Introduction

One reason the Kyoto Treaty is likely unworkable and will certainly not achieve its claimed original goals of reducing GHG (greenhouse gas) emissions by signing and ratifying states to their 1990 levels by at latest 2012, while increasing ‘green energy’ (renewable energy) production, and sustainable economic development through the CDMs (Clean Development Mechanisms), is the ideological trap of market-only mechanisms. Application of the Kyoto Treaty is supposed to be achieved almost exclusively by a small number of gimmicks such as so-called ‘carbon trading’. Now embodied by the World Bank’s Carbon Finance Corp.,these measures and essentially porkbarrel gifts to market traders and players, started in February 2005. This ‘system’ is already an Enron-like, opaque, non-productive but very profitable sideshow, operated by the Happy Few who have a licence to print money, and a supreme disinterest in achieving real world reduction of GHG emissions. 

Any kind of constraining legislation for reducing emissions is treated as Stalinist interference with freedom, and consigned ‘to the trashcan of history’, with or without a capital ‘H’. When the Peak Oil crisis grips, this ideological handicap will surely be thrown aside and replaced by so-called ‘courageous’, that is Stalinist type heavy-handed legislation to cut oil use by forced rationing. Oil prices will zigzag to far-out highs, and the economy will crash. The economy will then stay down because world oil supply will fall, every year.

What we in fact need is international and multilateral institutions and measures to deal with the real and terminal crisis for cheap fossil energy, including both demand side and supply side action. Demand side cuts are urgent in the high energy economies, and supply side action in the shape of coordinated, big-scale, international development of renewables is necessary worldwide.

What is Energy Transition ?

In a period of at most 30 to 35 years the world will have to make a huge shift away from oil and gas. Within 50 years the transition will have to be nearly total. Currently the world’s appetite for oil, gas, coal and electricity is growing at its fastest rates since the 1970s. The difference between what is needed, and what is happening in the real world is vast, almost total. Market signals for energy transition are at best weak, contradictory and wrongly interpreted, for one reason because high oil and energy prices drive economic growth. The collective whine by a few die-hard energy ‘experts’ that « high oil prices hurt economic growth » is contradicted every day, every month and every year. At some point on the ‘price curve’ however they will finally be proved right, but that will be meager consolation for us all, exposed to a classic economic slump, job losses, brownouts and blackouts, world and regional conflict for remaining oil and gas resources, and all the other real world effects of always doing nothing about energy transition.

The solution, which is a world plan and program for energy transition, cannot be expected to spontaneously emerge or arise, dusted off to the last dot and comma, from the ashes of the growth economy. The International Energy Transition Plan (IETP) must first be discussed, all kinds of proposals will have to be analyzed, and serious negotiations by all countries on targets and measures in what has to be a world plan must take place in suitable fora – especially the UN system. Automatic and adequate funding mechanisms will have to be proposed, negotiated and agreed. Technical means, including heavyweight engineering and infrastructure development and supply, will have to be set up and coordinated for a really long-term program. Currently, there is not a trace of any serious move towards discussing these concepts and pursuing these goals.

Drafting and Application

To a certain extent the Kyoto Treaty’s negotiation and drafting process can or could serve as a model for the IETP. After that, the Kyoto process has nothing to offer if we want serious results starting in a short time, which is the case because we will soon be hit by declining supplies of oil, and big problems with world gas supplies. There is simply not enough time to replicate the entire Kyoto start up proces, which in total took 13 years, from first proposals and debates in 1992, to first application by ratifying states in 2005.

The IETP must inventory all major energy resources, both fossil and renewable ; fix targets for reduction of fossil energy intensity in the economies and societies of the most wasteful countries ; fund and organize national efforts, in pursuance of national targets for intensity reduction, while also funding and organizing the planned growth of renewable energy production ; and create the bases of long-term sustainable, resource- and energy-conserving economies and societies.

Within this, urgent and special attention will go to restructuring agriculture, transport and the human habitat.

