Leonid Grigoriev: Big consensus-2006
Leonid Grigoriev – president of the Institute of Energy and Finances, the dean of the Management Department of the Moscow International University.
There is no surprise that in 2006 G8 chose Energy Security as one of the main topics. We have to remember that G8 Summits appeared in 1973-74 as reaction to the oil crisis.
“It is challenge for our countries as well as for the whole humanity – to provide effective, reliable and safe energy supply for the price that would reflect the fundamental principles of the market economy”. That is the formulation of the global problem and at the same time, it is a complicated aim, fundamental faith in the market economy principles and acknowledgement of the challenging situation, i.e. of the crisis that requires adequate reaction.
The appearance of such Forum involving leading countries for discussion of the key issues of the global economy means that other organizations and international coordination tools are not sufficient.
Indeed, UN is too slow in its actions and overloaded by the procedures, voting and they have to reflect the interests of many country groups. G8 has an advantage – its members traditionally dominate in the world economy and naturally have the majority of the votes on the WMF and World Bank funds. In fact this is the most high rank “Scientific Counsel” of the leaders concerned with the world problems and they have to come to the consensus applicable for the dominating countries but in the interests of the whole humanity. In future, this Powers will implement the designed plans though the direct and indirect means they own, so that the rest of the world will implement them for the long time on, not always noticing by whom and whom they were introduced.
With the respect to the rest of the world, G8 is likely to sincerely believe in its ability to take the decisions that will be beneficial for the other world countries. That is why they start to invite to the Summits leaders of the countries that were considered as regional leaders 10 year before and now they are becoming competent players on the world area – first of all China, India and Brazil. Together with the South African Republic – to represent Africa – Summit represents the dominating part of the world GDP.
This process can be developed in two ways – establishment of the G7-2 or expansion of the first one. When Russia was invited into this Club in the mid 90s, the role of our country was to represent the interests of large but not rich countries. The level of the GDP per person in China and India is sill not that big (1.7 thousand dollars and 0,7 thousand dollars accordingly). The GDP level per person buying ability in Brazil, Russia and SAR (gross -5 thousand dollars p.p.) cedes to the average number in the initial G7 (37,7 thousand dollars). Creation of the second G7 were not possible as China, India, Brazil, SAR, Russia and Southern Arabia, for instance, to not have such evident mutual interests as the market democracies do. Including China and India into the “Club-10”, the artificial claims about Russia’s GDP and development level will fall away.
The formulation of the G8 agenda has become a special art as in some cases one or two members may not agree with the course of actions of the rest of the group. It makes the analysis of the Summit documents look like decoding of the incomplete manuscripts, which is so popular today to be turned into adventure movies. This year summit made a record in the complication of the final document – “Global Energy Security” – 55 points made of 46 thousand signs.
If we imagine that the World Governments will create the lawful and tax stimuli for business and population, and International Organizations will fulfill their part of help, financing and organization of the overall simultaneous implementation of the decisions taken in St. Petersburg (this is a possibility), then next generation may witness the revolution in the energy field of the world existence. In particular: low growth required power intensity, renewable substitute hydrocarbon, low level of pollution discharge and cool climate, effective transport, the poor are supplied with gas and light, the rich are with the low power intensity Jacuzzi, overall fuel diversification and supply only from the politically stable world areas. When (and if) all this becomes reality in 500 years, the historians will remember this Summit as a turning point in this development. On the other hand, the aims and the mechanisms look reasonable and pass the criteria of Saint-Exupery: the king should give the orders that the subjects are ready to carry out.
Short “Statement” and long “Plan of Actions” are based on some prerequisites which are very important by themselves.
- “Despite increase of the alternative energy resources in the world energy balance, hydrocarbons are likely to play the leading role in the overall structure of energy consumption” (p. 38);
- “We confirm the aim, formulated in the “Plan of Actions” on non-proliferation, accepted by the G8 in 2004 – to provide each country with the access to nuclear power on the competitive basis in accord with the duties and standards in the field of non-proliferation” (p. 31);
- “The main energy investments should be drawn from the private sector. Developing countries aid programs should be aimed at the improvement of their policy and regulation system to attract private funds” (p. 46);
- “The Global Energy Security depends a lot on the efforts to increase transparency, to strengthen and widen the law leadership, to create and strengthen predictable and effective tax and regulation systems, to carry out the responsible policy regarding supply and demand”.
We distinguish those paragraphs as they represent the realities of this world and not just wish for the general good. These prerequisites made this document so complicated and multi-pronged so it is worthwhile to comment on each of them separately, identifying the problem and the plan of actions. They recognize that hydrocarbon cannot be substituted by any other energy sources. The press already called this Summit “nuclear” as it sees nuclear energy as an acceptable way of solving energy problems, global warming and sustain of the nuclear weapon non-proliferation regime. The problem of the global warming and UN documents in this field are acknowledged. The G8 sees the source of the energy investment mainly in the private funds, even in poor countries. Finally, the law leadership, predictability and transparency of the investment regimes are important to provide energy security. These are the group believes of the G8 that may not coincide with the views of separate experts, interest groups, movements and even Governments but this is “Big Consensus – 2006”.
