Restructuring the Global Energy Economy

The burning of coal, the dirtiest and most carbon-intensive fossil fuel, peaked in 1996 and has dropped by 6% since then.

This historical peak marked the first decline in the use of a fossil fuel.

It may be followed by a similar peak in oil use within the next five to 15 years. In contrast, renewables, starting from a small base, are growing at an extraordinary pace.

Worldwide, wind electric generation grew by 32% a year from 1995 to 2001.

In 2001, it grew by a robust 36%. And in the United States, wind electric generating capacity jumped by a phenomenal 66% in 2001.

Solar cell sales, growing by 21% a year from 1995 to 2001, are likely to grow even faster in the years ahead.

Once economically competitive only when used in satellites and pocket calculators, solar cells are now becoming competitive for residential lighting in villages in developing countries not yet connected to the grid.

In many countries, getting electricity to villages means building both a centralized power plant and a grid to deliver the power.

It is now often cheaper for families simply to install solar cells.

In Andean villages, for example, the monthly installment cost (with a 30-month payment period) on an array of solar cells that provide lighting is comparable to the cost of candles.

A similar price relationship exists for the more remote villages in India that depend on kerosene lamps for light. Another renewable source, one with a largely overlooked potential, is geothermal energy, which is growing at 4% a year.

This is a vast resource — and one that is likely to figure prominently in the energy economies of the Pacific Rim — particularly where widespread volcanic activity indicates that geothermal energy is close to the Earth's surface.

The Western coasts of South, Central and North America have an abundance of geothermal energy. Perhaps the geothermally richest region is the Western Pacific, which includes Indonesia, the Philippines, Japan and the Eastern and Southern coasts of China.

Another rich region is the Great Rift Valley, which stretches through East Africa up into the Middle East.

In fact, the entire Eastern Mediterranean is geothermally well-endowed. Some countries have enough geothermal energy to meet all their electricity needs.

Hydroelectricity, which supplies over one-fifth of the world's electricity, has expanded by 2% a year since 1990. In contrast to other renewable sources of energy, the growth in hydropower is losing momentum.

Suitable sites for new dams are scarce — and public opposition is mounting against large-scale inundation of land, the associated displacement of people and the disruption of ecosystems.

One of the difficulties in restructuring the energy economy is that doing so typically depends on small, fledgling industries challenging large, well-established and often heavily subsidized industries.

One way to accelerate the restructuring needed to stabilize climate is to adopt full-cost pricing, which would require those using energy pay the full cost of doing so.

Fortuitously, the fastest-growing fossil fuel is natural gas, which is the obvious transition fuel from a carbon-based energy economy to a hydrogen-based one.

The natural gas infrastructure — including distribution networks and storage facilities — can easily be adapted for hydrogen as gas reserves are depleted.

The new century is bringing new directions in the world energy economy.

The last century was characterized by the globalization of energy as oil emerged as the leading energy source.

Indeed, the entire world became heavily dependent on one region, the Middle East, for a disproportionately large share of its energy.

Now, as the world turns to wind, solar and geothermal as the primary energy sources and to hydrogen as an end-use fuel, the energy economy is localizing, which reverses the trend of the last 100 years.