Seizing the moment for clean energy

Critics have rightly panned President Barack Obama’s response to the BP oil spill - but for all the wrong reasons. In comparing the spill’s devastation to that of 9-11, he hoped to make the crisis the turning point for US energy policy just as terrorist attacks transformed the country’s approach to national security. Critics focus on Obama’s lack of specifics and a relative absence of compelling rhetoric we have come to expect from this president.

The bigger problem, however, isn’t style, but substance: Obama’s surprising unilateralism during an Oval Office address to the American people and in comments since misses a key opportunity to reassert American global leadership.

Obama accurately outlines the immediacy, scale and scope of the energy challenge. Security for the US, indeed the globe, requires a future largely free of dependence on fossil fuels. The world has known this since the oil shocks of the 1970s.

But problems caused by fossil-fuel extraction, transport and consumption are much larger than the geopolitical vulnerabilities recognised but ignored for four decades. From the devastation of the BP oil spill to the expanding oceans that, thanks to global warming, continue to erode coastlines around the planet, the mounting environmental costs of the developed world’s ongoing carbon bonfires threaten prosperity and stability on an extraordinary scale. The people who live and work near the world’s coal and oil deposits often suffer most cruelly, not just from poisoned lands and waters but also from rapacious abuses of governments corrupted by the easy money.

Such problems cannot be resolved by unilateral American action. Yet Obama frames his remarks around the call for energy independence. Energy “independence” is politically useful language, but dreadful policy. Real energy independence, in which the United States would neither buy nor sell energy sources or services, is both unattainable and unwise. It is unattainable at a minimum for however long it takes for the nation to transition completely to a transportation system that does not need much in the way of the petroleum products on which the US transportation sector is at present almost entirely dependent. And in a world where prosperity needs trade and cross-border investment, it makes little sense to set independence in and of itself as a goal.

With regard to energy, a focus on “independence” undermines chances for enormous potential gains via co-operation.

Energy goods and services, like food, clothing, computers and all the other elements of modern life, not to mention the investments needed to produce them, cross borders. That trade, if governed by well-designed rules that serve public interests, can lead to big gains in efficiency and choices for consumers. Even a clean-technology US energy system will depend on trade in energy technology components and services. The anticipated US clean-energy firms will need global-scale markets, not merely national ones. If those US companies are to compete in a truly free market that serves the public interest, global rules must ensure that any subsidies support public interests, as in clean technology, not private ones - and that such subsidies allow appropriate competition.

Rules and institutions currently governing international energy investment, production, service delivery, trade and consumption are a horrendous mess. Governments everywhere subsidise dirty fuels at the expense of clean ones. Cross-border investments that would put capital to use on fostering clean-energy transactions are hobbled by inadequate rules that fail to protect public interests. Wild surges in oil prices have discouraged businesses from investing confidently in clean-energy alternatives that are not economically competitive when oil prices are low. And the absence of international mechanisms that price fossil fuels at the true costs of their environmentally dirty production and consumption makes it difficult, if not impossible, to challenge the continued dominance of oil and coal.

In short, Obama’s vision of America’s energy future needs more than American national technological ingenuity and determination. It needs an efficient global marketplace with effective international rules, enabling the world to wean itself off fossil fuels and transition to an entirely new energy system. Those rules must cover a range of arenas: They need to provide ways of taming oil price volatility. They need to protect the legitimate interests of investors in energy projects while ensuring that governments maintain the capacity to regulate those projects to protect the public interest, in contrast to the current web of bilateral investment treaties that too often are biased in favour of investors. They need to ensure that donor agencies, whether governmental or private, co-ordinate and rationalise their development assistance programs so that they systematically promote the energy transition without penalising the poor.

All this requires a different kind of American ingenuity, more like the innovativeness displayed in the face of the adversity during World War II than the spending binge that followed 9-11.

And it must be American. Even in these days of globalisation and the rise of Asia, large-scale international co-operation flounders without American leadership. Europe has focused for decades on its intra-regional development and is currently consumed by internal travails. Rising powers such as China and India still focus primarily on their overwhelming internal challenges and rarely put forward major proposals for international co-operation. Just as the United States led the construction of the post-World War II international order, it must lead the world to new frameworks that can set the rules to foster the energy transition.

This requires a more inventive American leadership from the kind that created the United Nations, the International Monetary Fund, the World Bank and other institutions of the post-World War II order. The days of creating big overarching organisations are over. Instead, what’s needed is patient and systematic reform of a whole series of inadequate or poorly designed rules and institutions.

Fortunately, opportunities abound. At US instigation, the G-20 already has the problem of perverse energy subsidies on its agenda. The International Energy Forum brings together major oil producers and consumers and could provide the venue for an effective arrangement on oil-price stability. The International Energy Agency, which despite its name is comprised only of wealthy industrialised countries, has made serious efforts to reach out to such emerging players as China for discussions about how the world can transition to a rational and sustainable energy path, an effort the US has supported and can promote - and indeed, energy is already among the more successful components of the US-China Strategic and Economic Dialogue. And a concerted drive to devise appropriate trade rules might have the double benefit of revitalising the moribund Doha Round.

It’s essential for the Obama administration to ensure that any comparison to 9-11 does not become inadvertently more apt than the president intended. After that earlier crisis, the US underwent a long and painful experience born of shortsighted nationalism and hubris. Obama is, of course, a pragmatic, talented and thoughtful president leading a very indebted government and confronting many challenges left by his predecessor. He now should seize the moment born of catastrophe to achieve his stirring vision of a clean-energy future that benefits both the United States and the world.