There are some big problems. North Sea oil and gas production has fallen sooner and more sharply than expected, partly because higher taxes have deterred investment. The United Kingdom is becoming more heavily dependent on imports from Africa and the Middle East, and particularly on gas from Russia, just when prices, competition for resources and geopolitical instability have risen to unnerving heights. The country already imports around 15 percent of the gas it uses, and, as Tony Blair admitted recently, if current policy is unchanged, it will depend on imports for over 75 percent of the country's needs - perhaps as soon as 2015! 

We in the United Kingdom need to start a major shift in how we provide and use energy. An innovative energy policy should reward higher energy efficiency and enable more choice and competition between suppliers. With good initial incentives to invest in wiser energy use, we could relatively quickly evolve to a new model and save millions, reduce pollution and political dependence on potentially unstable or unfriendly exporters, and develop new, valuable technologies to export. 

Waste Less, Spend Less and Pollute Less

There are tremendous gains available here. We could redouble our energy efficiency over the next 15 years, as we did after the 1970s price shocks. Transport accounts for 36 percent of energy use in the United Kingdom (and even more in the United States), but in cars and SUVs a very low share of this energy actually moves the driver. As Amory Lovins, who runs the Rocky Mountain Institute, points out, most is lost moving the weight of the vehicle. 

Current hybrid technology can increase transport efficiency by 50 percent, and new engines and propulsion systems are under development. Ultralight, strong, protective carbon-fiber and steel cars can give over 90 miles per gallon, with much higher crash absorption. It is a virtuous circle: The more efficient the car, the less engine and fuel one needs to carry around with it - and so the lighter it gets, consuming even less fuel and money. The same applies to super-efficient trucks and aircraft, while low-friction, high-speed trains can be still more effective. Simpler, streamlined manufacturing can now make these both affordable and profitable. Current energy prices and taxes are clearly not high enough yet to stimulate any real changes in behavior. At $3 or even $8 a gallon, most of us continue to burn up energy needlessly as we travel and overcool or overheat buildings. 

In London, the mayor has proposed revising his successful central zone congestion charge to make low-efficiency polluters pay more. But perhaps the real breakthrough will come when it is no longer fashionable to charge around otherwise charming streets in wasteful, heavy urban assault vehicles. If there are good alternative ways to get around, SUVs may come to be seen as "Socially Unacceptable Vehicles." 

We need some clear incentives to buy or use energy-efficient cars, appliances, buildings or air travel (with surcharges or taxes on less efficient ones) as soon as possible. To make people aware of the difference they can make, start with small incentives with eye-catching visibility - such as half-price road tax and more free parking for lighter, or more efficient cars, and reducing purchase tax on biofuel-powered vehicles. Government and military spending should start investing in more effective, light, agile and fuel-efficient transport and facilities. Penalizing unnecessary minutes in the air or circling Heathrow and encouraging better air traffic routing and planning before take-off, or taxing aviation fuel used in less efficient, heavy aircraft might stimulate some new long-term thinking. Lower property taxes might be applied to buildings where properly monitored energy leakage, thermostat settings and overall efficiency meet clear standards. 

Reducing and smoothing out our peak demand loads by smarter monitoring and pricing could also dramatically reduce both transport and power capacity costs. We need to find creative ways to reward suppliers for helping customers to use less energy, not more, especially at expensive peak times. This may mean allowing higher margins on lower revenue or some form of energy-efficiency tax credit or rebate. 

An energy-efficiency tax and credit system should focus on creating good incentives, not on raising revenue or redistributing wealth. This might be similar to a wider environmental or carbon tax with trading of realistic allowances. To be effective, the targets would need to reflect real improvements in performance over time and apply intelligently to different types of energy use, distribution and supply. Targets set at meaninglessly low levels, like those recently proposed in Germany will simply lead to continuing deterioration of quality of life.

One simple solution would be to have year-round daylight saving, adding an extra hour of daylight in the evening when most people would benefit. This would be quick and simple to do, with little downside, and was done highly successfully 60 years ago under the pressure of war to improve life and energy efficiency. 

