Nowhere is the challenge of sustainable development more clear than in the case or energy, which is at the heart of the environment and economy interface, virtually every environmental issue - from a local garbage dump to deterioration of the global climate - has an energy component.

Article for Harvard International Review, Summer 1997: by Maurice F. Strong, Senior Advisor to the President of the World Bank, Chairman of the Earth Council and Executive Co-ordinator for UN Reform

As we approach the next millennium, humankind is in the midst of a profound civilizational change, a change that is not always easy to perceive when one is caught up in it. As energy use is very much at the heart of the changes that need to be made in the way that we conduct ourselves, so the topic of energy supply and security, and the viability of the electric power industry, are also critical to determining our planet's future.

Nowhere is the challenge of sustainable development more clear than in the case or energy, which is at the heart of the environment and economy interface, Virtually every environmental issue - from a local garbage dump to deterioration of the global climate - has an energy component. The imperative of sustainable development requires that we not only address the environmental deterioration associated with unsustainable energy use, but also look to addressing the global socio-economic inequities between North and South which are so often the root cause of global conflicts involving energy supplies.

The prospect of a massive increase in Third World energy consumption over the next 30 years boldly underlines a point I have been making since before the Earth Summit -- that is that the industrialized world must reduce its environmental impact in order to "leave space" for developing countries to meet their own needs and aspirations. There is now overwhelming evidence, that the industrialized world cannot continue in its historical patterns of production and consumption.

Thus, 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 dangerously close to these thresholds. This is recognized explicitly in the UN Framework Convention on Climate Change (FCCC) which places the burden on OECD countries, which need to set an example by effecting major efficiencies in our own use of energy and leaving space for them to grew. We must ensure that developing countries 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 towards a sustainable energy future is energy efficiency. As both a businessman and an environmentalist, I have learned that two of the major ingredients or sustainable development are economics and efficiency, or "eco-efficiency" as it is called - efficiency in the use of materials and energy 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 reshape industrial civilization around the concept of sustainable development and that this will create a whole new generation of opportunities for industry, especially the energy sector.

Indeed, energy efficiency makes as much sense economically as it does environmentally, is energy efficiency and the energy sector has enormous potential in helping consumers to cut energy use. For example, the experience of industrialized countries like Japan has demonstrated that environmental improvement and efficiency in the use of energy and resources is fully
compatible with good economic performance.

Despite progress in 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 1995 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.

It is the gross imbalances and distortions in our economic life and behaviour that have given rise to the environmental risks we now confront. I believe that the key to both the future of the energy industry and the environment is in focussing our attention on the interrelationship between the two. And it is only through changes in economic management and behaviour and use of innovative financial mechanisms that we can hope to achieve a secure and sustainable balance between our economic, environmental and social needs and aspirations.

Energy production can contribute to a wide range of environmental problems, but none has more dramatic consequences for the future of the Earth than that of climate change. A report released by the International Panel for Climate Change (IPCC) underscores the urgent need to reduce carbon dioxide emissions to even the modest targets of the Framework Convention on Climate Change (FCCC) for the year 2000. Unfortunately, for the United States and other OECD countries, the environmental threat associated with climate change is often overshadowed by the more immediate threats stemming from political instability in the Middle East.

As climate change negotiations continue in the months leading up to the Kyoto meeting of the conference of the parties to the FCCC, there seems to be an increased willingness on the part of Annex 1 countries to support legally binding targets for reducing greenhouse gas emissions. Within this context, I believe that a powerful role can be played by the private sector as a source of innovation and action in promoting market-based climate protection policies and mechanisms. Thus, we see that emissions trading and joint implementation are receiving more and more attention as instruments that can provide countries and companies with the needed flexibility to meet these commitments.

A specific example of how one country, Costa Rica, is preparing for the eventuality of emissions trading, is its recently released "National Proposal for the Territorial Consolidation of National Parks and Biological Reserves as Carbon Deposits within the Framework of Activities Jointly Implemented". As part of this proposal, the Costa Rican Government and the Earth Council have developed an alliance to market 4 million tonnes of Carbon Certifiable Tradeable Offsets (CTO's). This is a pioneering effort which will be one of the first practical examples of the opening the international market for trading of greenhouse gases by generating CTO's as a new carbon bond commodity.

