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June 2005
Three major international energy and environmental issues are the current focus of global attention: energy prices, climate change, and the effects of degraded ecosystems on human well-being.
In the early months of 2005, crude oil prices reached near-record highs, thanks in part to soaring demand in China, a weak U.S. dollar, and political uncertainty in Venezuela, Iraq, and Nigeria. However, high prices did not elicit much coordinated international policy response. This is mostly because the world economy is much less vulnerable to volatile oil prices than it was in the 1970s, when energy use was far less efficient. For example, in the United States, it takes about half as much oil to create $1 of economic output as it did in 1970. Oil prices still tax the world economy, but their effects today are less pronounced than during the first Arab oil embargo in 1973 and the 1979 upheaval in Iran. And oil prices at around $60 per barrel are still (in inflation-adjusted terms) only two-thirds the level they reached in the aftermath of the Iranian Revolution.
If supply interruptions cause a severe spike in price, the U.S. president will face mounting pressure to release oil from the Strategic Petroleum Reserve (SPR). The SPR—a government-controlled stockpile of about 650 million barrels of oil—was created in the wake of the oil shocks of the 1970s as a way to hedge against future disruptions. Through the Paris-based International Energy Agency (http://www.iea.org/), the United States and other members of the Organization for Economic Cooperation and Development coordinate their responses to market crises. However, in the United States, the SPR has proved enormously difficult to use, because presidential authority over the reserve makes every decision a political one. If pressure mounts for its use, some analysts say efforts may be needed to adopt a better scheme for controlling the SPR—perhaps an independent body, akin to the Federal Reserve, that would be given control over decisions to fill the SPR or release its contents. Such an option might de-politicize the use of the reserve and make it a much more effective tool for the U.S. (and world) economy.
The threat of terrorism also hangs over the global energy supply. If, for example, a determined terrorist group were to disable the giant Ras Tanura terminal in Saudi Arabia, where a tenth of global oil supplies are processed, crude oil prices could soar past $100 a barrel, with harmful effects on the world economy. Ras Tanura is an extremely well-defended target, but attacks on pipelines in Iraq, Russia, or Nigeria, or a terrorist assault on shipping in the Gulf of Hormuz or in the Malacca Strait could do considerable short-term damage to world oil supply and raise the “terror premium” on petroleum prices, already estimated by experts at $10-$15 per barrel.
The most important global environmental issue of the early 21st century is probably climate change. Climate change played almost no role in the 2004 presidential campaign, but is likely to receive renewed attention as evidence mounts on the human causes and diverse effects of a changing climate. The United States is in the midst of considering major revisions to domestic clean-air legislation. Several competing bills in Congress would revise standards for air pollution released from power plants, and one of the points of controversy is over whether to including binding limits on carbon dioxide, which is emitted mainly by burning fossil fuels and is the main human cause of climate change. The administration proposal, the Clear Skies Act, would not regulate carbon dioxide emissions. Instead, the administration is relying on voluntary emission limits and large-scale investment in alternative low-carbon energy technologies.
The European Union (EU) will be watching this process closely, because climate change is high on its list of foreign-policy priorities, and the engagement of the United States is critical to developing a coordinated international policy. EU leaders have been envisioning a “grand bargain” in which topics they value (such as climate change) are linked to topics that matter to Washington, such as Iraqi reconstruction and terrorism. All EU members ratified the Kyoto Protocol, a treaty on global warming that the U.S. administration rejected; the protocol entered into force early in 2005.
So far, efforts to craft such a bargain have not been successful. Most likely, a stronger American response will emerge only in response to rising political pressure within the U.S. for action. Absent a strong federal policy on this issue, several states have created their own policies to fill the federal vacuum. British Prime Minister Tony Blair has put climate change prominently on the agenda of the Group of Eight (G-8) for 2005. However, concerted international action will require engaging countries—especially in the developing world—that are not normally part of the G-8 process. A new forum—such as the G-20 that can involve key industrialized and developing countries—may be needed, some experts say, to replace an outmoded system premised on the idea that the world’s main problems are amenable to solution through concerted action of only the advanced industrialized nations.
A variety of other transnational environmental issues confront political leaders and scientists. In March 2005, a Millennium Ecosystem Assessment report on the overall health of the global environment—commissioned by the United Nations in 2001 and produced by more than 2,000 scientists from 95 countries—concluded that the environmental resources on which human societies depend—food, clean air, drinkable water, and fuel—are rapidly being degraded. The world’s poor suffer the most from damage to the environment, experts warn, because they rely for sustenance on fragile ecosystems whose ability to self-regenerate is compromised by pollution and climate change. In places like sub-Saharan Africa, in fact, environmental changes are among the principal causes of poverty, according to the assessment.
Fifteen of the 24 environmental categories the assessment considered had degraded over the last 50 years. Only four had been enhanced; three of those are related to food production. New diseases, sudden changes in water quality, the creation of “dead zones” along the world’s coastlines, the depletion of fisheries, and shifts in regional climate patterns each threaten the progress toward achieving the U.N. Millennium Development Goals. Turning things around will require significant policy and institutional changes not currently under way, according to the assessment.
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