Energy | Empowering the Individual and the Community

CONFERENCE REPORT Energy | Empowering the Individual and the Community

INTERNATIONAL CONFERENCE Energy | Empowering the Individual and the Community

Prague, October 10-12, 2006 CONFERENCE REPORT Energy | Empowering the Individual and the Community

1st edition

Prague Security Studies Institute Pohořelec 6, 118 00 Prague, Czech Republic www.pssi.cz ﬁ [email protected]

Edited by | Dmitriy Zacharov, Pavel Fidler, Oldřich Černý Graphic design | PIKNIK creative shop | www.piknikshop.cz Printed by | BCS s.r.o.

ISBN 80-903792-3-0 EDITORS´ NOTE

The inaugural conference of the Club of Prague,which took place on October 10-12, 2006, was entitled “Energy: Empowering the Individual and the Community”. The Prague Security Studies Institute was the lead organizer of this project.

In the course of compiling these proceedings, an editorial decision was made to try to preserve the meaning and, where possible, the words and visual content of the contributions. We greatly appreciate the text and presentation submissions of the participants, which we have tried to reproduce as exactly as possible, given publishing constraints. Other presentations, in the form included in these proceedings, were compiled by the editorial staﬀ and approved by the presenters. Any errors in style or original intent are our own.

The executive summaries of the roundtable sessions were put together in a way that seeks to preserve the ﬂ ow and structure of the discussions that took place. Although we have tried to convey the speakers’ diction and meaning, the summaries are works of paraphrase and not transcription. We take responsibility for any inaccuracies here as well.

It is our hope that these proceedings have adequately captured the spirit of the Club of Prague’s fi rst conference and that you, the reader, fi nd them to be as informative and enlightening as we do. We would greatly appreciate any feedback that you may have; it may be sent to fi [email protected]

Our sincerest thanks go to all those who made possible these proceedings and the Club of Prague as a whole.

Dmitriy Zacharov | Pavel Fidler | Oldřich Černý

CONTENTS

A Few Words...... Václav Havel 9 Foreword...... William F. Martin 11 Acknowledgements...... Oldřich Černý 13

Scenarios & Values – Day 1 Session I – Alternative Energy Futures | moderator - William F. Martin |

Introduction...... William F. Martin 17 Energy Scenario Overview...... Arnold Baker 19 Facts and Myths in Energy Trends...... Radek Stavěl 23 The Japanese Experience with Energy Eﬃ ciency...... Nobuya Minami 28 Requirements for “Good Energy”...... Konosuke Sugiura 39 New Old Thinking – Energy, Transport and Climate...... Jessica Morey 43 Central and Eastern European Opportunities in the Energy Sector...... Vladimír Schmalz 47 Roundtable Discussion – Executive Summary...... 52 Internal and External Challenges of Energy Policy in the EU...... Andris Piebalgs 57

Session II – New Old Thinking: Values in Energy Demand and Supply | moderator - Václav Hampl |

The Empowerment of the Individual and the Community: Václav Havel’s Thoughts...... Oldřich Černý 64 Learning from Cultural Wisdom: Japanese Perspective...... Takashi Atoda 67 Learning from Cultural Wisdom: Jordanian Perspective, HRH Prince bin Talal’s Thoughts...... Malek Kabariti 70 Learning from Cultural Wisdom: Chinese Perspective...... C.S. Kiang 76 Harmonizing Industrial Society and Local Communities...... Fumio Kawaguchi 84 Roundtable Discussion – Executive Summary...... 88

Technology, Market, Policy & Conclusion – Day 2 Session III – Programs to Support New Old Thinking | moderator – Jacques Bouchard |

Introduction...... Roger W. Robinson, Jr. 107 Japan’s Eﬀ orts towards Eﬀ ective Use of Fossil Fuels...... Masayuki Oyama 108 The Nuclear Power Program in Japan...... Yohsaku Fuji 113 Stakes and Prospects of Nuclear Energy Development...... Jacques Bouchard 117 Renewable Energy Programs...... Bent Sørensen 123 Energy Conservation and “ZEN” Project ...... Joseph Perkowski 128 Observation on Net Energy Analysis...... Alvin Trivelpiece 139 Roundtable Discussion – Executive Summary...... 142

Session IV – Policy & Market Solutions to Support New Thinking | moderator – Jiří Schneider |

Current and Future Policy Framework...... Jiří Schneider 159 Financing Energy Strategies...... David Elliman 161 Roundtable Discussion – Executive Summary...... 166

Appendices Biographies of Participants...... 175 Session Briefs...... 181 Student Discussion Session with Karin Kneissl...... 185 Club of Prague in 2007...... 190

A FEW WORDS Václav Havel

Two years ago, my friends Bill Martin and Olda Černý gave me the opportunity to speak at the “Energy and Security” conference organized by the Prague Security Studies Institute. I remember mentioning at the time that, after having ﬁ nally managed to free ourselves from a totalitarian regime more than a decade ago, we have the duty to be careful to not give up these hard-fought freedoms. We have the duty to not let ourselves become enslaved by the pursuit of limitless growth and proﬁ t, which is today, more than ever, a major risk, particularly in the energy sector.

For this reason, I heartily welcome and support the creation of the “Club of Prague” and its intent to empower the individual and the community, respectively. Its innovative multidisciplinary approach, bringing together not only energy experts, but also writers, economists and thinkers, will certainly help to develop comprehensive responses to pressing energy challenges.

I sincerely hope that this year’s initial meeting will lay the foundation for a relevant and respected forum, one that is eﬃ cient in addressing our troubled world’s most urgent concerns.

I have experienced what it is like to be a prisoner. But I also know that barred cells are not the only types of prisons that exist. Let us do everything that is in our power to avoid becoming prisoners of ever increasing energy consumption and to protect ourselves from its dire consequences.

FOREWORD William F. Martin

The inaugural meeting of the Club of Prague was held at the Czech Ministry of Foreign Aﬀ airs on October 10-12, 2006, under the auspices of President Vaclav Havel, Minister of Foreign Aﬀ airs Alexandr Vondra, and Mayor of Prague Pavel Bém.

This was the second major conference on energy sponsored by the Prague Security Studies Institute. The “Energy and Security” conference, which took place in October 2004, concluded with principles for energy security that highlighted the need for diversiﬁ cation of energy resources, and energy eﬃ ciency as key elements.

At this time, President Havel addressed the group with the following key message : « I have experienced what it is like to be a prisoner. But I also know that barred cells are not the only types of prisons that exist. Let us do everything that is in our power to avoid becoming prisoners of ever increasing energy consumption and to protect ourselves from its dire consequences.”

The Club of Prague was created as an attempt to address this challenge issued by President Havel. Indeed, as experts increasingly warn the international community about the energy crisis it will be facing in the coming decades both in terms of security and the environment, it seems crucial to us to undertake major steps toward the elaboration of ‘“new ways of thinking about energy”.

That is why the ﬁ rst meeting of the Club of Prague not only addressed the issues of the limitation of resources and its impacts, but also possible eﬀ orts to modify the demand side of the energy equation toward quality growth.

In this matter, we believe that local communities, businesses and individuals can empower themselves by employing improved demand management techniques hand in hand with the deployment of advanced supply technologies.

The Club of Prague is a unique network, which brings together scientists and energy experts with philosophers and writers from the Middle East, Asia, Europe and North America to discuss “new ways of thinking about energy”. It attempts to combine, a) the higher ideals of writers and philosophers with the functional focus of engineers and energy experts, and b) universal values with energy requirements, and humanitarian vision with physical infrastructure.

The Club of Prague is now launched and we look forward to more activities to cultivate deeper understanding of energy issues impacting our society and future generations.

ACKNOWLEDGMENTS

This extraordinary Club of Prague conference would not have happened without the understanding and generous support of a number of personalities and institutions. The organizers would, therefore, like to express their appreciation and gratitude to Mr. Bill Martin and Washington Policy and Analysis, Václav Havel, CHUBU ELECTRIC Co., TEPCO, KANSAI, TOHOKU, Czech Coal, ČEZ, Czech Ministry of Foreign Aﬀ airs and last but not least to the alumni of PSSI for their voluntary contribution to the success of the conference.

Special thanks for devising the contents of the conference belong to Mr. Ko Sugiura, Dr. Joseph Perkowski and Dr. Arnold Baker.

Oldřich Černý Executive Director PSSI

SCENARIOS & VALUES DAY 1 | SESSION 1 | Alternative Energy Futures

moderator | WILLIAM F. MARTIN

INTRODUCTORY REMARKS William F. Martin

October 11, 2006

First of all, I would like to thank you all for coming to the ﬁ rst meeting of the Club of Prague. There are many friends and colleagues here, with great diversity in representation. There is Asia, led by strong participation from Japan and China, North America, and – of course – Prague. We are drawn here under the auspices of President Havel to one of the world’s greatest cities, Prague. It is a city of history, culture, wisdom.

Two years ago we held an Energy and Security conference in this same city. As I recall, many of you here attended that conference as well. At that time, Mr. Havel told us we have won hard fought freedoms from totalitarian states, but we must not now be enslaved by energy dependency. The recent action of Russia toward the Ukraine is a not so subtle reminder that energy remains a permanent national security issue. Energy is also key to the future of all nations. It is not an end in itself, but it is the means to achieve global prosperity and, ultimately, peace.

Our conference draws together diff erent nations and diff erent disciplines and we have structured our agenda in fi ve parts:

• First, alternative energy scenarios. We will hear from the economists and businessmen. • Second, we will look at new ways of thinking about energy. Important contributors for this point of view include philosophers and writers from Asia, the Middle East, and Europe, chaired by the distinguished Rector of Charles University – the oldest university in Central Europe • Thirdly we will focus on technology solutions. On the supply side, we will look at developments in clean coal technology, nuclear power, and renewable energy, to name a few. We will also explore one way to empower individuals and communities through greater eﬃ ciency – the ZEN project. • Fourthly, we will look at the role of governments and the marketplace in achieving sustainable energy development. • Finally, we will look at the Club of Prague itself: what are our objectives and plans for action in the years ahead.

You will hear about three alternative energy futures: business as usual, technology ﬁ x, and “new old thinking.” Exciting examples will be shown that energy use per unit of useful service, as in transportation, can be decreased to l0-20% of the historical level.

17 Energy | Empowering the Individual and the Community

Thirty fi ve years ago, my mentor from MIT took me to a meeting of the Club of Rome, which had produced the famous “limits to growth.” Dr. Perkowski and I wrote a second follow up volume looking for “strategies for sustainable growth.” Our experience has shown us, and a key premise of the Club of Prague holds this as well, that we must provide energy for the future generations – of all nations. We are not pessimistic, like the philosopher Malthus, but are optimistic, like the philosopher Marquis de Condorcet, a Frenchman who believed that we could secure a successful future if we could use our logic and our minds to fi nd eff ective solutions.

Our job in the next two days is perhaps more to ask questions that to seek solutions. I personally do not think that there is a more important task before us than fueling the energy future in a clean manner. The stature and experience of the individuals represented here speaks to the importance of the subject at hand. You are some of the most distinguished thinkers in the world. Among you are the leaders of the world utility industry; three of the world’s ﬁ ve leading utility companies are represented here at the President level. You are also eminent scientists, including one that launched the human gnome project and the international fusion project called ITER. Another of you has been president of a four thousand-member group of energy economists. Another has recently founded a sustainable energy research institute at Peking Institute and is working for peaceful resolution of the Korean Peninsula crisis.

One of the presenters here at the Club of Prague was head of Czech Foreign Intelligence and was the National Security Advisor to President Havel. Another individual was the organizer of the ﬁ rst global conference on climate change in 197l. Yet another has led an international crusade to encourage responsible corporate behavior, as when you chaired the US-China strategic review commission.

One of you heads the world’s eﬀ ort to develop a new, safer and more proliferation resistant nuclear power plant. A certain presenter comes from the most distinguished family in America, a product of both Standard Oil of Indiana and Citibank, and is one of the wisest counselors of the investment community in New York. Complimenting such private sector experience, we have a participant who served his country as Ambassador and as political director of the Ministry of Foreign Aﬀ airs.

I will not name names, because I hope that you will ﬁ nd these facts out for yourselves as you meet and together enjoy each other’s company. For indeed, you are unique, and together, we have a global mission. Finally, let me say that we welcome the generation of future leaders that are with us today. Indeed PSSI is about the future and I want to thank Roger Robinson and Olda Černý as the co-founders of PSSI.

I thank you all for being here, and I welcome you, on behalf of President Havel, as members of the Club of Prague.

18 ENERGY SCENARIO OVERVIEW Dr. Arnold B. Baker

October 11, 2006

Bill Martin pointed out that he’s been in the energy futures business for 25 years now and has never gotten it right. One of the things to note about scenarios of the kind I will be presenting today is that they are not intended to be predictions. As the saying goes, “there really are no facts about the future.” The best you can hope for is to build an internally consistent view of the world and see where that gets you. With a given range of scenarios, it is possible to “bracket” the future. Whatever scenario you posit, though, you know it will be wrong.

I have integrated a number of assumptions into a simple model containing three scenarios through the year 2050. The three scenarios are really two: “business as usual” and “tech ﬁ x.” The third scenario is a conjectured future that makes use of New Old Thinking.

First, a little bit of background. Six Persian Gulf states control almost 60% of proven oil reserves. If you include Russia, it adds up to about 65%. On the natural gas side, the liqueﬁ ed natural gas (LNG) markets are becoming deeper and more global. It should be noted that those same six Persian Six countries also have 41% of world proven gas reserves; add in Russia and it becomes almost 70%. What this means is that any instabilities in the Persian Gulf region or in Russia will continue to send shockwaves through the oil markets and perhaps the natural gas markets as well. Such an occurrence could be very signiﬁ cant for a number of countries, especially the many that use natural gas for electricity, heating, links to industry, and other critical tasks.

19 Energy | Empowering the Individual and the Community

Meanwhile, 60% of the world’s proven coal reserves are in the hands of ﬁ ve countries. One might expect that they would like to use them. We will be talking today about climate change. Some years ago I realized that, while most of the conversation revolved around annual emissions, the theoretical climate change relationship is actually tied to atmospheric concentrations of greenhouse gasses (GHG). According to the Intergovernmental Panel on Climate Change, stabilizing atmospheric concentration of GHG at current levels would require permanent emissions reductions of 60% or more below current levels. This is something that policymakers are not talking about at the moment. Absent carbon sequestration, the world would have to cut fossil fuel use almost by half to permanently stabilize the amount of GHG in the air. The Kyoto Protocols, if implemented, would produce a 5.2% reduction, and they only apply to some OECD countries and not the developing world. The developing world, however, is exactly where some of the biggest pollution issues can be found.

To make a point about energy costs in the United States, let us look at the construction of a new power plant. Levelized over the lifetime of the plant, nuclear, coal, and gas cost about the same: roughly 5-6 cents per kilowatt hour. Out of the renewable sources of energy, only wind could fall into that range, and that would only be at a very high wind site. Wind, unfortunately, is not dispatchable. Solar power is, today, above 20¢ per kilowatt hour. Concentrating solar and thermal yields costs of about 14¢. This is all based on assumptions of a 10% hurdle rate or a 10% required rate of return on capital. With a nuclear power plant, however, no one would build it based on a 10% return; if the rate is 20%, then costs increase to 8-9˘ per kWh and nuclear is no longer as eﬃ cient, price-wise, as coal. In the U.S., we have over 800 vehicles per one thousand people. If you look at Western Europe and Japan, it is about 400 to 600 cars per thousand people. In developing countries like China and in south Asia, the ratio is 15 per thousand. As they develop, one would expect that they too would move up this hill, thereby increasing demand for oil even further.

There has been much talk of “peak oil.” We could spend the full two days of the conference debating the topic and still would not know either way. The world has produced one thousand billion barrels so far. There is perhaps four to ﬁ ve times that left to produce, not just from wells but also oil shales. Most of this can be produced below today’s prices, and it does not involve converting coal or natural gas into liquids or utilizing biofuels.

Now, about carbon sequestration: this technology is still in the process of being developed. For an electricity plan, the cost including carbon capture and storage is not orders of magnitude above the cost without them. So even at the current level of technology, making use of these methods may be economically feasible.

Taking all of that as background, let us move on to the scenarios. For “Business As Usual,” we chose trends from the 1990s and 2000s and continued them out to 2050. The hallmarks of this scenario are: robust, market-driven growth; increasing global integration and interdependence, despite occasional protectionist threats; energy security and the environment are secondary considerations; and real oil prices ﬂ uctuate, but on average remain in the $35-$40/barrel range. Energy eﬃ ciency will continue to improve, being driven by market competition and incremental conventional technological penetration. Energy demand and carbon emissions will grow substantially, led by China and the developing world. In the OECD states, nuclear

20 power will decline while use of renewables will increase. Governments will continue to have great diﬃ culty reaching an energy/environmental policy consensus and providing solutions to energy dilemmas. Closed related to this fact is the dynamic of close national elections and fragile coalitions, which we project to continue. Finally, there will be intermittent international conﬂ icts over energy supplies, exacerbated by the variability of a changing climate.

Taken together, all this leads to the projection that, by 2050, oil demand will triple. This is inconceivable. Inconceivable. Electricity demand would also triple, with developing countries accounting for the lion’s share. This would occur despite the fact that, in the scenario, we project energy eﬃ ciency increasing and the amount of energy required per dollar of GDP falling. We believe this would be unacceptable.

We also believe that governments will get engaged. This brings up to the “Tech Fix” scenario. In this projection, governments will face strong geopolitical tensions, fears of continued energy supply interruptions, concerns over environmental disruptions, and growing consumer anger. A national consensus and some international coalitions will arise, and energy security and the environment will move to the front burner. There will be increased energy and environmental R&D, and international technology transfer mechanisms will develop further, with a particular focus on energy eﬃ ciency and carbon reduction technologies.

Additionally, policies that support energy effi ciency initiatives will be enacted, such as renewables mandates. Real oil prices will fl uctuate, but on average will remain in the $50-$60/ barrel range. Growth will remain market-driven but will be tempered. There will be increasing global integration and interdependence, but it will occur a bit more slowly, as governments get more engaged. Critically, energy effi ciency will improve much more rapidly, driven by market competition and advanced technology penetration and supported by government policies, government/private R&D partnerships, and higher energy prices.

Energy demand and carbon emissions will still grow, led by China and the developing world. However, nuclear and renewable energy will grow in popularity, and innovation will lead to hydrogen transportation fuels and systems entering the market. Carbon emissions reductions policies (e.g. emissions trading, carbon taxes, and higher energy use taxes) will be adopted in some countries and will help stimulate progress in sequestration. Unfortunately, intermittent international conﬂ icts over energy supplies will remain, exacerbated by the variability of a still-changing climate.

As you may have noticed, the price of oil in the Tech Fix scenario is higher than under Business As Usual. We predict that carbon sequestration will come online in the U.S. and other industrial nations ﬁ rst and will eventually be implemented by China as well. However, world carbon emissions would still grow, although they would be almost a quarter less than under Business As Usual. Electricity demand will be about 7% lower. Overall energy demand will be 15% lower. Energy per dollar of GDP will be 11% lower. All this assumes government engagement and an extension of current technological development. Ultimately, though, this isn’t a very satisfactory world either.

That brings us to New Thinking. To help frame the problem, consider four sensitivities to the Tech Fix scenario. These are all measures we could implement in order to address various

21 Energy | Empowering the Individual and the Community energy concerns. First, if we were able to double annual energy effi ciency improvement, relative to tech fi x case, we could stabilize energy demand and carbon emissions. This would be a very very substantial improvement. However, a signifi cant amount of the world’s capital stock would have to be turned over in order to accomplish such an improvement in effi ciency.

Second, if we could make our transportation sector entirely carbon-free, there would be some eﬀ ect as well, reducing carbon emissions by about 18%. Given the other uses of fossil fuels, though, this alone would not solve the problem. A third possibility is to make 100% of all electricity generation carbon-free. This would result in a slightly greater improvement than taking carbon out of transportation: about 23% fewer carbon emissions by 2050. And lastly, something we do not want to think about but is included just to bracket sensitivities: what if we reduce the assumed growth rate by about half, so that the U.S. growth would be 1.4% per year, 3.2% in China, and 2.1% in the Soviet Union? Clearly, these levels of economic growth would not be sustainable. However, by inducing such a reduction in growth, we could send downward and stabilize energy demand and carbon emissions. That is the order of magnitude that might be required to solve this problem.

To bring this all together: it will be very diﬃ cult to substantially reduce future world energy demand and carbon emissions without radically new technology that marketplaces want to adopt and radically new ways of societal thinking about and meeting energy, economic, and environmental needs. In terms of technological requirements, the key areas are transport, electric, industry. We really need new technologies to improve energy eﬃ ciency in supply, delivery, and end use. We must provide low or no-carbon alternatives, including carbon capture and carbon sequestration. We need new technologies to minimize the environmental damage produced by our economies.

Signiﬁ cant progress has already been achieved in developing advanced materials, processes, and systems, such as nano, micro, bio, and cogno. There are some new platforms that have arisen and are just recently becoming the subjects of experimentation. We will have to build upon these advances and carry them even further. Advanced real time data monitoring, communication, and systems management will also have to be utilized in the pursuit of greater eﬃ ciency. On top of this, we will need to ensure that these technologies will be marketable at competitive prices for similar energy choices, so that they become a rational choice.

One of the main requirements of New Thinking is that we start immediately. The energy infrastructure is well-entrenched and it will take a long time to makes changes. The lead times are long and the challenge is great, so the sooner we start, the better. If there is a key message to this presentation, that is it – we need new thinking and we need it now.

22 FACTS AND MYTHS IN ENERGY TRENDS Radek Stavěl

October 11, 2006

Thank you, Mr. Chairman, ladies and gentlemen, excellencies. I am speaking to you today as a representative of Czech Coal, a mining corporation that possesses equities in the production of electricity and heat. It is also an international trader in electricity and emission allowances. For these reasons, we are very interested in the future of energy and must look at various scenarios from diﬀ erent angles.

I think that all of us want the same energy. We want security of supply so that we can avoid blackouts of the kind that hit Italy in late September, 2003. We also want price stability, so that people know what to expect. We want sustainable energy, energy that we can rely on in the long-term. And we want environmentally-friendly energy, with greenhouse gasses being only one of the aspects we have to consider.

What we do not have, however, is a general agreement on how to ﬁ nd this energy. Do we provide even more ﬁ nancial subsidies for “green” energy? Do we place even stronger restrictions on fossil fuels? Do we eliminate nuclear energy? Do we enact more of a legal stimulus for saving energy? Do we support the international free market or do we do the opposite and nationalize energy sources and businesses? These and a thousand other crucial questions have no widely agreed-upon answers.

On the business side, we are dependent on governments and their policies, as well as EU and global-level policies. We try to predict how issues like renewables subsidies or the restrictions on fossil fuels will be resolved in the future. We wonder whether the free market in energy will prevail or if increasing regulation and nationalization will win out. From the business point of view, what is important to us is the extrapolation of current facts and knowledge, rather than dreams or myths. Perhaps, as Dr. Baker said, it is somehow inspiring to be around internally consistent stories. We cannot think about energy in terms of myths, in terms of whether green energy is better than black, brown, or blue energy. We must think about the hard data and take into account the demand for electric and other types of energy. And of course, we must also take into account supply, including supply-related technologies.

In a European Commission scenario that already incorporates future energy savings, energy demand in the 25 current EU states will increase by about 50% by 2030. That is something that Czech Coal, as an investor, must take into account. We must also take into consideration that most of the power generation infrastructure in Europe is reaching an advanced age. There is a huge need for new investments in power generation.

As noted, the policy aspect is critical for us. If we look at policies on carbon emissions and

23 Energy | Empowering the Individual and the Community

effi ciency improvement, we can see that they have had a positive eff ect, but renewables still do not make up a suffi cient share of overall energy sources. We see that the share of fossil fuels will, in fact, have to increase in order to meet rising demand.

We must also look at the situation from a different angle, one that is key from the business point of view: the supply and investment side. To build a wind power park in the Czech Republic is very expensive and the return on it is very insecure, even though we know such a project will receive more and more government support. Maybe if climate change comes then there will be more wind, but there would also be more storms.

Our group also has as a goal the development of biomass resources. In the Czech Republic, we have a relative advantage in the production of biomass. However, in terms of variable costs, biomass is the most expensive source of electrical generation. If you look at the scenarios provided by the European Commission, we see that energy intensiveness and carbon intensiveness should be diminished in the production of electricity. This will be driven by policies to some extent but also must be supported by the market. It is important for us to be more and more efﬁ cient with lower and lower costs.

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By way of example, imagine our group considering a big project, such as the launching of a super-critical power plant using brown coal. From the business point of view with regard to economics and risk, it is not only a question of prices but also of long-term investments. If the next government decides that gas should receive greater support than coal, then our investments might be lost. These investments fall into the range of billions of euro. Strong and abrupt governmental interferences bring investment insecurity and market deformation and lead to a distortion of true “price information.”

Another source of risk is the question of how externalities will be internalized. There are many methods to this. The same method, when utilized by diﬀ erent organizations, can bring very

25 Energy | Empowering the Individual and the Community diﬀ erent results. I appreciate all attempts to internalize externalities, which is a necessity for the future. However, scientists should handle this subject very carefully and should not let it be misused by governments to help create populist policies. Sustainability should not be considered an ideology but as a tool for long-term strategy. When it is turned into an ideology – applied through legislation, for example – then it can harm the market and other democratic values.

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26 What do we actually want? Electric consumption is a critical part of our standard of living. Business looks at this data as an opportunity in those places where there is still a large space for growth in the consumption of electricity. At the same time, we see a trend in countries like the U.S., Ireland, Japan, and France that suggests that growth has hit some ceiling. New living standards will lead to a more careful treatment of energy consumption, not just due to price pressures but also because of the altered behavior patterns produced by those new, better informed lifestyles.

There is another factor that corporations must take into account when they consider future energy scenarios and implementation plans: long-term strategy. A sound strategy can help minimize risk and provide for future success. In that regard, what we need is more laissez- faire and less ideology when dealing with sustainability. Corporations that report their sustainability indicators early and include sustainability within their long-term strategies will gain a competitive advantage. As prices of oil or coal or electricity in general change, ﬁ rms will have to pay attention to eﬃ ciency and sustainability concerns.

Finally, I would also stress the necessity of long-term investments into the applied sciences. In Europe, corporations have already invested huge amounts into the development of cleaner technologies. To develop these applied sciences, however, corporations need a clear view of the future and the conditions they will face. In addition, it is important to strengthen the position of independent science, which can provide unbiased and objective feedback. This can take many forms: feedback about climate change, for instance, or regarding consumer patterns.

For example, in the Czech Republic, it was announced that air pollution is increasing this year compared to three or ﬁ ve years ago. The reason for this is that people are coming back to coal for use in their stoves. Gas and electricity availability is negated by higher prices. Coal sales, however, have not increased in the past four years, so there must be some other explanation for this increase in air pollution. Transport growth, perhaps, or increased construction or people burning waste. This is the sort of thing that must be studied independently by scientists, so that we know exactly what problems we face and where we should focus our eﬀ orts.

27 Energy | Empowering the Individual and the Community

THE JAPANESE EXPERIENCE WITH ENERGY EFFICIENCY Nobuya Minami

October 11, 2006

Thank you very much for your kind introduction. I am extremely grateful to you for giving me this excellent opportunity.

I would like to oﬀ er my observations and views on the eﬃ cient use of energy and environmental activities in Japan and to express my vision for achieving sustainable growth with limited natural resources and environmental preservation.

In recent years, as a result of the development of the socioeconomic system of mass production and mass consumption by modern industrial civilization, there has been a remarkably growing concern about the limitation of global natural resources. At the same time, global environmental problems, such as global warming, air and water pollution, climate change, and various impacts on the ecosystem, have become more obvious because of enormous waste emissions. Many people have suggested and recognize that our most important mission, as global citizens, is now that we should achieve environmental conservation worldwide.

