- The Washington Times - Monday, March 17, 2008

ANALYSIS/OPINION:

On the eve of the outbreak of World War I, Winston Churchill, then Great Britain’s First Lord of the Admiralty, made a decision to shift the Royal Navy’s primary fuel from coal to oil, thereby inaugurating the age of oil, an episode vividly described in Daniel Yergin’s book “The Prize.” Churchill’s decision came in response to the global challenges he faced: an ascendant German Navy, technological innovations and an emerging global market for petroleum.

A century later, energy policy is again prominent on the international stage, with economic, foreign -policy and environmental issues all driving change. Oil remains vital to the global economy, yet we may be on the verge of another transition, this time away from overreliance on a single source of energy to a more diverse collection of energy sources. A more diverse energy supply that includes renewables and nuclear, as well as cleaner and more efficient uses of hydrocarbons, will increase the reliability of energy while also improving environmental quality.

The high fuel prices that dominate news headlines are being driven by a tighter supply-demand equation. The International Energy Agency (IEA) estimates that global energy demand will increase 55 percent by 2030, with nearly 75 percent of that demand coming from developing countries. Compounding this challenge, oil and gas in the ground is becoming more scarce and increasingly costly to access. The IEA estimates that meeting this demand will require an additional $22 trillion investment by 2030.

Cost alone is not the only barrier to increasing supplies of hydrocarbons. Politics also play a role. Domestic instability and the rise of resource nationalism affect the flow of investment to energy-producing states. This limits production and inhibits the deployment of the cleanest and most efficient exploration technologies.

High prices and our dependence on hydrocarbons have a significant economic impact on energy-consuming nations. In 2007, U.S. consumers paid some $200 billion more for petroleum imports. And for many developing nations, the relative burden of high prices is of even greater consequence.

On the other side of the equation, high prices have led to a transfer of wealth from consuming to producing nations of unprecedented, historic proportions. This flow of capital has contributed to the rapid growth of sovereign wealth funds — large pools of money that countries, rather than private entities, invest.

The United States and other countries are working with the IMF and the OECD to identify best practices to encourage greater transparency and to help ensure that investments pursued by sovereign wealth funds are based on market principles. President Bush firmly supports policies that keep the United States open to investments from abroad, strengthen economic growth and ensure that national security is not threatened.

Climate change is another factor driving the need to further diversify fuel types. New technology holds the promise of reducing the intensity of energy needed for economic activity, which will allow continued growth while maintaining a clean environment. Alternative energy sources such as solar, wind, geothermal and biomass are already growing significantly in the marketplace. These resources need to be developed even faster to increase their share of the world’s energy supply.

Nuclear power is also an important part of energy diversification, enabling emissions-free electricity generation. New international partnerships led by the United States promise to bring the benefits of clean, safe civilian nuclear power to developing countries, reducing their dependence on foreign oil and gas and limiting the spread of potentially dangerous weapons technologies. These efforts to diversify energy sources will help meet the significant economic, foreign policy and environmental challenges brought about by an overreliance on a single source of energy.

In the short term, however, it is clear that oil and gas will comprise a significant share of total energy consumption worldwide. It is therefore vital that the United States continue to work with the global community to promote political and economic conditions that will attract investment in the energy-rich nations. This includes diversifying energy transit routes to reduce bottlenecks and the potential of sudden disruptions from terrorism, natural disaster or political interference.

Energy issues are difficult and frequently require tradeoffs between competing priorities. The growing recognition of the consequences of our oil addiction is driving a transformation of no less consequence than the one initiated a century ago. The task at hand is to ensure that we recognize energy as one of the great challenges before us on the world stage and address it in a comprehensive way.

Reuben Jeffery III is undersecretary of state for economic, energy and agricultural affairs. He was recently named coordinator for international energy affairs by Secretary of State Condoleezza Rice.

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