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Sunday, October 15, 2006

Who Should Reduce Their Energy Consumption?

As a follow-up to the post below this one on the politics of promoting increased energy independence, this is from the CEO of Eni:

To extend the age of oil, we must save fuel now, by Paolo Scaroni, Commentary, Financial Times: One of the most common explanations advanced in the west for the current squeeze on energy supplies – and for why prices are still so high ... is ... China...

But... In spite of China’s rapid expansion, it still accounts for only 8 per cent of global oil demand. Meanwhile, the US and Europe account for 25 per cent and 18 per cent of global oil demand respectively. Each Chinese individual uses fewer than two barrels of oil a year. This compares with the 12 barrels used by their European counterparts and with the massive 26 barrels used by each US citizen every year.

It is the west’s consumption, along with sustained under-investment in energy infrastructure during the 1990s, that has really pushed prices up. The paradox is that, while on the one hand we complain about high oil prices, on the other we pursue energy policies that are wholly irrational. ... Look at the US, where oil demand keeps rising. Indeed, one out of every two cars sold there in the past five years was an SUV or a light truck...

As a result, American cars average only 7km per litre of petrol. In Europe, things look a bit better, with cars averaging about 13km per litre. If it were possible to convince Americans to buy the same cars as Europeans, we could save 4m barrels a day – equivalent to the oil production of Iran, the world’s third-largest oil exporter.

But why should we settle for cars that cover only 13km with one litre? Nowadays, there are comfortable cars that run for 20km on one litre of petrol.

If all the cars in the US, Canada, Europe, Japan and Australia were this efficient, we could save 10m b/d. That is equal to all of the oil produced by Saudi Arabia, the world’s largest oil producer, and is more than the total consumption of China and India together.

Inefficient cars are not the west’s only folly. Another is excessive temperature control. People like to keep their homes tropical in winter, while restaurants are frozen in summer. The US uses up far more energy on heating and air-conditioning than Europe does. Just think. If rich countries used readily available, fuel-efficient cars and Americans adopted European standards for heating and air-conditioning, we could save 15m b/d. That is roughly 20 per cent of global consumption.

In spite of this, western consumers clearly do not feel that changing their behaviour is a priority. One explanation is that, even at nearly $60 a barrel, oil may not be expensive for the western consumer.

By way of comparison, if for any reason you wanted to buy a barrel of Coca-Cola or lemonade, you would pay more than twice the price of a top-quality barrel of Brent crude from the North Sea.

But even if consumers are not feeling the pain from oil prices, there are still some very good reasons for industrialised countries to implement sensible energy policies and reduce waste.

The first is that, while wealthy SUV drivers may not mind paying a few dollars more on their petrol bill, they are actually keeping prices high for everyone else, too – including for those in poorer countries who rely on petrol for heating, transport and to earn their livelihoods.

The efficient use of oil is also the best way to protect the environment. By using less oil we will also reduce the emission of greenhouse gases into the atmosphere.

While there is still plenty of oil underground, oil reserves are not infinite. Even including all the unconventional oil from Canada and Venezuela, reserves are expected to last only 70 years. That means that the children of today’s young couples will live in a world without hydrocarbons.

The great hope is that we will have found alternative energy sources by the time oil runs out. But in the meantime, we should focus on extending the hydrocarbon era for as long as possible, in order to ensure a smooth transition. This is our challenge for the future.

But how to change behavior, that's the hard part. Somebody has to give up something, but who should that be? The answer given here is that the costs should fall mainly on Americans who drive SUVs from their temperature controlled homes to air conditioned restaurants. Even with growing concerns about global warming and other issues, I'm not sure the large number of voters driving SUVs between these locations are ready to agree with that assessment.

    Posted by on Sunday, October 15, 2006 at 03:22 PM in Economics, Oil, Politics, Regulation | Permalink  TrackBack (0)  Comments (51)


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