In response to those developments, business awareness of environmental protection has been growing rapidly in Japan, as shown by the fact that the number of companies that announce environmental reports is increasing.

Recently, as companies are requested to play a role in achieving a sustainable society, which means fulﬁ lling their social responsibility, we can see an increasing number of cases in which a company announces its sustainable report or CSR (Corporate Social Responsibility) report by combining its environmental report with the state of their social relations as a whole.

I feel that the time has come for the environmental initiative to become the key element for the basic policy of each company in Japan. The above trend has been driven by the concept of the so-called 3Rs (Reduce, Reuse, and Recycle). Of these I believe that Reducing, a restraint on the consumption of natural resources, should take center stage for its response to the limitation of natural resources and environmental preservation.

In addition, the Reuse concept should also be promoted in order to achieve the above response. Moreover, the pursuit of Recycling will lead to an improvement in the recycling rate – that is, “zero emissions”. Therefore, these 3Rs are directly related to energy saving.

I work in the energy industry, and energy has certain characteristics, including the fact that it cannot be reutilized once it is used. Considering the fact that nearly 90% of our current energy consumption is derived from fossil fuels, and that most greenhouse gases are energy-derived

28 CO, energy should in particular be used effi ciently. This means it has to be reduced thorough energy saving. It would not be an exaggeration to say that, for energy companies such as TEPCO, our positive attitude towards effi cient energy use is pivotal in fulfi lling our CSR. So we are focusing our eff orts. Hereafter I would like speak about my observations and views on the effi cient use of energy and environmental activities in Japan. Based on several indices, I believe that in these areas Japan has an advanced position in the world. One of the reasons may be the inherent Japanese situation. I plan to explain this issue later, and I hope that your understanding of Japanese traditional culture and wisdom relating to effi cient energy use and environmental protection will help to further develop effi cient energy use and environmental initiatives in both developed and developing countries throughout the 21st century.

As you may know, Japan is poor in natural resources and is a geographically narrow and densely populated nation. Thirty or forty years ago, Japan experienced a serious deterioration in the environment because of rapid industrialization and the mass consumption of imported fossil fuels. The energy situation was extremely serious because of multiple oil crises. Japan has placed countermeasures to public dangers and environmental disruption, as well as an energy saving policy as its main policy, in order to survive and to establish a country that is aﬄ uent and healthy.

110

100

This chart shows the history of energy consumption per unit of real GDP in Japan, as a result of Japanese action. The level shows a rapid decline after the oil crisis, which means eﬃ cient

29 Energy | Empowering the Individual and the Community energy use increased. Today, energy consumption per unit of real GDP in Japan is the most eﬃ cient of the world’s major industrialized nations.

Next, I would like to take some industries and products as an analogy. Firstly, I will examine the steel industry as an example. In the steelmaking fi eld, Japan has the most effi cient energy use. The fact that most Japanese steelmakers readily adopted energy recovery, that is effi cient equipment which utilizes exhaust gas from the steel plants, such as coke dry quenching (CDQ), is often referred to as the main reason. That makes me feel that the Japanese companies’ aim to “never waste any energy” has been accepted.

100%

80%

60%

40%

20%

0 300 600 900 1200 1500

30 Next, I would like to examine the history of the power consumption of Japanese refrigerators and air conditioners that are representative home electric appliances. This is shown in these charts, and you can see a continuing improvement in energy eﬃ ciency. For example, the eﬃ ciency of Japanese air conditioners improved by about 40% between 1995 and 2004. This is the result of improvements not only of compressors and heat exchangers, but also through improving the route through the duct in order to reduce air resistance. This shows the high level of meticulous care that has been accumulated. I believe that Japanese technicians are highly aware of problems on a daily basis.

Next, I would like to brieﬂ y refer to the situation of environmental initiatives in Japan.

Firstly, the level of SOX emissions is shown in this chart, and you can see that Japan’s level is quite low compared with those of other countries. This is a result of the fact that Japanese companies have made extra eff orts to achieve the tough goals set by the Japanese government. Meanwhile, Japan is facing quite a diffi cult situation concerning greenhouse gases. Total greenhouse gas emissions in Japan were 1.355 billion tons CO₂ equivalent in FY2004, which represents a reduction of 0.2% compared to FY2003. However, in order to achieve an overt downward trend as a country, we should make extra eff orts especially in the civil or transportation sector, in addition to the said effi cient energy use, because Japanese society was originally of the energy saving type. In these statistics, CO₂ emissions from the industrial sector decreased compared to the base year of 1990, through the development of effi cient energy use.

31 Energy | Empowering the Individual and the Community

When we check the trend of CO₂ emissions and energy consumption intensity in the major industrial sectors, we ﬁ nd that energy consumption intensity in each sector has been decreasing, although CO₂ emissions in some sectors have not been continuously decreasing because of an increase in production. This is due to the people concerned taking action on technological innovation and waste elimination.

The great result above is an accumulation of spontaneous eﬀ orts by each company.

I would like to introduce here some examples of this kind of eﬀ ort by the companies concerned, which have recently been in the news.

32 Firstly, precision equipment maker C launched new calculators using resin recycled from used copy machines, which is contained in the plastic components of these machines. The packaging and instruction booklets for these products use recycled paper, so maker C declared that the key sales point of these models is that they are “environmentally-aware”. Maker C plans to convert the bands used in packaging medical equipment from petroleum resin to biodegradable plastic made from bio-based materials. Therefore, if they are put in a landﬁ ll, microorganisms in the soil will cause them to decompose into water and carbon dioxide. (This carbon dioxide was originally taken from the air by plant life, so the decomposition process is not thought to produce any new carbon dioxide.)

Another precision maker R and retailer also adopted bio-based materials last year and this year. Consumer-electronics maker S launched an LCD TV using plant-based paint last March. The paint is made from corn, and this is ﬁ rst time in the world that the plastic parts of consumer electronics have been painted with plant-based paint. Meanwhile, consumer electronics manufacturer M experimentally recycled vegetable cooking oil that had been used in its factory canteen to fuel trucks. The canteen generates fuel that can save the light oil equivalent of the annual consumption of two trucks.

As I mentioned, with fresh ideas many Japanese companies are taking action on environmental initiatives and effi cient energy use, such as a reduction in fossil fuel consumption. In particular, I fi nd that most of these eff orts are highly inventive in the use of items that have been used or discharged without much awareness. This is where I feel that the Japanese characteristics of tradition and culture have developed.

Japan’s electricity industry has been making eff orts to improve thermal effi ciency, including achieving 59% in our LNG Combined Cycle at Low Heating Value (LHV) equivalents, now under construction. As a result, the thermal effi ciency of Japan’s thermal power plants is one of the highest in the world. Improving the effi ciency of our thermal power plants contributes both to conserving the required fuels and to reducing CO₂ emissions. We intend to take further action on this, as well as steadily promoting nuclear generation, together with heavy electric machinery manufacturers, in the future.

At the same time, Japan’s electric utilities have been actively working on the technical development and promotion of highly-eﬃ cient equipment on the demand side (eﬃ cient energy use by customers). This includes water heaters using heat pumps, heat storage air conditioning systems using nighttime electric power, and electric kitchen appliances which radiate less heat.

We shall make eﬀ orts in this ﬁ eld. Moreover, we plan to be engaged in further research and development on home energy management systems, which support household energy conservation activities by means such as the optimum operation of household appliances.

Among the energy saving technologies I mentioned, I would like to explain the heat pump in a little more detail.

33 Energy | Empowering the Individual and the Community

A Heat Pump is the mechanism that brings the ambient heat together in refrigerants through a heat exchanger, and compresses and expands the refrigerants to raise and lower its temperature and pump up the heat. This technology, which exists in Europe, has made great advances in recent years. Now we can get thermal energy that is 3 to 5 times the input energy. The CO₂ refrigerant heat pump water heater (the trade name in Japan is Eco Cute) , which was recently developed and became popular, can halve CO₂ emissions by using a heat pump and can trim energy needs by 30% compared to conventional fuel-burning water heaters.

By the end of FY2005, a total of about 120,000 Eco Cute units were in place in TEPCO’s service area. A complete switch from traditional fuel combustion to highly eﬃ cient heat pump use for air conditioning and hot water supply by homes and businesses enables a reduction in CO2 of approximately 100 million tons of CO₂ per year in Japan. So I place high expectations on the future of the heat pump. As I explained just now, it could be said that the actual results of eﬃ cient energy use and environmental initiatives in Japan remain at a high level. I think there are some background reasons for this.

Firstly, as I said earlier, I can point out that Japan’s energy supply is vulnerable. As you can see, compared with the major countries’ self-suﬃ ciency ratio of energy supply, that of Japan is quite low. In addition, as Japan is an island country, we cannot import electricity physically. Therefore, vulnerability of energy supply has always been taken into consideration.

34 Japan’s energy self - sufficiency 25 Japan’s energy self - sufficiency is low in comparison to others nations Figure 4: Energy self sufficiency of major countries (2003) 160

Energy self-suﬃciency (including nuclear power) 150 148% Energy self-suﬃciency (not including nuclear power)

106% 100

72% 96% 140% 50% 50 39% 63%

15% 16% 26% 4% 8% 0 Italy Japan Germany France U. S. U. K. Canada

Source: Energy Balances of OECD countries (2002 - 2003), Energy in Japan 2006 (Agency for Natural Resources and Energy)

As for the top priorities in Japanese energy policy, eﬃ cient energy use has taken its place together with security of energy resources, so that the government established the Moonlight Project after the oil crises. It was also given the same priority in the New National Energy Strategy, completed this year.

The second reason is serious competition among Japanese companies. In Japan, the Energy Conservation Law was issued in 1979, and several revisions have subsequently been made to make this more strict. The law urges both manufacturers and users to work towards the eﬃ cient use of energy, and it speciﬁ es punitive clauses.

When, for example, we look at the situation concerning home electric appliances, METI set energy saving target standards (the so-called ‘top-runner’ standards) for designated appliances. The actual achievement ﬁ gures by far surpass the targets, because METI has recommended evaluation by top-runner standards, and each manufacturer has to compete for R&D for energy saving products.

I believe that these results are strong evidence that each company has been trying as much as possible to succeed through competition, because the eﬃ ciency of each appliance is an important factor of consumer choice. It is said that the competitive environment is critical for technological innovation in the industrial sector, and this has been proven in energy saving technology.

35 Energy | Empowering the Individual and the Community

Furthermore, I believe that there is another important background reason for eﬃ cient energy use in Japan. This is, as I mentioned a little earlier, the Japanese traditional and cultural outlook, which has developed since olden times – that is to say Japanese culture, which has been fostered based on Japan’s geographic features.

The Japanese are said to have no religion at all. However, I believe that the Japanese, in fact, worship a number of nature deities, and that they regard mutual coexistence as the basis and custom of the Japanese lifestyle.

At least, the concept of “the soul or god dwells in everything” prevailed in daily life in the mountainous farming village where I spent my boyhood.

As I said before, Japan is an island nation with limited natural resources. In addition, the Japanese government in the Edo period, which was between the 17th and the mid-19th century, adopted an isolationist policy, and international trade was disrupted.

In such a situation, throughout the Edo period, that is, just before the arrival of modern industrial civilization, the Japanese were forced to create a completely energy-saving and resource-saving economy and society. As every item was precious for them, they acquired the custom of reusing or recycling items as much as possible. This established a unique economic and social structure based on the said coexistence with nature, and a feeling of gratitude to nature, that is, in a word, based upon “Mottai-nai”.

More concretely, in the Edo period the main heat source was ﬁ rewood or charcoal that was generated from forests, as in many other countries, but in Japan consumption was based on protection and regrowth, and this consumption was constrained such as utilization of thinning and brushing or planned logging in case it diminished forest resources. This is wisdom for maintaining ﬁ ne forests by use of the natural advantages of the Japanese warm humid climate.

Meanwhile, because of Japan’s hot and humid summer, airiness was regarded as important when houses were constructed, and planting, wind chimes, outdoor benches etc. were often prepared. Such open houses could exist because of the sense of a neighboring community and the extremely low crime rate around that time.

In order to maintain these resource-saving activities, a reuse and recycling social system was developed as well. There were not only second-hand clothes traders, but also various kinds of recycling businesses, including scrap metals purchasing, the trading of used wooden tools, used paper collecting, and the collection of ash in furnaces. The society of the Edo period established a recycling business as well as a repairing business. Moreover, human excreta were a precious fertilizer, so my own experience is that farmers used to trade it for a comparable amount of farm products.

I consider this to be the reason why the concept of eﬃ cient energy use and environmental protection has had mass appeal in Japan, to citizens and corporate executives of a mature age. It may be the Japanese lifestyle and mental outlook.

36 On the other hand, modern Western industrialized civilization based on mass production and mass consumption became popular in Japan from the 1960s, when Japan began to enjoy a period of rapid economic growth after WWII. I believe that the Japanese feelings and customs of “Mottai-nai” have been fading.

Indeed, Japanese energy consumption per capita in the commercial and residential sectors had been rather lower than that of other advanced countries, but Japan’s level is now closer to other advanced countries’ level because of the rapid spread of home electric appliances. That fi gure shows that our civil life has become affl uent. If those statistics, on the other hand, provide evidence that Japanese conventional traditions and fi ne customs are disappearing, then I think that this is quite regrettable.

I believe that it is necessary for us to hold a worldwide discussion on the study of energy and environmental issues in the 21st century. Unfortunately, in the United Nations Conference on Environment and Development (the Earth Summit) held in Rio in 1992, where the United Nations Framework Convention on Climate Change (UNFCCC) was signed, a conﬂ ict of interest between developed and developing countries became obvious, and there was a ﬁ erce dispute between north and south, while discussions had been working towards an environmental goal.

In 1972, the global environmental issue was discussed for the ﬁ rst time at the UN Conference on the Human Environment. At the Conference, the concept of “Spaceship Earth” was developed, and the issue was proposed as a task that the international community as a whole had to undertake, because we are all on the same spaceship.

In 1992 the Earth Summit in Rio was held with representatives of about 180 countries based upon this spirit. After ﬁ ve years, the Kyoto Protocol was adopted in the 3rd Session of the Parties to the UNFCCC (COP3), but the Kyoto Protocol only recognizes developed countries as a subject for control for preventing global warming, excluding developing countries such as China or India, which have some of the highest emissions.

Moreover, in the process of domestic ratiﬁ cation, the U.S., the largest emitter of greenhouse gases, withdrew from the Kyoto Protocol. Emissions from the developed countries that have ratiﬁ ed the Kyoto Protocol account for only a third of total emissions.

I would like to say that I strongly hope each country should reﬂ ect the original intention and cooperate with each other, because the issue of global warming is a task which should be addressed by all, throughout the world.

When we study the limitation of energy or environmental initiatives in a global scale, I believe our ancestor’s experience, or their way of thinking and spirit in the Edo period, will be helpful.

Up to a hundred years ago Japan was one of the developing countries and it has caught up with the other developed countries by rapid industrialization. It will therefore give me great pleasure if the series of short term experiences of Japan that I have mentioned here will be helpful for both developed and developing countries.

37 Energy | Empowering the Individual and the Community

Of course, I do not intend to assert that our current civilization should return to the Edo period, but we need to search for a new way of development based on the traditional values of Japan, “Mottai-nai”. This is something with which the Kenyan environmentalist Ms. Wangari Maathai, a Nobel peace prize laureate of 2004, agrees.

The “Mottai-nai” spirit is based on a perspective similar to the 3Rs that I have mentioned. I hope it leads to actions that are kind to humans and which respects and uses personality, applying the spirit to humans as well as to materials.

Anyway we, as global citizens, need to act in order to address the limitations of the earth, or we must have the same goal and act with the same aims. If we continue to act, I believe that we should have a brilliant future.

38 REQUIREMENTS FOR “GOOD ENERGY” Konosuke Suguira

October 11, 2006

My role is to present the conceptual frame of this conference. As my presentation is “Conceptual,” it is shown in analog form. It is not based on speciﬁ c numerical data. The numerical analysis was done by Dr. Arnold Baker.

First, I set the horizontal and vertical axes: Year, GDP and Energy Demand, population from 2000 to 2050. The total world population in 2000 was 6 billion and it is expected to grow to 10 billion by the year 2050.

TEC

Today, GDP per capita in OECD countries is around this red line and if we suppose that in 2050 world GDP per capita will rise to the OECD level, energy demand will soar upwards as seen in red, under the Business As Usual (BAU) scenario. This is the origin of our discussion. How do we cope with such a rise in energy demand?

39 Energy | Empowering the Individual and the Community

First, energy demand per GDP globally should be lowered to the current energy saving level of OECD countries, as shown by the gold line. The gold line shows that with this level of eﬃ ciency and the use of energy saving technologies, we will be able to push down global energy demand to the lower “TEC” level.

If we need to further reduce energy demand in 2050, we must reduce the growth of GDP itself. We can do this by reducing the production of less useful items. For this purpose, we may have to use “New Thinking.” With new thinking focusing on producing true societal goods and reducing the production of societal “bads,” we may be able to reduce overall energy demand to a sustainable level, shown in green on the chart. We call these 3 areas Business As Usual, TEC and New Think, respectively.

Let’s now approach the energy challenge from a qualitative view and ask why and what we should do to improve energy demand by 2050. The next chart shows this qualitative approach.

If the energy sources in 2050 had the same ratio as today, fossil fuel demand would increase considerably. Also, we would have to construct a signiﬁ cant number of new nuclear power plants.

We must think about how to cope with the soaring energy demand while also ensuring lower CO₂ emission, less risk of nuclear proliferation, and fewer international disputes. As we saw from the previous chart, we should push down the demand, while at the same time choosing better energy sources.

What is the good energy? We must have clear criteria to evaluate energy sources. The major categories of the criteria may be Aﬀ ordability, Reliability and Safety. However, the weight of these three factors is changing. In the past, when economic expansion was the priority, more

40 weight was given to aﬀ ordability, but now and in the future, importance is shifting, and should be shifted, towards safety and security.

The most important measure of good energy must undoubtedly be lower carbon intensity in order to reduce impacts on climate change. But the threat of nuclear proliferation and geopolitical dispute should also be high in the criteria for safety and security.

For your reference, our secretariat prepared short deﬁ nitions of these criteria as follows:

Aff ordability - Assesses the economic aff ordability of a technology considering total life cycle costs. Life cycle costs include initial construction costs, life time operating, fuel and maintenance costs, as well as decommissioning costs, discounted at an acceptable rate. Total costs include transportation costs, as well as environmental and social externalities. Costs also incorporate the fi nancial costs of fuel source volatility, risk and security costs.

Reliability - Assesses the reliability of the new technology. In the case of wind and solar, for example, intermittency is a consideration. In the case of oil and gas, supply interruptions and geopolitical stability are a consideration. In the case of all technologies, its maturity and easiness to use, as well as frequency of malfunction and maintenance periods, are considered.

Safety - Assesses the safety implications of the technology for users and local residents in terms of resource saving, health, risk of accident and vulnerability to terrorism, as well as the technology’s impact on environmental safety and global safety issues. Safety incorporates not only clear and present dangers but also possible future risks such as climate change, nuclear proliferation, geopolitical disputes and terrorism.

41 Energy | Empowering the Individual and the Community

Through the discussion in this conference, these criteria should be reﬁ ned and applied not only to conventional but also new energy sources and energy technology for critical evaluation. I expect this work will be done and reported by PSSI students in the near future. The criteria works not only for energy, but it can also be used for Products in general.

In the developed world, citizens ask the question, “What exactly does the ‘so called’ GDP mean?” What is the “Product”? Conventional economics tells us that GDP refers to the production of goods and services. But, don’t economies also produce some “bads” and/or questionable services at the same time? Don’t we produce useless items? Don’t we produce more than what is needed? These questions should be posed.

We should evaluate goods and services by the light of social welfare using the Criteria of aﬀ ordability, reliability and safety. This may lead to the “New Think” scenario and a more sustainable future.

I expect that this New Thinking will be developed in the discussion of Session 2, followed by other sessions that seek practical ways to achieve this scenario. This, I believe, gives you the framework for this conference, and I look forward to your active participation with these issues.

42 NEW OLD THINKING | ENERGY, TRANSPORT AND CLIMATE Jessica Morey (In collaboration with Lee Schipper and Wei-shiuen Ng of the World Resources Institute)

October 11, 2006

Unsustainable Transport in the Developing World The current trajectory of transportation in developing countries is an upward unsustainable spiral of fuel waste and pollution. These trends are contributed to by a number of factors including; rapid growth in personal vehicle use, dirty fuels, weak pollution controls and poor planning (car-centric development). All of these trends lead to increased greenhouse gas emissions and decreased mobility.

Transportation Scenarios for China

The “Road Ahead” scenario is the extrapolation of current trends. By 2020 China will have about the same GDP per capita as Korea in 1995. For this reason, China is assigned the same number of cars per capita as Korea’s 1995 level. The result is a huge increase in oil imports and CO₂ emissions from cars.

The “Oil Saved” scenario represents a conventional approach to more eﬃ cient vehicles including hybrids, compressed natural gas (CNG) and even electric cars. But the sheer increase in automobile use still forces oil demand signiﬁ cantly higher than current levels.

43 Energy | Empowering the Individual and the Community

The “Integrated Transport” scenario results from an integrated policy including a Bus Rapid Transit system and other fuel solutions together with restraints in car use that make cities liveable. This integrated scenario leads to only a doubling of fuel use for cars as compared to an almost 500% increase in the Road Ahead.

These scenarios present three lessons: 1) It is easier to evolve into the third scenario than to change once the ﬁ rst has collapsed; 2) While oil prices are important for stimulating eﬃ ciency, concerns over liveable cities will ultimately push the third scenario; 3) Sustainable Urban Mobility can save cities, fuel, and CO2 emissions all over the developing world.

Policy is Essential In order to address transportation and its resulting emissions, policy will be essential in order to pull markets and technologies to a sustainable path. But these policies will have to be ﬂ exible in order to engage more participation, ensure greater stakeholder buy-in and adapt to country-speciﬁ c circumstances.

I am going to present today two policy-based approaches to the challenges of sustainability over the next few decades. The ﬁ rst was developed by the Pew Center on Global Climate Change. This is a macro-level example of how to address climate challenges at the international level. The second example is from Embarq, the World Resources Institute’s Center for Sustainable Transport.

Pocantico: Eﬀ orts Beyond Kyoto From July 2004 to September 2005, the Pew Center hosted a series of four oﬀ -line discussions among 25 senior policymakers and stakeholders from 15 countries. The group’s report, released in November 2005, recommends approaches for future international policy frameworks to address climate change.

The group agreed that any future agreements must engage all major economies in order to take more eff ective action. The group also focused on the need to integrate climate and development, to maintain fairness and any policy framework would have to provide fl exibility for diff erent national strategies and circumstances.

The Pocantico Report recommends a Multi-Track Approach which can allow diff erent countries to choose from a basket of commitments and negotiate across these commitments, which could include: • Targets and trading - Kyoto, but possibly with diff erent target types • Sectoral approaches - agreements around specifi c sectors: GHG standards for autos; technology standards phasing-in CCS • Policy-based approaches - commitments to undertake national policies that address the climate while advancing core development objectives without committing to specifi c emission levels • Technology cooperation - both for R&D and to ensure broad, equitable access

44 In order to undertake and sustain ambitious eff orts, all countries need confi dence that others are doing their fair share. By linking approaches and negotiating across tracks, such a framework can provide that confi dence and achieve more ambitious overall eff orts, but also be fl exible enough to allow diff erent pathways.

EMBARQ: Center for Sustainable Transport EMBARQ was established by the World Resources Institute in 2002, with a generous grant from the Shell Foundation. WRI is an environmental think tank that goes beyond research to create practical ways to protect the earth and improve people’s lives. EMBARQ’s vision is aﬀ ordable, healthy, sustainable transport for everyone. EMBARQ acts as a catalyst for sound solutions to urban transport problems, focusing particularly on cities in the developing world, where the problems are most acute.

Severe air pollution and traﬃ c congestion threaten core economic development objectives such as poverty reduction, job creation, enhancement of existing businesses, increased prosperity and improvement of overall quality of life. To help cities meet their development objectives, EMBARQ works to: • Forge partnerships with political leaders, the business community, and civil society groups that have a mutual and demonstrated commitment to bring about change; • Support cities with technical and policy expertise and help with ﬁ nancial analysis, experimentation, implementation, and evaluation; • Disseminate the lessons learned to other cities; • And establish itself concurrently as a reliable source of independent analysis and technical assistance and as a partner that facilitates concrete agreements between private and public sector actors.

Mexico City an example of a Policy-based solution EMBARQ’s has been working in Mexico City on transportation, providing their policy tool-kit, which includes: • Bus Rapid Transit (BRT) • Institutional reform: greater intra-city and regional cooperation • Vehicle performance requirements • Constraints on private car use • Bike and pedestrian access • Taxes on vehicles and fuels, road/congestion pricing, parking charges

These policies have lead to signifi cant steps toward climate- and development-friendly transportation in Mexico City. Since the project began, the bus system has been reinvigorated. The now profi table Metrobus carries 250 000 people per day, and the retrofi tted buses release 90% less particulate emissions. EMBARQ partnered with top vehicle and fuel companies to develop clean technology and greater effi ciency for public vehicles. The project helped to move the Mexican national oil company to cleaner fuel sooner. Today, Mexico City’s residents are enjoying less local air pollution and increased mobility. On top of that, the project has saved and sold 25,000 tons of carbon.

45 Energy | Empowering the Individual and the Community

In conclusion, I would like to highlight that it is possible to continue to increase quality of life while reducing energy demand and carbon emissions. Improved options exist today for vehicle/transit systems and other sectors (New Old Thinking). However, policy changes are the critical factor in achieving these beneﬁ ts and implementing new thinking.

46 CENTRAL AND EASTERN EUROPE OPPORTUNITIES IN IN ENERGY SECTOR Vladimír Schmalz

October 11, 2006

Thank you for giving me the opportunity to address such a distinguished group. I thought it might be interesting to share some thoughts about Central and Eastern Europe. It is interesting for me from the perspective that the clear leader in the region is coming from the Czech Republic. It is our company, CEZ, that is dominating the arena and driving most of the interesting initiatives in this part of Europe.

I would fi rst like to briefl y introduce who we are and what is our vision, as well as where we are in the European context. After that, I am ready to share our thoughts and any specifi c details about particular countries in the region. There was a dramatic mental change in our company in 2004. New management came in and we set international expansion as one of our key milestones with respect to future growth. So since 2004, we have been trying to expand in Central and Eastern Europe to strengthen our position in the electricity markets. We are focused on power generation, distribution, and supply, and we are seeking to establish a presence in related businesses, such as coal mining and heat generation. We are doing well and are fulfi lling this vision: since we came in and started managing the company, stock prices have increased from about 100 CZK to between 700 and 800 CZK within two and a half years. That is more than a sevenfold increase. I think the market and investors are giving us a great deal of credit, and this is, of course, a promising sign for the future.

0 1020304050

47 Energy | Empowering the Individual and the Community

With regard to where we are in the European context, I would like to draw your attention to this table. It does not reﬂ ect the very latest developments, such as the merger between GDF and Suez, which is a major issue in the energy markets. It also does not fully reﬂ ect German E.ON trying to take over the Spanish company Endesa. Nevertheless, in terms of market customization and number of customers, we are eight biggest utility in Europe.

What is most interesting from our point of view is the EBITDA margin. We are by far the most profi table company in the European energy market. Many factors help explain this fact. We have a very balanced generation portfolio, which is based on a mix of nuclear and domestic lignite sources. Despite the latest tensions with domestic suppliers of coal, we still believe that we have suffi cient volume secured for both current and new and refurbished plants. We are confi dent that we will maintain the balance in our generation portfolio and will keep going forward in our profi t reports.