(DIAGRAM AND CHART) (diapo)

1.       The Plan and Targets

OIL AND GAS INTENSITY REDUCTION

World average oil intensity per capita is around 4.8 barrels/year (bcy) and gas intensity per capita is around 2.75 barrels oior the other EU countries. Pretending the contrary, which is official economic ‘development’ doctrine and practice only ensures an increase of exposure, by more persons in more countries, to the economic, political and social shocks that will come after Peak Oil and Peak Gas.

There will have to be large cuts in the fossil energy intensity of the richworld countries : this can come through crisis or it can be planned or programmed, we still have the choice but soon wont. For the poorer countries, however, the inertial effect of conventional economic growth, industrialization, urbanisation and population growth make it certain that their fossil energy intensity will be impossible to cap as quickly as that of the richworld countries. The first targets for the poorworld countries, and especially the giant and large population emergent economies of China, India, Brazil, Pakistan and others will be to slow the growth of fossil energy intensity in their economies and societies, then also shift towards the renewables, like the richworld North. Being a program, the different national targets, which will depend in major part on initial intensity at entry to the IETP as well as national energy inventories and technical resources, will be set with specific time horizons, that is schedules.

Electricity, in the lower-income, lower fossil energy intensity countries may or may not be fully included within the IETP at start, for a number of reasons. These include the current very high level of thermal-based electricity production in these countries, their current extremely low electricity consumption per capita (sometimes 100 times less than electric power intensity per capita in the North), and their often very high potential for development of renewable-based electricity production.

In general, there will be two basic types of country profile for the IETP :

A.      Oil and gas intensive economies currently using more, or much more than the world averages for oil and gas intensity (4.75 bcy and 2.75 bcoey)

B.      Lower energy economies currently using less, or much less than these averages.

2.       World Energy Inventory

Accurate, clear and transparent data is needed on real inventories of remaining oil and gas reserves, as well as coal and nuclear minerals. The IETP Authority will have UN system status and a permanent Secretariat, and automatic financing (see below). It will draw on multiple data sources, and commission its own independent surveys and reviews, to provide clear information and periodic updates to all governments, media, NGOs, economic interest groups, consumer associations, and the public.

Oil and gas producer countries in particular, and the world’s major oil and energy corporations will be encouraged to supply rational and coherent information on remaining reserves, and facilitate inventories by IETP-designated missions, without blame for any previous overestimation and overstating of remaining national or corporate owned reserves. The great need for oil and gas exporter countries to cap production and conserve remaining resources will be formally recognized in the IETP.

All renewable energy resources, in all countries, will also be inventoried. The highest potential resources, notably undeveloped hydropower, direct solar and OTEC (ocean thermal) resources in the South will be given special study and urgent, coordinated development attention.

3.       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 firstly ensure IETP application for oil intensity reduction.

Group A countries, which will include all the OECD countries and several emerging economy countries, as well as several oil exporter countries, will set national policies, and either national or international (for example in the EU countries) 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 tranches.

In some cases, notably USA, Japan, South Korea and most EU countries the annual or 3/5-year targets will have to be set very high : up to 6%-7.5% per year, that is more than 16% in the first 3 years.

This alone will surely 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, and be forced on all parties. We can note that 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 fast, or very fast, 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 (a) their current oil and gas intensity ; and (b) the rate of growth of these intensities. Where both of these are high, for example a Group B country with oil intensity close to 4.75 bcy, or gas intensity at or above 2.75 bcoey, and annual consumption of imported oil and gas 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.

4.       IETP Funding and ODR System

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 notably be used to coordinate and reinforce intensity reduction actions, and inventory all energy resources ; and 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 this 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 coorporations, 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 the reverse : energy prices must remain high, and must also be stable while not leading to runaway inflation or unplanned mutation and change of national economies. The only way to achieve this is to completely remove oil and gas from current market pricing fora, such as the NYMEX for most traded oil. This again will immediately be called ‘unreasonable’ or ‘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 three-monthly 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 SDRs (Special Drawing Rights), 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. The request will be considered, as the IMF considers requests for SDR allocation, and where approved the full amount of ODRs requested will be accorded, subject to sufficient physical supplies of oil or gas as notified by the Agency in its 3-month supply schedules, or special emergency reserves as currently administered by the International Energy Agency. This last, the IEA, will be incorporated and integrated within the IETP system, reducing start up delays and costs for the IETP.

