Isramart : Crude Is the New Carbon

Isramart news:
Now that delegates to the U.N. climate summit are back from Copenhagen with no more than a non binding, hollow declaration of intent to reduce greenhouse-gas emissions, it is clear that the main reason "Cop" turned into a flop is the deep divide between the world's rich and poor -- between those who watch the world on plasma screens and those who are forced to sell their plasma to survive another day.

The platitudes and inspirational speeches on how we must all come together to "save ourselves from ourselves" could not mask an inescapable reality: For poor people, while often being the main casualties of an unstable climate, planetary-scale environmental concerns are a distant second to basic human needs -- access to electricity, food, and shelter. They are therefore unwilling to put their economic growth on hold until the world comes up with economically competitive alternatives to coal-fired electricity. In India alone, 150 million people have no access to basic lighting. In the face of such grinding poverty, it's no wonder that the rich countries' attempts to thwart the expansion of fossil fuels were perceived by many in the developing world as a new form of imperialism.

This pushback by the developing world begs for a unified, yet politically feasible, agenda that can be embraced by rich and poor countries alike. One area where such an agenda can emerge is oil. Whereas reaching consensus about significant cuts in the use of fossil fuels in power generation seems to be unlikely, focusing on reducing the use of oil, which powers 95 percent of the global transportation sector, is a goal that offers a real chance of global acceptance (with the exception of certain oil-exporting countries, of course).

Why should the focus be on oil?

First, unlike the electricity sector where multiple sources of energy can contribute to the grid, in transportation, oil enjoys a virtual monopoly. Almost all of the world's cars, trucks, ships, and planes can run on nothing but petroleum. With no fuel choice at the pump and with most of the world's oil owned by non-democratic regimes, the oil market is subject to perpetual volatility. This makes oil dependence an economic depressant for most oil-importing countries and developing countries in particular. When oil prices soar, as they did in 2008, recession quickly follows, trade deficits swell to dangerous levels, and millions of people in poor countries who have just begun to rise from poverty slide back into destitution. Even in the developed world, in difficult economic times public support for policies that reduce greenhouse-gas emissions falls sharply as citizens expect their governments to put a higher priority on improving the economy. The lesson: Curbing greenhouse-gas emissions is contingent on the prosperity and economic resilience of developed countries. Conversely, prosperity is difficult to achieve so long as our economies hemorrhage money to purchase expensive oil.

Second, major developing countries like China and India are now emerging as the world's biggest auto markets, and their appetite for fuel is the main driver of global growth in petroleum demand. The recent introduction of microcars like the $2,500 Tata Nano (about which Nobel Prize winner Rajendra Pachauri, head of the Intergovernmental Panel on Climate Change, said he was "having nightmares") means a 65 percent increase in the number of Indian families who will soon be able to afford a car. Scores of other countries where the micro-car market could boom, including China, whose middle class is projected to hit 700 million by 2020, would not only speed the coming of future oil shocks but also contribute to a significant spike in carbon emissions. Stopping the onslaught of gasoline-only cars in the developing world is in the interest of both developed and developing countries.

Third, the renewable alternatives to oil in the transportation sector are more competitive than the renewable alternatives to coal and natural gas in the electricity sector. In other words, oil is easier to substitute than coal. Solar and wind electricity are not at this point economically competitive with fossil fuels, but in the transportation sector most alternative fuels, such as ethanol, methanol, and biodiesel, are fully competitive with roughly $60 to $80 per barrel of oil.

A still more promising possibility is driving on electricity, which is competitive with oil at $5 to $10 a barrel. A mile driven in an electric car -- even if the electricity is made from coal -- produces less carbon dioxide on a mine-to-wheel/well-to-wheel basis than a mile driven on gasoline. And electric cars actually get cleaner as they get older. Unlike oil, which will be polluting ever more as production shifts from light conventional crudes to heavy non conventionals like tar sands and oil shale, the electric grid will no doubt become cleaner over time. This is why environmentalists are so supportive of the electrification of transportation.

An oil-first strategy can position the United States as a leader in the global effort to cut greenhouse-gas emissions. With a stroke of the pen, the U.S. Congress, now struggling to pass comprehensive energy and climate legislation, can introduce an Open Fuel Standard requiring that new cars sold in the United States are flex-fuel vehicles. Such technology, which costs automakers barely $100 per new vehicle, can protect economies from high and volatile oil prices and from the threats caused by global instability by providing an immediate pathway to fuel competition -- at least until the 2030s, when most automakers will have mass-produced plug-in hybrid and electric vehicles. During the 2008 oil shock, in Brazil, where most cars have flex-fuel engines, gasoline became an alternative fuel as motorists shifted to sugar cane ethanol, which, with oil at over $100 a barrel, was quite a bargain. As a result, Brazil was one of the economies least affected by the run-up in oil prices.

With renewed economic growth and fears of inflation, few would dismiss the possibility of oil rising once again to $100, or even $200, per barrel. But without vehicle platforms that can accommodate petroleum alternatives and hence permit fuel competition, both the world's poor and rich will sooner or later be forced to buy three-digit oil instead of much cheaper alternatives. And if we leave vehicle platforms gasoline-only, we will be stuck with oil forever.

An Open Fuel Standard could have a profound impact on world development. Since no automaker can afford to give up on the U.S. market, such a standard would essentially become an international one. Flex-fuel technology would allow poor countries, most of them with strong agricultural sectors, to grow their fuel rather than import it. Microcars with flex-fuel engines fed by domestically grown fuel would reduce poor countries' trade deficits, strengthen their energy security, create agricultural jobs, and reduce emissions.

Many climate advocates are understandably concerned that flex-fuel vehicles would open the gate to increased use of alternative liquid fuels that are either more carbon intensive than gasoline or are grown in an environmentally unsustainable manner. But such concerns are shortsighted. Alcohol fuels made from sugar cane, non food biomass, sewage sludge, and municipal solid waste offer considerable reduction in CO2 emissions. New approaches to producing methanol (a type of alcohol that can run in flex-fuel vehicles), from recycling CO2 to producing biofuels from CO2-guzzling algae, offer a more cost-effective way of dealing with CO2 than the economically prohibitive yet much-touted approach of carbon sequestration (essentially burying carbon dioxide in the ground or the oceans). But none of these alternatives will ever become prevalent unless we allow our cars to run on something other than petroleum.

In the coming months, major emitting countries will have to agree on priorities for next year's climate meeting in Mexico City. Failure to learn the lessons of Copenhagen will guarantee another debilitating face-off with the developing world. But focusing on oil dependence, the one issue on which the interests of rich and poor are fully aligned, could restore the trust necessary to move the climate process forward.