Now, what have we achieved in Central and Eastern Europe since 2004? We have built quite a strong position in both Bulgaria and Romania, where were are present in distribution and generation and where, last week, we fi nalized the successful takeover of Varna, the biggest power plant in the Balkans region. Our position in Bulgaria is very strong. Our presence in these two countries is, for us, especially signifi cant because of their impending ascension to the European Union, and we expect signifi cant growth to occur in both states. The region currently faces a signifi cant lack of generation sources, so the forecast for our operation is very interesting indeed. Some of the problems were are facing here stem from the fact that electricity is still considered a social good and is very much connected with local politics. The process of supplying customers and changing the price every year is sometimes too hard for the population to accept.

Of course, these countries are in the same position as the Czech Republic or many of the countries represented here today; there are permanent elections on the national and municipal levels, so that energy suppliers are under constant pressure by the outside environment. This also creates a certain framework for any developments with regard to energy effi ciency. To be engaged with renewables is quite expensive, and if this framework is not supported by the local regulatory frameworks, then basically all of these investments are not likely to pay off in the short or medium term. Therefore, our eff orts in these countries have been to focus on traditional sources like lignite. There are also ongoing negotiations regarding nuclear energy. Bulgaria and Romania are already very far along: Bulgaria is completing the fi nal stage of discussions about a nuclear project in Belene, while Romania has announced the Cerna Voda power plant extension. Both will soon be introduced to investors, off ering them a clear equity partnership opportunity.

48 We have also built quite an interesting position in Poland. Presently, we have two power stations there and are really just trying to gain a better knowledge of the Polish market. This step has been greatly appreciated. I have put a lot of question marks next to Poland because Poland is the part of Central Europe where we have our core operations in either generation, distribution, or trading. We have announced Poland as one of our core markets for future growth, but after the recent change in government there is not a clear framework for international investors. All of the opportunities that the previous government had been dealing with have been stopped and all of the privatization processes are currently on hold. There is an ongoing internal local debate on the future of their energy sector. The latest decisions clearly tend to create strong local domestic players based on the merger of local generation and distribution companies. As a result, this opportunity will, for the time being, be out of reach to foreign investors. For this reason, our involvement in Poland, even limited as it is to two small power plants, is very important for gaining an understanding of the market. We believe there will be a future for us in this country once they decide about the future of their energy sector.

I did not put Slovakia and Hungary in the slide because the energy sector in these two countries has already been privatized and has already been divided among various players. From our perspective, there is a future for some other investors only on some lower proﬁ le projects. You cannot buy anything signiﬁ cant in either Slovakia or Hungary at this point. If there is anything of note in the future, it will involve asset swaps between the major players. For the time being, it is hard to forecast what will happen.

49 Energy | Empowering the Individual and the Community

Slovenia had announced some openings in their energy sector for quite a long time and then, suddenly, came a government decision saying tat they did not plan any restructuring or privatization of their key Holding Slovenske Elektrarne (HSE). Any future there will have to come about through communication with that local company.

In Montenegro, which recently gained its independence and held elections, decisions are also pending. There is ongoing privatization, as seen in talks with Russian companies linked to the aluminum business. The Montenegrin network is very linked to the Serbian network, so many important steps will have to be taken after the Serbian sector is restructured and privatized, which is ongoing. There are several opportunities here as well. Nearby, we have achieved signiﬁ cant progress in Bosnia and Herzegovina, where we have signed a memorandum with the local government for the construction of new lignite-based sources.

The major unspoken issue in the region is, of course, Kosovo. This is a unique opportunity, because Kosovo is located on a large lignite ﬁ eld whose proven reserves equal at least thirteen billion tons. Yesterday and today there has been an ongoing investors’ conference in Kosovo dealing with the future of the energy sector. The development of a procedure for attracting international investors to the Kosovar energy sector is also ongoing. This issue is closely tied to various political risks, as no one knows what the ﬁ nal status of Kosovo will be. Those critical decisions will be taken on an international level.

I have also included three countries which are a little bit outside of our region of focus. These are Turkey, Ukraine, and Russia, where we also have several operations. We are starting some small projects in Russia and the Moscow area in particular, where there is a lack of energy. The municipal government has decided to build, or is giving international investors the opportunity to build, new generation sources based on gas. CEZ won a few greenfi elds and will be constructing some of these new sources in the capital area. In Ukraine, after achieving a certain balance on the governmental level, they will again be progressing with their energy restructuring plans. We are currently fi nalizing transaction plans and will purchase fi ve distribution plants there.

Turkey represents a very attractive opportunity for big investors in both generation and distribution. A generation tender has been announced and distribution arrangements are also ongoing. The level of interest has been extreme: 83 companies showed interest and participated in pre-qualiﬁ cation for the ﬁ rst three privatized distribution companies in Turkey. As a result, everyone feels that the market there is promising, despite the fact that there is no timetable for accession negotiations between Turkey and the EU.

So this is a brief outlook on the energy sector in Central and Eastern Europe. In conclusion, I will address the question that the chairman asked previously regarding the future of alternative sources of energy and the transfer of technology and know-how to the region. My answer is that this will be diﬃ cult. As I had previously mentioned, energy is still considered a social good in much of this part of Europe. Some people still react very negatively when they are asked to pay. There are some groups that have never had to pay before and are now getting invoiced and getting bills. This does not hold true for the entire region, but there are deﬁ nitely places where invoicing customers is a big surprise, rather than a standard business practice.

50 Certainly in our approach to greenfi elds or brownfi elds projects, we will seek to employ the most advanced technology and meet the highest standards. We will always remain mindful of the Kyoto Protocols and the emission trading scheme. All concerns of this type will be considered when CEZ makes its investment decisions. How quickly the process of renewable energy expansion will be accomplished very much depends on the interconnections between the countries of southeastern Europe. Many of these interconnections were destroyed in the wars of the 1990’s and there are now a number of bottlenecks between nations – they are not discussing energy issues amongst themselves. This is true in more places than just this region, as it can be very diffi cult to establish eff ective communication on the international level. But though it is very diffi cult, it is also very necessary.

51 Energy | Empowering the Individual and the Community

SESSION 1 DISCUSSION EXECUTIVE SUMMARY

To lead off the session, David Gladiš Deputy foreign minister made a series of observations regarding the importance of energy in nearly every sphere of human activity. The looming energy crisis has the potential to impact most of life as we know it. In the words of Mr. Gladiš, the scale of the problem where energy is involved is very large, but fi nding eff ective energy solutions will likewise produce results on an enormous scale. For this reason, the Ministry of Foreign Aff airs is very interested in matters relating to energy and is eagerly serving as a host and sponsor of The Club of Prague’s inaugural conference, which deals with this critical topic. Mr. Gladiš thanked all the participants on behalf of the Ministry of Foreign Aff airs of the Czech Republic and expressed his hope that the looming energy crisis would be brought one step closer to a resolution as a result of the knowledge shared and created at the conference.

Following the presentation given by Mr. Radek Stavěl, moderator Bill Martin asked a question regarding the topic of externalities, which had been mentioned during the presentation. Mr. Martin cited the various political dynamics involved in the Russian supply of natural gas as being a big externality, and asked what sort of impact this has had on public debate in the Czech Republic regarding energy supply and sources. Mr. Stavěl responded that the issues brought up as a result of Russia’s politicized energy supply are an example of government failure. The Czech government had supported gasiﬁ cation of the villages and rural areas, which was a popular move at the time because of gas’s advantages, but which has since led to rising prices. Mr. Stavěl suggested that the government should seek to do a better job of managing the energy situation, leaving it to the market to determine what role the various sources should play. It should seek to take into account not only environmental concerns, which exist with natural gas as well, but the full range of externalities, including political and security aspects.

After Mr. Sugiura’s presentation, Ambassador Žebrakovský added his own welcome on behalf of the Ministry of Foreign Aﬀ airs. In light of the sizable Japanese representation at the conference, the ambassador spoke about the state of Czech-Japanese relations and cooperation, which he had sought to foster while serving in Tokyo. He mentioned his own background in technology, which he saw as being critical to ﬁ nding solutions to the energy crisis, and noted that the 4th Czech-Japanese technology seminar was already scheduled for the second part of 2007, which demonstrates the emphasis the Czech Republic places on technological development and mutual cooperation.

Commencing the oﬃ cial roundtable discussion, moderator Bill Martin noted that he had not yet heard much about the security aspect of the energy question and asked for some topical remarks from Mr. Hardouin, given his NATO background. Mr. Hardouin remarked that debates

52 debates about this issue take place constantly at NATO, and yet there is no agreement among the allies that the organization needs a common energy security policy. The energy dependency issue is raised quite often at NATO, particularly with regard to east European nations and dependency on Russia, where a situation of there being only one producer and exporter often exists. If current energy consumption trends were to continue, then there would be, from that point of view, two major important regions in the world – Russia and the Middle East. As a result, the question of energy supply becomes a long-term geopolitical and strategic issue not just for Europe and its allies, but for the entire world. Mr. Hardouin then proposed two questions of his own, which he directed toward experts in the ﬁ eld. The ﬁ rst question asked whether it was possible that at some point gas will become global in the way that oil now is, so that pipelines and continental links are not so critical. The second question wondered whether it was even possible to escape from the problem of geopolitical dependency, given that even if a Mottai-nai economy had been achieved, some fossil fuel consumption would still remain. Russia and the Middle East would remain the largest and cheapest sources of those fuels.

Dr. Bent Sørensen replied that it has become commonplace to speak about energy dependency as a problem of too few energy sources, such as the natural gas issue. Dr. Sørensen wondered whether or not it was too broad of a statement to simply say that we should not depend on one source but should diversify instead. He noted that there are some indigenous sources over which nations have control, and if those sources are suffi cient then there is little need to diversify. With regard to the question of dependence on limited natural resources, those who use them more effi ciently, or use less of them, will always have more options. The best way to address the dependency problem is therefore to pursue higher levels of effi ciency.

Citing Dr. Baker’s presentation as showing that current effi ciency levels could easily be quadrupled, Dr. Sørensen made the case that such increases would not even necessarily result in price increases. By way of example, he mentioned studies on appliances that found no consistent price diff erences between refrigerators of various levels of effi ciency, and also noted that his own car, which can rive 100 miles per gallon of gasoline, is no more expensive than the gas guzzler his neighbor may be driving. Dr. Sørensen added that the necessarily technology was already available and that implementation was now purely a question of political will. He expressed his surprise that political debates often ignore the option of increased effi ciency, which has the potential to buy supply security here and now. Such an avenue, compared with merely seeking out more sources, “may not be as sexy, but in my view it is the right solution.”

Dr. Karin Kneissl followed with remarks concerning the dichotomy between policy and the free market. She noted that the two have diff erent emphases, which may explain the confl icting infl uences and contradictory outcome that can occur. Despite the emphasis on policy solutions that generally exists in conversations, none of the 25 members of the European Union have a separate energy ministry; with regard to energy, decision-making is fragmented among a number of bodies. In mid-March, the European Commission wanted to acquire greater authority to deal with gas deliveries to Europe, but it met a great deal of resistance from national governments who are very hesitant to see some of their prerogativ Brussels.

53 Energy | Empowering the Individual and the Community

Dr. Kneissl asked rhetorically: where is the policy shift, who will take the decisions? She citied the existence of energy departments or ministries in the U.S. and Japan as symbols of the importance with which the topic is viewed in those countries.

The widely held conviction in the U.S., according to Dr. Kneissl, is that the oil business is too important to be left to the oil people. Elsewhere, however, half-ﬁ nished liberalization that created more problems than solutions has been followed by re-nationalization, as in France, Spain, and certainly Russia. Dr. Kneissl stated that she shared the conviction that policy needs to be responsible and cannot simply be left to the companies, but she made the argument that Europe lacks the necessary framework for making informed decisions, which the U.S. and Japan do possess. She also mentioned her concern that oil prices will eventually go down, eliminating the incentive for states to develop new and more eﬃ cient energy policies. She cited the example of Henry Kissinger coming up with a variety of “green” policies during the oil crisis period of the 1970’s, policies that were never implemented because oil prices went back down in 1972.

Responding to the topic of future price levels, Mr. Martin noted the close interrelationship between prices and investment and asked for the input of Mr. David Elliman, whom he described as an expert in the ﬁ eld and also the only individual to invest in a nuclear power plant. Given what we know today, Mr. Martin asked, what scenario did Mr. Elliman see as the most likely and where would he put his money? The simplistic answer, according to Mr. Elliman, is that there are already forecasting tools built within the market, and an intelligent investor need not try to outsmart the forecasts. The futures market provides the necessary guidance because the marketplace is smarter than any one individual and because that is what investors can hedge. If one is looking to make a capital investment, then the presence of an active futures market in commodities like oil and gas allows producers to protect themselves by selling forward their production. This dynamic allows for a much clearer picture of what is to come than having individuals sit down and create scenarios that won’t come true. To the extent that there is government intervention in the energy market, private interests primarily seek assurances that the government will stick to its promises and not change the rules of the game in the middle of the action.

Mr. Roger Robinson then directed the discussion back to Mr. Hardouin’s point regarding policy versus the market in a security context. The market had taken the wind out of the sails of many of the best policy ideas that had surfaced, according to Mr. Robinson, and this was a real problem that required political correction, as Dr. Kneissl had suggested. Mr. Robinson cited the example of the energy security environment in the 1980’s, when the existence of a dominant, highly politicized supplier that had administered pricing and could outstrip any competition necessitated governmental action. Many of the more secure energy sources would not have been brought to the market without a conscious decision by the U.S. government, which had created a sizable dispute with its European allies over the Siberian pipeline.

The Russian gas supply is a protracted issue, Mr. Robinson continued, and it is the centerpiece of Russia’s energy policy and market, so other countries must learn to accept that it is not and will not be an entirely market-driven dynamic. It is obviously politicized, and will require a political reaction, and there is room for NATO to shape and provide that reaction. Under Putin

54 there has unquestionably been not only re-nationalization but also re-politicization that is reminiscent of the Soviet era. This poses a particular challenge, similar to the one faced with certain Chinese fi rms, as when CNOOC made a bid to purchase Unocal. On one hand, the U.S. government’s reaction was probably an overreaction, driven by an exaggerated sense of strategic concern rather than the merits of the case, but there was also the perception of the bid as a state-owned company, receiving 75% subsidized or interest-free loans for fi nancing, going against a private enterprise. There is a glaring inequality in such a situation, and Congress’s action has created a precedent for similar cases in the future to be looked at diff erently. Mr. Robinson further expressed his belief that NATO still has a role to play in such situations. He also declared his hope that the energy secretariat will be strengthened and that the International Energy Agency “gets back into the business of taking a hard look at Russian natural gas.” Otherwise, important discussions of this sort are destined to remain “whispering in the corridors.”

Professor C.S. Kiang made the case that scenarios dealing solely with energy do not provide an accurate picture of the future because they fail to take into account the environmental impact of energy production. Scenarios that accurately incorporate this factor could serve as major wake-up calls for China and other developed states about the pressing nature of the crisis. In Prof. Kiang’s view, the environment must be holistically integrated with the question of energy supply as it has been with transportation. Policy should also be geared toward the future rather than the past, according to the professor, and he expressed his concern that a Cold War dynamic, portraying Russia and China as outsiders, was reemerging in discussions. We all need to think diﬀ erently about international policy, look into the resource environment, and think holistically in a way that encompasses all of humankind.

The possibility of technology transfers as a way of improving effi ciency in developing nations was brought up as a possibility by the professor. The cases of China and India are especially relevant, as the top ten worst cities in terms of pollution are found in either of the two countries, while their reputation for low costs ensures that they will continue to experience infl uxes of investment and development. Prof. Kiang stated his belief that tech transfers to these two countries could help equalize the trade defi cit between them and the West while modernizing their infrastructure in a way that leads to improved effi ciency. Such an initiative would be an example of 21st century thinking, as opposed to the backward-looking, 20th century framework that many proposals seem to be operating under. Whether under the auspices of the Club of Prague, Club of Rome, or Club of Madrid, or as a part of any other organization, individuals need to think as global citizens. In concluding, Prof. Kiang stated his desire to see an integrated analysis of energy, environment, and equity, and remarked that it would be appropriate to mark the 70th birthday of former President Václav Havel by addressing the human element.

Kim Campbell declared her intention to “throw another span in the works” by highlighting the diﬃ culty of relying on pricing and the unfettered market for an accurate picture of the energy sector. Though high oil prices do provide an incentive for research and development into energy alternatives, they also create enormous activity and aggression on the part of leaders of oil states. High oil prices enable Hugo Chavez in his quest to gain a seat on the U.N. Security Council, for instance, and allow the Exchequer of Iran to subsidize the public base, keeping

55 Energy | Empowering the Individual and the Community them suﬃ ciently content while President Ahmadinejad engages in abrasive and damaging rhetoric. When prices are high, there are security risks that accompany them; when prices are low, there are other risks stemming from stagnation as a result of acceptance of the status quo. Prime Minister Campbell made clear that this does not hold equally across all countries, as Canada is certainly not using $60 per barrel oil prices to ﬂ ex its muscle and breed instability. In sum, however, “the security question is more complex that pricing levels can solve.”

Roger Robinson closed the roundtable by mentioning the visit of two Robinson-Martin Security Scholars to the U.S., one of whom remarked to him that energy was the number one issue of our time. Mr. Robinson highlighted the enormous sums of money that are going to the Chavezes of the world, to Ahmadinejad, and to Russia. He cited the Russian decision to go it alone in developing the Stockman ﬁ eld in the Barents Sea, despite earlier promises to allow open competition, as well as the ongoing developments on Sakhalin Island, as examples of the growing and unfortunate trend of nationalistic policies in energy. Mr. Robinson stressed that while it is undeniable that nations have resources and may dispose of them as they see ﬁ t, moving toward more nationalistic policies is the wrong way to go for everyone, including the resource-wielding nations themselves.

56 INTERNAL AND EXTERNAL CHALLENGES OF ENERGY POLICY IN THE EU Andris Piebalgs

October 11, 2006

Ladies and Gentlemen, it is an honour and a pleasure for me to take part in this conference on Energy: Empowering the Individual and the Community. I would like to share with you, on this occasion, some thoughts about the internal and external challenges of energy policy in the EU.

Last October, the Hampton Court European Council called for the development of a European Energy Policy. The Council has repeated this call at each of their meetings since then. Successive presidencies, from the UK last year to the German presidency next year, have put energy policy at the top of their agenda. Thanks to the political support of the European Parliament and national governments, Europe is in a stronger position than ever before to develop a coherent energy policy.

1. The EU has recently undergone a major liberalization process of energy markets, but much remains to be done

It is now seven years since the fi rst electricity Directive and over fi ve years since the fi rst gas Directive came into force. New Directives entered into force in 2003, followed by Regulations on cross-border trade. Unfortunately, some Member States have still not transposed the latest legal provisions in national law. The Commission has started infringement proceedings when this was the case, and will continue monitoring closely the application of Community law in all EU countries. In parallel, the Commission also launched a sector inquiry to examine the consequences and possible solutions of concentration in energy markets, whose results are expected to be published shortly.

Although progress is being made in developing competition, and some important benefi ts have been achieved in terms of increased effi ciency, the picture is extremely variable across Europe. The most important defi cit of the internal electricity and gas market is a lack of integration of national markets. Key indicators in this respect are the absence of price convergence across the EU and the low level of cross-border trade. This is generally due to the existence of barriers to entry and - in electricity - in many cases insuffi cient interconnection between Member States.

Moreover, many national markets exhibit a high degree of concentration of the industry, impeding real competition from developing. The gas market continues to suﬀ er from a lack of liquidity, of both gas and transport capacity. Another indicator for a lack of real competition is that switching activities of customers remain underdeveloped and choosing a new supplier in another Member State remains the exception.

57 Energy | Empowering the Individual and the Community

For electricity almost all Member States have made some progress and there are some successes - e.g. the Nordic market. The main problems can mostly be traced to the failure to create an integrated market. This stems further from poor availability of cross border capacity and the need to use more eﬀ ectively the capacity that does exist. This is the single most important issue for the electricity market and if it could be resolved satisfactorily, the prospects for a fully functioning market would already be greatly improved.

For gas, competition is only really active in the North Sea region, (i.e. UK, Belgium and the Netherlands), and to a lesser extent in Spain and Italy. There are a number of obstacles in other regions which go beyond merely cross border issues. In particular, the lack of liquidity and transparency in general, in combination with insuﬃ ciently developed network access conditions, do not appear to be satisfactory for the development of a natural gas market across Europe. Liquid trading hubs and hub-to-hub trading, including cross border transaction, for example, do not exist and as a consequence, historical supply pattern are still very much prevailing. Contractual arrangements and operational barriers, such as non-harmonized balancing systems, also make it diﬃ cult for any company trying to enter new markets.

In order to solve these issues, the Commission intends to use the existing instruments under the Electricity and Gas Regulations to adopt implementing measures in key areas, with a view to encourage further market integration. The Commission will, for instance, shortly adopt new guidelines on congestion management in electricity which will facilitate cross-border trade through more eﬃ cient congestion management methods. In areas where the existing instruments do not allow the adoption of binding rules, the Commission will request national regulators to develop, in the context of the European Regulators.

Group for Electricity and Gas, harmonized rules on key regulatory issues, such as balancing. In parallel, the Commission has started thinking about a way forward to bring more beneﬁ ts of the liberalization process to consumers. Next year, The Commission intends to propose some speciﬁ c improvements to make the markets work better on the basis of the current Directives on electricity and gas.

2. The EU is on its way towards ensuring security of energy supply

The Commission’s Green Paper on a Sustainable, Competitive and Secure energy market for Europe, followed by the joint Commission-Solana paper on external aspects of energy policy set out the Commission’s ideas for the future direction for Europe’s energy policy.

Our starting point is that today’s situation is hardly sustainable in the long term. Europe needs to ﬁ nd a more secure and sustainable energy path, and give political stimulus to its international partners. The time is right and the G8 St. Petersburg meeting conﬁ rmed it too. Indeed, countries across the developed and developing world are taking a new look at energy security.

Europe has the will, and the means, to adopt a more sustainable approach to energy and enhance its competitiveness and security at the same time. But to do this, we need ﬁ rst to agree a solid European framework and coherent policies.

58 This framework needs to enable the EU to react intelligently to the challenges of today’s rapidly evolving markets.

It needs to provide an answer to the question how to achieve our Kyoto and - much more challenging - future post-Kyoto objectives, in a manner that is compatible with the international competitiveness of our industry.

It needs also to solve an important dilemma: how should Europe react to its rising dependence on imported energy that is situated in few and often political unstable countries, leading to volatile prices of fossil fuels?

It is clear that these challenges require common action. Europe needs to speak with one voice. I think this is common ground. It is also clear that developing such a focused, evidence-based and European answer to these challenges will take time. But we - that is the Commission, European Parliament and Member States - must move together, urgently and eﬀ ectively.

To rise to these challenges, and in response to the request from the European Council, the Commission is preparing a Strategic European Energy Review. This could serve as a “blueprint” for a future energy policy for the EU.

How can the Strategic Review do this?

First, it should oﬀ er a clear analysis of where Europe is heading in terms of energy supply and demand.

Second, it should include coherent proposals for European level action, within, it goes without saying, EU competence.

In terms of analysis, the Review needs to be based on a factual and prospective examination of the EU’s energy markets. In particular, it must identify how the EU’s energy market would look in ten and twenty years based on current policies at both Community and Member State level - a “business as usual scenario”. ‘

We then need to consider the additional policies and measures necessary to achieve our energy objectives and how an Energy Policy for Europe can serve our common aims, in a proper balance and with the support and commitment of all Member States.

It is still early to draw the concrete policy conclusions that need to result from this analysis. Nonetheless, on the basis of our work to date and discussions that have taken place, the political priorities are becoming clear.

First, we must make a step change in energy savings and energy eﬃ ciency. This will require a major eﬀ ort of all the public authorities to raise the awareness of the problems and to show the example to the citizens if it is to convince them about the need to act.

Representing only 15% of the world energy consumption, the EU needs to also to convince

59 Energy | Empowering the Individual and the Community the other major energy consumers in the world and to work with them to come to a new international energy eﬃ ciency commitment. We also have to be honest with ourselves about the inevitability of changes in the transport sector to improve its eﬃ ciency and sustainability.

Second, more work is needed to increase the share of low carbon indigenous energy sources in the energy mix. We need a real transformation in the take up of clean and eﬃ cient energy technologies, e.g. for clean coal. New eﬀ orts are needed to give, and retain, EU leadership in these technologies.

We also need a new and extended Emissions Trading Scheme taking in countries outside the EU.

Nuclear energy, where used, must be used as safely and securely as possible but it is clear that the Member States remains fully free to choose or not this energy source.

Third, we need to improve the single energy market in order to make it eﬀ ective for consumers and industry. This means above all providing the right regulatory framework and the right implementation to ensure a more long term view of investment.

This also means giving greater priority to diversity - in fuel, supplier and supply route and to have a true European approach on the interconnections needed. But it also means aiming at a high level of international competitiveness for European industry.

Fourth, we need a new external energy policy, based on relationships of mutual trust and interdependence with other countries, consumers, transit countries and producers.

Special attention must be given to our relations with Russia. We are by far the largest customer Russia has. Russia provides one quarter of all our gas and more than one ﬁ fth of oil imports. The Mediterranean region is also important, as North African countries provide a growing part of our gas.

We also need to increase transparency in international energy markets. It is also in our interests, and those of our partners, to work together towards globally sustainable goals, including for climate change.

Finally, we must integrate a new social component into the EU energy policy, putting citizens ﬁ rst and involving individuals more closely in the implementation of the strategy, particularly for energy eﬃ ciency. This also means developing measures to address energy poverty within the newly liberalized market.

The Commission will probably adopt its Strategic Review at the beginning of 2007. It will contain be accompanied by an action plan comprising a number of measures to be adopted and implemented.

At the same time, the Commission intends to adopt a number of new proposals which were anticipated in the Green Paper. One of these, the Energy Eﬃ ciency Action Plan is now

60 being ﬁ nalised and will tackle the issue of energy savings and demand side measures. Other proposals which are under preparation include

• A plan examining the Priority Interconnections for our internal market • Reports on the implementation of the single market legislation and the sectoral inquiry into the gas and electricity sectors • A communication on how to move towards a more sustainable use of coal • A communication, the “Illustrative Nuclear Programme,” on the situation of the nuclear sector and in particular its economic aspects • A Strategic Energy Technology Plan • A Renewables Road Map on how to push more renewable energy sources in our energy market and reports on the implementation of the legislation to promote renewable energy and biofuels

The Commission will look to the Spring European Council next year to endorse its approach and to move towards the next stage for a common energy policy for Europe.

In conclusion, I would like to emphasize that the EU has already achieved good results as far as energy is concerned, but needs to deliver more still. Market opening has served our economy well, and we now have to ensure that it is fully carried out.

The Commission is fully committed in shaping up proposals which will, with the agreement of the European Parliament and Council, ensure that Europe does progress towards a more sustainable energy future and a more competitive economy for all.

Thank you for your attention.

SCENARIOS & VALUES

DAY 1 | SESSION 2 | New Old Thinking : Values in Energy Demand and Supply

moderator | VÁCLAV HAMPL Energy | Empowering the Individual and the Community

THE EMPOWERMENT OF THE INDIVIDUAL AND THE COMMUNITY VÁCLAV HAVEL’S THOUGHTS Read by Oldřich Černý

October 11, 2006

The present civilization has, as we all know, a thousand advantages. It has enabled humanity to enjoy numerous achievements - from the incredible advancement of science and technology, augmenting the range of human knowledge at an amazing pace and enhancing certain aspects of what may be called the comforts of life, to the cultivation of coexistence, as it has been embodied in the modern concept of human rights and democracy. At the same time, however, certain aspects and results are in fact problematical. Humanity appears to be irrevocably losing what various civilizations previously have had - a link with the eternal and the inﬁ nite, and a resultant sense of humility and responsibility, a relationship to the world as a whole, to its metaphysical order, to the miracle of creation, to the Earth, to the universe, to our own future and to the mystery into which we have been thrust.

