Why time is running out on the oil era

Panic has set in.

With the price of oil hovering at more than &036;60 (EUR 50.26) per barrel on world markets and forecasters predicting that we will soon see oil selling for as much as &036;100 (EUR 83.77) per barrel or more, as world-wide oil reserves dwindle, politicians and business leaders are running scared. People are already beginning to take to the streets in protest and riots in countries around the world. The global economy is beginning to slow and everywhere there is talk about a new and sustained long-term global recession - some are even talking about a global depression - which could last for decades.

We are quickly waking up to the fact that the world runs on oil. We are an oil civilisation.

Our transport, power, heat, electricity and light are all dependent on oil. Our plastic, our pharmaceutical products and our clothes are, for the most part, derived from oil. Even our food grows with the help of petro-chemical fertilisers and pesticides.

Former US president Bill Clinton once coined the phrase "it's the economy, stupid!". What we are now beginning to understand is that "it's the oil, stupid!".

The oil crisis is not going to go away. It's now a permanent part of our life and will remain so until we can wean ourselves off oil and the fossil-fuels spigot.

Some short-sighted politicians around the world advocate a switch over to coal-fired power plants, arguing that the cheaper price of coal would help ease the burden on consumers and businesses hit by the escalating price of oil. Perhaps. But we will all end up paying out far more as we attempt to grapple with the devastating loss of life and property from increased CO2 emissions and global warming.

The recent floods in Switzerland and Milan and the devastating toll of hurricanes Katrina and Rita on the Gulf Coast of the United States are a harbinger of the catastrophe that lies ahead if we spew even more CO2 into the atmosphere by shifting to coal-burning power plants.

Others call for building a new generation of nuclear power plants to address the oil crisis. Yet the magnitude of the cost of such an undertaking would make it prohibitive. Then too, scientists still don't know how to safely transport and dispose of nuclear waste, making it a danger for thousands of years to come. And nuclear power plants are a soft target for terrorists determined to wreak havoc and sew fear on a grand scale. What then can we do?

In the midst of the mayhem, a 46-page Green Paper on energy efficiency was quietly published recently by the European Commission, which lays out a detailed survivor's guide - a roadmap of what every individual, family, community and country can begin to do immediately to cushion the cost shock of rising oil prices. According to the report, EU states could save at least 20% of their present energy consumption for a net saving of EUR 60 billion per year by enacting tough energy conservation programmes in homes, commercial buildings, factories and transport. The study says that the average EU household could save EUR 1,000 per year in energy-efficient practices, thus offsetting much of the increased price of oil.

The energy waste is everywhere in modern society. Incredibly, 10% or more of the electricity produced in most countries is lost in the transmission, simply because the technology has not been sufficiently updated with new more energy-saving hardware and software. While government, industry, and consumers will have to spend some money up- front to usher in energy efficient 'best practices', the investment will boost the economy by creating millions of new jobs - as many as a million new jobs in Europe alone. Moreover, the cost savings of improved energy efficiency will mean more money will be freed up to invest in other forms of sustainable economic development.

The US could save even more with widespread adoption of energy conservation practices since it currently wastes 50% more energy than the EU to produce one unit of gross domestic product.

But it's not enough to just recast the energy efficiency of society. We also need to begin a serious effort to wean society off dependency on oil and into renewable energies - wind, solar, geothermal, hydro and biomass - and a green hydrogen economy if we are to avoid an economic abyss and the ravages of global warming.

Serious consideration ought to be given to tax-shifting legislation. Such schemes have been used effectively for more than a decade - mostly in Europe - to create a more sustainable approach to economic development. The idea is to tax environmentally destructive practices and activities and earmark the revenues to positive economic activity. In the future, tax shifting laws could be directed to raising revenue to subsidise development of renewable energies and hydrogen fuel-cell technologies.

Environmental fiscal reform has been taken up by a number of countries including Sweden, Denmark, the Netherlands, the UK, Finland, Norway and Italy. Germany, which is among the most enthusiastic supporters of tax shifting, has phased in an increase in taxes on gasoline, heating oil and electricity, and used the revenue to reduce payroll taxes. The gasoline tax resulted in the decline in motor fuel use by 5% in 2001 over 1999 and a growth in car-pooling by 25%.

At present, environmental tax shifting comprises only about 3% of tax revenues worldwide, but the potential is enormous. A tax on fossil fuels alone could raise more than a trillion dollars annually. Ending environmentally harmful subsidies to polluting industries could free up an additional &036;500bn (EUR 419bn) per year globally.

The revenue could be used to invest in the shift to renewable energies and a hydrogen future.

The evidence shows that while increases in taxes on pollution are not very well received by the companies, it forces them to eliminate inefficiencies and makes them more competitive in world markets.

Many of the countries that have the highest levels of environmental taxes also have industries that are the most competitive.

A European Parliament group made up of members from the major parties in Europe - the centre-right EPP-ED, the Socialists, the Liberals, the Greens and the United Left - have urged the EU to launch an ambitious energy-conservation programme and begin the transition to renewable energies and a hydrogen economy.

The end of the oil era and the accompanying spectre of global climate change are the most pressing challenges facing civilisation. Every country should declare a 'state of national urgency' and set a goal of five years for executing the suggestions contained in the Commission's Green Paper on energy efficiency. We have no time to waste.

• Jeremy Rifkin is the author of The Hydrogen Economy (2002).

Author makes suggestions on how to recast the energy efficiency of society and come off dependency on oil and into renewable energies.