Reinventing Energy

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The world economy is being battered by sharply higher energy prices. While Russia and OPEC countries are reaping huge profits, the rest of the world is suffering as the price of oil has topped $110 per barrel and that of coal has doubled.

Without plentiful and low-cost energy, every aspect of the global economy is threatened. For example, food prices are increasing alongside soaring oil prices, partly because of increased production costs but also because farmland in the United States and elsewhere is being converted from food production to biofuel production.

No quick fix exists for oil prices. Higher prices reflect basic conditions of supply and demand. The world economy -- especially China, India and elsewhere in Asia -- has been growing rapidly, leading to a steep increase in global demand for energy, notably for electricity and transport. Yet global supplies of oil, natural gas and coal cannot easily keep up, even with new discoveries. And, in many places, oil supplies are declining as old oil fields are depleted.

Coal is in somewhat larger supply and can be turned into liquid fuels for transport. Yet coal is an inadequate substitute, partly because of limited supplies and partly because coal emits large amounts of carbon dioxide per unit of energy. Therefore, it is a dangerous source of man-made climate change.

For developing countries to continue to enjoy rapid economic growth and for rich countries to avoid a slump, it will be necessary to develop new energy technologies. Three objectives should be targeted: low-cost alternatives to fossil fuels, greater energy efficiency and the reduction of carbon dioxide emissions.

The most promising technology in the long term is solar power. The total solar radiation hitting the planet is about 1,000 times the world's commercial energy use. This means that even a small part of the earth's land surface, notably desert regions, which receive massive solar radiation, can supply large amounts of the electricity for much of the rest of the world.

For example, solar power plants in the United States' Mojave Desert could supply more than half of the country's electricity needs. Solar power plants in Northern Africa could supply power to Western Europe. And solar power plants in the Sahel of Africa, just south of the vast Sahara, could supply power to much of West, East and Central Africa.

Perhaps the single most promising development in terms of energy efficiency is "plug-in hybrid technology" for automobiles, which may be able to triple the fuel efficiency of new automobiles within the next decade. The idea is that automobiles would run mainly on batteries recharged each night on the electricity grid, with a hybrid engine as a backup to the battery. General Motors might have an early version by 2010.

The most important technology for the safe environmental use of coal is the capture and geological storage of carbon dioxide from coal-fired power plants. Such "carbon capture and sequestration," or CCS, is urgently needed in the major coal-consuming countries, especially China, India, Australia and the United States. The key CCS technologies have already been developed; it is time to move from engineering blueprints to real demonstration power plants.

For all of these promising technologies, governments should be investing in the science and high costs of early-stage testing. Without at least partial public financing, the uptake of these new technologies will be slow and uneven. Indeed, most major technologies that we now take for granted -- airplanes, computers, the Internet and new medicines to name but a few -- received crucial public financing in the early stages of development and deployment.

It is shocking and worrisome that public financing remains slight, because these technologies' success could translate into literally trillions of dollars of economic output. For example, according to the most recent data from the International Energy Agency, in 2006 the U.S. government invested a meager $3 billion in energy research and development. In inflation-adjusted dollars, this represented a decline of roughly 40 percent since the early 1980s, and now equals what the U.S. spends on its military in just 1 1/2 days.

Of course, developing new energy technologies is not the responsibility of the Unites States alone. Global cooperation on energy technologies is needed both to increase supplies and to ensure that energy use is environmentally safe, especially to head off man-made climate change from the use of fossil fuels. This would not only be good economics but also good politics, since it could unite the world in our common interest, rather than dividing the world in a bitter struggle over diminishing oil, gas and coal reserves.

Jeffrey Sachs is professor of economics and director of the Earth Institute at Columbia University. © Project Syndicate