Economic View: Self-interest will do more to cut carbon emissions than all the low-energy light bulbs in the world

The wind has shifted direction. The acknowledgement last week by President Bush that the world needed a new treaty to curb carbon emissions, and that the US would support this, is an important back-cloth to this week's G8 economic summit in Heiligendamm on Germany's Baltic coast.

Unsurprisingly there is some scepticism at the President's sudden conversion, and since he is at the tail-end of his presidency, you could say that it is not that significant. That is true in the sense that what matters is the shift of perception that has been taking place over the past three or four years within the US; the President is merely responding to that.

It is also true that by seeking to move the debate away from the United Nations towards some new forum, the President has annoyed a lot of people. But that may be no bad thing. In practice all that is needed is agreement between the 10 countries that produce 90 per cent of global emissions. Arguably the UN is an inappropriate body for this sort of task.

Of those 10 top energy users, the US is the world's largest. It is also the largest producer of carbon emissions, and will remain so for at least another 15 years. So what it does is of profound importance. If it has taken a threatened bust-up at the G8 to provoke such a change of heart, and a more nimble body than the UN is being sought to co-ordinate better global practice, then so be it.

Indeed, we should be sceptical of the effectiveness in such matters not just of international bodies but of governments too. As Kofi Annan, the former UN secretary-general, once said: "We cannot wait for governments to do it all. Globalisation operates on internet time. Governments tend to be slow-moving by nature, because they have to build political support for every step."

If governments can't do it all, who will? In shorthand: technology responding to market signals. The official projections for global energy use show it rising inexorably for the next 20 years at least, with the three main fossil fuels - mineral oil, natural gas and coal - remaining the principal sources. If the more alarming projections for the supply of mineral oil prove true, peak oil production will be reached within the next 20 years.

That peak may come within the next five years if some of the more alarming estimates of future Middle East oil production prove true. Saudi Arabia seems to be cutting production at the moment: it is not clear whether this is from choice or through reaching production constraints.

If the oil supply becomes tighter, the price will rise further. There will be some substitution of other fossil fuels but there are practical limits to this, and making oil from coal is an inefficient process. There will also be some relief from biofuels but, as we have seen, using food crops to produce fuel pushes up the price of food for some of the world's poorest people. US subsidies for biofuels have been particularly ill-constructed, forcing up food prices in Mexico for little environmental gain.

What of other technologies, including wind, hydro-power and nuclear? There is huge hype but the total contribution is quite disappointing. Yet higher energy prices will force change. We know that, and while we don't know in quite what ways, we can make some useful guesses. The graph above shows some fascinating work by the International Energy Agency in Paris taken from a presentation by its sister organisation, the OECD, to the UN Commission on Sustainable Development earlier this year. Its most stunning conclusion is surely that nearly half of the potential reduction in CO2 emissions can come from more efficiency in the use of energy rather than from changes in its production.

That is really very encouraging. Much of it is simply applying technologies that are already available, or just round the corner, more widely. Legislation can help here; witness the switch to low-energy light bulbs now to happen in the EU. But the market also pushes this, the best current example being the switch to more energy-efficient vehicles that is happening in the US.

The next biggest contribution, more than one-third, comes from power generation. This is broken down into lots of shifts, each cumulatively significant.

Look at the detail: hydro, biomass and nuclear together have less potential than carbon capture and storage (CCS). Switching from coal to gas is almost as helpful as switching to nuclear and, of course, much less contentious. As for the rest, again carbon capture looms large, while the use of biofuels in transport and switching fuels in homes and industry will also help.

This big point here, surely, is while there is no magic wand to reduce carbon emissions at a stroke, there is much that can be done. Regulation and legislation will play a part but the greatest driver of change will be higher prices for energy.

You can see this in the developed world, where North America uses roughly double as much energy per unit of output as Japan, with Europe in between. That is partly a function of distance and climate, but it is also one of cost: energy prices in North America are significantly lower than elsewhere. But that is what you would expect, given that only a generation ago, the US was self-sufficient in oil.

That leads to the matter of energy security, one of the key forces driving political change in the US. China, the second-biggest emitter of carbon dioxide, became a net importer of oil only 15 years ago and a net importer of coal this year. Energy security matters hugely for China, too - and if that leads to a drive to increase efficiency then it is win-win for all.

Further browsing: For everything you ever wanted to know about CO2, go to www.lenntech.com/carbon-dioxide.htm

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