Energy and the environment (15 June 1996)



It is only through changes in economic management and behaviour that we can hope to achieve a secure and sustainable balance between our economic, environmental and social needs and aspirations in the period ahead.



Remarks by Maurice Strong at Dinner Meeting of Energy Ministers of OECD countries at Aarhus, Denmark

I am very pleased to have this opportunity of meeting with you and am greatly encouraged that you are focussing your attention here on the relationship between energy and the environment. For in my view this issue is the key both to the future of the energy industry and of the environment. Energy is an important contributor to a wide range of environmental problems, but none more important than that of climate change and it is right that you should be focussing on this. A recent IPCC report underscores the urgency.

As you know, I have spent most of my life on this interface. For I worked in industry primarily in the oil and gas and electric power sectors and most of my public service career has been in the environmental field. I have taken the heat from both sides. Environmentalists have contended that my involvement in industry compromises or discredits my environmental credentials. And my colleagues in industry have wondered whether my environmental commitment would weaken or distort my ability to make tough business decisions.

Tough tradeoffs

And as you well know, the tradeoffs are often tough and difficult. At the same time it is imperative that we establish a framework for these trade-offs which will enable us to reconcile our energy needs with environmental imperatives. We are far from that now. The IEA provides the most effective institutional framework and I am impressed and encouraged by the quality of the professional work it is producing on these issues.

I have always believed that while the Greenpeaces of the world make an important and necessary contribution by alerting the public to emerging risks and dangerous practices, it is also essential that people with an environmental commitment be at the centre of the real-world decision-making processes in which these issues must be resolved. It is, after all, the gross imbalances and distortions in our economic life and behaviour that have given rise to the environmental risks we now confront. And it is only through changes in economic management and behaviour that we can hope to achieve a secure and sustainable balance between our economic, environmental and social needs and aspirations in the period ahead.

One major lesson I have learned over the past three decades as an environmentalist involved in industry is that the essential ingredients of sustainable development are economics and efficiency, or eco-efficiency as it is called -efficiency in the use of materials and energy and in the prevention, disposal and recycling of wastes. This was the main thesis of the book "Changing Course", produced as the principal industry input to the Earth Summit by the Business Council for Sustainable Development headed by the Swiss Industrialist, Stephan Schmidheiny, and including some sixty other world industry leaders. It made the point that the principal challenge we now face is to re-shape industrial civilization around the concept of sustainable development and that this will create a whole new generation of opportunities for industry.

There is no sector of industry of which this is more true than energy. Energy is at the very heart of our industrial civilization. And this will not change. But what will most certainly change as we move into the 21st century is the way in which we meet our energy needs. Indeed it must change. For the current energy mix is clearly not viable in the longer term. But we are still far from defining the pathway to an energy future that will be sustainable in both economic and environmental terms. The need to do this is given special urgency by the fact that so little progress is being made in reducing CO2 emissions and the fact that even the modest targets of the FCCC for the year 2000 will not be met.


The fossil fuels era is far from over. Predictions of the early decline of oil and gas production have proven premature as technological developments have made possible substantial increases in reserves and production. Of course the dominant role of petroleum in the energy mix will inevitably decline although this may be driven initially more by environmental than supply considerations. This is even more true of coal which will not face supply constraints in the foreseeable future. Natural gas has established itself as the primary fuel source for this period of transition.

Nuclear power

Nuclear power, which was once seen as the miracle cure for our energy ills, also faces an uncertain future. On the positive side is the fact that nuclear power does not contribute to CO2 emissions. But the very magnitude of the consequences of a nuclear accident and the long term nature of the risks associated with disposal and storage of nuclear wastes have undermined public confidence in and acceptance of nuclear power in many countries. Continued reminders of the pervasive damage caused by the Chernobyl accident underscore these concerns which would certainly be exacerbated by another such accident of which, as you know, there is a very real and continuing risk. Although industry experts have confidence in the solutions they have developed for these problems, the public, too, must have confidence in them if the nuclear energy is to have the strong and sustained political support required to give the industry a new lease on life.

