While calendar years may only be arbitrary temporal assignments of lunar cycles, it brings great solace to see some years come to a close. Certainly, the year 2008 is one that no energy executive/ labourer/ analyst /watcher will chose to repeat any time soon.
There are just too many developments to mention, but most 2008 energy episodes centre on the extreme price peak of crude oil futures. While the NYMEX recorded one $100/barrel transaction on 2 January, it took a month before it settled above the unsettling price level. Speculation continued unabated, reaching the record-shattering price of $147/barrel on 11 July. If not improbable, the rise of oil prices was only surpassed in popular disbelief by its rapid and debilitating fall, closing the year at $35/barrel. However, 2008 will likely be remembered by most for the sudden crash of stock markets around the world, netting trillions in evaporated wealth.
From a global governance perspective, it was perhaps the food-fuel conflict that drew the greatest response. World governments and international institutions were called upon to intervene in the mounting crisis that punished the world’s most vulnerable populations by causing a rise in fundamental food products, as a result of industrialized countries adopting alternative fuel technologies. Looking back, the events/decisions that led to the conflict could be characterized as “ignorant well-intentioned entitlement”: Entitled as the rich nations chose these fuel sources to sustain/increase their already dangerously high rates of energy consumption; Well-intentioned as the move to sugar/corn-based ethanol was meant to increase alternative energy sources, in the spirit of reducing fossil fuel emissions; and, Ignorant as the policies which set the process in motion (at least in the U.S. congressional hearings) failed to consider the price effects on food in the developing world, assuming that there would be added motivation to increase production capacity.
In the end, it wasn’t until the price of oil crashed that food prices were able to normalize. This occurred for two reasons; a lower oil price reduced incentives toward ethanol production, and the petroleum-intensive soft costs of food (fertilizers, tractor fuel, transportation, etc.) all became immediately cheaper. While pressure was focused on governments to provide answers – with the issue even made it to the G8 agenda – the bulk of responsibility lies with corporations and lobby-groups (with little accountability). Granted that institutions of state or supra-state authority have the obligation to foresee crises and adjust accordingly, it is often those self-interested actors that find ways to abuse under-regulated systems to their advantage – a hard lesson-learned from the reverberating financial crisis.
One interpretation of the moral of this story could be that universal, diverse, multilevel, legitimate, and effective institutions of energy governance are needed to curtail preventable conflicts. The 2008 clash of food and fuel demonstrated that when policy-making in (seemingly distant) resource sectors does not consider the wider social and economic effects among different constituencies, devastating consequences can result. Certainly there is a political appetite for regulatory bodies with innovative solutions – note that IRENA came about within a year – but such an initiative requires a champion.
So far, a credible champion has yet to emerge. Governments warn of the limits to economic growth; corporations fear regulation; and think tanks say it deserves comprehensive analysis. The most advanced thinkers on these concepts are perhaps the peak oil theorists. As profiled earlier, initiatives such as the Oil Depletion Protocol and organizations such as Association for the Study of Peak Oil (ASPO) offer creative responses to now reinforced notions of resource scarcity.
However, debate on their ideas too often get caught up in a debate on the science of peak oil at the global level. Its advocates are given unfortunate labels of “Doomsdayists” or “Militant Enivornmentalists”. The general hesitation to the peak oil thesis should not result in a rejection of the emanating policy proposals. Basic rules of game theory apply – the safest bet is to accept the premise and plan accordingly, for the human, environmental and actual costs of doing nothing could be insurmountable.
The world economy needs global energy governance to facilitate the transition to a low-carbon economy; mediate resource conflicts; enforce regulatory compliance; encourage economic development; secure critical infrastructure; support R&D; stabilize prices; and, advise on the best ways to do all of these things. In the same way that the peak of the oil price spike preceded (and perhaps precipitated) the stock market collapse of September, so too should the international response to the energy dilemma precede long-term economic corrections. Energy is the lifeblood of all economic activity – fixing the global energy imbalance, supporting needs-based solutions and building a green industrial sector may offer the world economy the shot in the arm it so badly needs.
Tags: climate change, development, economy, Energy, Ethanol, food-fuel, G8, Governance, Oil, peak oil
