Global Forum: Post oil spill reality check

June 28, 2010: 10:45 AM ET

Global ForumOil executives and climate change activists alike want to curb the world's addiction to oil, but finding a realistic and effective solution is the challenge.

by Nina Easton, senior editor at large

FORTUNE - It's June 2050, and the Gulf Oil spill -- still ranking as America's biggest environmental disaster ever -- is four-decade-old news. If you were graduating college when BP's Deepwater Horizon rig exploded and sank, spewing a daily dose of tens of thousands of barrels of oil, you might now be celebrating your own kids' graduations. If your children were in elementary school at the time, you might be a grandparent by now. And if you were a grandparent in 2010...well.

The point is that 40 years is a long time for most of us. But it's not for energy planning -- and despite all the rosy talk that this disastrous spill will suddenly prompt America (or the world, for that matter) to ditch fossil fuels and plant a windmill on every neighborhood corner needs a reality check, one that was offered by a high-level panel at the Global Forum sponsored by Fortune, Time and CNN in Cape Town, South Africa this weekend.

Despite the spill, oil companies will continue to pursue deep water drilling. "The energy system will need all the energy being developed," said Royal Dutch Shell CEO Peter Voser. The reason: Over the next 40 years, the world's population will grow from 6.8 billion to 9.2 billion, and energy needs will double.

Voser, an oil executive who thinks beyond oil, predicted Sunday that by 2050, fossil fuels would still comprise 60% of the world's energy use, down from about 80% today. Alternative fuels will substantially make up the difference, but only if nuclear energy -- which brings its own environmental risks -- is included. Conservation International CEO Peter Seligmann similarly took that long view: "Even if we have new [renewable energy] technologies, it takes 20 to 30 years to get on the grid," he noted.

Whether you're a global warming activist like EU Commissioner Connie Hedegaard -- a panelist who cited NOAA's conclusion that the first quarter of 2010 was the hottest on record -- or a skeptic who nevertheless worries about polluting the air and feeding authoritarian oil regimes, there is common ground to be found in wanting to curb the world's addiction to oil. Voser, Seligmann, and South Africa utility executive Kannan Lakmeeharan offered some lessons in the kind of hard-headed discussions Washington lawmakers now need to have on a realistic energy policy.

Let's start with Voser, who favors imposing a price on carbon, and doing it soon. The oil industry "needs the certainty," he says. In the meantime, though, he is helping steer Shell toward developing natural gas as an alternative. "Let's start with things we already have," he said.

And that includes technologies to improve energy efficiency -- a message echoed by Seligmann. A 2009 McKinsey study concluded that a $520 billion investment in energy saving measures would save the U.S. $1.2 trillion and cut energy use by 23% over the next decade.

To reduce emissions, Seligmann asserts that what's equally important -- and doable -- is the protection and restoration of forests, especially tropical forests, burned for farming. We have to change "the way we farm and the way we forest," he says. According to Conservation International, which is working with companies like Disney on reforestation efforts in Africa, this could prevent the emission of more than 300 billion tons of carbon dioxide over the next four decades. To put that in perspective: It's more than total U.S. emissions over the same period.

By contrast, there is a low ceiling on how much renewables can either fill a fossil fuels gap -- or reduce pollution -- in the short run. "Some of those renewables will use scarce resources so we have to be careful not to create new problems," notes Voser.

For developing countries, capital investment in alternative fuels remains an obstacle. South Africa's state utility ESKOM has been the target of protests for accepting a World Bank loan to fund the construction of coal-fired power plants. But Lakmeehran said that developing alternatives would require changing tariffs or providing government subsidies. "We can afford coal," he noted.

The BP oil spill has encouraged some thoughtful discussion on a U.S. new energy policy between lawmakers in both political parties. Democrats want cap and trade; free-marketers in both parties are more attracted to a carbon tax that would be offset by something like a payroll tax reduction. Seligmann, who has been meeting with lawmakers across the aisle, sees movement among senators toward a common ground.  "The whole situation has been shaken up by this spill," he says.

Those talks are a start, but crafting an energy policy that is both realistic and cost-effective, especially in a charged election year, is the hard part.

More from the Global Forum:

China's New Power
China and Africa's Deepening Ties (from Time.com)
Mobile solutions in emerging markets

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