When ODRs are granted, where physical supplies are adequate and the requesting country has given adequate and justified reasons for the request, this will be conditional also on that country taking immediate and effective steps to make up for its underperformance in achieving agreed national energy intensity reduction targets on schedule, that is as shown in its published national program for transition. The IETP Authority will provide special assistance, including expert missions and technical aid with the aim of quickly and succesfully resolving difficulties giving way to temporary underperformance in achieving the country targets for reduction of its fossil energy intensity.

The Levy can be set on a basis where at start of the IETP, that is after ratification by all major countries and with few or no exceptions as ‘special cases’, and after the founding of the IETP’s various entities, and notably the Oil & Gas Agency and IEF, oil and gas pricing are entirely removed from current ‘market pricing’ systems. At entry to the IETP’s programme, which should be given authority for at least 30 years of full operation, the reference price for oil and gas will be set at close to the average price, for major oil and gas supply contracts, over the 3 or 6 months preceding start up. This could be expressed for example as XXX US dollars or YYY ODR for 1 barrel of oil or 1 barrel equivalent of natural gas. It will be useful to have strict and exact equivalence on a price-per-joule, BTU or kWh basis for both oil and gas.

Where the announced run-up to start of the IETP has led to unreasonable but typical speculative excesses in the ‘free market pricing’ system, or circus, some other entry price will be set and agreed by the Agency, acting in agreement with the Authority and with all governments, and notably those of the oil and gas exporter countries. 

The Levy will operate, like the carbon levy for Kyoto Treaty application, by a certain percent surcharge on the 3-month reference price published by the Oil & Gas Agency. After a transition period these reference prices will only be expressed in ODRs.

Where a country at entry to the program has an oil or gas intensity 1.5 – 2.5 times the world average or datum, then its imports will bear a surcharge of perhaps 10% ; where intensity at program entry is 2.6 – 3.5 times the datum the surcharge might be 15% ; where it is 3.6 times and above the surcharge may be 20%. The surcharge rates and bands will necessarily be set through international debate with recourse to technical expertise. The progressivity of the surcharge with rising intensity might be increased, and as we approach Peak Oil the actual surcharge rates might have to be raised, due to faster-than-expected declines in world production and export supplies.

5.       Special Program for Renewables

It is evident that renewable energy development must be massively increased, and thus very large amounts of funding, and scientific and technical resources, must go to this action. The Levy product will be allocated and assigned by 1-year programs, with targets, set as for intensity reduction on a national and published basis.

The special case of very large, but little developed, and in some cases (notably OTEC resources) 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 and high-potential 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 development and interconnection program is entirely feasible ; and an African coastal OTEC-based program of the same type is also feasible, if of much lower total electric power capacity. It is noted that OTEC development cannot be treated as ‘energy-only’ infrastructure projects, and must be given special status acknowledging their energy-and-fisheries characteristics. Neither of these major potential renewable energy resources (and sustainable fisheries production resource) could be envisaged as being developed quickly, over several different countries at one time, with constant coordination, and with adequate funding and technical means, by market-only mechanisms, or by the almost inexistent CDMs of the Kyoto application process.

To a lesser but still large extent this also applies to direct solar resource development in the South. This is specially ironic because, like OTEC resources, which in fact are exclusively tropical, direct solar energy intensities are far higher in the South than North. Wind energy resources, also, are essentially poorly known and developed in the South. The major bar on faster development, as ever, is funding and technical resources. 

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 through targeting the biggest potentials, which cannot be developed on a piecemeal base by ‘spontaneous market-only mechanisms’. This will be in the interests of us all.

© 2006 Andrew McKillop. All Rights Reserved.
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