A Full Range of Competing Supply Options

Europe is increasingly dependent on Russia for gas. Germany has broken ranks and is making its own deal on a direct pipeline from Russia, bypassing Poland, and former German Chancellor Gerhard Schroeder, having set this up while in power, is now on the new pipeline company's board. All oil and gas users are highly dependent on the increasingly destabilized Middle East and Iran, along with other key (and increasingly militant) suppliers like Nigeria, Algeria and Venezuela. The United Kingdom has adopted a market forces model, in contrast to our European neighbors who are more focused on security of supply to meet steadily growing demand. So last winter when supplies from Gazprom were briefly interrupted, most Europeans drew on their two months or so of stored gas, while no amount of price signaling could produce additional supplies at the end of the line in the United Kingdom. 

To make matters worse, we have very little gas storage - only a 14-day supply at peak demand. Three-quarters of that is offshore in one field - operated by Centrica, the main U.K. gas distributor, which incidentally the Russians would also like to buy - and was out of action since a fire in February. Meanwhile, production flexibility is lower now as much of our remaining gas is associated with oil. So in March, when wholesale prices rose fourfold, gas supplies were nearly interrupted and some lower-margin businesses had to send people home. New gas supplies will be available from 2007, but can we avert a shortfall this winter?

While gas and oil prices may fall in the medium term, higher costs have been slow to affect the economy (overall inflation is still only around 2.2 percent in the United Kingdom) and interest rates have been low, enabling economies to keep growing to now. But while most have been busy watching World Cup football, real unemployment has been quietly rising. Security of supply depends on creating more strong options, where both supplier and consumer get a fair and sustainable share of the long-term benefits, fully recognizing and addressing their mutual needs. 

Competition is the key to securing cost-effective and reliable products and services. Rather than over-reliance on one solution, we need a diverse, rich, lush salad of choices. These should include oil, gas, clean-burning coal, wind, nuclear, biofuels, solar, hydro and tidal power from our major estuaries. We also need competition in providing another resource that has grown increasingly scarce because of the now-privatized U.K. regional water monopolies. If the rules allowed open pipeline and customer access to form an effective national water grid, as we now have for electricity and gas supply, we could pipe water to the currently "drought stricken" southeast of England! 

Some of the new innovative supply options may need a kick-start in the form of initial tax breaks (as led to more than 50 percent take-up for unleaded fuel in six months), low-cost loan guarantees, faster planning approvals (for effective local wind power, for example) and removal of other legacy barriers and provisions that were designed for the needs of the last century. We need an accelerated and balanced way to get approval to progress sensible projects, large and local. 

In biofuels, where Brazil is clearly way ahead, some people in the United Kingdom already use much cheaper, tax-free cooking oil in their diesels, where it can run perfectly well, but its use is not approved, let alone encouraged, because it is seen as avoiding the tax on fossil fuel. As with balanced diets and school dinners, perhaps we need an energy version of "Naked Chef" Jamie Oliver to reintroduce some common sense!

Action for a Change

Most politicians hardly have time, before being reshuffled or replaced, to get up the steep learning curve to start resolving the many conflicting issues and how options may play out over the long term. So rather than trying to balance all these factors and powerful lobby groups, they can be more focused on finding instant solutions with popular, but often fleeting, appeal to voters. 

Improved energy efficiency and renewables were put forward in the 2003 Energy White Paper, but no government-led or other initiatives have yet led to any real change. Only a day after seeing the first draft in mid-May, Blair said: "Nuclear power, renewable energy and energy efficiency are back on the agenda with a vengeance." A third of capacity will go by 2015. But even with less red tape, nuclear will take up to 10 years to deliver any extra power and, without new solutions for waste disposal and safety, still faces a skeptical public.

We urgently need to improve our efficiency, increase our supply options and reduce the disastrous impact on our environment. Stimulating real competition and efficiency will maximize the value and benefit of our limited available energy and other resources. More sensible and effective resource use will reduce waste, costs, emissions and risks of shortages. 

Hugh Ebbutt is an upstream energy consultant based in London. Originally an explorer with BP, he has an M.B.A. from London Business School and headed Arthur D. Little’s Upstream Energy group in Houston, before joining CRA International.

© 2006 Hugh Ebbutt for World Energy Source
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