Should the developed world be concerned about energy sourcing in the developing world?

There was a recent Reuters market analysis piece that drove home for me just how much the developed and developing worlds are diverging in their growth trajectories related to fossil fuels. The Energy Information Administration released its biennial International Energy Outlook and its projections for 2035 have the advanced economies consuming 46 millions barrels of oil a day, essentially flat growth. But the picture is starkly different for developing countries where consumption is set to grow to 63 million barrels a day, a 40 percent increase.

The projections for the developed world have actually already been revised down about 5 million barrels per day since projections in 2011, owing to the fact that the developed world continues to enact energy efficiency mechanisms. We also will see alternative energy solutions like electric vehicles and solar power grow. The developed world, however, has little time or interest in spending extra money to do energy efficiency and to my mind, is being set up for some nasty situations in which fossil fuel prices continue to grow, putting a strain on growth and national security in the developing world.

I’ve long argued that renewable energy and energy efficiency are vital to economic and national security, not just in the fight against climate change. And I think the data projections we’re seeing confirm that energy prices could get volatile in the developed world over the next couple decades, something that could destabilize countries that are already significantly less stable. Despite higher up front costs for renewable energy, the one saving grace is that with a solar farm, the cost of solar energy will be exactly the same in 20 years as it is today. That can never be true for fossil fuels as the explosive rise in oil costs over the past decade have shown and even the rise in natural gas prices over the last 12 months are proving. And in terms of all political stability, all of these scenarios preclude the possibility that we’ll see impacts from climate change like sea level rise and volatile weather patterns impacting the global economy, which remains unlikely but no impossible.

The irony here is that with cheap natural gas located in many developed countries, there’s actually a push to get manufacturing growing again in the developed world. Could we be sitting here in 2035 with factory jobs migrating back to the U.S. while the developed world sees wages creep north, energy prices increase, and much slower economic growth? The increase in natural gas production is so acute in the U.S. that by 2019 the EIA projects we’ll be a net exporter of natural gas.

So what role is there for the developed world to play? For starters, we could continue to heavily support R&D into alternative energy so that we can bring down the technological cost of producing renewable energy. Most of those strides are likely to come in solar PV though a battery storage break through would make a significant difference. The reasons to push for further advances and cost reductions in alternative energy generation do not just include domestic energy security but should include the value of being able to offer cheaper renewable energy solutions for the developing world.

From a paradigm perspective, the developed world should start to view the explosive use of fossil fuels in the developing world as not just a potential environmental risk, but an economic and national security risk. If volatile fossil fuel costs threaten growth in the developing world, then it becomes a problem for the developed world. Now is the time to reconsider how the first world might prioritize efficiency and renewable energy in the developing world as a path to greater global security.

Relevant Analyst

Adam Lesser

Analyst Gigaom Research

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