard the long-term transition to dependence on alternate and renewable energy and avoid or limit extreme oil and energy prices while free market trading still dominates supply and pricing.
De-linking oil with Economic growth
As we found during 2005-2007, world oil and energy demand remained very strong despite ‘extreme’ prices, proving that oil and gas price elasticity is very low oil in the conventional or ‘classic’ economic growth process: demand increases with rising prices until extreme high prices are attained – followed by economic slump. In other words the 'Petro Keynesian growth' process has little or no feedback until extreme high price levels are attained for energy and other commodities in short supply, after which economic slump results, with a collapse of energy and commodity prices – and investment in all competing substitutes.
Even in deep economic recession in the OECD countries (about one-sixth of world population, and about 45% of world GNP depending PPP corrections) it is likely that most fast emerging, new industrial giant and large economies like China, India, Brasil, Pakistan, Turkey, Bangladesh (and others) will continue increasing their oil and gas consumption. Some may be able to increase their domestic production of oil and gas, and coal, but most will not. Their increasing 'call on export offer' will tend to attenuate the fall of world oil demand, provisionally forecast for the year 2009 by agencies like the OECD's IEA at up to 1.5 Mbd, or about a 1.75% reduction in world total demand relative to 2008. In fact in 2009, this fall of demand may intensify, and further depress traded oil prices, on the one hand, threatening the reaction of more drastic oil export supply cuts by OPEC and Russia, on the other hand.
Taking entry to the 1980-83 recession for comparison, this economic slump compressed world oil demand by about 3.5% pa, but with the return of global economic growth in 1984, world oil demand also rapidly returned to growth.
The current very short term context of sharply falling oil demand, with a potential fall also of gas and coal demand in 2009, has to be compared with the expected falls in world oil supply capacity from as early as 2010, forecast by experts within the ASPO group. These estimates are of annual falls in world total production capacity quite rapidly attaining 4% - which is somewhat higher than the probable rate of contraction for world oil demand due to the current global economic slump. At any time there is recovery of conventional economic growth, the large and increasing shortfall in supply or 'supply/demand gap' will quickly become evident.
It is very clear that the emerging economies will continue increasing their national oil, gas and coal demand until and unless energy prices attain some extreme high – or that reason prevails, and these countries are brought into a global and multilateral plan and framework for accelerated Energy Transition. This must, as already noted, feature fossil energy intensity reduction in the OECD and accelerated, coordinated and automatically funded, worldwide development of ARE.
One major problem is the credibility of 'de-linkage' of oil with economic growth. For the emerging economies this is evidently and clearly not the case – their conventional and fast economic growth produces strong growth of their fossil energy demand. For the OECD group and according to ECB president Trichet, and US Fed chairmen Greenspan, then Bernanke, OECD countries have continuously cut their 'oil linkage' of economic growth since the Oil Shocks of the 1970s. However, this ‘de-linkage’ shown by an average fall of about 10%-25% in barrels consumption per 1000 dollars of GNP through the period of about 1975-2000 was only apparent. Since about 1998, many of the OECD countries have in fact increased their oil burn per unit GNP. In addition, the 'historic' fall in oil intensity in OECD countries was accompanied by a strong opposing trend, of sharply rising natural gas burning, and gas intensity (average gas demand per capita, per year).
Apparent falls in oil intensity in the OECD countries have also been strongly helped by de-industrialisation and delocalisation, which ‘exports’ oil and energy demand for industrial production and raw materials outside the ‘postindustrial’ OECD. This enables the de-industrialised OECD to 'swap' services and hi-tech product exports (needing little oil), for oil-intensive consumer products, semi finished goods, and raw materials. Consequently, the 'oil balance of trade' is heavily in favor of the de-industrialised, or de-industrialising OECD countries, and amounted in 2007 to around 1 barrel/capita/year, on average, for the EU-15 countries. For the USA exactly the same 'hidden oil imports' due to trade structure also apply.
