Five reasons why 2010 will be greener

Economics, rather than politics, will be the main driver of the fight against global warming in 2010.

In 2009, the global recession had a greater impact than all the diplomatic efforts that ended in the Copenhagen flop: energy production hadn’t declined on such a scale since 1981, according to the International Energy Agency (IEA). Here are five economic reasons for the world to become slightly greener in the coming year (just a few of them could be wishful thinking…)

First, high oil prices. Pricier crude encourages investments in alternative energy sources. Crude oil has been trading in a fairly narrow – and reassuringly expensive – range of $64 to $80 a barrel since June. It is not likely to fall below that level.

True, inventories are abundant, and in the longer term the Iraqi industry is emerging from the rubble. But there are several reasons to think oil prices will hold up through 2010 and beyond. Demand growth in big emerging nations like China and India is a solid support. Downward pressure on the dollar would probably help sustain prices. And OPEC probably still has enough power to keep prices from plummeting. So while the oil price is not likely to shoot up to recession-inducing highs, it is likely to stay high enough to keep alternative energy resources profitable.

Second, the low price of natural gas. Cheap gas encourages utilities to build more gas-fired power plants, which are cleaner than coal-powered ones. The current gas supply glut is not likely to go away soon. Even the always-possible Russia-Ukraine row, or a colder than usual winter, probably would not be enough to boost world prices. Unconventional gas production is expected to rise in the United States. That will force Qatar and other exporters of liquefied natural gas (LNG) to divert exports from North America to Asia and Europe. The alternative supply should strengthen the hand of European buyers in dealing with their big supplier – Russia.

Third, more research on, and subsidies for, clean energy. The wishful thinking, or reasoned optimism, may be starting here, but Western governments may at last realize that that the United Nations-style approach to global warming is doomed to failure. A focus on domestic priorities would lead to more determined public efforts to encourage research in lower-carbon sources of energy, lowering their costs and making them more competitive.

Fourth, deterrence could achieve what diplomacy could not. The mere prospect of a carbon tax on imports, which the European Union is currently debating, might help concentrate Chinese minds. The World Trade Organization has hinted such a levy would not necessarily run counter to its rules. To forestall this sort of virtuous tariff, China might come forward with serious proposals to curb its own carbon emissions.

Finally, carbon prices should rise again. True, they took a hit after the failure of the Copenhagen conference to achieve much in the way of international cooperation. But steps being taken in several major countries will ultimately help make carbon more expensive on the exchanges where emission rights are traded: for example the U.S. cap-and-trade bill, coupled with the Obama administration’s intention to consider carbon emissions as health hazard, the British government’s energy efficiency scheme or France’s domestic carbon tax.

While these trends could make for a greener year ahead, worrying signals are accumulating for the longer term. If the IEA is to be believed, without major policy changes the world is on path for a temperature rise of up to 6 degrees Celsius, far above the stated international goal of limiting the rise to 2 degrees Celsius. Growth will resume, pushing energy demand 40 percent higher in 2030 than in 2007, with non-industrialised counties accounting for 90 percent of that increase. Demand for coal – driven by emerging countries’ growing needs – will rise faster than for other energy sources.

At the same time the financial crisis has depressed energy investment, whether in oil and gas upstream production, or power plants. In other words, by 2030 the world could face the absurd situation of having to cope both with global warming and energy shortages. Green will only prevail if the world’s major powers take the Copenhagen dud as a call to arms.