The Black Hole of the Global Economy

Exploding oil and gas prices, accelerating climate change, and looming famine all have the same cause. The supply of energy for the growing global population is hitting the wall. Still worse is that strategies to get around these problems simply do not even exist.

If the global economy were accused of serious and negligent assault in a circumstantial case, then it would not look good for the defendant at the moment. In the emerging and developing nations, hundreds of millions of people can barely still pay for their basic foodstuffs because the prices of rice, wheat, corn and soy have exploded in past years. In Washington, a US government institution is declaring that the production of the most important greenhouse gas, carbon dioxide (CO2) in this decade has risen much faster than suspected. The International Energy Agency (IEA) in Paris is warning against more favorable oil prices and is strongly urging the development of alternatives to replace the most important sources of today’s energy.

The global economy certainly does not bear all of the blame for this situation, since there is not a “global economy” with regard to the consumption of energy resources and raw materials. Indeed, a global market does exist which is more or less freely accessible to all players. There is, however, no common basis or strategy whatsoever for countries to maintain the market in the long run and to refine it for use by as many people as possible, beyond weakening it with predictable economic and environmental excesses. The most important feature linking all market players is the drive toward short term profitable growth.

Incompatible Goals of the Rich and Poor

Approximately 200 years after the beginning of the Industrial Revolution, the rich industrialized nations of the West as well as Japan are striving, at the very least, to maintain and possibly expand their prosperity and the high standard of living of their populations. Today, just like the Western markets, the emerging and developing nations are also closely linked to each other. They take great strides to catch up to the economic prosperity of the industrial nations. When seen from the perspective of energy supply, however, the goals of the rich and the comparatively poor nations are mutually exclusive. It is not possible that every one of today’s approximately 6.7 billion people can consume the same amount of carbonaceous fossil fuels that are being used today by the approximately one billion highly privileged citizens in the industrialized countries.

The supply of energy is the foundation of human existence. In Europe, the generally accepted view today is that the energy supply must not only be safe and affordable, but must also be environmentally acceptable. At the very least, the last requirement is not being met all over the world. The global energy supply, which is primarily based on the oil, coal, and natural gas fossil fuels, destroys the relative stability of the climate. The consequences are unpredictable for the weather, land, forests, and oceans, and for humans, animals, and plants. No climate policy has averted this danger up to now.

But also the second point, the affordability of energy, is definitely not to be taken for granted anymore today as it was in the past few years. Also, in rich countries like Germany, increasing numbers of low income households are suffering under the constantly rising energy costs.

It’s always much more difficult for the people in the emerging and developing nations. The infrastructure in the less developed countries is becoming obsolete. For example, the specific energy consumption, or energy intensity, for mobility or for the generation of electricity is clearly higher there than in Europe. The rising energy prices are correspondingly more burdensome for the companies and private households of these countries. The oil price increase in recent years has wiped out the effect of all the billions in aid to developing countries. This sets back the poor countries again in their quest for opportunities for competition and modernization. Likewise, countries with obsolete energy technology are clearly and strongly affecting the climate when they attempt to generate the same economic output as the rich countries.

According to pure free market theory, the energy problem would have to be solved simply by the laws of supply and demand. Higher energy prices lead to an increase in supply, the market comes back into equilibrium, and the prices drop. At any rate, this mechanism does not really work in the short term with the energy market. Energy supply is a long term, complex business. The industry has completely underestimated the increase in energy demand in past years. Trillions of Euros and dollars will have to be invested to upgrade the infrastructure. It will be necessary to overcome high technological hurdles for the development of oil and gas resources or for the capture and underground storage of carbon dioxide from coal-fired power stations.

Thus far, the change is also leading to setbacks in the supply of “green” energy. Biodiesel and ethanol appear to offer a quickly available and economically sensible alternative to gasoline and diesel. It is now clear that the cultivation of agricultural crops as raw materials for biofuel competes with a growing demand for food, with the consequences being increasing food prices and starvation in the poor countries. A rapid expansion in agricultural production would be the economically logical outcome. But here, the high energy prices also have a braking effect because the transportation costs for agricultural products are increasing just as are the prices for the manufacture of fertilizer made from petroleum. In addition, the increased clearing of the rain forest and an expansion of palm oil production in tropical regions are decimating the biodiversity. Furthermore, an important natural mechanism for the absorption of greenhouse gases from the atmosphere is being destroyed by the progressive loss of forests.

Today there is no satisfactory answer for how a continually growing world population can be supplied with energy in an economically and environmentally safe fashion. On the one side, the risks for climate and biodiversity are increasing and, on the other side, the dependence of many nations on smaller countries with rich reserves is increasing.

Nuclear power is currently experiencing a renaissance in European public debate. However, the production of power by nuclear fission involves extremely costly high technology. Today, nuclear power supplies only six percent of all global energy, but is on the decline. No one in past decades invested in the construction of new nuclear power plants for free energy markets. In Asia, the expansion of nuclear power was politically accelerated primarily in China. The much quoted construction of a new large nuclear power plant in Finland also has a political motive. Finland wants to reduce its energy dependence on Russia. Great Britain wants to authorize the construction of new reactors, but has not yet addressed the costs. It will be fascinating to see just if and when the first utility company builds a new nuclear power plant on the island.

Coal possesses the great advantage that it is readily available all over the world. Its prices have recently increased only moderately when compared with the price of oil and gas. However, without separation of carbon dioxide (CO2) from the flue gas and its underground storage, coal does not offer an environmentally justifiable option for the future energy supply. It will probably be at least ten years before we know whether CO2 separation will be technically and commercially feasible. By then, an additional 500 million to one billion additional energy consumers will be living on the planet.

Renewable forms of energy could lay the foundation for the future supply of energy, but only if they are capable of carrying the load and also if wind power, solar collectors, and geothermal sources can replace the coal-fired and nuclear power plants. This is not possible with the present state of technology. To reach this goal, a large number of small “green” power plants would have to be networked with each other using the most modern software so that “virtual power plants” would be formed with the capacity of today’s large facilities. Instead of importing increasing amounts of oil, gas, or coal, Europe could, in the future, obtain electricity or hydrogen from large solar power plants in North Africa as well as from large wind parks or tidal power stations in Scandinavia.

Energy policy has to be completely reevaluated to tackle such projects. The central questions for energy supply must have the highest political and scientific priority, and indeed be inextricably linked with all aspects of climate protection. An energy economy, which is both safe and CO2-neutral, should be afforded all conceivable economic and scientific privileges derived from massive government supported research into new energy technologies.

There is one simple point of intersection between the crises of more expensive energy, climate change, and impending famine. That point is our current use and misuse of inappropriate forms of energy.