Peak Oil, Peak Water, Peak Resources, Peak Planet: Building a Currency for the 21st Century

In a planet running out of resources, the most important public policy tool may be the measuring stick.

This becomes important to remember amid the remarkable swings of pessimism and guarded optimism we’ve seen over the past two years on the ability of individual nations to scale-up the sustainable energy agenda.

COP15 in Copenhagen 2009 was a step backwards, while COP16 in Cancun in December 2010 was a guarded step forward.   On the positive side at the national level, the United Kingdom has made a very significant step by establishing a floor price and an escalation schedule for the price of carbon emissions, while Mexico and Brazil have launched ambitious energy efficiency and clean energy development plans.  At the sub-national level, China is launching experimental regional carbon cap-and-trade schemes.

By popular vote, during a very down economy California upheld by a wide margin a historic greenhouse gas reduction plan (AB32, the Pavley-Nuñez Bill) in the 2011 general elections.  Moving forward on January 1, 2012, California will take a major step and  launch a carbon market. I worked on AB32 as it was being written, and more recently, as part of the committee that advised the state on the market rules to govern the carbon exchange.

On the negative side, several nations have examined significant advances in clean energy markets, and have retreated, or at least so far failed to act.  This list,as of this writing, unfortunately includes both Australia and my country, the United States.  And, while we see several large-scale clean energy projects under design, costs and logistics are proving significant hurdles.  This mixed story is unfortunate, for sure, but also not surprising given that we still lack metrics, methods and a currency that reflects a world based around sustainable energy.

The sad fact is that as a global society have wasted many good years – decades actually — during which we could have launched an economy based on job creation and investments in human capacity and creativity.  We have ignored the signals that nature has been sending us about the status and stresses we are placing our rivers, oceans, skies, mountains and of the health of the biosphere.   There are many metrics we might cite that consistently tell us that we are approaching, at, or beyond the carrying capacity of the planet in terms of flows of pollutants, and our need for resources.

That is not to say we do not have options — we do — and we need to listen to the planet, and ourselves, and put our ideas into practice.

The fascinating Peak Planet panel at the Aspen Environment Forum today brought out many examples of resources under stress, and areas where the human appetite and footprint – large and growing – is taking us into uncharted waters in terms of local and global environmental change.

While this panel is about all the key resources – water, biodiversity, rare-earth metals, etcetera –in the public consciousness, the conversation is still largely one of looking at specific, sectoral impacts of resource use and over-use.  Greenhouse gas emissions, and in particular carbon and carbon dioxide, is the 800-pound gorilla in the room, but it is far from the only key to sustainability.  Carbon, however, provides an excellent lens to look at the change in mindset that is needed

In fact, the peak problems story is one of developing metrics to internalize the current externalities of environmental degradation that many of our industrial practices, and our patterns of consumption are placing on the local and global environment.  This is nothing less than the birth of a new currency, which in part accounts for why it has been so hard.

With a global price on carbon still missing, many of the carbon impacts are now being examined via specific local and regional effects.

In California, where the carbon cap-and-trade market is set to begin on January 1, 2012, an early example of addressing the externalities is the role that life-cycle analysis of the carbon emissions impact of transportation fuels now plays in state regulation.

The Low-Carbon Fuel Standard (LCFS) was developed to be a direct analog to the clean energy content requirements for electricity now in place in many states.  In this labeling scheme, which many of us worked on starting in 2005, and was signed as an Executive Order 7-01 in early 2007 by then Governor Schwarzenegger, the full natural resource-to- refining process to on-the-road emissions are taken into account. The scheme looks at  fuels ranging from diesel, to gasoline to biofuels to electricity for pure electric and plug-in hybrid vehicles.  The ratings – a topic for difficult and contested analysis – are shown for a range of fuels in Figure 1.  How to implement standards such as the LCFS is a critically important meeting of the methods of life-cycle analysis, environmental and industrial policy come directly into conversation.

The California LCFS requires a 1 percent annual reduction in the carbon intensity of the fuel mix in the state until 2020, for a 10 percent overall reduction in the ‘carbon footprint’ of transportation fuels.

As an example of the nexus of peak resources and the life-cycle approach to environmental externalities is the case of Canadian oil sands, the fastest growing source of ‘unconventional’, or peak oil.  Alberta has a vast resources of oil sands (formerly known as ‘tar sands’), giving Canada reserves that are ranked third in the world, behind only Saudi Arabia and Venezuela. But Canada’s oil exists in a solid form and requires considerably more energy to refine than does gasoline from conventional crude oil.

This added energy demand translates to greater carbon footprint, and hence a greater penalty under the California LCFS.

Figure 2 shows how this carbon signature relates directly industrial policy in Alberta, and a source of debate with some environmental groups.  In posters seen around Washington, D.C., the Rainforest Action Network is highlighting the carbon and other  environmental impacts of tar sands.  In response, the Canadian government has highlighted the lower energy and water impacts of new refining techniques that lower the footprint of gasoline derived from tar sands.

Daniel Kammen’s posts appear here and on the Development in a Changing Climate blog at the World Bank, where he is chief technical specialist for renewable energy and energy efficiency. He is an adviser to National Geographic’s Great Energy Challenge initiative.