Can you hear the climate call?

Coincident with this latest message from the IGPCC comes the surge in crude oil prices. It is quite possible that by the time this article appears the prices will have crossed into triple digits. 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 well the high oil price regime. And one day prices may well be pushed into a cyclical downturn. 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 the incremental growth in demand came from the OECD countries. Today the preponderant share is accounted for by 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 not because the world is running out of hydrocarbons. It is because the hydrocarbons that are yet to be discovered and/or produced are either in logistically and technically complex terrain e.g. ultra deep waters or to use industry parlance in 8216;unconventionals8217; gas related liquids; extra heavy oil; biofuels, etc. It is because the era of 8216;easy oil8217; is now over. This straitened demand/supply equation has been complicated further by the speculative fervour of 8216;Wall Street8217;. In July this year, for instance, the crude oil trading position on NYMEX reached an all time high of around 1.5m contracts of 1000 bbls each and this certainly intensified the run up in prices.

It would be foolhardy to engage in conjecture about the future trend in prices. But equally it would be foolhardy 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 to the contours of the post-Kyoto protocol but also the package of measures that can push the global economy onto a lower carbon and oil intensity pathway of growth. The positive and this was also brought out by IGPCC is that the technical ingredients of such measures are available. There is of course need for further research and testing especially regards carbon capture and sequestration CCS but the fundamentals are known and it is only a question of time, incentives and investment before technologies like CCS become an integral instrument in the containment of GHG.

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 the bone of contention between the developed western world read US and the rest read India and China. 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 clear, strong and stable policy framework that defines a long term value for carbon emission reductions and provides incentives for investment in the development of relevant technologies. And governments are reluctant to prescribe such policies because of concern 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 three most energy/oil intensive sectors of an economy viz industry and power, transport and residential and commerce can be most quickly shifted towards a low carbon/oil intensity future.

The IEA has estimated that the world will need to invest US 16 trillion in energy infrastructure over the next 25 years to satisfy the growing requirements of energy. This portends a disaster for climate change. Equally it presents an opportunity 8212; the opportunity to identify and implement the measures required to transit from today8217;s economy to a low carbon future. India does not need global concurrence to realise these opportunities. It does however need to create the policy framework wherein government, business and civic society can conjointly brake the footfalls of global warming and high oil prices.

The writer is chairman, Shell Group of Companies in India. Views are personal