Nothing concentrates the mind better than impending danger. The gathering in Bali can hear oncoming rumbles of peril from two directions.?The tread of one is captured in the 4th Assessment report of the IGPCC, and the pace of the other in the interstices of the international petroleum market.?The delegates know that somehow the tread must be stalled, and the pace slowed. The challenge is immense, but the task is not insurmoutable.?The means do exist. The question is whether, given the constraints of vested interests, the congregation can find the will to carve out a framework for decisive action.?If not, the twin dangers of global warming and oil price volatility will jeopardise the sustainability of economic and social progress.
The 4th report of the IGPCC contains, inter alia, a disturbing message.?The world does not have the time it thought it had to arrest global warming.?The temperature today is on average 0.7?C (1.3?F) higher than temperatures prevailing in the pre-industrial period.?If the global objective is to limit this increase to no more than 2?C (3.6?F), the EU?s objective, then the concentration of green house gases (GHGs) in the atmosphere must?be stabilised at around 450 ppm.?The concentration?levels today??Some 375 ppm.?At current rates of GHG emissions, this means the world has around 10 years and certainly not more than 20 to secure this stability.?This is a timeframe that does not allow countries to ?develop first and clean up later?.?It is also a timeframe that cannot wait for technological breakthroughs.?It?requires decisive action now, premised on existing technologies. Coincident with this latest message from the IGPCC comes the surge in crude oil prices.?One could argue that this is not as alarming or durably damaging as global warming.?The world economy has, after all, so far at least, withstood the current high oil price regime rather well.?And prices may well be pushed into a cyclical downturn some day.?The argument has validity, but one should not be complacent.?The last time prices reached such levels was in 1980 (adjusted for inflation, prices hit $99.04 in April 1980), and that was the prelude to three of the worst years of economic growth since 1940.?Also, there is a paradigmatic and still evolving shift in the drivers of demand/supply.?Earlier, the bulk of incremental demand came from OECD countries.?Today, it comes from China, India, Russia and the Middle East.
This means that unless and until these countries find a viable substitute for hydrocarbons, or their economies slow down, the demand for petroleum will continue to increase.?To compound matters, there is anxiety that supplies may not be able to?keep pace with demand. This is because the era of ?easy oil? is over.?The hydrocarbons that are yet to be discovered and/or produced are either in logistically and technically complex terrain (example: ultra deep waters) or in ?unconventionals? (gas related liquids, extra heavy oil, biofuels and so on).?
It would be foolhardy to engage in conjecture about future price trends.?But, equally, it would be silly to ignore the possibility that the troughs and peaks of future oil price cycles will be at significantly higher levels than what we have seen in the past.
The footfalls of global warming and high oil prices can be heard by everyone in Bali.?They know that the conference should agree not simply on the contours of a post-Kyoto protocol, but also?the package of measures that can push the global economy towards lower carbon and oil intensity.?The encouraging part is that the technical ingredients of such measures are available.?There is, of course, need for further tests and research, especially on carbon capture and sequestration (CCS), but the fundamentals are known, and it is only a question of time, incentives and investment before CCS becomes?an integral instrument in the containment of GHGs.
The problem is that the effectiveness of such a framework depends on the willingness of governments and business to work in partnership.? Hitherto, the debate has pitted governments against each other.?The setting of Co2 emission targets has become a bone of contention between the West and the rest.?This is a matter that will not be quickly resolved.?The concern is that the noise and clutter of multilateralism is pushing?governments and business into a Catch-22 situation.?Businesses are not prepared to partner governments unless they are assured a stable policy framework that defines a long-term value for carbon emission reductions and incentivises them to invest in new technologies.?And governments are reluctant to prescribe such policies because of fears?it will arouse opposition from a diversity?of vested interests. This is a problem that must be resolved, because it is through public-private partnerships that the most energy/oil intensive sectors of an economy (industry, power, transport, residential use and commerce) can be most quickly shifted towards a low carbon/oil intensity future.
?The author is chairman of the Shell Group of Companies in India. These are his personal views