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Tuesday, July 20, 2004

Time, terror shadow oil era

LONDON -- We cannot afford to be complacent about the future energy supplies needed to maintain our current standards of living and economic growth. Nor can we be complacent about the environmental impact of current consumption levels of carbon fuels.

Oil accounts for the bulk of energy consumption in developed and developing countries. Oil reserves, insofar as they can be accurately estimated, suggest that the world should have adequate supplies for the first few decades of this century but probably not for the second half of the century.

Optimists say new supplies will be found and that it will become economical to develop sources that are difficult to access at present. Other observers fear that, unless we take much more effective conservation measures, we will jeopardize the livelihoods of our grandchildren, if not our children.

Growth in demand for oil seems insatiable. China has had to import increasing quantities of oil for its fast-growing economy. If its economic growth falters, the price of oil may fall temporarily, but the era of cheap oil is likely over. There is a good chance that the Indian economy, if reform is pursued vigorously, will lead to increased oil imports.

And assuming that the Doha round of trade negotiations is successful and that development aid is wisely channeled, energy demand from other developing countries should also rise.

Meanwhile, there is no sign that developed countries will be able to curb significantly their demand for oil. Consumers in the United States are unwilling to control their motoring habits. Indeed, this is especially difficult since railways and public transport in the U.S. either are in decline or are nonexistent.

Supplies are more problematic. The crucial sources of oil are in the Middle East or in areas of potential instability such as Venezuela, Nigeria and Indonesia. The terrorist threat in Saudi Arabia is a serious one. Few observers are prepared to bet on a peaceful transition to a democratic and secular regime. The Saudi state and economy are highly dependent on foreign labor in the management of the oil industry. If the spread of terrorism leads to chaos in Saudi Arabia, Mideast oil supplies will be jeopardized.

The Americans apparently hoped that the overthrow of the Saddam Hussein regime in Iraq would lead to the establishment of a democratic Iraq that would be able to safely resume Iraqi oil exports. This has not proved to be the case. The Americans underestimated the extent of Iraqi opposition to their occupation and the difficulties in re-establishing oil supplies and pipelines.

Supplies from Iran present other problems. The Americans seem unwilling to try to reopen a dialogue at least until they can be convinced that Iran is not trying to develop nuclear weapons. American fears may be understandable, but U.S. tactics may be counterproductive and may well play into the hands of Iranian extremists.

Persian Gulf states can probably be relied on for some years to come, but they cannot substitute for the other main suppliers. Nigeria looks unstable, and in Venezuela, there are questions about the ability of the Chavez regime to survive and what might replace it. Indonesia, we all hope, will emerge stronger from the presidential election, but even if that huge archipelago can retain a moderate Muslim government, fissiparous tendencies could threaten energy supplies.

Unfortunately, the leading energy-consuming countries are unwilling and probably unable to take the steps needed to curb energy demand. Taxes on gasoline and oil consumption need to be kept high, but no American government will dare slap high taxes on gasoline.

SUVs, which cause urban congestion and pollution, should be subject to specially high taxes while low-consumption vehicles should receive favorable tax treatment. Yet such measures will only affect consumption marginally.

Pollution from hydrocarbons in China and developing countries is increasing regional health dangers. It is also increasing the threat of global warming. But developed countries cannot simply condemn such pollution, as developing countries may fairly claim that they are merely trying to catch up with the standard of living enjoyed by developed countries and that their per capita consumption of energy is far lower than that of developed countries.

Aid to reduce pollution in developing countries should be given greater priority in budgets.

More needs to be done to encourage the development of alternative, less polluting sources. Supplies of natural gas and coal aren't running out yet, but they are finite. As for coal, unless great care is taken to remove pollutants, it is not environmentally friendly.

Wind farms are proliferating, but these also have environmental implications, and it seems clear that they cannot be more than a partial substitute for other forms of energy.

Atomic power on which the French increasingly depend for electricity remains an important alternative energy source, but it is expensive and the damage that a nuclear accident could cause is so horrendous that democratically elected governments are reluctant to sanction new atomic power plants. Indeed, in some countries, public opposition is forcing atomic power plants to shut down before they have exhausted their life span.

Japan has shown the way in its efforts to develop solar and tidal power as well as to manage waste. Clearly other countries need to emulate the Japanese example. Still, congestion on Japanese roads leads to a serious waste of energy and increased pollution.

The Kyoto Protocol, which has been rejected by the U.S. and has yet to be implemented by other countries, needs to be paralleled by international economic agreements to cooperate much more closely and effectively in the development of renewable energy sources.

Hugh Cortazzi, a former British career diplomat, served as ambassador to Japan from 1980 to 1984.

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