The reality of continued, high level dependence on fossil energy, and linkage with economic growth has likely contributed to the political momentum in EU countries resulting in their adoption of the 'energy-climate package' of Dec 2008. This plan includes a target of 20% renewable energy in the EU energy mix by 2020, but without automatic financing outside the linked target of 20% reduction in CO2 (and other) climate changing gas emissions, which is still essentially based on CO2 permits trading. Regarding aid, assistance and investment for alternate and renewable energy development outside Europe, the plan still essentially relies on the ‘clean development mechanism' (CDM), for financing support, through emissions credits, for non-fossil energy development in nonOECD, often low income associated and developing countries (the ADCs).
The CDM process is far from transparent, is small scale, and has no structure or plan for efficient development of all available renewable energy sources in the ADCs. In particular we can note the absence of any automatic financing mechanism, which is strongly needed to ensure constant and rapid progress in non-fossil energy development outside the OECD.
The ‘impossible’ challenge of Kyoto compliance
The outlook for climate change is increasingly sombre, for example near-term and major impacts related to the accelerated melt of the northern polar ice cap. This in turn reinforces calls for an accelerated deployment of alternate and renewable energy (ARE), but no multilateral framework for their growth has so far been proposed. The need for this is increased when we take expected fossil energy demand growth of the emerging economies, which are outside the present Kyoto framework except for the CDM process.
In these still fast-growing economies, we find their typical oil demand per capita, or oil intensity, is usually less than one-fifth of the average in European Union countries, and one-tenth the US average. For natural gas and electricity demand, the differential is very similar, or larger. Only with coal demand do we find a smaller differential relative to average per capita consumption in the OECD countries – noting of course that coal emits the highest-possible amount of climate change gases per unit of useful delivered energy.
The Kyoto Treaty has since its first ratification by present adhering countries lacked credibility because it excluded, and may for some while continue to exclude ‘large emitter’ countries with massive coal burns, specially USA, China or India, to which we can easily add Russia, Indonesia and Australia. In particular, one of the strongest constraints on bringing the world's largest coal burning countries into the Treaty will be their implied need to abandon or sharply reduce coal-based thermal electric power generation as their main choice for electric power, until and unless economically feasible 'clean coal technology' emerges.
Energy sector development will necessarily include the renewables, especially when the intrinsic high cost, and long lead-time choice of nuclear energy is confronted by the nearly unlimited national security risks of the « friendly atom ». Many renewable energy sources excluding geothermal, hydro and wind are essentially concentrated, or more richly-available in low-latitude or intertropical regions. Their efficient development requires attention to and acceptance of this reality, that is basic resource availability - this problem (of basic resource availability) explaining a certain part of the difficulty impeding faster renewable energy development in the Northern, higher latitude countries.
The nearly impossible challenge of Kyoto compliance for signatory countries – that they should reduce total emissions of greenhouses gases to 1990 levels - should logically focus attention and resources on faster development of non-fossil energy outside the OECD group. This will focus attention on ‘intertropical’ renewable energy resources, and related economic development such as food production and water supply. However, as at present, no plan, mechanisms or frameworks – including financing mechanisms - exist for accelerating and widening the process.
Using less Oil and Gas
For the OECD countries the most urgent priority is very simply – using less oil and gas. Oil burning is considered by the Kyoto process as more pollutive than equivalent natural gas burning (per unit energy), despite the fact that release of unburnt methane necessarily increases with total amounts produced, transported and consumed. Worldwide loss-in-production and transport losses of natural gas, by LNG tanker, through regasification, and by pipeline are very high – at least 10%, compared to well below 2% for oil. Estimates made by the World Bank and US satellite defense agencies for 2006 were that gas losses only associated with oil production (flared, vented gas and gas-in-liquids lost), these amounted to about 160 Billion cubic metres, more than 25% of total gas consumption in the EU-27.
Reduction of oil burning but with greater (sometimes much greater) use of gas is however favoured or prioritized by the Kyoto process. For ‘model compliant countries’, as for the other less compliant countries, the recent past of 1990-2005 shows that restored economic growth nearly always restores fossil energy demand growth.