And my experience running Ontario Hydro, one of the world's largest nuclear generators, has convinced me that a new generation of nuclear controversy will soon emerge.

Many existing nuclear plants are aging and thus becoming more vulnerable to breakdown and accidents. Maintaining them is becoming more costly and rehabilitating them to extend their life will involve major capital expenditures. This is bound to have the effect of re-igniting public controversy concerning the role of nuclear. But in a sense this should be welcomed rather than feared. For the new dialogue on nuclear will have to take place in the larger context of our energy future and the mix of sources which will produce a sustainable balance between economic, environmental and social needs. A well-informed public dialogue on these issues is essential to provide the basis on which you, as political leaders and policy makers, can base the difficult decisions you will have to take.

Future energy mix

Another important component of this dialogue is, of course, the role of new and renewable sources in our future energy mix. While it seems clear that these sources will continue to provide only a small proportion of our energy needs in the near term, it is equally clear that this proportion must grow substantially in the period ahead. There has been promising progress in the development of solar energy, fuel cells, hydrogen conversion, windpower and biomass. Some exciting work is being done in places like the Massachusetts Institute of Technology on technologies that could provide a breakthrough to a new and sustainable energy pathway. But we cannot count on any of these to produce early solutions to our energy dilemma. And if they are to provide viable long-term solutions they must be given strong new impetus and support. Thus I applaud the action of the lEA and the European Commission in setting up the climate technology initiative. I urge you to give it strong support.

This impetus for the development of alternative sources is not likely to come in the short term through substantially higher energy prices. It must therefore come through the actions of governments, and primarily your governments, in providing more support in the form of incentives and finance. I know that this comes at a time when even the mention of new financial commitments is anathema to governments. But, I submit, that shifting even a portion of the subsidies, direct and indirect, which your governments provide, in one form or another, to other sources of energy, would give a strong impetus to the development. of these new sources. In Canada and the United States, where gasoline taxes are much less than they are in other OECD countries, there are still substantial incentives to oil and gas exploration and development. And if the development of new and renewable sources were to receive only a portion of the subsidies, direct and indirect, that the nuclear industry has received, the prospects for development of new and renewable energy sources would be greatly accelerated.


One of the central challenges we face as we move into the 21st century is that of ensuring that developing countries meet their rapidly growing energy needs in ways that will not move the human community beyond the thresholds of environmental security. We cannot expect them to respond to mere exhortations not to repeat the wasteful and harmful practices by which we in the currently industrialized countries have moved us dangerously close to these thresholds. This is recognized explicitly in the FCCC and in placing the burden on OEeD countries. We must set them an example by effecting major efficiencies in our own use of energy and leaving space for them to grow. We must ensure that they have access to the latest, most environmentally sound and efficient energy technologies and the finances they require to afford them. And we must take the lead in research and development of new technologies and finding solutions to the unresolved problems of existing technologies, including nuclear.

The most immediate and cost-effective course is energy efficiency. Despite progress III the more industrialized countries in recent years towards greater efficiency in the production and use of energy, the potential for even greater efficiency is immense. The Electric Power Research Institute in the US, hardly a radical organization, has estimated that US energy needs could be met without reductions in the standard of living with 55% less electrical energy than is now consumed. Others estimate that the savings could be as much as 75%. In developing countries which are even less energy efficient, the potential is even greater and the economic incentive more compelling. For as was pointed out in the report of the World Energy Council's Task Force on "Energy for Tomorrow's World", developing countries will require by the year 2020 an estimated 30 trillion dollars of new investment in energy facilities if they meet their growing needs on the basis of current patterns of use and efficiency. This is nearly 50% greater than the entire world GNP clearly an unlikely prospect.