G8 formulated 7 paragraphs of the “Plan of Actions”, which are supposed to lead to the global changes in the energy field. Let’s distinguish several points. Paragraph 7 confirms the intention to reduce the discharge of the greenhouse gases and prevent climate changes. Applied to Russian interests, it should initiate the creation of the Domestic Legislation, so that it would be possible to use investments in the frameworks of the Kyoto Protocol mechanisms. Reference to the necessity to supply fuel to 2.4 billion people and electricity to 1.6 billion people shows the scope of the problem. The standard growth – based on hydrocarbon- in the developing countries can make humanity depend on the traditional energy even more. But there is still no solution to the problem of growth in the developing countries, as the level of investments is not sufficient, and the present fuel prices only make their situation worse. Creation of the Anti-shock fund under WMF gives the latter a new job in the conditions of relatively smaller demand for the WMF credits on the part of the traditional debtors.
Paragraph 5 is devoted to the physical security of the energy infrastructure – from tanks and ports to the electricity wires. In this case, it is an important step forward as at last their interdependence and connection are recognized. Terrorist act in any country leads to the break in energy supply and price growth. Mutual work in this field is inevitable consequence of mutual fight against terrorism and requires coordination of the Great Powers’ actions.
It deals with the initiatives in the field of diversification and energy types a bit less (paragraph 4). For now the alternatives are more expensive but the hydrocarbon price growth makes new resources rentable or, in any case, stimulates the research with the perspective for 20-40 years ahead.
In the field of nuclear energy the G8 claimed: “We recognize it, that the G8 countries solve the problems of energy security and climate change in different ways”. At this point the ways of the Governmental experts as well as the decisions and positions of the World NGO separated, Besides, G8 is still very cautious in its formulations as there is a strong public opposition to building the Nuclear Electro Stations in Italy and Germany. But the G8 leaders believe that in the near future there is now way to reduce the greenhouse gas discharge and energy development. For many countries the nuclear power is a way to reduce the dependence on the oil and gas. So there is a chance of “Nuclear Energy Renaissance” after 20 years of stagnation.
The leaders pointed out that they are going to “take necessary steps in their countries, including creation of the financial and tax stimuli, contributing to the implementation of the energy efficient technologies in this sphere”. There is a whole spectrum of initiatives, especially in the transport sphere (ethanol). But the point is not in that – huge possibilities to increase economy efficiency and energy supply are already known. , the technologies exists but are not fully applied. It will take lots of effort to stimulate the energy savings in the mass scope, o the extent that will allow non-dependence on the energy carriers import. Russian companies, waiting for the rise in prices for the energy carriers within the country and fall in the export prices, can participate in the competition for the increase of the economy efficiency at the expense of new technologies. It is important that success could make us an Energy Power even after the period of the steep oil prices.
The majority of the document embraced problems are long term, they are important for all of the humanity and directed to the increase in the energy efficiency and world economy. The realization of the measures suggested in the “Plan of Actions” will take time and lots of funds which should be invested by the Governments (or should be ceded in the tax form), business, international organizations influenced by the steep prices, risk awareness, special stimuli. But on the whole, it should change the way of life of billions of people and with time decrease the energy consumption, protect global climate, decrease the consumption of hydrocarbon and discharges in the atmosphere. As side effect, the whole systems of those measures should decrease the dependence of the economy growth on the hydrocarbon world trade and transportation and, probably, lower the hydrocarbon prices for the consumers.
G8 could not deal with the eternal problems if it did not pay attention to the problem of high energy prices now. So the first part was devoted to such problems as increase of transparency, predictability and stability of the global energy markets. So the G8 appeals to the development of the transparent, competitive markets, national systems of regulation - to every correct and market measure known to the economists.
I will point out that there are traces of the complex compromises in the G8 documents. The compromises concern one of the most important spheres – the behavior of the companies, price formation and investments. This is the hottest topic of the debates in 2006 and it is represented with caution. There was a threat to concentrate on the discussion of Russian energy problems instead of world ones. It did not happen, but there is no mentioning that energy markets did not provide for adequate investments in 1986-2000 (with the prices 19-20 USD per oil barrel). There is no discussion of the difference in the behavior of the private and state energy companies. Is there any contribution of the host-country, Russia? Primarily, it is thanks to Russian that such points as long-term contracts (diversification of the contracts were included in the text as Russian agenda, though they are acute for all the world.
The main element of the document on the corporative level (paragraph 13!) contains the recognition of the interests of the companies from the energy resources consumer- as well as producer-countries: “It is especially important that companies from energy resources consuming countries and producing countries would have an opportunity to invest and buy energy assets on the mutually beneficial terms: in the field of energy research and production, processing and sale in other countries, following the laws of the market competition”. If this point is carefully followed, then we are entering the period of acute competition for both consumers and producers, which, presumably, open their markets on the equal basis. This is a step forward in comparison to the emotional fight for the participation in the energy production and retail. It may give rise to the rules of behavior that will increase trust, diversification on both sides thus strengthening the energy security in the world according to objective and subjective notions of the main participants on the Governmental and corporative levels. It is high to recognize that on the global level there is no independence but interdependence.
In the conclusion I would like to point out that the document mentions “trillions of dollars”, that would be spent on the world energy. In 2003 WEA estimated it at 16 trillions of dollars for the time period 2001-2030, including 3 trillions for oil industry. It equals to 1% of the world GDP for that time and to almost 4-5% of the world investments (with the norm being 22-24% of world GDP) But investments in the oil industry increased from 110 billions in 1999 up to 205 billions in 2005 – almost by 90%. With new needs for the infrastructure renovation and renewable resources development humanity should get ready for the numbers much bigger: we won’t be surprised at the 2% of the world GDP. It is obvious that the problems in the sphere of growth, poverty and climate are too gross and expensive for the humanity to find conflicts on the secondary issues. All the irritability postpones the solution of the crucial problems of the XXI century. But the passed Summit can become a turning point to the mutual resolution.