The Earth Council has engaged the support of Chicago-based Centre Financial Products to market the sales of these CTOs at least initially on the Chicago Board of Exchange, The proceeds of these sales will serve two purposes: to launch the consolidation of over half a million hectares of National Parks and Natural Reserves in Costa Rica which are not currently in the hands of the State, and, to fund the development of an innovative concept. The Earth Centre, which will serve as a gateway to Costa Rica, support the non-destructive uses of the National Parks system, and create a benchmark for sustainable design and construction. Carbon benefits would only accrue once all activities to fully protect forested areas have been completed, The Earth Council is abo working with Centre financial Products to establish a private entity, the Global Environment Trading System (GETS), to work with international agencies and government to develop and administer a market mechanism for broader C02 emissions trading.

Although the fossil fuel era is far from over, the way in which we meet our energy needs will most certainly change as we move into the 21st century. For the current energy mix is clearly not viable in the longer term. We are still far from defining the pathway to an energy future that will be sustainable in both economic and environmental terms. One step in the right direction is for energy prices to reflect the full external prices of producing it. As long as energy prices remain at artificially low levels, particularly in North America, there is little incentive to develop alternatives to our dependence on either fossil or nuclear energy.

The dominant role of petroleum in the energy mix will inevitably decline although this may be driven initially more by environmental than supply constraints in the foreseeable future. Natural gas has established itself as the primary fuel source for this period of transition.

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 carbon dioxide 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 Chenobyl accident underscore these concerns, which would certainly be exacerbated by another such accident of which 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 industry is to have the strong and sustained political support required to give the industry a new lease of life.

My experience running Ontario Hydro, one of the world's largest nuclear power producers, has convinced me that a new generation of nuclear controversy is about to emerge. Many existing nuclear plants are ageing 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 energy. But in a sense it should be welcomed rather than feared. For the new dialogue on nuclear energy will have to take place in the larger context ofour 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 providing the basis on which political leaders and policy makers can base the difficult decisions they will have to take.

Another important component of this dialogue is, ofcourse, the role of new and renewable sources in our future energy mix. While it seems clear the these sources will continue to provide only a small proportion of the 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, wind power and biomass. Some exciting 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 ofthese 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.

The 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 in providing more support in the form of incentives and finance. This comes at a time when even the mention of new financial commitments is anathema to governments. But, shifting even a portion of the subsidies, direct and indirect, which 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 that the nuclear industry has. received, the prospects for development of new and renewable energy sources would be greatly accelerated.

The Earth Council, in partnership with the Netherlands' Institute for Research on Public Expenditure, has just completed an in-depth review of the dis-incentives to sustainable development, which exist in various sectors, including energy, road transport, water, and agriculture. The study, entitled Subsidizing Unsustainable Development: Undermining the Earth with Public Funds, found that subsidies in these four sectors are now costing the world upwards of $700 billion - as much as the arms race. The report demonstrates dramatically how in so many cases the subsidies provide disincentives to sustainable development while denying the poor the benefits which better deployment of these resources could produce.

One idea that will not be easy to sell, but may nevertheless be worth championing is the levying of a form of C02 "tax", which might be more appropriately termed an "Earth increment". Some OECD 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 OECD 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.

There is no one who will have a more profound and decisive impact on these issues than the US and OECD countries. For although most future energy growth will take place in developing countries. the policies established, examples set, and positions taken by the US and OECD countries in international fora will clearly be the prime factors in shaping our energy future, and in doing so, they will decisively shape our environmental future as well, This is particularly true of climate change. I am greatly encouraged, therefore, by the fact that the International Energy Association and the energy ministers in the E-7 countries are focussing so much attention on these issues.

I am convinced that given the long lead times that characterize major changes in the energy industry, the decisions that are going to shape our energy future are those that will be taken today. By the time the problems that will arise from our inaction have become acute, it will be 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.