As most European Union leaderships like to advance their political adherence to the goals of the Kyoto Treaty (reducing CO2 emissions, notably) we can compare this stated goal, with the reality of oil and gas consumption growths of some major EU countries through 1990-2005
Growths of OIL and GAS consumption for selected EU-15 countries, 1990-2005
National OIL consumption
National GAS consumption
Figures (approx) rounded to nearest 5%. ‘Small’ = 10% or less
(Data for above table/ Eurostat, BP Statistical Review)
The above short list excludes countries from the ‘new’ mostly East European EU member states, which are a special focus of ‘clean development’ as currently considered by the Kyoto process. The East European EU countries, which have attracted considerable industrial investment and EU ‘internal delocalisation’ to benefit from cheap labour and weak environmental legislation, have through 2005-2007 experienced growth of their oil and gas demand at rates up to 5% per year for oil, and 7%/year for gas. Their coal demand has also increased rapidly. This growth of fossil energy demand, similar to that in Russia, is due to so-called ‘re-industrialisation’. This trend follows the de-industrialisation of the 1990s, triggered by the political collapse of the Soviet Union and the economic collapse of Russia.
Economic collapse, we can note, can 'deliver' very radical and fast cuts in oil and gas demand – but this only stacks up an equally fast rebound, whenever economic growth returns. Collapse of oil and gas demand in the ex-Warsaw Pact countries and in Russia through about 1990-96, in the Russian case led to large but temporary export surpluses of Russian oil and gas. In energy and economic policy terms, this gave credibility to the New Economy myth of ‘unfettered market forces’ being able to overcome physical limits on supply. In fact and basically, oil and gas importer nations benefitted from the chaotic economic rout and mass poverty caused by 'market liberation' in Russia, under Yeltsin, with a rather sure strengthening of nationalist policies regarding energy resources by the following Putin and Medvedev regimes.
With Russia's economic recovery and re-industrialisation, energy demand spiraled up, the same way it had spiraled down, previously. The net result was that energy conservation, efficiency raising, and transition to renewable energy were completely sidelined by a classic 'boom-bust' (or in fact 'bust-boom') process in the economy and society. Energy transition was of low interest to policy makers or business deciders, and of little or no concern to the public.
Does Kyoto compliance mean Energy transition ?
As signed by over 180 countries, this presently political engagement of 'Kyoto compliance' can be contrasted with the implied target of reducing national oil and gas burn to 1990 levels in the ratifying countries. We could, for example, consider what annual percent cut in oil burn, and natural gas burn would be needed in the selected EU-15 countries listed above, if they were to re-achieve 1990 levels of oil and gas consumption by 2008-2012. Figures of over 20%-per-year would in some cases be needed, particularly for gas burning, proving (if needed) that the Kyoto Treaty cannot be considered as an 'energy transition' tool or strategy, except under some hypothetical and massive change in public opinion and political decision, making climate change mitigation a national emergency. If for any reason there was an attempt to achieve 'total compliance' in a short period of time, this would in fact require deep and permanent economic depression.
The Clean Development Mechanisms (CDMs), notably the supply of renewable energy based, or lower emission conventional fossil fuel technology to associated developing countries (for the EU this is the ACP group of countries), are in fact equally needed inside the ratifying countries. For several ratifying countries, even the current and heavily reworked emission cutting targets are as high as 3.5% - 4.5%/year, strongly implying that very intensive, and organized plans for national oil and gas saving, and development of alternate and renewable energy must be set in place very quickly. We must add that due to Peak Oil and Peak Gas, targets at least as high as these will be needed for reducing oil and gas intensity, in all the OECD countries.
It could be argued that ratifying states will have no option but to seek compliance procedures other than national oil and gas consumption cuts. This will include extension of tradable licenses to pollute, perhaps worldwide and to more sectors (like transport and agriculture) and rapid growth of CDM, so as to buy or obtain sufficient ‘emission credits’. In the absence of this cumbersome, opaque and probably very slow process, we may easily find that, by 2012, total CO2 emissions have simply grown, and the free markets for oil and gas are in permanent extreme-price rout.