Humankind today is well aware of the varied spectrum of threats looming over its head. We do know that the number of people living on our planet is growing at a soaring rate and that within a relatively short time we can expect it to number tens of billions. We do know that it will be almost impossible to feed so many people. We do know that the already deep abyss separating the planet´ s poor and rich could deepen further, and dangerously, because of this rapid population growth. We do know how diffi cult it will be for people of various nationalities and cultures to coexist together; and we know how many diff erent kinds of confl icts such a situation can prompt.

It is also commonly known fact that modern humankind has been destroying the environment on which its existence depends, that it is ever faster exhausting non-renewable sources of energy and other riches of this planet, that its activities contribute to global warming, to the build up of the greenhouse eﬀ ect, to the enlargement of holes in the ozone layer, and that it is disturbing the balance of all eco systems.

Any one of us could certainly go on listing similar threats for a long time, describing them in more detail and in rich colours, explaining how deeply they are entwined. Hundreds of books have been written bout these threats; some have even become topics of expensive global summits.

Does not every schoolchild today know that the resources of this planet are limited and that if they are exhausted faster than they are recovered, this would mean we could not be but doomed? And still we continue in our ways and, moreover, we do not seem even perturbed. Quite the contrary. Rising production, and therefore also consumption, is sensed as the main sign of the success of a state and not only of poor states where such feelings could be justiﬁ ed, but also of the wealthy ones, cutting the branch on which they are sitting by their ideology of stupidly indeﬁ nite and senseless growth.

64 It seems to me that what is critical now is not to point out again and again such horrors that may be laying in wait unless our global civilisation changes its essential direction. Today the most important, in my view, is to study the reasons why humankind does nothing to avert the threats about which it already know so much, and why it allows itself to carried onward by some kind of perpetual motion – basically unaﬀ ected by self-awareness or a sense of future options and, as it seems, virtually incapable of being aﬀ ected.

Disastrous outcomes of the modern civilization’s deﬁ ciencies can already be seen as a variety of dangers - from environmental, social, population and cultural threats to such ills as terrorism, drugs or depersonalization in today’s gigantic cities. Libraries brim with information about these threats, oﬀ ering horrifying analyses and even more horrifying prognoses. Thousands of conferences, including United Nations summits, have been convened to deal with them. Numerous technical or systemic proposals seek to confront these menaces. And yet, there is still little hope of fundamental change.

Oddly enough, modern humanity seems to embody an essential inconsistency: while our capacity of cognition allows us to clearly see the dangers facing the human race, our ability or our readiness to combat these dangers in a truly resolute fashion and on a global scale is very limited.

We have, then, two possible courses of action.

We can take the ostrich-like approach, disregarding the long-term global problems in the hope that they will have no fatal eﬀ ects within our lifetime and concerning ourselves instead just with today and tomorrow, or - when we happen to be politicians - with our momentary image on television or with our chance of winning the next elections. We can dismiss the warning appeals or questions of those who are worried with a simple answer: that modern science will undoubtedly produce new achievements to solve these problems.

The other alternative is to give the situation a truly serious consideration, even risking the outcome that our thoughts or warnings may go unheeded.

For my part, I advocate the latter course. This is actually one of the reasons I have been dealing with this subject, trying time and again - to the extent of my limited powers - to stir the stagnant waters of apathy that surround me. And this is what has determined the main theme of my deliberation: What can be done? Why has so little been done so far? Where should we start?

A voice that wants to make a serious impression in the present circumstance is most likely to succeed when it has a scientiﬁ c background. All the proposed solutions to the fundamental problems of the present civilization have therefore been of a largely technical or systemic nature, and considerable ingenuity has gone into devising sophisticated procedures. These could perhaps work - if it were not for the fact that nobody puts them into practice. Their application is hindered by the modern way of life itself. There is not enough readiness to pursue solutions that go counter either to the established habits or immediate interests of people, nations, communities, corporations or various lobbies. Whenever we inquire into

65 Energy | Empowering the Individual and the Community these problems, trying to identify the possibilities for responding and the reasons why no one is trying, we always wind up against a hopeless lack of will and inner urge to act, that is, against barriers in the realm of human awareness or mentality.

This has increasingly convinced me that a change of course is impossible unless something begins to change in human minds, in humanity’s attitude toward the world and the values of life, in our ways of thinking and our perception of responsibility. Only this kind of change can generate the will to change our behaviour and, eventually, to undertake the systemic changes as well. What I have just said makes it clear that I am far from objecting to the kind of systemic changes that are now proposed. I am just saying that they can be implemented only as a result of a more profound phenomenon - a change of the view of life. That, unfortunately, cannot be done through even the best of technical tricks, administrative measures or systemic reforms.

I simply feel that the one thing that can avert the various impending disasters facing our civilization at the turn from the second to the third millennium A.D. is profound change, or even a revolution in the realm of the human mind. If such change is to be truly eﬀ ective today it must be global and universal.

66 LEARNING FROM CULTURAL WISDOM JAPANESE PERSPECTIVE Takashi Atoda

October 11, 2006

My name is Takashi Atoda and I am a writer. I write novels and this is my profession, but I am also a member of the Japanese PEN Club, a chapter of the International PEN Club. We promote freedom in writing and freedom of speech, and through these means we seek peace and prosperity. Let me mention that President Havel is a member of International PEN and that the head of this organization, Dr. Gruša, is Czech. As you can see, there is a close relationship between International PEN and the Czech Republic.

Japan is well-known for its economic might. However, when it comes to Japanese culture, knowledge is much less widespread. Moreover, many Japanese people are very interested in cultures abroad, especially the European and American cultures. As a result, many Japanese know a great deal about cultures outside of Japan. Let us take literature as an example. Last year, I came to Prague and I attended a meeting where many of those in attendance were people from literary circles. I talked about Japanese literature and I happened to mention the name of a leading literary fi gure, Franz Kafka. I pointed out that 50% of intellectuals in Japan know the name of Kafka. Twenty-fi ve percent know the title The Metamorphosis, and many have actually read it and can recite the fi rst line. This is not rare. If you go to a book store in Japan, you can fi nd a Japanese translation of The Metamorphosis without much diffi culty. This is just one example specifi c to the Czech Republic that I am mentioning now, but it does show how interested Japanese people are in non-Japanese cultures.

But I asked if the same applies to Kawabata in the Czech Republic, if people knew his name or his titles. I did not intend to criticize, nor did I mean it sarcastically, but I feel that this is a reality that has deep signiﬁ cance in the 21st century. Japan has gone through many thousands of years of history and has created a unique culture. This experience may say a great deal as we tackle the issues of the modern day.

Over the past century or two, world culture has centered around Western or European or North American culture. I think that is taken for granted. However, in the 21st century we will see a greater fusion of cultures. It is in this process that the Japanese experience with absorbing Western culture while retaining a Japanese identity may prove signifi cant. Japanese culture is rather unique; I don’t think there is anything like it, and it is of a very high level. It is totally diff erent from the Chinese culture, for instance, and if you look at it in depth, you will fi nd that there is an underlying philosophy that says “simple is best.” Simplicity is at the core of Japanese culture and Japanese philosophy. It has been so for many years. For example, there is haiku, which is a poem, a very short poem. A haiku expresses what is most deep in a person’s heart in just 17 syllables. Not 17 words, 17 syllables.

67 Energy | Empowering the Individual and the Community

We also have Tanka, which is 31 syllables. Tanka has existed for a very long time, and every Japanese is familiar with them, has written at least one or two of them in his or her lifetime. Some good, some bad. You may know of sadô, the Japanese tea ceremony, meant for appreciating green tea. It was started as away to celebrate simplicity, although it has gained some splendor in contemporary times. Something like this is at the heart of Japanese culture and can be seen in things like traditional costumes. The costume may be extravagant, but it results in very little movement, and what movement does exist is deep, spiritual movement.

A kimono is a traditional Japanese costume, made from a combination of a few rectangular pieces. When the time comes, we take out the pieces and are left with such fabric. We wash the pieces, sow them back together, and thus we have a new kimono. Today, I have brought a furoshiki, which I am using in lieu of a bag. It is essentially a wrapper of fabric; it can be used as a bag and we can even wrap a bottle in it. If it is cold, I can wrap it around my neck and use it as a scarf. If I use it to cover my face, like this, then I become a robber! I have a rather inexpensive and plain-looking furoshiki, although you will ﬁ nd all kinds of them.

I could go on and on like this; the spirit of simplicity is quite important and it is to be found everywhere throughout Japanese culture. What we seek is fulfi llment in the spirit of simplicity. Mr. Minami mentioned that his tendency was accentuated during the Edo period, but it existed long before that. Japanese culture has been nurtured for many thousands of years and, as I said, it is quite unique, and in this there is a very important point. We have imported and digested Western concepts and culture. There are not a lot of examples around the world of such a distinct and separate culture drawing extensively from outside cultures. There is a huge quantity of translated books in Japan. I believe that the number of translated books in Japan exceeds anything found in any other country. In the Czech Republic, I am sure that you read German and British literature. But maybe you do not translate quite so many books into the Czech language. If you are cultured enough, you read it in the original language, or maybe you just do not bother reading it if it is outside of your culture. In Japan, you can always fi nd Kafka or Shakespeare or any other great writer. I think this is signifi cant.

We have had this unique culture for thousands of years, and now for over 100 years we have been absorbing and digesting European culture. This has made it an especially diverse and unique culture, and one that can be very useful as we seek solutions to the problems of the 21st century. I have talked about simplicity and Mr. Minami earlier spoke about mottainai. What, it may be asked, is not mottainai? This is a very diffi cult thing to explain to an international audience. It can mean something is wasteful or profane. Something that is mottainai can be physical, but it does not have to be. It may be whatever is precious, whether it is a refrigerator or God. The physical and the precious object need not be diff erentiated. However, if there are no objects at all, then this, too, can be mottainai. But even if you have no objects, you can still be fulfi lled. This is the nature of the belief in the superiority of simplicity.

A Nobel Peace Prize laureate, Madame Maathai, visited Japan from Kenya. She said that mottainai was a beautiful word and that it should be turned into a global word. A newspaper in Japan has launched just such a campaign, although it is a small one. What are mottainai items in a society? There was a pop song written about mottainai. It did not hit the top charts; maybe if a good writer had written it, it would have. The spirit of mottainai, which we have

68 inherited from the past, will continue to mature in the modern context, and it should make a very good combination with Western culture.

Looking at the past 100 years and especially the last 50 years, we can see the potential of such a fusion of Western and traditional Japanese values. The path Japan has taken is quite indicative for the future. People may say that even if you save a little bit, that is not a signifi cant contribution. But if more people and then more countries join in and start to conserve, the cumulative eff ect can become quite powerful. We human beings have to make use of all the positives and potentials at our disposal to tackle the energy issue. I think mottainai has an essence that appeals to the world. It has a meaning that says to save and to treat things as precious. But we should not just throw this out as a self-suffi cient line; we must work to make this word more attractive. We must consider how to think proactively and attractively, as well as philosophically, in order to promote mottainai.

To think about mottainai is worthwhile for humanity, worthwhile for the future. Ultimately, this is what all great people in the world pursue: a more ethical moral philosophy. Engineers are thinking about new sources of energy, politicians think about how to control and manage that energy. There is another aspect to this question, however – the ethical aspect – that should be considered, and it is people from the literary arena that can contribute here. They can provide a spiritual aspect as well. Some might say that people in literature just write about these things, but I think that literature solves issues that cannot be solved anywhere else. To create literature based on the spirit of mottainai, to treat natural resources as something precious, is to contribute to the search for an answer to the energy question. This is what has been going on in my mind as I have thought about this issue.

Literature is a favorite pastime for many people, but it can also be a powerful political tool. I realize that this is quite a diﬀ erent task from what is usually thought of as the realm of novelists, but I think that if we start from a higher spiritual sense, we can have an eﬀ ect while maintaining our standards and beliefs. When it comes to those beliefs, I am one who believes that simplicity is best.

69 Energy | Empowering the Individual and the Community

LEARNING FROM CULTURAL WISDOM JORDANIAN PERSPECTIVE | HRH PRINCE BIN TALAL’S THOUGHTS

Malek Kabariti October 11, 2006

Excellencies, Distinguished Guests, Ladies and Gentlemen, HRH Prince Hassan bin Talal, would like to thank you for inviting him to participate in this conference on Energy: Empowering the Individual and the Community, and for giving him the opportunity to share his ideas. HRH expresses his regret that he cannot be with you in person. However, I have the honour to read to you his message.

This conference is a continuation of the eﬀ orts of all partners to promote and cooperate, in the consolidation and development of energy and water supply. The genuine topics included in the agenda, present the opportunity to exchange ideas and views, and disseminate information, as well as address a number of key issues related to the future of the global energy market. Before I discuss the issues and challenges facing our region, with regard to energy and water, I would ﬁ rst like to take a few moments to consider the challenges from a global perspective.

The world’s population has been growing rapidly over the last century. In 1900, the world population was at 1.6 billion; today, we have passed the 6 billion mark. At this rate, the population will rise to about 9 billion by 2050. At the same time total worldwide energy used today is 8 billion tons of oil equivalent per year, which will increase to 40 billion tons by the year 2060. Thereafter, the known deposits would only be adequate for the next 80-100 years depending upon the speed at which consumerist development steams ahead.

Energy and water, the environment and global warming, and infectious diseases, are issues which can no longer be viewed in the local context. Globalization, in addition to presenting a great deal of opportunities, has given rise to the question of global risks. In addressing these risks, the key is communication, cooperation and common cause.

The increase of global issues has highlighted the question or adjustment of the balance, between the national interests of each country and the interests of the international community as a whole. Indeed, we have no choice but to collectively concentrate our abilities on alleviating the suﬀ ering of man and the environment.

The “Limits to Growth Report,” was presented in 1972, to the Club of Rome, an organization of which I am President. In it, Dr. Dennis Meadows pointed out that environmental deterioration, such as growing water scarcity, is an early warning of the stresses that result from growth of population and industry on ﬁ nite resources. Sure enough, more than three decades later, the updated edition conﬁ rms that humanity has overshot the sustainable limits of our planet’s carrying capacity.

70 Excellencies, Distinguished Guests, Ladies and Gentlemen, speaking in the context of West Asia and North Africa, or WANA to give it its appropriate acronym, such a distinguished gathering will surely be aware of our region’s environmental condition. An arid region, where the ratio of water to population is 5:1; air pollution, and soil erosion, are to name but a few environmental pressures.

A phrase I think is pertinent to our region is “we are rich in history but not in geography.” This very nature of the region has created a basin for geopolitical instability. Plagued with a score of raging and potential disputes, and confl icts, the region currently does not have any mechanisms in place for confl ict avoidance or prevention against the further deterioration of our circumstance. Water and energy top the list of confl ict causes. The major factor: the concentration along State boundaries, of an already limited energy and water supply, coupled with the lack of regional agreements among the countries that share these common resources.

Additionally, international oil interests act as a multiplier of these problems. However, in a recent article, Jeﬀ rey Sachs highlighted that the old approach by Western powers, of meddling in the aﬀ airs of the Middle East, in order to secure energy resources, is beginning to fail. He emphasized that genuine energy security can only be achieved, by recognizing certain deeper truths about global energy.

Unfortunately, this scenario is also mirrored in the local context. National plans for development of the region’s energy and water trans-boundary corridor focus on domestic consumption and domestic economic expansion. The race to obtain and maintain control over these resource corridors has seen energy and water agreements being bolstered by military cooperation agreements. Without a shift in our region’s current course, such alliances will, regrettably, lead the way to the militarization of our region.

Direct competition for, and over-exploitation of our shared energy and water sources, underline the challenges facing our region.

With regards to water, this “blue gold” is the most precious resource in the region. As populations increase, water becomes more scarce, thus aggravating regional tensions. A nation’s adequate access to necessary water supply is paralleling the importance of territorial security in the region, culminating in an overall theme of “resource security.”

Sadly, the critical issue of the availability of energy at all times and in its various forms, in suffi cient quantities, and at aff ordable prices, is dictating countries’ heightened attention to energy security. Moreover, in this ultimate pursuit, human security is being sacrifi ced. A considerable majority of the population has no access to commercial energy nor to electricity, confi rming the connection between energy consumption and social vulnerability, and exacerbating the region’s human dignity divide. There is an urgent need to reconcile energy principles with human values.

The fears of many in our region, that unilateral struggle for energy security is damning the poorest of the world’s inhabitants to political and economic torpor, drives this belief in the

71 Energy | Empowering the Individual and the Community need for increased communication on many levels. One need only look at the dire situation unfolding in what has been termed, “the Horn of Africa,” to ﬁ nd the evidential link between; energy and water security, conﬂ ict, poverty, famine and a multitude of diseases, that are plaguing the population. Some commentators have even made the link between the endless political strife and the rapid growing humanitarian crisis in Sudan’s Darfur, to competition over, and control for, energy supplies.

In this regard, I cannot emphasis enough, the importance for a “Comprehensive Regional Plan,” which I hope would include within its framework, developments such as the Rift Valley and the recently inaugurated BTC pipeline project (Ceyhan-Tblisi-Baku). The all encompassing Regional Plan cannot fail to address the issue of a detailed security package. Furthermore, unless we discuss this within the context of a supra-national committee, and ask how can we develop the ultimate utilization of human, natural and economic resources, the politics and economics of despair will continue to fan the ﬂ ames of hatred and claim even a larger number of deaths and more severe human costs.

The road to peace has been identiﬁ ed as a route that needs to be taken through privatization, including that of trans-boundary natural resources. The truth is, this will only pave the way for a colonization of energy and water in the region. In order to address the challenges we face today, we need to journey along a road less taken, a road that is paved with a “common cause.”

Resource depletion and population growth augment poverty issues facing governments and peoples. I think it is clear that the solutions to the regions’ challenges can only be found through multilateral regional dialogue and cooperation. In my humble opinion, I believe very much in not dwelling too long on the problem, but rather on looking towards how we can be pro-active in resolving the situation. And in this regard, if you would allow me, I would like to share with you today my vision for the future.

The countries in WANA are in need of a regional water and energy charter. The aim of such a charter would be to create a community of WANA countries, mirrored along the lines of Europe’s Coal and Steel Community. A regional water and energy community freed from unilateral state interests will ensure the improvement of our general human condition and regional energy security.

Indeed, Europe’s Coal and Steel Community emerged out of a common cause. The common necessity to band together, and re-build Europe after troubled times, can be likened to the instable political climate of our region. Another existing energy partnership, which can provide a source of inspiration, includes the Energy Charter Treaty, an international agreement originally based on integrating the energy sectors of the former Soviet Union and East Europe at the end of the Cold War into the broader European and world markets.

On the positive side, our region has a number of things going for it: sunshine, wind, and vast uninhabited areas. In an attempt to turn lemons into lemonade, we should build upon the natural resources available to us. Financial resources and eﬀ orts would better serve humanity, if they are directed towards developing energy eﬃ ciency and renewable energy.

72 Current eﬀ orts which focus towards the expansion of oil production worldwide, will only further increase oil dependence, exacerbate climate change, and drive poor, consuming countries deeper into unsustainable debt. Countries, like Jordan, that import oil are beholden to skyrocketing prices.

Add to this, the eff ects of climate change, fuelled largely by emissions from oil - which will further undermine eff orts to fi ght poverty. Diseases attributable to climate change, climate induced fl oods, famine, drought and confl ict threaten the existence of millions of people.

Instead of subsidizing big oil, we must make large investments in cleaner, sustainable energy alternatives. The issues of poverty, energy security and global warming are intrinsically linked. We cannot remain dependant on oil and expect to make gains against the interconnected scourges of debt, poverty and climate change. You may be aware of the initiative that I am in involved with, the Trans - Mediterranean Renewable Energy Cooperation (TREC), which focuses on trans-regional cooperation, as an important step towards a stable, sustainable and peaceful world.

The TREC project aims at initiating a common market and an interconnection infrastructure for renewable energies among the countries surrounding the Mediterranean Sea. The technologically adept European countries in the North are using fossil fuels heavily for their energy demands, thereby excessively burdening the global atmosphere with greenhouse gas (GHG) emissions. The countries to the south and east of the Mediterranean have vast but unused sites oﬀ ering superior solar and wind energy resources.

The research initiatives show that, high-voltage direct current (HVDC) interconnections enable low-loss transmission to be made over great expanses at low cost. Existing pipelines can already transport hydrogen from renewable electricity as an admixture to natural gas. Combining wind and solar power from large and from far distant regions can signifi cantly reduce fl uctuations by compensating eff ects.

The technologies required for the proposed TREC are already available. Wind energy converters and concentrating solar thermal power stations have been successfully developed in Europe and in other parts of the world. Their functionality and reliability have been proven in many years of practical application, and their production costs have continuously decreased. Information on wind and on solar radiation is available from satellite and terrestrial measurements for most regions of the world. At the most productive solar and wind sites in the WANA region, they would already be nearly cost competitive with energies from fossil fuels if fi nancial conditions were adapted to their specifi c long - term investment needs. After future anticipated cost reductions due to economies of scale and continuing technological refi nements, they will become economically viable and competitive at more and more sites in Africa and other regions in the world.

It is hoped the positive impact of TREC would extend far beyond the regions adjacent to the Mediterranean. Firstly, any contribution to climate protection and to political stabilization is clearly of worldwide beneﬁ t. Secondly, the greatest energy resource worldwide is solar radiation.

73 Energy | Empowering the Individual and the Community

The technology of solar steam production for power generation using concentrating collectors such as parabolic trough or ﬂ at mirror arrays is suitable for all arid and desert regions of the world, which also provide abundant free space for their deployment. After cost reductions to the level of fossil fuels or even less will have been achieved by the TREC project, solar collectors could also be used to produce clean power in North and South America, North and South Africa, India, China and Aus tralia, i.e. for more than 90% of the world’s population. Thus the TREC project could make wind and solar power an essential element of timely climate stabilisation.

Excellencies, Distinguished Guests, Ladies and Gentlemen, I have already brieﬂ y touched upon the issue of the urgent need to establish a community of energy cooperation. Within the framework of TREC, I would like to present to you today another initiative that I am proud to sign my name to ... “the Community of Energy, Water and Environment” for the WANA region. This initiative builds upon the concept of “regional commons” for the region whilst recognizing the need for stable energy supplies based on sustainable energy resources constitute an inter regional common between the WANA countries and the European Union.

The same applies to the environmental need for clean energies and to reduce dependence on burning coal, oil and gas. Moreover, water will be seen as a shared inter-regional common. Having located the area of energy, water and environment as the area of regional and inter- regional common, one can see more clearly the pressing need for common regimes for trade and cooperation (north-south as well as south-south) in energy and water production which would combine inter-governmental as well as supranational institutional arrangements. This is the missing link and the decisive point on which the project wishes to focus. A development of such regimes, take a course towards a Community of Energy, Water and Environment.

Creating a Community of Water and Energy in the arc of crisis will be an achievement in service of the human environment and of peace and stability in this region. Water and energy are absolutely essential for economic and social development, leading to one of the Helsinki Clusters -”soft security,” or human dignity. Security and economy with a human face would undercut the politics and economics of despair and pave the way for a code of conduct.

But time is running out, and contingent planning by arbitrary decree has no place in a schema of environmental deterioration. Governments can no longer overlook their responsibility to nurture hope of a better life for present and future generations. Regional cooperation, based on common values, will enable our region to emerge out of its current mosaic status quo, and beyond the troubled patchwork of states and ethnicities.

74 Bridging the human dignity divide requires reconciliation between energy needs and responsibility. With my work, I have tried to remind people that there exist values which from time immemorial have been a part of the collective consciousness of the human species, which have ensured their survival and well-being, and which have stood the test of time:

• Respect for life; • A responsibility towards future generations; • Protection of the human habitat; • Altruism nurtured by a sense of mutual interest and a recognition of human dignity and worth.

Good management of the human environment, can be accomplished with supra-national governance, which has the ability to balance human and physical resources, and needs. Excellencies, Distinguished Guests, Ladies and Gentlemen, I would like to ask you all to consider, in your discussions today, and, I hope, in the future, the issue of energy and water development with a social consciousness.

75 Energy | Empowering the Individual and the Community

LEARNING FROM CULTURAL WISDOM CHINESE PERSPECTIVE | BALANCE OF ENERGY AND ENVIRONMENT Prof. C.S. Kiang

October 11, 2006

The total world population growth from 1950 to 2006 was greater than the total population growth of the previous four million years. The gross domestic product of the year 2000 was greater than the GDP of the entire 19th century. Population growth and economic development are taking place at an ever-increasing pace.

The human race is facing the challenges of “sustainable development”.

I would like to take this opportunity to oﬀ er couple old Chinese phrases – “Zhi Qing He Yi” ( ) and “Tian Ren He Yi” ( )and two old Chinese sayings as part of my contribution to this workshop.

Two phrases:

“Zhi Xing He Yi” ( ) means the convergence of the theory and the practice; and “Tian Ren He Yi” ( ) means that heaven and humanity must be in unity.

Two sayings:

Action – learning by doing; The best time to plant a tree was hundred years ago, the second best time is today.

The world population is growing non-linearly. Linear acceleration does not apply to this contemporary society. Instead, we are witnessing exponential growth in a variety of statistics. The result is “Anthropocene”, the term coined by Paul Crutzen to describe the modern era, in which human activity has a major impact on the Earth’s climate and ecosystems. Paper consumption, water consumption, growth of GDP, growth of the number of McDonalds – all of these are increasing faster and faster, like the hockey stick. Expansion and development that took the United States 100 years has taken China only 25 and Shanghai only 15. The problem, of course, is not just human growth in and of itself. The rise in population has an eﬀ ect on global changes such as nitrogen ﬁ xation, global temperature, and biodiversity.

With 1.3 billion citizens, China is the most populous country in the world. China has 22% of the world’s population with scarce natural resources. The country’s per capita growth domestic product in 2004 was estimated at roughly US $ 1,200, only one ﬁ fth of the world average.

76 Its amount of cultivated land is at one-third the global average, its water supply is one-fourth the world average, forest resources are one-ﬁ fth of the average, oil supplies are one-tenth the average, and natural gas sources are just one-twenty-second of the world average.

Whenever China tips a little bit, the whole world is going to feel it. When it started buying grain, for example, China purchased an amount in 1999 that exceeded the entire yearly consumption of Canada. It accounts for 8% of the world’s oil consumption and 31% of world coal use. It also utilizes 40% of the planet’s cement production and 25% of the yearly aluminum output. Yet, despite showing miraculous economic growth, China produces only 4% of the world’s GDP. These ﬁ gures may change with further economic development. One must recognize that the natural resources on earth are limited. If China were to have the same per capita paper consumption as the United States, we would need four of the earth’s forests. If its automobile use were on par with U.S. levels, we would require three times the world’s total supply of lead just for the batteries.

I. Environmental Issues in China

Here is a key question: is the economy a subsidiary of the environment, or is the economy the holding company of the environment?

City clusters are made up of groups of large, nearly continuous cities with many adjoining satellite cities and towns. Over the past two decades, such clusters have played a leading role in the economic growth in China, owing to their collective economic capacity and interdependency. However, a World Bank study reveals some of the costs associated with air and water pollution due to the rapid urbanization in China is equal to 5-7% of GDP, and the quality of life of some 460 million Chinese living in these city clusters are seriously aﬀ ected.

