Increased Energy Consumption: Policy Implications

So far I believe I have made a credible case that the world will consume close to 1,000 quads in 2030, far more than the 721 projected by U.S. and international agencies. If I’m off, I’m not off by much. I have a long way to go to make the case that consumption will continue to increase to 2,000 quads by 2050 and 3,000 by 2075, but the short term case looks pretty solid.

What does that mean for us? I would like to examine the implications for public policy and would definitely like your input.

I think the first finding would be that the decision by Germany and Japan to retire most or all of their nuclear power generation is something they will regret fairly quickly. Japan imports almost all of its fuel at present, while Germany’s replacement for nuclear may well end up being the dirtiest of brown coal sources. The fungible nature of fossil fuels and the market structure of the energy sector pretty much guarantees that an unexpected increase of 25% in demand will cause energy prices to rise dramatically.

The second thing to jump out at me is that, along with other major fuel-rich countries, the U.S. stands to benefit greatly from this development, a point I have seen made recently in major media, from Tom Friedman’s semi-jocular question about the U.S. joining OPEC to more serious analysis of our improved balance of trade.  The U.S., which still has a lot of oil, gas and coal, should be able to not only meet domestic demand, but sell a lot of it abroad. The U.S. will be happily joined by countries like Brazil, Russia and Nigeria. Major importers like China, India and Japan will have to make adjustments in their policies as well as their markets.

The third effect is the boost that rising oil prices will give to renewable energy. Ethanol will be back and more investment will be made in the sexy new fourth generation biofuels–heck, maybe one of them will work. But gas prices will rise, too–in part because the infrastructure to transport it is only partially built and in part because demand will outstrip even the huge supplies of frackable gas. And as that happens, the other renewables–wind and solar–will begin to compete on cost as well as ‘ethical purity‘. Not a minute too soon.

I believe there will be a chain reaction of consequences beyond the three I’ve mentioned here–and I would welcome input from those of you with time to give it some thought.

Original Article on 3000 Quads

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