In reality, greenhouse gas emission cuts should be as high as 7.5% or more, each year, with ideally about the same amounts of annual cuts in oil and gas burn - but few if any economists would care to estimate what these heroic cuts would do to the economy in the absence of effective multilateral frameworks. We can however compare these huge implicit targets with actual oil and gas demand cuts during the 1980-1983 world recession: this as already noted led to about an annual fall of 3.5% in world oil demand, for 3 years. This recession was the worst-ever since the 1929-36 Great Depression, and at least concerning the severity of its onset was close to the start of the present recession in 2008-2009.
During this recession, world oil demand consecutively fell for 3 years, for the first time in the entire period since World War 2. OECD-wide cuts in oil demand, over 3 consecutive years (1980-1982), were about 9.6%. By 1983-1984, world oil demand was again growing.
Even worse in relation to implied targets for national fossil energy demand cuts, world gas demand did not follow oil demand, but increased from about 1300 to 1340 Million tons oil equivalent (Mtoe) in 1980-1983. Since then, world gas demand has increased much faster than oil demand, and is about 2650 Mtoe today.
The place of renewable energy based CDMs
The Kyoto Treaty is above all still-fluid, with unfinalized objectives, calculation bases and methods. Targets for emission cuts are still imprecise and unsure, and have been ‘politically sweetened’, for example regarding coal dependence for electric power production (about 55% of world electricity is coal based). Emissions reduction inside the ratifying countries will have to considerably increase in a short period of time, but because of the economic and technical difficulty of this, the CDMs in the ADCs and in the emerging economies will become an inescapable, vital part of the framework and process for compliance.
This context must focus the intertropical renewable energy technologies and systems, where potentials are so large they offer some scope for reducing or limiting the inevitable and large impacts of world oil depletion, and world natural gas depletion. While denial of impending depletion can be maintained a short while longer, these inevitable trends will soon exercise leverage on policy and public opinion, as depletion accelerates rather fast in the next 5 years.
The intertropical renewables include real potentials for large-area solar, large-area biomass and large scale Ocean Thermal Energy Conversion (OTEC) systems and processes, also including electric power system interconnexion and integration. Particularly in the case of OTEC, solar and biomass energy development, the net outputs for economically feasible projects will necessarily include non energy products, for example fish and crustaceans in the case of OTEC installations, and food commodities in the case of large area biomass and solar energy projects.
Probably the key element is scale. The merited reproach of renewable energy technology is that it is small-scale, high-cost and unreliable, as well as imposing multiple and strong economic, social, cultural or other constraints. This concerns many of the renewables in high latitude environments, where only wind electric power (among the 'new renewables') has radically grown and been easily-integrated in existing, fossil-based energy mixes. High land costs and incompatible existing infrastructures, and especially the cultural values of energy-intensive society also reduce the applicability and feasibility of fast growth of alternate and renewable energy in the higher latitude, Kyoto Treaty ratifying countries.
This being the case it is therefore rational to re-focus attention to the intertropical renewables, and focus North-South cooperation in the rapid and efficient, large-scale integration of this form of economic and infrastructure development. CDMs offer an avenue and focus for this effort. Without large-scale and preferably automatic financing mechanisms it is doubtful if fast progress can be achieved in this domain – and in fact in global Energy Transition.
Restoration of global economic growth – the current N°1 target of all political leaderships worldwide – will inevitably restore global oil and gas demand, but within a short period this will face structural undersupply of markets.
Political and public opinion support to strong action for limiting climate change and developing alternate and renewable energy is nearly total, but no global plan, programme and, in particular, multilateral financing mechanism and framework exists.
The need to reduce oil and gas intensity of the OECD countries is implicitly accepted or targeted by Kyoto Treaty application, specially in the EU-27 countries – which however will need to obtain, or buy, very large amounts of emission credits through the CDM procedure in the implementation period of 2008-2012.
Renewable energy based CDMs, in this context, will become of great economic significance and political interest. This will notably include the ‘intertropical renewables’, which not only have large economic potential, but also have very large energy supply potentials.
Extending the Kyoto Treaty for Energy Transition faces numerous obstacles, suggesting that a linked, multilateral transition plan, programme and frameworks – specially including financing mechanisms – must be quickly proposed, debated and put in place.