It is important to point out that the environmental pollution problem in China is a complex issue. One simply cannot address this complex environmental problem just with air or water, but must examine their interrelation, as well as the soil. If all of these components are not addressed holistically, then the issue remains essentially untouched. Atmosphere-biosphere interaction and exchange are highly intricate processes, and pollution aﬀ ects and diﬀ uses through them in a myriad of ways. (see Shao et.al, 2006)

The health eﬀ ects of the air pollution are signiﬁ cant. Each year in China, there are 1.5 million new cases of bronchitis, 23,000 deaths due to respiratory illness, and 13,000 deaths as a result of heart diseases. In 2000, there were 600,000 premature deaths, 5.5 million cases of chronic bronchitis, and 20 million cases of respiratory illness attributable to air pollution. Children’s blood-lead levels are up to 80% above critical levels. In terms of direct economic impact, 7.4 million working days were lost due to health problems related to air pollution.

China has insuﬃ cient water resources. Only 19% of the total population has access to tap water in China. The drinking water in 6 of China’s 27 largest cities does not meet Chinese national standards. Groundwater does not meet the standards in 23 of these cities. In 1993,

77 Energy | Empowering the Individual and the Community approximately 8% of agricultural areas used unﬁ t water for agricultural purposes, which resulted in an estimated loss of grain production of 1 million tons. The World Bank has estimated that if wastewater treatment were increased from the current 20% to 50% coverage, total grain production could increase by 24 million tons by 2020. In Zhejiang Province, the morbidity due to intestinal cancer caused by microcystin toxins in water was 5 to 8 times higher than among people who had access to cleaner drinking water. It is not a coincidence that China now has the highest liver cancer death rate in the world. In southern China, an investigation of 560,000 people in 23 villages and towns showed that between 1987 and 1989, the cancer mortality rate was 172 per 100,000. In places with such high rates of cancer, there are often few desirable jobs left and people migrate to the big cities, setting up a situation that had the potential to be a ticking time-bomb. (Shao et.al, 2006)

SARS, could be the tip of the iceberg. In Bo Hai Bay, 59% of the ﬁ sh were found to be anthropomorphic, having mutated to the point where they possess both male and female characteristics (Wei An and Jianjing Hu, 2006). Investment people may spend their time looking for trends, but it is health that could be the wake-up call that alerts everyone to the nature and severity of the threat.

II. Energy Issues in China

Energy and environment are like two sides of the same coin and both must be considered in the course of related analyses. Based on current trends and predictions about the future, we have created a prognosis of future Chinese energy attributes. We believe that nuclear and hydropower will increase in use, but oil and coal will remain the primary sources of energy. There will be a sharp increase in demand. Coal will remain the most important primary energy source, but oil usage will increase as well, and ensuring an oil supply will be the key to China’s energy security. To that end, China will go to South America and Africa for the oil that it will increasingly look to import: this year, imported oil makes up 47% of total oil obtained, up from 35% in 2003.

78 Prediction for Chinese Energy Development (Yan, L.G., 2006)

There are six strategic areas of development that are currently identiﬁ ed with regard to energy. They are:

1) High-effi ciency low-pollution coal-fi red power generation 2) Bio-fuel and other liquid fuels for oil replacement 3) Energy savings through alternative fuel and electric automobiles 4) Electrifi cation of rail transportation 5) Large-scale renewable energy generation 6) Fast-growing plants for bio-fuels and hydrogen generation from solar energy

It may be asked: why does China want to develop automobiles? That answer is that the Chinese want to create middle-class jobs; the automotive industry helps create a middle class. In reality, they want you to buy the automobile but not to use it. Indeed, I have heard some people say that Peking University is now Parking University. People are now used to fast transportation, so instead of going back to using bicycles, they are using electro bicycles. One idea stemming from this trend is to lease the battery to people using these bicycles, so that they will return it for recycling when the time comes.

79 Energy | Empowering the Individual and the Community

On the topic of energy effi ciency in China, let me off er some very conservative fi gures: energy effi ciency in China is at one-third the level of the United States and one-ninth the level of Japan. It is important not to think of China as homogenous. One must compare the eastern city clusters in the coastal areas with western more remote areas. In some of these areas, the concept of energy effi ciency just does not exist, and this is, and will continue to be, a major problem.

The energy consumption in the buildings and construction area is an important issue that has not been discussed previously in this workshop. In China, this is an important issue. There is currently 40 billion square meters of building area in China, of which 32 billion is residential. Plans call for the construction of an additional 20 billion square meters in the next 15 years. According to the World Bank, half of all the world’s new buildings being constructed will be in China, and half of China’s buildings will be from the year 2000 or later. Unfortunately, only 0.1 billion square meters of the 2 billion that were built in 2003 had energy-saving measures. This is a very important area of focus: building energy accounts for 27.6% of total energy consumption, while building material energy consumption amounts to 16.7% of the total. If all of this is not paid suﬃ cient attention, the Three Gorges will not be enough to supply China’s energy needs.

80 III. Balance Energy and the Environment

One crucial question is just that: how will all of these projects be supplied with energy? To fi nd the answer, we may turn to the 11th 5-year Plan. Every 5 years, the Chinese government embarks on a project involving a huge amount of macroscopic economic planning. The 11th Plan is quite diff erent from the previous 10 5-year plan. It is the fi rst time that the “energy conservation” becomes a critical issue. The following are some chapter titles from Section 6 of the Plan: Ch.22 – Develop Recycling Economy; Ch.23 – Protect and Rehabilitate Natural Ecosystem; Ch.24 – Strengthen Environmental Protection; Ch.25 – Strengthen Resource Management; Ch.26 – Reasonable Utilization of Oceanic and Climate Resources. All of these topics are very much stressed in the Chinese government’s economic planning.

Three speciﬁ c goals that have been highlighted in this 11th 5 year plan for China. First, energy consumption per unit of GDP should be reduced by 20% by 2010. Second, main pollutant emissions should be reduced by 10% by that same year. Third, renewable energy should make up 16% of total energy generated by 2020. These are very high targets, especially the energy consumption per GDP target. After 6 months, an annual report was produced. The improved energy consumption did not improve; the pollution measures likewise have not been reduced.

The task is a very diffi cult one overall. There are ten integrated key technologies that can be used to achieve it: Low Energy Consumption, Natural Light, Renewable Energy, Intelligent Control, Resource Reuse, Comfortable Environment, Ecological Greening, Green Material, Healthy Air-Conditioning, and Natural Winding. The Shanghai Eco-offi ce demonstration building makes use of these technologies. According to its technology index, the building achieves a 75% reduction in comprehensive energy consumption, uses renewable sources for 20% of its energy, features a Comprehensive Indoor Environment that satisfi es the Health and Comfort Index (0 VOC), and reuses 60% of resources. While this is an impressive achievement, it is a tremendous challenge to construct these sorts of buildings feasibly.

There are a variety of other tools available to help gauge and guide energy progress. One is the Clean Development Mechanism, a Kyoto Protocol arrangement that allows industrialized countries to invest in green projects in developing nations. Another is the Climate “Exchange,” which Maurice Strong helped establish and which comes with a series of policy recommendations covering a broad range of topics.

IV. Knowledge-Based Economic Development

Knowledge-based economic development is marked by several characteristics: technological, managerial, and institutional innovation; intellectual property development; transparency; and the cultivation of a culture of innovation. In the 21st century, 30% of intellectual property should come from China, creating a base of knowledge that can be used to fuel economic development. The goals are by no means easily achieved, however. Most diﬃ cult is cultural innovation. There are a number of challenges: corruption, the need for systemic changes and reform, the role of small and medium enterprise, the need for

81 Energy | Empowering the Individual and the Community environmental and intellectual property protection, the creation of an Extension Service to the local and provincial levels, nourishing an innovative culture. Of these, I think the most diﬃ cult challenge will be at the local and provincial levels, where the inertia can be the strongest.

Taking all of this into consideration, we recommended a set of 50-Year Plans, one each for Energy, Water, Human Resources Development, and International Strategy.

V. Action Plans for the 21st Century

It is very important to develop the next generation of leaders. The Peking University Environment Fund has developed a particular vision of its role in the overall scheme of human development. In the beginning of the 20th century, Peking University made signifi cant contributions to China. In the beginning of 21st century, Peking University should set up the stage to make signifi cant contributions to the world. In my last 4 years at Peking University, we have followed the following principles, which were generated by our own faculty and students: proactive vs. reactive; system science, system engineering, and system management; human resource development/team building – cooperative vs. competitive; and innovation. We have also placed on emphasis on a number of action plans, including regional and global climate changes, integrated water resource management, environmental health, green building, Northeast Asia sustainable development and regional security, conservation (community) leadership, extension service stations, and international collaboration. Critical to our task are the environmental observation stations, which use online measurements to provide the necessary raw data. We also have mobile vans that can go and take measurements at specifi c sites, such as the “cancer villages” that have been reported in the news media.

China has a long history of ecological architectural design, but such designs were never standardized and thus could not be mass-produced. This is akin to Chinese traditional medicine, in which there is a variety of successful approaches. We are now trying to collect these designs into an ecological technology databank of Chinese characteristic architectures. One of our chief goals is to create conservation-minded leadership development for the next generation. There is great biodiversity in nature, but when unrestrained human development moves in, everything disappears. To address this, we propose the Four “E” Mode for Extension Service Stations. These stations would concentrate on Economics, Environment, Equity, and Education, serving as resources for all those involved in energy and environment management decisions.

Overall, we agree with Lester Brown and Plan B, which called for “Urgency,” “Determination,” and “ACTION” in order to secure the survival of the Earth.

I would like to repeat again the ancient Chinese proverb: “The best time to plant a tree was a hundred years ago; the second best time is today!”

Japan, North America, Europe, India, China – all of us – must think globally and we must think about how to live in balance and in harmony.

82 References:

Shao, Min, Xiaotan Tang, Yuanhang Zhang, and Wenjun Li, “City Clusters in China: Air and Surface Water Pollution”, Front Ecol Environ 2006, 4; 353-361

An W and Hu J Y, “Eﬀ ects of Endocrine Disrupting Chemicals on China’s Rivers and Coastal Waters”, Front Ecol Environ 2006, 4, 378 – 386.

Yan, Luguang, “A View on Sustainable Energy Strategy in China”, Proceeding of Shanghai Symposium on Energy Issues of Megacity, 2006.

83 Energy | Empowering the Individual and the Community

HARMONIZING INDUSTRIAL SOCIETY AND LOCAL COMMUNITIES Fumio Kawaguchi

October 11, 2006

I would like to start by saying that it is a great honor to be here. We have just listened to Dr. Kiang’s presentation about China, which is a very big country. By contrast, I am going to focus on the local level. It is at this level that we can best see the integration of a utility and the community it serves.

Let us look at the Chubu region. It is located roughly at the center of the Japanese archipelago and covers several prefectures. Chubu is a major economic area, with the size of its economy close to that of Canada or Spain. In fact, the total value of the industrial products made in Chubu represents as much as Ľ of the nation’s total. It is truly the center of Japanese manufacturing. You will ﬁ nd there the key plants and oﬃ ces of many global corporations, spanning a variety of sectors: automotive, electronic, machinery, and so forth. Chubu is a region where the culture of craftsmanship was created and nurtured from the olden days onward. The productive spirit of Chubu is based on the desire to create high-quality goods through constant improvement.

84 Chubu Electric Power Company is headquartered in Nagoya. There are a number of skyscrapers in Nagoya – it is, in fact, the fourth largest city in Japan. I have seen the trams here in Prague; we used to have a tram system in Nagoya, but it has been done away with as the city has kept growing. Two large national projects were completed last year in Chubu: Expo 2005 and Centrair, the Chubu International Airport. The theme of the Expo was “Nature’s Wisdom,” and the development of eco-communities may be considered a sub-theme. It was a big success. Centrair is not a huge airport, but inside the terminal, the shops have been made to look like an old Japanese town. It had so many visitors after it opened that it looked like a tourist destination or even a theme park.

These two mega-projects have provided Chubu with both tangible and intangible assets that are currently paving the way for further growth in the region. For example, aided by the completion of a ring road, companies are increasingly relocating to surrounding neighborhoods. At these locations, production and distribution are combined at one site.

The positive growth cycle of industries and communities can be witnessed in the growth of Toyota City. This location used to be a small town where the primary industry was silk weaving. Civic leaders, in hopes of replacing the declining silk industry, convinced a small startup company to build its plant there in 1938. What came about as a result of Toyota’s rise was a true symbiosis between community and auto-industry, one so strong that the town adopted the company’s name as their own. Today, Toyota City has grown into a highly- developed area where 400,000 people live in comfort. The jobs opportunities are great, and people both live and work within the city. The culture of craftsmanship is still alive and strong there, and it serves as a model to others. Other cities, in the pursuit of success, are now trying to oﬀ er a high level of social capital in order to attract companies.

85 Energy | Empowering the Individual and the Community

Now that I have presented an overview of the region and its cultural context, I would like to describe the business of Chubu Electric. The primary tasks of our company are to generate, transmit, and sell electricity. Japan has ten companies that oversee the full range of electricity provision. As of the fi scal year ending on March 31, 2006, Chubu Electric Power Company employed 16,245 people and controlled assets worth a total of Ą5,741 billion ($48.8 billion). Chubu possesses a generating capacity of 32.6 gigawatts and, for the last fi scal year, sold a total of 130.5 terawatts of power. These fi gures have been made possible by the deregulation in the electric utility industry that has taken place since the year 2000. This trend should only continue, as discussion of full liberalization is scheduled to begin in April 2007.

Chubu believes in the interdependence between company and community. We pride ourselves on our partnership with our surroundings and seek a coexistence and symbiosis with local communities. If we look at the history of Chubu Electric, we will see that it was established at the request of the business community in the region. This demonstrates the strong and responsive relationship between the utility and those it serves. The responsibilities that come with that relationship are: to supply cheap and high-quality electricity; to promote global environmental conservation for the sustainable development of local communities; and to contribute to wide-ranging regional development projects.

As a result of our continued upgrade eff orts, the quality of our energy is among the highest in the world, as is refl ected by our low outage rates. We have developed SMES, the Superconducting Magnetic Energy Storage System, to counter power disruptions. SMES provides auxiliary power during momentary voltage drops, thereby along the fl ow of current to remain uninterrupted. We are continuously making eff orts to further improve quality through innovate technology. In order to increase competitiveness, it is essential for us to provide electricity inexpensively, and we are therefore making eff orts to reduce rates. In the last decade, we have achieved a reduction in power rates of approximately 25%. Together with inexpensive supply and high quality, it is also necessary to provide diverse services to our customers, who have a diverse set of needs. To meet this goal, we have at our disposal a series of energy systems, including on-grid power sources, natural gas, LNG, and distributed generation. This combination of sources allows for cost reduction, the implementation of environmental measures, an increase in power quality, and improved energy facility management.

Providing for global environmental conservation is another of Chubu’s responsibilities. We have established four guiding principles for this task: we will use resources effi ciently; we will reduce our environmental footprint; we will improve our level of environmental management; and we will promote environment-related communication and enhance cooperation with communities. We use a large amount of fossil fuels to generate energy, and so we are striving for greater thermal effi ciency. We are also making an eff ort to reduce CO₂ , NOx , and SOx emissions. Chubu makes use of an Environmental Management System featuring organizational schemes that enable it to ascertain the environmental impact of its activities and to take voluntary corrective action.

Chubu’s participation in EPOC, the Environmental Partnership Organizing Club, is an excellent example of our cooperation with communities. EPOC is an organization promoting

86 environmental awareness that was established in February 2000 by CEPCO and 13 other local companies. By the end of ﬁ scal year 2005, it had grown to 314 corporate members. EPOC is highly involved with citizens and local governments. Since this year, I have been serving as chairman of the Club and consider it to be very signiﬁ cant in generating a positive environmental impact. Among my duties was sponsoring and participating in Eco-Talk sessions to discuss environmental issues with children. I must say that I was very impressed by the high level of sensitivity of the young generation to ecological issues.

With regard to contributing to the development of the region, Chubu has taken part in a number of projects and initiatives. In addition to the previously mentioned Expo 2005 and Centrair projects, Chubu has engaged in R&D interaction with Nagoya University through the Ectopia Science Institute and supported the education of future generations by means of EPOC and the Chubu Educational Advancement Foundation. By taking part in ventures that beneﬁ t the community, CEPCO lives up to its responsibility of partnership and actively contributes to the sustainable development of the Chubu region. The growth of the region, in turn, contributes to the success of CEPCO.

In concluding, I will mention that I have had a chance to look at a map of foreign companies in the Czech Republic. It turns out that a number of the companies in the Chubu region now have branches in this country. Ever since I came to the Czech Republic, I have been surprised by just how many of them are here. It is my hope that they will grow in harmony with the environment.

87 Energy | Empowering the Individual and the Community

SESSION 2 | DISCUSSION EXECUTIVE SUMMARY

In response to Commissioner Andris Piebalgs’s address, Dr. Kneissl asked how ambitious the recently instituted EU-Russia and EU-OPEC dialogues were, and also how equal was the footing of the parties. Dr. Sřrensen requested that Commissioner Piebalgs speak about the EU position on interest rates, which he considered to be key with regard to energy use. Dr. Sřrensen elaborated by noting that in the case of high interest rates, resources with high costs of waste disposal can pay those costs into the future, so that interest rates have an eﬀ ect on what resources are preferred. Commissioner Piebalgs responded that the EU energy dialogues had opened on equal footing and that every eﬀ ort had been made to ensure that each side understood the rationales behind the policy decisions made by the other side. For example, OPEC has always thought that high taxation policies in the EU were geared against it, and as part of the dialogue the EU has sought to explain that its taxation policies are not targeted against OPEC but are rather a means of raising funds for infrastructure development, quality of life improvement, and shock reduction. In addition, the cuts in consumption brought on by such taxes allow OPEC to operate for a longer period of time.

Explaining these facts is not easy, according to Commissioner Piebalgs, because of the mistrust that has existed, such as mistrust from the EU side, based on the belief that all OPEC actions are geared toward obtaining a higher price. Face-to-face dialogue is the only means for alleviating such mistrust. There is also a diff erent perception with regard to the free market, of which OPEC is a fan, while the EU is more wary. The commissioner declared that both sides have the same enemy, which is volatility. He stated that OPEC must learn how to fi ght “the Dutch Disease” and speculation on the market and also expressed his belief that refi ning capacity is the real driving force behind high prices.

Commissioner Piebalgs described the dialogue with Russia as being much more ambitious. He declared the interdependence of both sides to be total, with Europe needing a producer and Russia needing a consumer. The propagation of new technologies and eﬃ ciency measures, some of which are currently available, is a particular point of emphasis. The Baltic Sea pipeline, new development around the Stockman ﬁ eld, and other projects are also being discussed, as are the questions of where investments will be made and what volumes exist in the climate change market. The Commissioner spoke of the need to create a common energy space with Russia and to expand the dialogue beyond energy to encompass a whole host of cooperative relations. Such an emphasis on general relations was much more present in the dialogue with Russia than with OPEC.

With regard to interest rates, Commissioner Piebalgs expressed his disagreement with the notion that rate levels play such a determinant role in energy source selection. He mentioned

88 carbon policy, taxation, and the location of potential storage sites as being other important factors, and stated that there are a great number of speculative elements at this stage. The commissioner off ered, by way of example, a scenario in which he declared the target carbon emission rate for 2015, saying that such a move would destroy interest rate infl uence by introducing a much more concrete and overriding variable. He closed by admitting that industry and investors are looking for bold steps from policy makers and that the EU could be doing more. The ambition of the European Council for the next year is to deliver exactly this, even if its current infl uence is rather limited.

Prime Minister Campbell followed, admitting that she is not an expert on energy but declaring herself to be very grateful for the chance to take part in such a forum. She made note of the Club of Madrid, which has plans to make energy a central topic of focus, and expressed her hope that there would be synergy and cooperation between the Clubs of Prague and Madrid. The focus on where political leadership is necessary and on where policymakers must concentrate their eﬀ orts is a particularly important feature of the Clubs’ work.

The Prime Minister followed with a series of comments touching on various aspects of the energy issue. She posed the question of whether there exists a diﬀ erent energy paradigm, citing “The End of Oil” by Paul Roberts and Dr. Kneissl’s own book as examples of the great deal of thought being given to the issue. Energy is one of the fundamental foundation stones of human civilization, and yet there is often a very blithe assumption that ‘yes, we will move to a hydrogen economy.’ Such a step, however, is both very close and very far away. It is currently not clear where we will move and when we will have to do it, and this uncertainty is one of the “800 pound gorillas” in the room.

Prime Minister Campbell also asked about how best to deal with the security of supply, as well as climate change, and inquired whether it was feasible to fi nd alternative sources that could fuel major economies. If we do fi nd a paradigm for the future, what is the bridge between now and then? What do we need to know in terms of infrastructure and what do we need to know in order to invest in the future wisely? The prime minister stressed the importance of research and development, declaring it to be one of the most important aspects of managing the energy situation but also wondering how it is to be fi nanced: through high oil prices, perhaps, or through public policy decisions? She made the case that if we want markets to fi nance the development of new technology, then politicians must make decisions that are lasting and establish predictable rules of the game. Business needs certainty, and instances such as the U.S. Congress’s vacillation over renewing or changing emissions standards demonstrate the potential side eff ects of inconsistency in public policy – why should business invest in meeting a particular set of standards if they may not have to follow them?

The case was also made that international agreements help create such necessary longetivity. It is very diﬃ cult for politicians to think long-term and often hard for them to do what is wise, given the political pressures that they face. Coming together internationally and globally gives policymakers support for doing what needs to be done in the long-term. Nations may, of course, step away from treaties, but if we want the private sector to make investments and attain the goals we set, there needs to be a consistent public policy. In terms of tools at their disposal, governments have taxes and subsidies, but also standards. Adopted standards are

89 Energy | Empowering the Individual and the Community what led to the creation of catalytic converters, according to the prime minister, which turned out to be quite proﬁ table for those who invented it. There is also the possibility that there may not, in fact, be suﬃ cient incentive in the free market to go forward with certain avenues of innovation, at which point governments can invest directly in research and development.

In addition, Prime Minister Campbell stressed the importance of drawing the links between energy policy, climate change policy, and other broad goals, which will provide a rationale for economic measures that may not make sense if they are viewed through a narrow, single- issue lens. She noted that there are many other issues as well that are often overlooked. Though no one, in the prime minister’s view, believes that alternative fuels will solve all of our problems, and there are limits to what bio-fuels can accomplish, there are a number of relevant issues that need addressing. For example, with regard to agro-industry in Canada and the United States, there are serious problems with rural depopulation. In Canada, most farms require a second source of income in order to make them economically viable; the husband may work on the farm while the wife has to work in the community, for instance. With what we are learning about the use of cellulosic ethanol, which uses farm waste, pollution and runoff from animals – it is now possible to run a car off of chicken manure – it might be viable at the local levels to use bio-fuels made from available resources. There does not have to be broad replacement of fossil fuels, but small-scale projects might work, and they would address not just energy needs but other concerns as well, such as runoff and pollution. Thinking holistically and imaginatively might help ease energy burdens and accomplish some other social goods.

Touching on alternative sources of energy, Prime Minister Campbell mentioned sugar as being one of the potentially most useful fuels. She stated that while many people are concerned about the inﬂ uence of the powerful sugar lobby, perhaps the sugar lobby should become concerned about fuel use, which could yield an enormous value beyond the traditional utilization of their product. Nuclear power, in the prime minister’s view, does not appear to be going away, and a variety of interesting projects are being done in that ﬁ eld, such as burning the plutonium found in nuclear arsenals, which produces much less toxic waste. “Nuclear energy has its ups and downs,” but since it is not going away, various means of implementation should be looked at, while also focusing on lessening the risk of proliferation.

The prime minister closed by speaking about the role of government. She wondered at what level of government should decisions regarding energy be made. Cities produce 75% of all greenhouse gases, but their governments tend to lack inherent power over things like taxation and have the least prestige, despite controlling the most important hubs of economic activity. The prime minister stated her view that the creation of coherent plans dealing with energy, transport, and greenhouse gas emissions must be looked at on a city level as well. As for governments in general, it is the ﬁ nal responsibility of political leaders to make citizens realize the importance of the energy issue. An engaged citizenry could be one of the most important resources we have in dealing with the energy crisis.

The oﬃ cial roundtable for Session II commenced following the presentation given by Mr. Kawaguchi. Dr. Karin Kneissl initiated the discussion with a question for Professor Kiang: having created a 50-year plan for harmonious growth, what is the actual state of the Chinese bureaucracy? Dr. Kneissl likened small and medium business to unguided missiles and

90 asked about the prospects for the Chinese government, be it the central party or the local committees, to successfully implement the 11th 5-year plan, with its provisions for ecological harmony. Prof. Kiang responded that implementation would indeed be a tremendous challenge. He noted that he had heard the vice-chairman of the Growth Committee say “system reform” for the ﬁ rst time, the topic having been previously as unmentionable as “political reform.” There are, according to the professor, signs of greater transparency than before, but information access and transparency are hard to expand and the transition will take some time. In this regard, the state-owned industries are actually easier to deal with. It is the smaller, private companies, which now account for approximately 80% of GDP, whose energy and environmental balance is very hard to control. Such companies, in Prof. Kiang’s view, may have no idea about the need for balance: in China, in the past, they had burned everything –“I mean everything” – when there was a shortage of energy.

Speaking about innovation, the professor noted that in the U.S. there are engineer extension services, research labs, universities, and national laboratories, with the government providing money for research. In China, by contrast, there is a lack of infrastructure for technological development benefi ting small and medium-sized businesses. Prof. Kiang identifi ed the biggest challenge as being not the big party system, but rather the many hundreds of local commissions that lack knowledge of environmental balance. Recently, for the fi rst time ever, the party university and other universities are off ering training courses for local community leaders. The professor expressed his view that this was an important step, but cautioned that the key test will be whether the laws and initiatives on the books will actually be implemented. “If you check the law, they have every kind of law you want” – the question is implementation.

Prof. Kiang followed by stating that, with respect to climate change, small and medium industries and even Chinese NGOs fail to understand the impact of global changes. Professors and national leaders may possess such an understanding, but if one takes the leaders of villages and asks them ‘what are global changes,’ they will reply ‘I don’t know.’ Therefore, the problem of disseminating information to local leaders is critical. This is the second biggest challenge facing China, after corruption, in its path toward modernization. “China needs a lot of reform to become a knowledge-based economy.” The thinking about the future must be long-term, in terms of a dynasty even.

Mr. Fuji directed a question to Professor Kiang regarding the role of nuclear energy, about which very little was said in the professor’s presentation. Mr. Fuji also asked that Prof. Kiang elaborate on the projected energy source percentages in the 50-year plan, which called for renewables to supply between ten and ﬁ fteen percent of the total energy use. Prof. Kiang replied that, with regard to nuclear energy, China does not have an answer, as it does not know how to deal with the resulting waste. Though China currently feels it necessary and has plans to go forward with nuclear power plant construction, there are many additional issues that remain unresolved. Turning to the question of renewable usage, the professor noted that it can be very hard to come up with statistics that accurately anticipate future developments. It is often assumed that the government has everything under its control, but there are now countless other ventures “popping up like mushrooms.” For instance, local areas now have

91 Energy | Empowering the Individual and the Community

fi nancial capital and can develop energy projects by themselves if they have the resources. For this reason, any projections about the future will inevitably be very tentative. The professor fi nished his response by highlighting Chinese ventures’ need of U.S., Japanese, and European experience in the energy and development fi elds.

Bill Martin expressed his fascination with the stunning similarities but also the stunning diff erences between the viewpoints presented and the regions which they represent. He echoed the questions of where the money for innovation and transformation will come from, what the range of government policies will be, and how those policies can be harmonized. The complexity of these issues, according to Mr. Martin, left him with the desire to move to the Czech Republic permanently so that he would not have to worry about the rest of the world. He stated that Chubu appeared to be a very nice place to live in and a highly effi cient region in general, but three hours away in Beijing, the scene is one of almost total chaos. How, then, will Japan and China cooperate, given their very diff erent circumstances? Turning to the issue of water scarcity, which was dealt with by Mr. Malek Kabariti in his reading of HRH Prince al- Hassan’s remarks, Mr. Martin remarked that everything he had seen and read suggested to him that water shortages were going to only exacerbate tensions in the Middle East. He asked how the Middle East was going to face these issues while at the same time dealing with the peace process, Iran, the threat of terrorism, and other problems.