Framework


Let me offer a few brief observations as to the basic elements of the framework which I believe is necessary for the difficult decisions that you and your governments must make concerning these issues. Most are of course not new to you and have been on your individual and collective agendas for some time.

A major review and revamp of the system of incentives and penalties by which governments motivate the energy industry -ranging from research and development through to the end use of energy -using economic instruments, to provide positive incentives for sustainable energy development and use;

Related to this, rnove towards a system of full-cost accounting to internalize, through a combination of prices and taxes, the full environmental and social costs of each energy source:

 


Each of these are in the "no regrets" or "minimum regrets" category, but they open up, I realize, a host of potential controversies and problems. But I also am convinced that they must be faced and that the longer we avoid them the greater the cost in both environmental and economic terms. Given the long lead times that characterize major changes in the energy industry, if the decisions that are going to shape our energy future are those that will be taken today, during your periods in office. By the time the problems that will arise from our inaction have become acute, it will too late to fix them.

Under present conditions, I appreciate that it will not be easy. Some may even say unrealistic. Witness the public outcry and the political response in the United States to'the recent, and relatively modest, increase in gasoline prices. But political realities change -as they must -to accommodate to the underlying realities that drive the process of civilizational change. And the reality underlying our energy dilemma is that it will not go away by itself, delay will only compound the problems and the difficulties of dealing with them.

Carbon tax


Let me leave you with one idea that will, I know, not be easy to sell, but may nevertheless be worth championing. It is for the levying of a form of CO2 "tax", which might be more appropriately termed an "Earth increment". Some of your countries have already experimented with CO2 taxes. But this would be specifically earmarked to fund measures designed to effect the transition to a sustainable energy future -and in particular to cover the incremental costs to developing countries of utilizing the best state-of-the-art technologies in meeting their energy needs on a sustainable basis. It would also include support for research and development in respect of new and renewable energy sources and programs of education and awareness creation. Although OPEC countries, and some of your countries, have strongly opposed, for reasons we have to respect, any form of tax on CO2 emissions, they also have a long record of generous support to other developing countries, and may be willing to cooperate in a measure of this kind.

Finally, let me say that, in my own way, I have been trying to practice what I have been preaching on this subject. While effecting a radical program of re-structuring and cost reduction in Ontario Hydro, we also made sustainable energy development and energy efficiency its primary corporate objective and set the corporation on a pathway to achieving it.

In the Earth Council and our energy affiliate, "Energy 21", we are, with the support of The Netherlands Government and the leadership of former OECD Secretary-General Emile van Lennep, undertaken an in-depth review of "perverse" subsidies which provide disincentives to sustainable development in various sectors, including energy, and their replacement with positive incentives. We are also in the process of establishing aprivate entity, the Global Environmental Trading System, to work with international agencies and governments in developing an emissions trading system, concentrating initially on CO2 emissions and we are, through our associate organization, Energy 21, headquartered in Paris, promoting the cause of energy efficiency.

At the World Bank, I have been lending a hand to its dynamic new President, Jim Wolfensohn, in the immensely challenging task he has undertaken of leading the World Bank into the 21st century of which re-orienting and strengthening the Bank's capacity to support sustainable energy development is a major priority. And, of course, your governments represent the majority shareholders of the World Bank.

There is no one who will have a more profound and decisive impact on these issues than you. For although most future energy growth will take place in developing countries, the policies you establish and the example you set in dealing with these issues in your own countries, and the positions you take in respect of them in international fora, will clearly be the prime factor in shaping our energy future and in doing so it will decisively shape our environmental future as well. This is particularly true of climate change. What you do, or fail to do, during your own terms of office, will be important, perhaps decisive. I am greatly encouraged by the fact that, through lEA, you are focussing such attention on these issues and grateful for the opportunity of sharing with you my own views and concerns about them. In doing so, I want you to know that you will have in me, and in the Earth Council and Energy 21, a continuing friend and ally.