Rhein on Energy and Climate

Conventional climate policy relies on curbing emissions and fossil energy demand. Emission caps on utilities, oil refineries, steel and chemical energies are the principal tool for fighting against climate change. High taxes on gasoline and subsidies on renewable energies complete the tool box.

This approach aims at making fossil energy more expensive and encouraging investment in energy efficiency and alternative energies. It requires a well – functioning administration and will be very difficult to transpose to emerging, let alone to developing countries.

Policy makers should therefore complement demand strategy by acting on the supply of fossil energy, in particular oil and gas. To that end, they should convince and even oblige major energy companies to devote rising shares of their investment to non-fossil energies.

Global investments in renewable energies, essentially electricity, amount to less than 20 percent of investment in oil and gas. (2008: $ 80 billion against $ 500 billion). The big oil and gas companies continue to restrict their investment almost completely to fossil energy, refusing to acknowledge a problem of climate change, for which they bear the primary responsibility. They continue exploring the last remaining fossil reserves in the Amazon forests, the Arctic or Canadian oil sands, ignoring the fact that climate change can only be restrained if major swathes of the earth’s fossil reserves stay in the ground forever.

To change such unsustainable investment behaviour oil, gas and coal companies should provide rising shares of their output as renewable energy, CCS technology or nuclear energy. The US Clean Energy and Security Bill does so for electricity providers, which will have to generate rising shares of their electricity from renewables, starting with 6 percent in 2012 and rising to 20 percent in 2020. If enacted, this would be revolutionary.

These provisions should be extended to oil, gas and coal companies.

This would have a triple impact:

· Enhance their preparedness for moving out of fossil energy sources.

· Progressively reduce the offer of fossil energy and thereby raise the price of fossil energies.

· Enhance the supply of alternative energies and make them more cost-effective through scale effects.

Oil, gas and coal mining companies will oppose such an approach. But if American utilities have to accept such a restriction of their entrepreneurial freedom, there is no reason not to impose it also on oil, gas and gas companies.

The EU should follow the US example. Its climate legislation fails to set

company targets for the share of renewables in their energy output. It relies entirely on the functioning of the cap and trade system, allowing companies to implement their targets by trading emission rights.

It is amazing to see the USA, considered as the incarnation of entrepreneurial freedoms, be much tougher with energy companies than the EU.

The EU should carefully follow the US legislative process and in due time consider a revision of its climate legislation if it fails to produce the expected results.

Brussels, 23.05.09 Eberhard Rhein

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