Mr. Kawaguchi began his response by quoting Max Weber as predicting that China would not become a capitalist society like the West because of its Confucian heritage. He then cited Mr. Minami’s presentation, noting Japan’s lack of a fundamental religious base, and hypothesized that this may explain why capitalism developed as it did in Japan. The kind of development achieved by Japan and China would have no doubt surprised Weber. In the coast regions of China, capitalism is prospering. Japan and China are, in some ways, very similar geographically and those two countries, and Asia as a whole, need a common forum to discuss the environment, the concept of mottai-nai, and being content with what one has in the face of the poverty being faced by so many others in the region. Mr. Kawaguchi also underlined the need for further cultural exchange with China, noting the huge disparity between rich and poor there, and stated his belief that information exchange is essential.

Mr. Kabariti opened by mentioning that Jordan is the poorest country in the world in terms of water per capita. He declared that His Royal Highness had a vision to think globally while acting regionally, rather than locally. There must be regional cooperation. Jordan has signed a peace treaty with Israel, but it does not receive any water from Israel, nor from Syria. Mr. Kabariti underscored the importance and seriousness of the problem and stated that the only solution is a peaceful solution, one that also includes Syria, Iraq, and Turkey, each of which face a multitude of problems of their own. As examples of those problems, he brought up the fact that the Jordan River has been diverted from its sources and the Dead Sea is drying up at a rate of 1-3 meters per year. Mr. Kabariti spoke of His Royal Highness’s concept of the Energy-Water Environment, observing that in the Middle East, it is impossible to talk about one and not the other. If one wants to desalinate water, then energy is required, and water supply is obviously a concern aﬀ ecting the entire population, so energy becomes a universal concern as well. Mr. Kabariti remarked that he did not know if there was a solution, but he did know that a great number of people were engaged in ﬁ nding one.

92 The next set of comments was made by Dr. Bent Sørensen, who observed that perhaps the most important presentation of the session was the reading of Václav Havel’s speech. Referring to the text as, in a way, a very sad document, Dr. Sørensen suggested that, in today’s critical debate, basic human values were being forgotten, overshadowed by all kinds of other factors inﬂ uencing political decisions. Though some people do comprehend the relative merits of various proposed solutions, that knowledge is very rarely communicated to those who make the decisions. Many decisions are made not by political leaders but by common people. For example, a great deal depends on what individuals purchase. What inﬂ uences the consumer decision-making process, though?

In Dr. Sørensen’s view, it is advertising, which is very often distorted and fails to tell the truth regarding pros and cons. People in the sales business wield disproportionate inﬂ uence, including in the energy sector, as when “traveling salesmen” approached countries trying to sell nuclear power plants and other technologies without oﬀ ering a full and fair evaluation of the merits of these products. Dr. Sørensen declared that “we should be pessimists,” given that we see a world around us in which decisions are made based on “advertising and traveling salesmen” rather than rational analysis. It is possible that if an enlightened government is in place, the right decisions can be made in a command economy. In a market economy, however, this is very hard, and Dr. Sørensen observed that he could not remember an instance of the best technology actually coming out on top in free market competition. “Maybe there’s something wrong with the way we’re organizing our societies.” The prioritization of a select few’s enrichment over basic human values is a glaring problem.

Professor Kiang followed up on Dr. Sørensen’s remarks, saying that they addressed a very important issue – equity. Equity, in Prof. Kiang’s view, is more than just equal rights. He stated that 5% of the population uses 20% of all resources consumed, a state of aﬀ airs that is only possible because resources are currently plentiful. The professor observed that, in his personal view, Peking University has tried to address these issues. In China, everyone, no matter how poor, owns a television. For that reason, the news media needs to be trained and informed. For example, when the concept of the circle economy was broadcast on television, it caught on and became very popular. Education as a whole is very important, whether it is in terms of developing the next generation of leaders, developing a truly global classroom, or fostering discussion and dialogue. “Students want to know,” and every eﬀ ort must be made to provide them with the knowledge they seek. We are in the information age and should use the tools available to us to disseminate the vast wealth of useful information that we already possess. Sometimes, however, “it seems we have more noise than signal.”

Moderator Václav Hampl added to Prof. Kiang’s comments, emphasizing that not just education but also research must be stressed and disseminated. Rector Hampl observed that research related to the energy question is usually perceived as highly technical, such as natural resource research, but what is no less necessary is social research. He cited President Havel as supporting the notion that humankind often behaves strangely and made the argument that research is needed to try to understand these behaviors. Although we know the challenges that are looming in the future, “we still behave as if there was no tomorrow,” a behavior that Rector Hampl admitted was puzzling to him. He expressed his willingness to pledge ﬁ nancial support for research into human behavior in this regard, as well as how to inﬂ uence it.

93 Energy | Empowering the Individual and the Community

Dori Ellis strongly endorsed Rector Hampl’s observation about social scientists needing to support technologists and visa versa. In her view, “technologists often talk to themselves and we don’t reach people where they live and their values and what’s important to them.” Citing the Dalai Lama’s address as part of the Forum 2000 conference that had just been held in Prague, she commented that the Japanese and Chinese backgrounds have the potential to lend themselves very well to environmental harmony. However, regardless of the good faith concerns of federal governments, local bureaucrats and business leaders are the ones making important decisions. For that reason, it is necessary to start a dialogue now and to make it “very open, directed, and blunt.”

Professor Kiang noted that Peking University, Gwangju Institute of Science and Technology in South Korea, and Tokyo University were involved in an air quality study on Beijing, the fi rst time ever that such international research had been allowed by the Chinese government. He off ered this study as an example of the increasing cooperation in East Asia and predicted that greater collaboration was forthcoming in the future. It remains unknown how far this teamwork will carry, but the fact that data is fi nally being shared is already a big step.

Mr. Kawaguchi closed the session by declaring that more dialogue is needed just as much as more energy. A number of interrelated issues must be discussed and solutions generated; for example, in case of a shortage of resources like phosphorus, fertilizer cannot be made and food cannot be grown in the large quantities necessary. Energy, food, and water are all limited but indispensable resources, and dialogue is necessary to come up with an overall approach toward sustainable human growth.

94 Mr. TAKASHI ATODA

Mr. ANDRIS PIEBALGS Mr. FUMIO KAWAGUCHI

Mr. NOBUYA MINAMI Dr. ARNOLD BAKER

Mr. YOHSAKU FUJI Mr. DAVID ELLIMAN

Mrs. KIM CAMPBELL Dr. C.S. KIANG

Mr. KONOSUKE SUGIURA Mr. GRAHAM MIEKLE

Mr. ROGER W. ROBINSON Jr. Mr. MASAYUKI OYAMA | Mr. ISAMU SETO

Mr. PAVEL FIDLER | Mr. RADEK STAVĚL Mr. PAVEL BÉM | Mr. ALEXANDR VONDRA | Mr. WILLIAM F. MARTIN

Mr. MARTIN ROMAN | Mr. VLADIMÍR SCHMALZ | Mr. JIŘÍ SCHNEIDER Mr. MASAYUKI OYAMA | Dr. JOSEPH PERKOWSKI | Mr. TAKASHI ATODA

The MIRROR HALL of MINISTRY of FOREIGN AFFAIRS | SESSION 1

TECHNOLOGY, MARKET, POLICY & CONCLUSION DAY 2 | SESSION 3 | Programs to Support New Old Thinking

moderator | Dr. JACQUES BOUCHARD

INTRODUCTORY REMARKS Roger W. Robinson, Jr.

Mr. Roger Robinson opened the session by off ering a review of the fi rst day of the conference. He commented on the enormously rich give and take that took place on the fi rst day of the conference, labeling it brilliant and expressing his certainty that a similarly high standard would continue in the forthcoming sessions. Declaring himself to be enormously impressed with the array of insights and experience, Mr. Robinson remarked that he has turned attending such conferences into a profession, and, in his view, the combination of the cultural and the technical has set The Club of Prague apart from similar gatherings. He attributed this uniqueness to the nature of its structure, which might be called Havelesque.

Referencing the informal conversations that took place the previous day, Mr. Robinson made note of the potential shocks to the system that are beyond our ability to predict and estimate at this time. The statement that there are no facts about the future comes to mind here. The conversations touched on the North Korean nuclear crisis and Iran and also on the question of whether the West, including Japan and China, are going to demonstrate adequate resolve to take meaningful action in the face of this mounting threat. “The chances of miscalculation are ever-present.” This is particularly true given that North Korea displays a sort of “neurotic paranoia” which views any sort of sanctions as a precipitant to conﬂ ict or an ‘act of war,’ to use the phrase they employed in the past 24 hours.

In Mr. Robinson’s view, this dynamic of uncertainty makes the job of President Bush and others heads of state very challenging. He underlined the necessity of recognizing how much of the world’s oil supply is in the hands of questionable actors, “which is a polite way of saying ‘bad guy regimes.’” The cases of Iran, Syria, Sudan, and Venezuela were cited, as was Iraq, which is a far from stable producer despite the regime change there. With regard to the Caspian Sea area, the tensions between Georgia and Russia demonstrate the instability of that region as well. Taken together, there is “an awful lot of oil” that is located in volatile areas. Compounding that volatility is the threat of terrorism and also by the ballistic missile threat that carries special signiﬁ cance to the energy debate.

Mr. Robinson remarked that the world has never faced anything like this before. In previous crises, such as 1973 and 1979, there had been spikes and disruptions, which the world tried to manage through the International Energy Agency, by building up stocks and releasing them on a coordinated basis, and by preventing speculators from using turmoil to their own beneﬁ t. However, according to Mr. Robinson, we lack an adequate conception of just how wrong things could go in case weapons of mass destruction are detonated in anger or miscalculation. He oﬀ ered situations in which “a paranoid North Korea gets itself into a corner” or “the Iranians become too emboldened and full of themselves and go too far” as examples of possible scenarios in which such a WMD detonation could occur. In closing his remarks, Mr. Robinson expressed his expectation that potential shocks to the system would be discussed further and declared his hope for ongoing involvement with the Club of Prague, which had so far greatly exceeded his expectations.

107 Energy | Empowering the Individual and the Community

JAPAN’S EFFORTS TOWARDS EFFECTIVE USE OF FOSSIL FUELS Masayuki Oyama

October 12, 2006

Good morning, Ladies and Gentlemen. Thank you very much for inviting me to the fi rst conference of the Club of Prague. I appreciate this opportunity to give the presentation at this prestigious conference. Today, I’d like to speak about the Japan’s eff orts toward eff ective use of fossil fuels. I hope that Japan’s experiences will be able to contribute to the discussions on the ideal vision we have for the future.

The Japan’s economy grew around 10% on average up to early 1970’s during the post-war era. As the economy expanded, energy consumption increased. Until 1973, primary energy consumption increased at a pace exceeding GDP growth. However, the two oil crises in 1973 and 1979 brought sea changes. The nation as a whole worked to develop energy conservation technology and to apply it in practice. As a result, by the later 1980’s, we had achieved economic growth without an increase in energy consumption.

But since the late 1980’s, energy consumption is on the rise at the almost same rate as GDP growth, as we seek more convenient and comfortable lifestyles at the same time as oil prices entered a declining trend.

What eﬀ orts did energy suppliers take in face of this increasing demand? Before referring to this point, I would like you to understand that Japan was and still is a resource-poor country. Japan’s self-suﬃ ciency is mere 16%, an extremely low rate comparable only to Italy’s. The only way to meet our energy demand has been by relying on imports from overseas.

The fact that Japan is a resource-poor country enabled us to take the concern over energy security more seriously than other countries when the oil crises took place. Therefore, since the oil crises, Japan has put energy security at the core of the state’s energy policy, taking a range of measures in view of diversifi cation and improving effi ciency. Diversifi cation means expanding the variety of energy sources and increasing fuel suppliers. Effi ciency improvement means using fi nite resources in an eff ective manner.

First, I would like to mention Japan’s eff orts toward diversifi cation. Oil supported our rapid economic growth during the post-war era as a primary energy source, as mass production of oil started around then. Japan imported cheap oil in large volumes. In fi scal year 1973, the country relied on oil for more than three-quarters of its energy use. Our economic development was heavily oil-dependent.

108 After the oil crises, we set diversiﬁ cation of energy sources as one of the pillars of our energy policy and actively increased coal, natural gas, and nuclear power. As a result, our dependence on oil decreased to 50%.

Our diversifi cation eff ort is apparent in the change in fuel composition to generate electricity as secondary energy. There was a period when oil-fi red thermal power generation accounted for more than 60% of the total power output in Japan. Since the oil crises, electric power companies have rapidly developed alternative energy sources, including nuclear power, LNG, and coal, and now we have reduced oil-fi red generation to level of about 8% of the total.

How are we taking advantage of diversifi ed energy sources in actual operation? Though the daily load curve varies by season, particular in Japan, the gap between daytime peak and nighttime off -peak demand is huge during the summer season, due to air-conditioning use. Power companies, therefore, select an optimal combination of energy sources, based on a comprehensive assessment of operation characters, economic performance, and the impact on the environment of hydroelectric, thermal, and nuclear power generation. We call this “best mix.” In addition to diversifi cation of power sources, electric power companies have made eff orts to increase the number of fuel suppliers. We have been ameliorating our procurement risk by reducing our dependence on the Middle East for secure, stable energy sources. Now, let me explain Japan’s eff orts to enhance effi ciency of energy use. Japan has consistently improved the effi ciency of electricity generation and undertook technological innovation focused on reducing power loss in transmission and distribution, so that fossil fuels could

109 Energy | Empowering the Individual and the Community be used in a more effi cient manner. As a result, the average thermal effi ciency in generation improved from 24% in 1955 to nearly 41% in 2004, while the power loss factor in transmission and distribution dropped from 18% to 5% during the same period. One example of eff ective use of fossil fuels is the development and introduction of LNG-fi red combined-cycle generation, which has a higher thermal effi ciency. Higashi-Niigata Power Station of the Tohoku Electric Power Company is the fi rst large power plant in Japan with this combined-cycle system. The station started operation in 1977 and therefore gradually increased its generation capacity. The No. 4-2 unit now under construction starts operation by the end of this year. At that point, this power station, with an installed capacity of 4,600 MW, will be one of the largest- capacity power plants in Japan. The No. 4-1 unit, completed in 1999, also possesses advanced combined-cycle generation and a higher thermal effi ciency than conventional LNG-fi red power plants. This chart shows thermal effi ciency factors in thermal power plants of Tohoku EPCO. Average thermal effi ciency has been improving, with the fi scal 2004 level for thermal power plants as a whole equaling 40.4%.

Over the past several years, major turning points have been emerging. One is mounting concerns over a demand upsurge and the stability of energy supplies. The world energy demand is forecast to grow 60% from 2002 to 2030, driven in particular by a demand increase in Asia. The international situation is becoming pressing, with prices of crude oil and natural gas hovering at a high range and geopolitical risk intensifying in the Middle East. Some countries have made aggressive eﬀ orts in resource diplomacy. In past oil crises, the rise of oil prices was human-induced. But the present crunch has been brought about by a change in the supply and demand structure, thus making the situation apparently diﬀ erent in nature from past crises.

110 Another concern is the need to address the global warming problem. The Kyoto Protocol, adopted in 1997 and active in February 2005, requires us to address the reduction of CO₂ emissions in earnest. Emissions of CO2 from fossil fuel burning has increased by four billion tons globally between 1990 and 2003. Japan emitted 1.2 billion tons in 2003, and emissions from thermal power plants account for one quarter of that amount.

The present energy situation demands that we deal with both ensuring international energy security and solving global environmental problems. These new issues are closely interconnected, and the fundamental solutions calls for cooperation in the international community. Japan’s government has come up with the “New National Energy Strategy.” This strategy sets as a target addressing energy security and environmental problems in a comprehensive manner and making major contributions to the eﬀ orts to overcome world energy problems. Speciﬁ c measures in the “New National Energy Strategy” include developing clean and sophisticated uses for fossil fuels, along with the promotion of energy conservation and nuclear power generation.

Recently, coal has been attracting interest. As you may know, oil reserves are concentrated in the Middle East and some experts claim that production there has already peaked. Natural gas is also unevenly distributed, mainly in Russia and the other former Soviet republics. It is therefore commonly exploited for the purposes of resource diplomacy. The recognition that coal is a signiﬁ cant fossil fuel is spreading world-wide because its reserves are abundant, there are not geographically concentrated, and the price of coal remains low.

Coal has the disadvantage in that it emits CO2, air pollutants, and coal ash, causing an adverse eﬀ ect on the global environment. That is why we have high expectations for Clean Coal Technology (CCT) to mitigate the burdens on the environment. Research on this technology

111 Energy | Empowering the Individual and the Community

covers a wide range of angles, from thermal effi ciency improvement to desulphurization and denitration to liquefi cation and gasifi cation. Japan, the U.S., and European countries are currently working on research and development in various frameworks.

One example of Clean Coal Technology is integrated coal gasifi cation combined-cycle, or IGCC power generation. This system gasifi es coal, turning it into fuel gas, and uses it for combined-cycle generation. The thermal effi ciency of IGCC is 48-50%, compared with 40- 43% for traditional coal-fi red thermal power plants. Also, as IGCC emits less SOX, NOX, and particulates and cuts coal ash emissions by half, it is environmentally friendly. We have expectations that IGCC will be a next-generation technology. For that reason, Tohoku EPCO, jointly with other power companies, established Clean Coal Power R&D Co., Ltd. in order to test the IGCC technology.

Our company has worked to eff ectively use coal ash discharged from our coal-fi red power plants. We now utilize coach ash as a cement and civil engineering material. As a result, our utilization rate for coal reached 94% in FY 2005. We also eff ectively use gypsum, a byproduct generated by fl ue gas desulphurization facilities, by supplying all of what is generated to the gypsum board industry.

I would like to ﬁ nish this presentation by oﬀ ering some conclusions, coupled with my own personal views. The development of renewable energy is indispensable for dealing with growing energy demand and the concern over stability of crude oil and natural gas supply, as well as global warming. In the medium-term, fossil fuels will remain the main energy source, along with nuclear power. In particular, coal has been drawing more and more attention, as its reserves are abundant and are situation in regions with less political risk. Overall, the international community must establish a framework for cooperation in the development of technology, so that clean uses of coal can be created and disseminated and the environmental impact of its use can be lessened.

If we look further into the future, we will inevitably face the exhaustion of our fossil fuel stocks. Technology will not be able to ﬁ x all of the problems that will occur. For that reason, a fundamental shift in our values and lifestyles will be necessary in order to achieve an ultimate solution to the energy crisis. I believe that the Club of Prague can play a role in achieving this mission.

112 THE NUCLEAR POWER PROGRAM IN JAPAN Yohsaku Fuji

October 12, 2006

I. Introduction

Good morning, ladies and gentlemen, I am Yosaku Fuji, Board director of The Kansai Electric Power Co., Inc. and President of Institute of Nuclear Safety System, Incorporated. I am highly honored to be invited to this most prestigious Club. Although I received an invitation to your Energy and Security conference two years ago, regrettably I was not able to attend due to business constraints. In the past, I had an opportunity to visit Prague when I attended the WANO conference.

Prague is a “World Heritage” city, which has inspired numerous leading artists to create their masterpieces, including Dvořák and Smetana. It has been a long term desire of mine to come back here. It gives me great pleasure to make my presentation in this wonderful city.

II. The Energy Situation in Japan

First, I would like to speak about the energy situation in Japan. The self-suffi ciency rate of energy supplies is only 4% and even with nuclear power generation included, this rate is still less than 20% , which is the lowest among the major developed nations. The total carbon dioxide emissions from coal-fi red, oil-fi red and LNG-fi red power generation, including energy consumed for building and maintenance of power generation units, range between 0.5 and 1 kilogram per 1 kWh. Meanwhile, regarding nuclear power generation, there are virtually no carbon dioxide emissions. In order to prevent global warming, Japan has pledged to reduce its carbon dioxide emissions by 6% compared with those in the year 1990, in accordance with Kyoto Protocols. However, emissions in Japan are currently still on the increase and I therefore believe much more use of nuclear power generation will be required for the years to come.

III. The History of Japan’s Nuclear Power Generation

1 | Introduction of nuclear power generation by power companies

Second I would like to speak about Japan’s history of nuclear power generation.

It was a Speech by then US President Eisenhower titled “Atoms for Peace” at the United Nations General Assembly in 1953 that stimulated Japan’s nuclear power research, development and utilization. As a consequence, in 1955, the Atomic Energy Basic Law was enacted and in the following year, administration systems for nuclear power utilization,, such as the Atomic Energy Commission and the Atomic Energy Bureau of the Cabinet, were established. The ﬁ rst BWR (375MW) belonging to the Japan Atomic Power Company began operation at Tsuruga in 1970.

113 Energy | Empowering the Individual and the Community

In addition to this, the ﬁ rst PWR (340MW) began operation at Kansai’s Mihama site in the same year. Today, there are 55 nuclear power units operating in Japan of which total electricity- output of 49,580MW, including Kansai’s 11 units total output of 9,768MW of electricity.

2 | Improving capacity factors

During the initial stages of nuclear power development (up to the 1980;’s) the capacity factors had been kept low at around 70% due to the problems associated with PWR steam generator heat transfer tubes. As a result of replacing the steam generators with a new design in 1990’ss capacity factors have improved to around 84%. It should be noted that there are countries such as the United States with stable capacity factors of approximately 90%, whereas Japan is still in the process of improving their capacity.

IV. Policies Pertaining to Nuclear Fuel Cycles

1 | Uranium enrichment

Next I would like to speak about Japan’s nuclear fuel cycle policy. In terms of uranium enrichment, Japan is promoting the uranium enrichment business, ﬁ rstly from the viewpoint of securing a stable supply of enriched uranium and secondly from the viewpoint of securing the independency of Japan’s nuclear fuel cycle, while taking into account the economical aspects.

2 | Reprocessing of spent fuel and its plutonium utilization

Next, I would like to speak about reprocessing of spent fuel and plutonium utilization. According to the “Framework for Nuclear Energy Policy” which was established last October, Japan will “steadily promote plutonium thermal utilization based on the basic policy to eﬀ ectively re-use recovered plutonium and uranium from reprocessed spent fuel.” Power companies in Japan are striving to implement plutonium thermal utilization at 10 to 12 nuclear power units by 2010.

From the view point of gaining understanding domestically and internationally, it is vitally important to make plutonium utilization transparent. Based on the principle of not carrying the surplus plutonium, electric power suppliers have decided to voluntarily disclose their “plutonium utilization plans”.

V. Plan to become a Nuclear-oriented Nation

In this August, the “Nuclear-oriented nation plan” was published by the Agency for Natural Resources and Energy to give a clear picture for the materialization of the “Framework for Nuclear Energy Policy.”

114 To maintain or increase the current 30 to 40 percentage ratio of nuclear power generation among the total electricity generation even after 2030, there are nine plans listed as follows:

1. Actualizing the investments in building or replacing nuclear power plants 2. Appropriate utilization of existing nuclear power plants on the premise of continued safe operation 3. Steady promotion of the nuclear fuel cycle and strategic consolidation of the nuclear fuel cycle-related industries 4. Early development of fast breeder reactor cycles 5. Securing and developing in depth technologies, industries and human resources 6. Supporting international deployment of Japan’s nuclear power industry 7. Positive participation in establishing international frameworks aimed at the simultaneous materialization of the expansion of nuclear power generation and non-proliferation 8. Strengthening reliable relationships between the government and the local communities and carrying out public hearings and public acceptance activities 9. Steady promotion of radioactive waste measures

VI. Future Prospects for Nuclear Power Generation

In conclusion, I would like to talk about future prospects for nuclear power generation in Japan. The “Framework for Nuclear Energy Policy” proclaims that it is appropriate to maintain or increase the current 30 to 40 percentage ratio of nuclear power generation among the total electricity generation even after 2030 as it is expected that nuclear power generation continuously contributes to the stable energy supply and to the measures against global warming.

In this context, it is our mission to make the maximum use of the existing nuclear power plants while assuring the safety. One of the measures to achieve this target is the replacement of components taking into account the economic aspects.

It is generally known that the physical property and characteristics of the material may result in changes as they are exposed to dynamic, thermal and radioactive environments for a long time period; they are so called aging phenomena. For the nuclear power plant, representative aging phenomena include fatigue, neutron irradiation fragility, stress corrosion cracking and corrosion.

Assuming a longer period of operation for a nuclear power plant, the possibility that new aging phenomena emerge or develop cannot be ruled out. Accordingly, before 30 years have passed since the start of the commercial operation, at Japan’s nuclear power plants, we selected the parts which have a potential for aging phenomena and the development of which may aﬀ ect maintaining the function of the component. These evaluations are made based on the operating experience in Japan and abroad and the latest technical knowledge. Then, the evaluation results are incorporated in the subsequent maintenance plans. The plant life management activities for Japan’s nuclear power plants have thus been being implemented.

115 Energy | Empowering the Individual and the Community

For Japanese nuclear power plants, it is planned to implement technical evaluations to verify the long-term integrity of components selected from the entire plant assuming a 60-year operation period before the plant has been operated for 30 years. At the same time, they will develop maintenance plans for the coming 10 years and its validity will be reviewed before the concerned 10 years have passed. I believe nuclear power plants can achieve life extension in a safe and economic manner through the mentioned practices. I would like to recommend that the nuclear power plants worldwide as well as those in Japan would take the same practices to achieve their target.

VII. Conclusion

Ten years ago, the electric power industry was in the process of being deregulated, and the construction of a re-processing plant in Japan became a big issue on the agenda. The reprocessing plant has now commenced its active demonstration test. As a nation with scarce natural resources, Japan has overcome numerous hurdles to promote nuclear power. In the current circumstances where global warming is the world largest issue, it is not an overstatement to say that energy issues cannot be discussed without referring to nuclear power generation. Japan will strive to continue promoting nuclear power generation. If I am allowed to be here next year, I would like to talk to all of you again regarding the future of nuclear power.

116 STAKES AND PROSPECTS OF NUCLEAR ENERGY DEVELOPMENT Dr. Jacques Bouchard

October 12, 2006

Nuclear energy today produces 17% of the world electricity which is about 6% of the primary energy consumption. 439 power reactors are operated in 31 countries as shown in table I. With 58 PWRs and one FBR (Phenix) France supplies 85% of its electricity production, near 30% of its primary energy consumption. During the last twenty years, nuclear energy production has brought the demonstration that it could be economically competitive, safe and clean.

Now, we see the future of nuclear energy as a way to ensure a large part of the world energy needs without emitting greenhouse gases. Indeed, the world energy needs will still increase in the coming decades, even with strong policies of savings in industrialized countries. As shown on fi gure 1, the world population is still increasing and it is currently predicted that it will reach some 9 to 10 billions people by 2050 (6.5 billions in 2005). Already, the most populated countries, China, India, have increasing consumption per capita, at a rate which is higher than the one of savings in industrialized countries. Therefore, according to the World Energy Council predictions, the total energy consumption per year will reach between 15 and 30 GTOE by 2050, as compared to 10 GTOE at the present time. The scenario presented by the International Energy Agency of the OEDC gives an estimate of 24 GTOE in 2050 not very far from the medium hypothesis of WEC. Whatever the scenario, all of them confi rm a trend of ever-increasing energy consumption during the fi rst half of the century.

117 Energy | Empowering the Individual and the Community

Besides a growing use of renewable energy sources, nuclear energy will be needed to limit the consumption of fossil fuels which is the main contributor to greenhouse eﬀ ects and to ensure some security to the energy supply. Figure 2 shows some hypothetical but realistic scenario of the energy supply in 2050. Fossil fuels are still dominating with an increase of nearly 50% but the main changes concern renewable and nuclear. With a practical limitation on the development of hydropower, the other renewable sources are supposed to grow by factors of 10 to 100. Nuclear energy is contributing for 3.2 GTOE as compared to the present value of 0.7 GTOE. That means about 1500 GWe of nuclear capacity or 1500 reactors of 1000MWe. Table II gives the main ﬁ gures of the development of nuclear power plants in such a hypothesis.

Nuclear industry is presently oﬀ ering third generation reactors which rely on the large experience with light water reactors and bring new improvements, in particular for safety.

The ﬁ rst generation was mainly prototypes built in the 50’s and 60’s. The second generation includes most of the existing power plants. Third generation reactors are ready to be built or already under construction today. The fourth generation is still a R&D program to

118 feed industrial design of more sustainable nuclear systems to be built not before 2030. The advanced reactors of third generation are still mainly light water reactors. Following the Three Miles Island and Chernobyl accidents, the objective of their development has been to make new improvements in safety while keeping or improving the economic competitiveness already obtained with second generation reactors. Diff erent approaches have been studied by various countries and companies, either small or large reactors, either passive or active safety systems. It has led to quite diff erent designs which are still competing today in the industrial off er. A major step, which will probably remains as a main feature of this third generation, is the actual measures taken to mitigate the possible consequences of the most severe accident.

Table III gives a list of industrial proposals which has been established by the GenIV International Forum on the basis of a near term deployment criteria. The list includes in particular the EPR, a 1600 MWe reactor designed in the frame of a French-German collaboration and commercialized by AREVA. Two EPR have already been ordered and are under construction in Finland and in France.

There is a quite large market prospective for third generation reactors which should be the standard for most of the new nuclear plants in the three or four coming decades. Besides the renewal of existing power plants, there are many plans for new realizations (USA, China, India…) and according to plausible scenarios the market could reach 40 or 50 GWe per year.

In view of the possible growing demand for nuclear energy, several countries have decided to start preliminary studies on the development of sustainable nuclear energy systems. An

119 Energy | Empowering the Individual and the Community a US initiative, by nine countries which have signed a charter in July 2001. Switzerland and Euratom (on behalf of the European Union) joined the forum in 2002, leading to the present membership (U.S.A., United Kingdom, Switzerland, South Korea, South Africa, Japan, France, E.U., Canada, Brazil, Argentina). The aim of the forum is to organize international cooperation in research and development for a new generation of nuclear energy systems that will provide a competitively priced supply of energy, keeping in consideration an optimum use of natural resources, while addressing nuclear safety, waste, and proliferation resistance, and the public perception concerns of the countries in which those systems are deployed.

After a quite extensive review of various proposals by worldwide experts, six systems have been selected to be the most suitable in regard of Gen IV criteria and a roadmap for R&D has been established with a target of possible industrial deployment from 2030. Under a framework agreement signed by governments, two level of legal arrangements have been deﬁ ned, one for the system development, the other for project organization. Eight governments have already signed the framework agreement; a ﬁ rst system arrangement for the sodium cooled fast reactor is signed and two others will be signed soon; several project arrangements are under negotiation. An agreement has been reached with China and Russia who will be new members of the forum as soon as they signed the charter and the framework agreement.

Among the objectives of Gen IV, the sustainable development of nuclear energy is often linked to the implementation of fast reactors, which are the only way to burn all the natural uranium and to recycle most of the actinides, thus reducing the ultimate waste to fi ssion products. Four of the six selected concepts are based on fast reactors, with diff erent types of cooling. The fi fth one (MSR) is also aiming to improve sustainability but in a diff erent approach with liquid fuel, on line reprocessing and the use of thorium. The last one (VHTR) is an attempt to develop the use of nuclear energy for hydrogen production, starting from an existing reactor concept and focusing the development on high temperatures and water splitting technologies.

120 The development of fast reactors is already an old story with more than forty years of work and many prototypes. Nevertheless, there remain several paths for improvement of their economy and safety. The GIF experts have also considered as a necessity to explore possible alternate choices to liquid sodium for the cooling of fast reactors. Furthermore, the use of fast reactors requires a closed fuel cycle and, in order to satisfy the main criteria for sustainability, saving of natural resources, waste minimization and proliferation resistance, it has been proposed to develop a global actinide recycling concept (ﬁ gure 7).

The combination of fast reactors and global actinide recycling should bring a satisfactory answer to the diffi cult issues concerning the back end of the fuel cycle. Countries are still considering three options for the near term: direct disposal of the spent fuel, reprocessing and recycling of plutonium or long term storage. In spite of a huge amount of studies, no country has yet succeeded in starting the direct disposal. Furthermore retrievability is more often in the specifi cations of fi nal disposal leading to some confusion with long term storage. Long term storage without decision on the next step is a ‘wait and see policy’.

Looking to the future, the accumulation of spent fuel in storage and the corresponding amount of plutonium will reach impressive values (table IV) if the backend policy remains the same as today. Even if France has an actual industrial experience in reprocessing and recycling, with success from both the technical and economical points of view, most of the countries are still relying on long term storage. The ‘wait and see policy’ could be a main risk for the development of nuclear energy. The huge amount of spent fuel accumulated by the middle of the century would be considered as a legacy burden by the next generation. Its reprocessing would require the operation of many large industrial plants during several decades and could delay the start-up of fast reactors. Indeed, the start-up of a 1000 MWe fast reactor will require 10 tons of plutonium.

Several recent initiatives are aiming to improve the situation. The US proposal for a Global Nuclear Energy Partnership is technically based upon the development of fast reactors and

121 Energy | Empowering the Individual and the Community global actinide recycling. It includes the off er of fuel services for countries which cannot develop their own industrial facilities. A similar off er has been part of Russian proposals. The French President has announced the construction of a Gen IV prototype to be commissioned in 2020 with the objective of reducing the production of waste and making a better use of fi ssile materials. These three initiatives show a good consensus on the technical objectives, also shared by other countries, in particular Japan, and a will to facilitate the expansion of nuclear power in the world.

122 RENEWABLE ENERGY PROGRAMMES Dr. Bent Sørensen

October 12, 2006

One reason for the major interest in alternative fuels is the fact that we have not had any major new discoveries of new oil ﬁ elds since the 1960’s. According to old economic theories, oil would be phased out in the same, symmetric way as it was phased in. However, this assumes the existence of cost-eﬀ ective replacements. What now appears more likely is that we will continue to use more and more oil for as long as there is any left. Southeast Asia, with its skyrocketing demand, is a perfect illustration of this trend.

The ﬁ gure below shows past and possible future consumption and price. I do not wish to make any concrete predictions, but what I will oﬀ er is a rough possible range of future demand and prices. It is quite evident that prices will rise once resources are near depletion. Prices will eventually saturate when oil substitutes that exist in the price range that corresponds to $80- $100 per barrel are readied for marketing.

123 Energy | Empowering the Individual and the Community

What do we do to replace oil? We have the nuclear option, but that is not really replacing oil, it is replacing coal. Oil would still be necessary for transportation. Also, nuclear energy is sustainable only with the use of breeding; otherwise, uranium reserves are not any larger than those of oil. We therefore have to develop a suitable breeder concept, which may take quite some time. Despite well-funded programmes, safe ﬁ ssion reactors are still 25-50 years away. Safe fusion reactors are at least 50+ years away.

It is also possible that we could turn coal into a clean fuel, removing the undesirable carbon dioxide before or after combustion. Natural gas also oﬀ ers some possibilities for clean combustion. However, clean coal and natural gas technologies will take some ten years to develop and another ten to introduce on a large scale. The cost involved is typically more than twice as great as current energy costs. There also remains some uncertainty about CO₂ disposal methods: what do we do with the excess carbon? Do we put it down a well or dump it in the ocean, for instance? We do not know exactly what the environmental impact of such moves would be.

With regard to renewable energy, there are many such technologies already available – and at costs that are not too far away from those of fossil fuels. This comes despite the fact that renewables receive far less government R&D funding than oil and nuclear programs. Solar cells are still too expensive, although they have become a hundred times cheaper in the past thirty years. Wind and solar hot water are cost-eff ective in many places, although solar heat and power do require seasonal storage at high latitude sites. Meanwhile, there have been a number of biofuel breakthroughs in recent years, so that it is now possible to make such fuels from not only foodstuff s but from any type of biomass, even waste. If development proceeds as planned and available energy effi ciency technologies are implemented, all the needs of the transport sector may eventually be covered without competition with food production by what we call second generation biofuels and biodiesels. The cost of these products is currently about twice that of gasoline but there is potential for price reductions.

124 For those sources of energy that are intermittent, a storage medium is necessary. Hydrogen has the potential to be an eff ective storage medium and intermediary fuel. This need not necessarily be connected with the use of hydrogen fuel cells, which currently have signifi cant durability and cost problems and require an additional ten to fi fteen years of development. Even without fuel cells, hydrogen is a great medium: it can be easily stored underground and can be used in gas turbines to generate electricity at a 50% rate of effi ciency – not far from the 55-60% attained by fuel cells. Even if the fuel cell program does not, ultimately, lead anywhere, hydrogen may still be an important energy carrier because of its storability.

The rest of this presentation will discuss the main renewable energy resources: how much there is of each, how much of that is being used, and what is the potential for expansion. To put that information into context, we require scenarios that model future energy needs. To that end, I have generated a 2050 global end-use energy scenario. It is not necessarily the best idea to discuss energy in terms of countries, so the presented scenario features a geographic breakdown of energy use per unit of area. For our purposes, it is important to consider not only energy consumption but also the resources available, i.e. biomass annual potential. Satellite and surface data measurements can be used to produce this data. There are very fertile regions near the equator, of course, but the pattern of productivity and its decline is not determined by solar radiation alone. To grow biomass, one needs not only sunlight but also water and soil with nutrients. These are very abundant in some more northern areas and compensate for the lower amount of sunlight. The biomass that is utilized for biofuels today is a very small percentage of what is available; the total potential amount is in energy terms fourteen times greater than what ends up on the table. The residues from biofuel production still contain nutrients than can be returned to the ﬁ elds.

125 Energy | Empowering the Individual and the Community

Wind energy is most abundant at sea, where it can be diffi cult to harness. Near-shore areas are generally preferable to inland locations. Thus off shore wind generation has turned out to be a very interesting proposition. My estimates of potential off shore generation include areas of water depth up to 20 meters; although generation in 30-meter deep water is now feasible. Countries with coastlines could derive a great deal of energy from off shore wind generation. The total amount of energy that could be produced in this manner is equal to something like 50% of total world demand.

There are regions all along the western European coastline, the Mediterranean, and southern Russia, which have good conditions for wind power. In high-wind areas, power derived from that source could be competitive with coal power even today. In the interior of Europe, however, wind intensity is lower, meaning that the same number of turbines would produce a small amount of energy. That energy would, as a result, be more expensive. On the global level, there is a tremendous potential for wind power generation on farmland or marginal land. A wind generator on one out of every four farms would be a conservative estimate of what is feasible. Current production of wind power is, therefore, only a very small percentage of what is possible. It is the renewable that is closest to economic viability and thus mass implementation; solar, whose price is still too high, is the farthest.

126 Turning to the transport sector, in the case that only high-effi ciency vehicles are used, it is possible to satisfy 100% of current demand through biomass. Some regions and nations will have surpluses, while others will suff er defi cits of biomass: cities will exhibit major defi cits, while the fertile countryside will enjoy large surpluses. If transportation demand increases substantially, biomass will have to be supplemented by other sources, like renewable hydrogen, as a fuel. A successful balance of biomass supply and demand will require a pattern of trade, just as with fossil fuels today. For all types of food and energy, trade between surplus and defi cit areas, between cities and the countryside, will be part of the solution.

A number of main trade routes would develop in my scenario, based on factors such as the big surpluses of biomass in South America and the deﬁ cit in China. Also, the United States, Canada, and Russia would sell their surpluses to India and China. The global energy market would continue, albeit in a diﬀ erent form. There is much more to be said on this topic. There are various books on the subject, such as those I have written, there are many scenarios to develop and possibilities to think about. We must keep doing all of these things if we want to improve upon the progress already made.

127 Energy | Empowering the Individual and the Community

ENERGY CONSERVATION AND “ZEN” PROJECT Dr. Joseph C. Perkowski

October 12, 2006

In these remarks I wish to make ﬁ ve major points: [1] very large energy savings are possible through conservation programs worldwide; [2] many new ideas already exist which document these conservation opportunities; [3] new ideas need to become real programs; [4] the “ZEN” proposal is one example of a new program that would represent the “new old thinking” which is the fundamental theme of this conference; and [5] together we can do the job of program deployment and facilitation beginning now, here, at this conference.

Very Large Savings Are Possible

Other speakers at this assembly have provided us with information confi rming the fundamentals of current global energy supply and demand patterns. They indicate that world demand for energy is certain to increase in the near and mid-term future, placing added pressure on energy resources and requiring an unprecedented eff ort to build energy and electrical systems that will sustain world economic prosperity, especially for the newly industrializing nations of the world. We look toward expansion of existing sources of oil, gas, coal, nuclear power and hydro to meet this rising demand. As shown by Dr. Arnold Baker and others at this meeting, we expect that these resources will meet the majority of world energy needs in the next two decades. However, these sources are likely to be limited by geology and location of reserves, expense of extraction, scale of infrastructure requirements and/or environmental challenges. It is our view that important global energy infrastructure initiatives by major national and multi-national companies are vitally important, yet they are only part of the answer to the challenges of the energy future. Rather than limited growth due to possible global constraints, it is prudent to consider strategies for quality growth at the local level. We believe that local communities, businesses and individuals can empower themselves by employing improved demand management techniques and the deployment of advanced technologies. Ultimately it will be a combination of global and local eff orts that will bring about reliable and cost effi cient energy systems to sustain healthy global, national and local economies.

In order to realize this vision, the creative energies of a spectrum of thinkers – writers, scientists, engineers, architects, industrial leaders – must be leveraged to develop alternative energy strategies that will meet the energy needs of the world in both a sustainable and humane manner, and that are also consistent with the wishes of all nations to achieve economic prosperity, improved environmental quality and national security. This collaborative approach will demonstrate the value of a community-wide eﬀ ort when implementing viable energy demand management techniques and when introducing new energy conserving programs and technologies.

128 Therefore, while global supply options are vitally important, the purpose of my remarks is to emphasize the energy demand side of the issue, including the scope for new technologies as the basis for new programs for conservation for buildings, industry and transportation. In particular, I wish to emphasize that the proposed ZEN program and its focus on various demand management approaches can act as an “off set” to counterbalance the more conventional generating investments that are still needed in most parts of the global energy economy. This approach also therefore recognizes that electricity is such a vital source of energy that the electric power industry plays a very critical role in helping consumers accept and use more effi cient technologies. In this context, we recognize the importance of the marketplace and of free trade in providing incentives for energy supplies and energy effi ciency, since it is established that reliance on the marketplace is a prime motivator of energy decisions on both the supply and demand sides. Also, given the interactions between market and public policy, various policy approaches to “off set” more conventional energy investments will be a highlight of the ZEN program. These approaches can and hopefully will become a natural part of the current Prague Security Studies Institute (PSSI) curriculum on security issues in the energy sector.

Many New Ideas Exist

There are multiple, authoritatively issued documents which illustrate the range of savings possible both locally and worldwide associated with energy conservation measures. While I list a few of the better known categories of various individual conservation opportunities in one of the viewgraphs that accompany these remarks, I would encourage all involved to conduct their own literature search in order to become fully comfortable with the large amounts of publicly available information worldwide. Two widely reported examples from the building sector can serve as brief specifi c illustrations. The new head offi ce of ING-Bank in Amsterdam has reduced its energy demand to roughly 35,000 BTU per square foot from the previous headquarters building usage of roughly 422,000 per square foot; and the new Swiss Re offi ce tower in London is reported to use approximately 50% less energy than a comparable conventional offi ce tower due to a combination of natural ventilation, natural lighting systems, and passive solar heating.

In this context I should also mention that new fuel sources, in certain innovative confi gurations, can themselves represent another form of energy conservation. This is illustrated by certain technologies now under development and refi nement which aim at segregating individual sources of hydrogen, segregating individual sources of once-used carbon, and then combining the two into useful hydrocarbon forms, in essence off ering the opportunity to “re-use” the formerly “once-through” carbon. These “new ideas” are not always really “new” (some were conceptualized many years ago), but are taking new directions as our collective knowledge improves and research continues. In this sense they thus become representative of “new old thinking”.

New Ideas Must Become New Programs

However, it is clearly not suﬃ cient to dwell on new ideas without converting them into real programs. An eﬀ ective way to organize ourselves in this manner is to consider the various

129 Energy | Empowering the Individual and the Community stages of maturity that lead from “idea creation” to “mature program operation”. Each stage along this route has its own challenges, with the end-point being a fully functional program, centered usually within the commercial sector, providing improved private returns as well as satisfying public needs.

I have provided some examples in the viewgraphs supporting these remarks.

Prototype Program: The Example of San Jose, California, USA

The San Jose experience is provided for illustration only; all information described here has been obtained from various public sources. While the work in San Jose, California cannot be considered a complete case study of all possible energy conservation measures, and while no area needs to be as large as the City of San Jose in terms of imbedded infrastructure investment, the actions of the City can be used as a prototype of sorts for regional areas that are, in eﬀ ect, large real estate developments.

The City of San Jose has moved fairly aggressively in promoting the more eﬃ cient use of electricity, and its example is included herein to illustrate a miscellaneous, mixed program targeted at reducing energy use on a total site basis. With approximately 1,200 electricity accounts serving buildings, pumping stations, traﬃ c signals, and streetlights, San Jose’s municipal electricity budget represents a $10.6 million annual expenditure. Half of this budget comes from the general fund and the balance is paid from various enterprise funds. Only 13 of the City’s 1,200 accounts (among them the civic center, the convention center, and the airport) are considered large; 300 are medium accounts; the remainder are small accounts.

The City of San Jose engaged in a lengthy review of restructuring issues and local power purchasing options in 1996 and 1997. A $75,000 grant was received from Public Technology Incorporated (an NGO) and the United States Department of Energy to develop a comprehensive approach to the new challenges associated with electricity restructuring. The City is now implementing its new energy strategy based on the following goals:

• Minimize electric utility expenditures; • Increase energy eﬃ ciency in facility operations; • Gain experience in procuring competitively priced electricity services; • Obtain value-added services such as electrical metering and billing; • Establish relations with potential electricity providers to ensure the ability to collect utility user taxes and fees; • Explore the potential for developing renewable energy resources; and • Develop technical expertise to assist residential and business consumers in obtaining quality services in the new marketplace.

San Jose has had considerable success in reducing its electricity costs in the past through an aggressive energy effi ciency package of services managed by its incumbent investor-owned utility, Pacifi c Gas & Electric. Supported by $55,000 in rebates from PG&E, the City replaced lamps and ballasts with more energy-effi cient equipment as part of the utility’s “power savings partners” program. The City now saves $200,000 annually under this program. The City has also

130 moved on its own to become more energy independent by installing two cogeneration power plants at its convention center and water quality control facilities which generate another $1.5 million in annual energy savings.

San Jose also moved quickly in response to early eff orts at California-based restructuring, issuing a Request For Proposals (RFP) for new power supplies in August 1997. The RFP requested bids for San Jose’s municipal facilities alone, as well as for the combined requirements of the City, Santa Clara County, the Valley Transportation Authority and the Santa Clara Valley Water District. RFPs were mailed to 102 fi rms; eight proposals were submitted. San Jose chose New Energy Ventures to provide electricity for the City’s thirteen largest municipal accounts only. New Energy Ventures off ered a guaranteed 5% savings off the indexed market price for power and the opportunity to share the diff erence between the going market rate and New Energy Ventures’ own cost for purchasing wholesale electric power. Total annual savings from the contract are estimated at $75,000 to $240,000.

San Jose’s past investments in energy eﬃ ciency still yield an aggregate annual savings of over $4.5 million, and can be used as an example of the more aggressive results available when a committed stakeholder is willing to work on eﬃ ciency issues across several municipal sectors with emphasis on buildings and transportation. It can be used as a model for the sort of interactions being proposed for a “Vision Partnership”.

As another illustration of a category of prospective stakeholder interaction opportunities, San Jose has teamed up with the City of Santa Monica, the City of Irvine, the Local Government Commission and the Residential Energy Effi ciency Clearinghouse to create the Community Energy Alliance in order to access ratepayer funding now available to local governments from the California Board for Energy Effi ciency (CBEE). Among the activities proposed for the Community Energy Alliance are consumer outreach activities to educate constituents about the CBEE funding program and to identify energy effi ciency needs within each jurisdiction. The Alliance also plans to develop new local building codes and guidelines for new construction projects; encourage the use of distributed generation technologies, energy effi ciency and renewable energy technology demonstration projects; facilitate aggregation of constituents wishing to purchase renewable energy; and work with local nonprofi t organizations to reduce electricity bills of small commercial, residential and low-income constituents.

ZEN PROJECT As An Example of “New Old Thinking”

The prosperity and the security of the world will be shaped by the way societies approach and resolve the issue of energy security. Economics is important—as is the role of technology – but perhaps the most important and least discussed dimension is our thinking about future energy strategies.

Writers and philosophers oﬀ er ideas and visions in their books, plays and short stories. Engineers and energy experts build infrastructures based on physical blueprints. The ZEN program will be an eﬀ ort to combine the higher ideals of writers and philosophers with the functional focus of engineers and energy experts, universal values with energy requirements, and humanitarian vision with physical infrastructure. It will attempt to address the needs of

131 Energy | Empowering the Individual and the Community building future energy systems using architectures that are based not only on economics and engineering, but which incorporate moral and ethical values to advance the goal of sustainable and cooperative development.

The “Zero Energy Neighborhood” (ZEN) concept is defi ned as a portion or section of a town where net overall energy use over a given period of time is zero or close to it. ZEN “neighborhoods” are envisioned to encompass any or all combinations of the following (1) a public building neighborhood area, (2) a commercial complex, and (3) a university community. This program will diff erentiate itself from other such zero-energy experiments and, most importantly, will be value-based, consistent with President Havel’s “civil society” theme. Depending on interest and funding opportunities in individual countries, ZEN sites could include a signifi cant public “showcase” building such as an historically signifi cant cathedral, castle or opera house, or it could include designs for whole new neighborhoods, including university campuses, industrial zones, train stations, and special pedestrian zones.

During succeeding phases of the ZEN program, specifi c projects will be designed and updated on the computer to create “virtual” prototypes that can be shared among the participants. During the deployment phase of ZEN, actual buildings and projects will be retrofi tted with the appropriate energy savings features available. In addition to buildings, cities can also opt to share information on new systems for transit and fuel-effi cient vehicles in specifi c ZEN neighborhoods.

The value of international eff orts in these areas would be to integrate building and neighborhood design, as well as to design energy effi cient transportation options and to “showcase” international cooperation nationally and internationally. At the local level, the ZEN program will encourage cooperation among municipalities, electric utility companies, universities, local leaders and possibly the Federal government to implement either small or large scale designs and projects. Funding for such projects is expected to come from individual countries and communities. The Prague Security Studies Institute (PSSI) could serve as the secretariat and coordinator for the international eff ort.

At one level, this work will encourage new ways of thinking about energy demand management and technology. At another level, it will integrate scientists and engineers into the conceptual framework who have the ability to discuss the feasibility of new technology and its application to buildings, industry and transportation systems. At yet a third level through the ZEN concept, communities themselves will become important centers of action where new technology will be implemented. Cooperation among local leaders from the government, private sector and universities will be a key factor to success at this level. At yet a fourth level, cooperation among communities throughout the world will enhance global security and the environment, all the while serving as a dramatic illustration of “technological sister cities.” Simply put, our aim is to forge a common commitment to global economic development and prosperity through empowerment of local communities. This is a “bottom up” approach to resolving energy security and environmental objectives, and complements the “top-down” supply-side approach of large centralized energy systems for producing and transporting energy globally.

132 The basic approach we are suggesting is that each energy demand scenario that is developed would review technological options for deployment with particular attention given to demand management and the ZEN (zero energy neighborhoods) concept. A proposed methodology for the “virtual” design of ZEN neighborhoods will be introduced. Simulation models will be based on the innovative work of various visualization experts such as those (for example) at the MIT Media Laboratory, coupled with industry, university and government laboratories devoted to energy effi ciency and new technology. The eff ort will also explore some of the specifi cs of ZEN projects in participating countries beginning with Charles University in Prague, Kyoto University in Japan, Norwegian University of Science and Technology in Trondheim, Peking University and MIT in Cambridge, Massachusetts, United States.

Put another way, the ZEN defi nition includes options where the ZEN itself may generate energy beyond its needs during some part of the year but require energy during other parts of the year for a “net zero” total energy use. Thus, the energy utility (whether local or regional) must be involved and committed to balance overall energy loads for a “net zero” energy use profi le within the ZEN. We also propose ZEN not as an energy technology program but primarily as a value-based program, focused on the Havel “Civil Society” theme. ZEN could be anchored in PSSI which is primarily involved in strategy and policy studies that conform to the “Civil Society” notion. The PSSI students (Czech and Japanese) involved in fi rst studying and then deploying ZEN must be schooled in values, policies, and markets even more so than the actual technologies.

“Zero Energy Buildings” (ZEB) As The Building Block for “Zero Energy Neighborhoods” (ZEN)

Current government programs (both national and local) in the EU, Japan, in LDCs, and the US that relate (in various ways) to the ZEN concept have ongoing activities that will not be duplicated. Rather, during early phases we will create a work scope for that will be unique and add to whatever existing programs are already underway. We will become familiar with these programs but our eﬀ ort will develop a “Center of Excellence for ZEN at PSSI” that will be unique in its focus. An example of a program already underway is the recent announcement that the World Business Council for Sustainable Development is forming an alliance of leading global companies to determine how buildings (Zero Energy Buildings or “ZEB”) can be designed and constructed so that they use no energy from external power grids, are carbon neutral, and can be built and operated at fair market values.

This team of “ZEB” participants already includes both United Technologies Corporation and The LaFarge Group. United Technologies Corporation is the world’s largest supplier of capital goods to the building industry, including elevators, cooling/heating systems, and onsite power systems. The LaFarge Group is a world leader in the providing of building materials such as cement, concrete, aggregates, gypsum, and roofi ng materials. The fi nal target is the provision of new buildings that use no net energy from power grids and include a combination of onsite power generation and ultra-effi cient building materials and equipment. A multi-phase deployment program will begin with existing effi ciency standards and, as it proceeds, will include extensive networking with many other stakeholders in this economic sector. Stakeholders will include building contractors, building suppliers, government representatives, regulatory agency representatives, and public utility offi cials among others.

133 Energy | Empowering the Individual and the Community

It is proposed that our follow-on work here after this meeting engages in, and is part of, this broader eﬀ ort for a “ZEN” or zero-energy neighborhood.

Importance of Electric Utility Participation

An essential element of the ZEN project is inclusion of major electric utilities. Electric utility companies represent a large imbedded capital base in communities, providing a de facto justifi cation for interest in community infrastructure issues. They have staff resources familiar with local economic development trends and consumer requirements. They also have suffi cient resources to evaluate new infrastructure technologies and institutional arrangements, especially in “test case” scenarios (e.g. using utility truck fl eets for selected testing of electric vehicle technology). As community leaders, senior utility executives could participate as a municipal focal point for planning and forecasting future infrastructure needs throughout the municipality.

Furthermore, an increased role in infrastructure renewal may provide additional sources of revenue for utilities (e.g. through increased electrifi cation of transportation and/or through rate adjustments). Also, collaboration with other utilities in the area (communications utilities, public transportation utilities) may reduce overall costs of introducing renewed and improved services (e.g. through the reconstruction and maintenance of common utility “corridors”, and through the sharing of such interfaces as traffi c controls for electrifi ed transport, managing present demand and future load growth eff ectively). Because their service areas generally span several jurisdictions, utilities could use their experience in settling inter-agency disputes as these disputes might relate to infrastructure design, construction, and service.

Utilities can encourage the testing of new devices and systems, including sponsoring highly publicized competitions for service improvements, where the public at large perceives the nature of the test and the prospective value of successful results in terms of their daily use of public services. Collaborations with academic or research institutes formed for encouraging competitive ideas should be quite possible to arrange. Utilities have access to capital, and could participate in idea sharing on innovative ﬁ nancing arrangements for such demonstrations.

Infrastructure planning will be enhanced by the extent to which the municipal authority is willing to experiment with bypassing institutional inertia. Examples include allowing ﬂ exible building code provisions, multiple utility privatization arrangements, and participating in ESCO-type relationships where anticipated downstream savings, impartially calculated and periodically adjusted by a disinterested third party, are shared with innovative vendors (such arrangements are most common with regards to energy savings). Utilities can do more to encourage this type of activity in selected cases.

Additional Illustrations of Candidate ZEN Features

As part of my remarks at this conference, I am displaying a brief (three-minute) videotape of a concept involving a ground source heating systems design proposed for a major new mixed use building complex in Beijing. I am also including a picture illustration of progress concerning deployment of a hydrogen vehicle service station. This particular station is located

134 and operating already in the United States (in Phoenix, Arizona) but variations of it are being deployed in other parts of the world as an essential element of the emerging “hydrogen infrastructure” in order to really test the viability of that concept. These and other systems are not the ﬁ nal answer but are illustrative of how the ZEN program could evolve.

Together We Can Do The Job

I propose that our follow-up work be executed in phases that can be adjusted according to priorities resulting from discussions during this conference:

Initial Phase The initial phase of the program will include a feasibility study to implement a “Zero Energy Neighborhood” (ZEN) in some of the world’s most historically commemorated and signifi cant cities. The initial cities under consideration for participation may include Prague, Kyoto, Beijing, Trondheim (ancient capital of Norway), and Cambridge. A specifi c neighborhood, historical site and/or university campus in each city will be selected as a location for the project. Through a combination of demand management and “reuse and recycle” policies, as well as new technologies, the goal will be to design a “virtual”, computer-based neighborhood or building that is at a minimum reasonably energy self-suffi cient, if not completely so at the very best. This will include combining energy effi cient consumption and production technologies to facilitate the transition to an increasingly “lossless” energy cycle at the local level. On the consumption side, this may be achieved through the use of energy effi cient lighting, heating, and cooling systems. When mated with advanced production technologies such as fuel cells for electricity production and locally renewable energy sources, the ZEN network will become increasingly viable and economical. As specifi c ZEN areas successfully incorporate these new technologies and methods of thinking, it may eventually become appropriate to expand the concept in additional ways, such as linking energy sources available within ZEN boundaries, where appropriate, to the powering of low-emission neighborhood vehicles.

Follow-On Phase The follow-on phase of the program would focus on the actual retrofi tting and building of energy effi cient neighborhoods and buildings. It is important here to emphasize that upgrades to existing buildings within a ZEN area provide substantially greater prospective energy savings in the aggregate than new buildings do, given their sheer numbers within a neighborhood. Depending on the level of sponsorship and community involvement, each individual ZEN project can be part “real” and part “virtual.” First candidate neighborhoods could be universities, for example Charles University in Prague and Kyoto University in Japan, and/or historical buildings such as a cathedral or an opera center. For example, New York’s Lincoln Center complex has been partly renovated by the New York Power Authority to include low energy-consuming lighting systems. These fi xtures are located in highly visible areas in order to promote energy conservation awareness.

This international eﬀ ort will go beyond existing local and national programs. It will showcase advanced technologies and new ways of thinking about energy in a culturally sensitive manner. Consider the potential impact of a diverse network of “sister ZEN” cities that unite such locations as Prague, Kyoto, Boston, Beijing, Auckland, Xian, London, Santa Fe, Delhi,

135 Energy | Empowering the Individual and the Community

Aman, Riyadh, Seattle, Tel Aviv, Oslo, Paris, and Ottawa in order to promote the sharing of technologies and innovative ideas regarding energy across such culturally interesting and diverse settings as these.

Electric utility companies, municipal governments, universities and the federal government in participating nations will play an especially vital role. At the municipal level, this will encourage positive interactions among education and cultural institutes, the local government and business leaders. At the international level, a network of participating cities and sites would be a dramatic support group for national projects – and a blockbuster public diplomacy opportunity to showcase international eﬀ orts to empower individuals and communities, enhance national energy security and demonstrate new technological opportunities globally.

We look forward to discussing this program further with colleagues and potential sponsors. We deeply appreciate the comments received to date from associates in Japan, Czech Republic, Norway and the US. This program has arisen out of discussions between PSSI, utility executives in Japan and research scientists in the United States—in part based on fi nancial contributions to the Prague Security Studies Institute by Tokyo Electric Power, Kansai Electric Power, Chubu Electric Power, and Tohoku Electric Power. We are also grateful for the suggestion that the ZEN program could commence between the sister cities of Prague and Kyoto which are two extraordinary cities that are full of history, blessed with rich cultures and active industry. We deeply appreciate the interest of Václav Havel and his concept of “bridging the gap” between nations and cultures. We believe that this program will empower individuals and communities in a unique way and help contribute to safe, clean and aff ordable energy throughout the world. ZEN is built upon the contributions to the “new old thinking” about energy that have emerged, with the overall intention to begin small and gradually add to the foundation for a truly international eff ort.

We are presently undertaking further consultations with government representatives, industry and community leaders, universities, and think tanks in Japan, Norway, the US, the UK, France, China and the Czech Republic in order to seek adequate funding for the initial phase of the program. Discussions are currently underway with national governments, as well as international organizations. The focus of our discussions here should be on new ways of thinking about energy as well as putting together a concept for the ZEN projects. This will include identifying individual national/community teams to implement the project. It is expected that individual teams will take responsibility for funding their community projects, as well as contributing to the funding of the secretariat in Prague.

The direction and pace of this program will emerge from this ﬁ rst meeting here this week. While we are not limiting participation in this meeting to only the countries and communities mentioned in this paper, there are, however, practical space, budget and time limitations. Thus, we have begun these discussions among a community of friends. We hope that the new energy archetypes that will be a result of the ZEN and other projects will be shared and applied in all parts of the world. Further, let us re-emphasize the need for empowerment of the individual and community in determining – at least partly -- their own energy futures through reliance on the human resources, technology and the industrial capability of local communities. This gives us an important philosophical advantage not only in OECD economies,

136 but in the giant emerging economies of China, India and Central Europe. It provides an answer to the relative feeling of helplessness among consumers in today’s marketplace in an attempt to answer a very fundamental question: “Isn’t there something that I can do?” The ZEN project can give a strong signal that it can be done.

Prague as a Focal Point for Future Work

Based on all these considerations, follow-up work to study the interrelationship among energy, technology and values would be conducted at the Prague Security Studies Institute. Prague off ers a unique and historic setting to discuss the interrelationships between energy futures and values for the coming century. The Czech Republic is strategically central for East-West and North-South energy dialogues, including approaches to key government offi cials and the private sector in the EU, Japan, China and the United States. Because it is still in transition to democracy and free markets, the Czech Republic is sensitive to growth issues aff ecting developed and emerging economies.

Current initiatives, such as Václav Havel’s Forum 2000 and the Prague Security Studies Program, oﬀ er an excellent network of people and ideas to conceptualize potential economic and energy growth strategies through innovative thinking. PSSI and its Program for Atlantic Security Studies (PASS) have experience in energy security having hosted a major conference in 2004 with strong participation from Japan, US and Europe. The Forum 2000 conferences, part of the family of PSSI associations based on the network of Václav Havel, have emphasized “bridging the gap” among nations and successfully brought together distinguished political, economic, literary and religious leaders.

PSSI also oﬀ ers a link to young leaders and students in the Czech Republic who are a reservoir of new thinking. PSSI students are highly skilled and have close links to the internationally renowned Charles University. PSSI can also draw upon its extensive alumni network, as well as currently enrolled students. A key element of this workshop is to engage PSSI scholars in the project as staﬀ , researchers and, eventually, as project design assistants. Building upon previous interactions of PSSI students with Japanese university students in Japan, the ZEN program will place a high priority on teamwork. This teamwork will extend beyond Japan and the Czech Republic to include students from all participating countries.

Some Final Thoughts on Values

To conclude these remarks, I wish to draw on and re-emphasize comments made by William Martin and others in other connections both before and during this conference, in reference to the fundamentals values that are guiding us on this eﬀ ort. As nations and individuals contemplate our energy futures, it is natural to think solely in terms of economics, engineering and technological advances. Nations are increasingly focused on energy reserve acquisition strategies. At the individual level, these concerns center on supply reliability, price and convenience. How nations contemplate energy strategies and individuals practice them, however, may reﬂ ect philosophies and motivations that extend beyond merely satisfying consumer desires. Energy usage practices, beyond meeting needs, are indeed anchored in a more fundamental set of core values.

137 Energy | Empowering the Individual and the Community

Ultimately, and perhaps most important, how should we think about the energy challenge not only from the perspectives of economic and energy experts, but from those of sensitive writers, philosophers and religious leaders? Can new ways of thinking about energy help us to ensure a safer and more prosperous energy future? In out view energy paradigms such as ZEN are most likely to be identiﬁ ed through the following value tradeoﬀ s:

• Rather than focus on limitation and scarcity, focus on opportunity;

• Rather than focus on competition for “acquiring” resources, focus on healthy competition in the marketplace and thus allow for free and more transparent trade; • Rather than focus on more centralized approaches to energy, empower the individual, family and community to meet individual needs through more holistic thinking and more effi cient technology, without sacrifi cing comfort or economic opportunity, and without increasing overall energy dependence even as energy effi cience increases;

• Rather than focus on zero-sum game attitudes (where one party wins at the expense of another), persuade national leaders to seek policies of cooperation;

• Rather than considering “limits to growth” which in eﬀ ect condemn still- industrializing nations to sharing a limited pie of the world’s resources, envision energy strategies that enhance the energy security and diversiﬁ cation of these important world manufacturing centers in the present and into the future, thereby helping all nations;

• Rather than relying on traditional education systems to encourage their interests, excite current and future students on these topics;

• Rather than viewing discussion as an end in itself, implement actual programs having tangible projects; and

• Rather than focus on indeﬁ nite and indiscriminate consumption, draw upon our moral and spiritual inner cores to help us understand the nature of true energy security for ourselves, our families and future generations.

A ZEN program beginning here, in Prague, and now, this week, at this conference, can provide the inspiration associated with these common shared values for our mutual, sustainable, beneﬁ t.

138 OBSERVATION ON NET ENERGY ANALYSIS Dr. Alvin W. Trivelpiece

October 12, 2006

Ladies and gentlemen, it is an honor to be here at this Club of Prague meeting. I am pleased to have this opportunity to discuss net energy analysis. I am no longer the director of a national laboratory. I am no longer responsible for a part of a large government agency. As a result, I no longer have access to the kinds of data bases and details that some of the previous speakers have used as a basis for their talks. So, when Bill Martin asked to me to participate in the discussions at this meeting and make a presentation, the question was what should I discuss?

I decided to go back to my physics roots and discuss the conditions under which energy production systems operate. In that regard, I believe that in addition to the kinds of economic analyses that Arnie Baker discussed earlier, we also need to do the same kind of accounting with respect to calories, joules, ergs or whatever kind of energy units one might choose.

To begin this discussion, I ask you to imagine that you have gone to a casino. In this casino you have started to play some game of chance, such as the card game called poker. However, our hypothetical game of chance has an unusual feature. Once you start playing the following rules. Namely, that you can’t win, that you can’t break even, and even worse, that you can’t get out of the game. This is a simple way of expressing the laws of thermodynamics.

The fi rst thing that these laws tell us is that you can’t have a perpetual motion machine. I have used thermodynamic laws many times to explain to someone why what they “invented” will not work. They also tell us energy fl ows from hot to cold, and something about the limits of effi ciency of certain kind of energy machines or schemes.

In 1973 when the ﬁ rst oil embargo reduced crude oil supplies to the United States, I was working at the Atomic Energy Commission. With all the concern about energy at that time, I was astonished that agriculture and the supply of food did not seem to be receiving the attention that I believed it should. I grew up in California and worked on several farms where I plowed, planted, weeded and harvested many of the crops that grow in California’s San Joaquin Valley. As a result, I have some sense of the energy required to carry out all the activities related to these eﬀ orts. When I learned that nobody was talking to the farmers about the energy crisis, I was concerned then and I am still concerned that not enough attention is being given the agricultural aspect of energy even today.

In the US we use about 2,200 lbs of food per person per year. This requires about 3.6 acres of land, but most important we use 14 million tons of commercial fertilizer per year. With this fertilizer we are able to feed ourselves and export a substantial quantity of food to other nations. At these levels, we use about 10 calories of energy to produce one calorie of food. By comparison, China uses only about one calorie of energy to produce a calorie of food.

139 Energy | Empowering the Individual and the Community

With regard to agricultural production, the question is could the US survive on the available productive agricultural land without the use of high nitrogen fertilizer. The answer is no! However, if we were to change our life style and move farm animals back to grain ﬁ elds, change our diet, and some other measures, we could grow enough food to feed the population in the US, but this would require reducing or eliminating export of foods to other nations. This means that we are most likely to continue to use fertilizers to enhance the yield of our farmlands. If that is the case, then what other factors could unfavorably alter our ability to maintain our food production activities at the present levels and costs?

The main competitor will likely be the use of food crops to produce fuel for transportation. To illustrate the nature of this problem, I ask you to imagine that we have here a tank of natural gas. There is a process by which it is possible to extract hydrogen from natural gas. This requires the use of some energy. Hydrogen can then be combined with nitrogen to produce ammonia. The ammonia can be transported (additional energy required) to the ﬁ eld where it can be used as fertilizer for crops such as corn. After we plow and plant the corn seeds and let the crop ripen, we can harvest the corn (other processes that require energy). Now that we have the harvested corn we can examine the process by which it is converted to ethanol. It takes about 2.7 kilograms of corn to produce 1 liter of ethanol.

The ﬁ rst step is to grind the corn into a powder. If we use 2.7 kg as an example, it is necessary to add 15 liters of water and also add the other ingredients to cause fermentation. At the completion of fermentation, which terminates at about 8% ethanol and 92% water mixture, it is necessary to separate the ethanol by distillation (ethanol boils at 78 degrees centigrade). This results in about one liter of 95% ethanol and 13 liters of water with the residue from the fermentation process. Before it can be added to gasoline, the ethanol must be distilled again to get to 99.5% ethanol. What is left over is some 13 liters of sewage that must be taken care of with an expenditure of still more energy.

Analysis of the energetics of this process shows that to obtain this one liter of 99.5% ethanol, it is necessary to use 43% more fossil energy to produce it than the ethanol yields. This results in a cost of about $1.59 per gallon for the ﬁ nished product. This omits any infrastructure costs of transporting it to the locations where it might be used. The important question is how can a producer make money by providing a product that costs more to produce than it can be sold for? The answer is when someone provides a subsidy that oﬀ sets this cost. In this case the United States government and some of the states provide a subsidy that amounts to about $3 billion per year. However, if the lost opportunity cost associated with the higher costs of other foods caused by the use of a food feed stock to make a fuel for transportation is taken into account, the real subsidy is estimated to be about $9 billion.

But suppose that instead of all of this eﬀ ort, we took the natural gas and used it directly as a fuel for an internal combustion engine as the Japanese do in the taxis in Tokyo, thus avoiding this whole complex eﬀ ort to make a transportation fuel using corn. Instead, we could use the corn to feed ourselves or to feed livestock and thereby reduce the real cost of our supply of food. This would also reduce damage to our soil from oxidization resulting from the use of high nitrogen fertilizers. I am sure that some would like to see it used to make corn whiskey, which would not have to be subsidized and would produce a sizable tax revenue.

140 I am sure that some of you are going to ask questions about Brazil, switch grass, and enzymes. There may be some possible methods by which given local situations and technological developments could lead to situations where the net energy analysis leads to a positive energy outcome. At the moment, I remain skeptical but I am always prepared to change my mind based on facts. At the moment, corn has about the best energy result and it is negative, so there are some diﬃ cult hurdles to be surmounted.

There have been many papers on this subject, and it has generated some controversy. I have based much of what I have reported on here today on a paper and a report by Pimentel and Patzek as well as several private communications with Professor Pimentel.

I am disappointed that academician Velikhov was unable to join us today. In private conversations with him he has pointed out that in the summer, many of the many lakes in Russia are choked with algae, which might be a suitable source for ethanol. I was looking forward to a discussion on the infrastructure costs that might be associated with such processes as well as those associated with transport of ethanol to locations where it might be used. In particular I mentioned to him an article in the Wall Street Journal about problems with boats using gasoline-ethanol mixtures as a fuel. I sent him a copy of the article so that we might discuss here in this forum.

My main point in this brief talk is remind everyone that it is necessary to look at all elements of any energy producing system and take everything into account. It is as important to keep track of calories with the same degree of accuracy as the costs. I want to make it clear that I am not opposed to subsidies. They can be important in many situations and the use of them by governments to advance some of their agendas can be quite proper. For example, it takes about 20,000 BTU’s to bring to market an oil-derived product that yields more than 120,000 BTU’s. In this case a government subsidy that stimulates this industry might or might not be a good idea depending on one’s point of view, however, at least it is not subsidizing a product that doesn’t make net energy.

In conclusion, I want to stress that my choice of corn as an example is not meant be negative, but rather to illustrate that it is imperative to consider not only the laws of economics, but also the laws of thermodynamics in examining processes of energy production.

141 Energy | Empowering the Individual and the Community

SESSION 3 DISCUSSION EXECUTIVE SUMMARY

The roundtable discussion began following Dr. Bent Sørensen’s remarks. Mr. David Elliman asked why oceans had not been included in the biomass calculations cited in the preceding presentation. Dr. Sørensen responded that he would have liked to have included the oceans, but because of the way in which the study was modeled, there was insuffi cient data to predict ocean productivity. The question of how much the exploitation of oceanic resources can be expanded has been widely discussed among biologists. The oceans have become very polluted due to other human activities, so that their potential for uses such as growing food may be lower than is commonly believed. Dr. Sørensen allowed that if oceanic biomass were to be used for energy, the issue of pollution seeping into the mass may not be as important. He reiterated that, even without the oceans, the quantity of biomass in the presented scenario was suffi cient to meet many energy needs. Such a scenario assumed a very high level of effi ciency in biomass-to-energy conversion, but if actual effi ciency turned out to be lower, then oceanic biomass could be included to make up for the losses.

Jiří Schneider also directed his comments toward Dr. Sørensen, declaring himself to be very impressed with the geographic point of view expressed in the preceding presentation but expressing his doubts as to the feasibility of the “benign assumption” that all the world’s regions and countries will work together. Mr. Schneider stated that Dr. Sørensen’s presentation had demonstrated the great potential for confl ict between urban areas, where most of the energy demand is found, and everywhere else, from where the energy supply must be obtained. “This could be a dividing line or fault line in the fi ght for energy.” The feasibility of cooperation very much depends on what government frameworks are in place. Mr. Schneider followed by asking Dr. Sørensen whether he had incorporated governance frameworks, whether municipal, regional, national, or international, into his thinking. Had he addressed the fi nancial and trade infrastructure necessary for the international resource trade to actually be eff ective and mutually benefi cial?

Dr. Sørensen responded that the models he had presented were all constructed for the Danish government and included implementation studies on what actions had to be taken on various levels in order to achieve the stated targets. The many uncertainties involved were also factored into the discussion and development process. Additional projects, also government- sponsored and concerned with feasibility, were currently ongoing as well. Dr. Sørensen stated that he was less concerned than Mr. Schneider about “royal city interaction,” declaring his belief that farmers will always be happy to sell their products. Most resource transfers would be within the same country, which makes for a simpler system to manage. With regard to international trade, it is necessary to carefully consider where are the surpluses and where are the deﬁ cits. It is very diﬃ cult, in Dr. Sørensen’s view, to make sweeping statements about

142 the political stability of entire regions, but the prospect of exporting a large surplus of biofuels from South America to Southeast Asia doesn’t seem as scary as depending on a few countries in the Middle East for most of our energy. Certainly some Latin American countries are unstable, but trading with them is generally not a problem. On the whole, Dr. Sørensen allowed, it is a very complex issue and must be taken on a country by country basis.

Dr. Karin Kneissl followed by bringing up the topic of taxation. She noted that the average OECD taxation rate of fossil fuels is 80%, which is needed in order to cover revenue defi cits. If there was to be a shift on a grand scale to renewables, accompanied by fi scal incentives to cut back on fossil fuels, would there be the political will necessary to see that process through? What about the tremendous loss of government revenue? When fossil fuel taxes were fi rst introduced after World War II, the point was simply to raise revenue, but parliaments now typically require a greater rationale for levying taxes, such as limiting greenhouse gas emissions. In Denmark, for example, there is a carbon tax and a pollution tax, which is justifi ed because society must pay for expenses associated with the damage caused by carbon emissions and pollution. Following that line of thinking, renewable energy sources would not require similar taxes because they do not produce such pollution. Renewable energy is, in fact, currently exempt from some energy taxes in most countries. This may change in the future, however, as governments feel the stress from the loss of fossil fuel tax revenues.

Bill Martin spoke next, addressing the topic of reprocessing. He described the problems involving North Korea and Iran as stemming from the fact that, under IEA rules, any country can reprocess nuclear material and claim that it is following the rules and believes in peaceful nuclear energy. Any negative reaction is met with the claim “you’re trying to constrain us.” Mr. Martin also referenced a scenario found in one of the presentations that predicted an increase from the current 400 nuclear power plants to 1,400. Given that as many as half of the older power plants will need to be replaced, the world faces the prospect of 1,200 new nuclear stations being constructed. If this is the case, “how are we going to avoid future Irans and North Koreas?” How do we make sure that it is six or seven countries maintaining the fuel cycle and not ﬁ fty?

Mr. Martin expressed his regret that Evgeny Velikhov was forced to cancel his participation in the conference due to the North Korean nuclear test, as he would have liked to direct several relevant questions to him. “Can we trust Russia?” Half of the nuclear fuel used in the United States comes from decommissioned Russian weapons; just as the Czech Republic is dependent on Russian gas, the U.S. is dependent on Russian nuclear fuel. If a new agreement were to be worked out now, Russian support for the Iranian program would be a huge obstacle. If one were to be worked out, it would raise issues for other parties, such as Japan: do you build a second reprocessing plant in Japan if you can just ship your waste to Russia? Mr. Martin ended by posing the question of whether the West would, for lack of a better location, end up burying all of its waste in Russia?

Dr. Jacques Bouchard responded by describing the three barriers that exist to prevent proliferation. In terms of technology, for instance, current practice still involves the hold process and separating radium and plutonium. However, the long-term future solution will be global recycling of actinides, which will allow for the creation of highly active mixtures without

143 Energy | Empowering the Individual and the Community a high risk of diversion for proliferation purposes. Even if a country modiﬁ es a nuclear power plant after the fact, the process itself will be protected. The exclusive use of core extraction, rather than separation and puriﬁ cation, would also be used in any new plant and would help decrease the proliferation risk.

The second barrier involves international agreements. Dr. Bouchard admitted that it is diffi cult to apply and enhance treaties when countries do not want to abide by them, but he also underlined the eff ectiveness of the diplomatic pressure that can be brought to bear when agreements are broken. He presented control of nuclear materials as the third barrier, the responsibility for which lies with the International Atomic Energy Agency. Dr. Bouchard stated his belief that these three barriers can be relied upon in the long-term to control proliferation. The system may not be perfect, he admitted, but nothing is, though improvement must certainly be made, especially in the area of technology. Advances in reprocessing should be especially eff ective in this regard. Addressing Mr. Martin’s question about restricting the fuel cycle to just a few countries, Dr. Bouchard noted that if fast-track enrichment is developed, there will be no need for more than a few enrichment facilities to fulfi ll worldwide demand.

Responding to the question of Russia’s trustworthiness, Dr. Bouchard made the case that in the long-term, we cannot be confi dent in anybody or any system and must always be cautious. For that reason, it is necessary to develop safeguards and barriers. Mr. Fuji also responded to Mr. Martin’s comments, and he started by mentioning the diff erences between the Rokkasho reprocessing plant in Japan and the French plant at La Hague. At Rokkasho, what is produced is not pure plutonium but a uranium-plutonium mixture; the plant is designed to make proliferation more diffi cult. In Mr. Fuji’s view, it is too early to tell whether Rokkasho is necessary or not. He stated his belief that at some point in the future there would be a need for another plant, one that would reprocess based on the fast reactor cycle, but also reiterated that it is still too early to give any defi nitive answers. He also mentioned that fast reactor cycle modifi cations were being made at the Monju power plant and expressed his hope that the Monju reactor would be restarted, since the cause of the accident that occurred there was not an inherent one.

As to the question of whether or not to rely on Russia, Mr. Fuji respectfully declined to answer, noting that he represents the private sector and that Russia is a neighbor.

Mr. Malek Kabariti was the next to speak, intending his comments for Dr. Sørensen. Mr. Kabariti described himself as very impressed with the presented data, especially with regard to the renewable resource trade model. He expressed disappointment, however, at the treatment that solar energy received, remarking that Dr. Sørensen’s presentation seemed far more pro- wind. He also mentioned the existence of a number of studies on solar energy and its viability, particularly in the Mediterranean region.

Dr. Sørensen responded that he did not want to ignore solar energy but wished to put wind ﬁ rst because it is already competitive in many cases. Solar energy in good locations is, according to Dr. Sørensen, more expensive than wind by a factor of ten. In less optimal locations, it is a factor of twenty. He added that he was impressed by the proposal for Mediterranean cooperation, calling it “a beautiful idea.”

144 Remarks by Mr. Robinson followed this exchange. He suggested that the global politics of nuclear energy were shifting. Admitting that he was not capable of holding a technical discussion on 3rd and 4th generation nuclear reactions, Mr. Robinson stated that he nonetheless felt there was a dynamic present that could be very beneﬁ cial to the French and Japanese, who have the largest stake. Even President Bush has made a big push to restart the U.S. on a nuclear footing. The twin nuclear crises of Iran and North Korea have, for the ﬁ rst time in a long time, put into stark contrast just what it means to have a modern, safe, responsible program in countries like Japan and France, who have long been paying meticulous attention to safety and non-proliferation.

Mr. Robinson made note of the fact that the reprocessing of plutonium has, from time to time, generated great concern in Congress, even when it involved allies like Japan, for fear that it might be a net negative for the world. A reassessment of such attitudes is now going on in light of the nuclear weapons programs, some covert and some overt, that are taking place. Their progression has put into clearer perspective the responsible behavior of those nations who have been involved in nuclear partnerships for many years and who have taken nonproliferation and safety very seriously. Mr. Robinson expressed the view that there will be a resurgence in support for responsible and safe nuclear power generation. Even Congress and other skeptics should now have a better understanding of what they should be skeptical about, and it is not Japan and France.

Mrs. Dori Ellis continued the topic of nuclear energy, posing questions to Dr. Bouchard and Mr. Fuji. She wondered what kinds of incentives and assurances would they need, being a supplier of reprocessing, in order to feel comfortable entering into a regional fuel cycle arrangement. Turning solely to Mr. Fuji, she further asked if Japan had begun to reassess their security strategies at Rokkasho, given the amount of plutonium and uranium available there. Is the Japanese nuclear energy security strategy changing now that uranium and plutonium are being separated?

Mr. Fuji remarked that Japan’s basic nuclear policy has not changed from the time it was started as part of Dwight Eisenhower’s Atoms for Peace program. With regard to the plutonium and uranium, the plutonium produced is very quickly mixed and converted to MOX fuel for use in light-water reactors. About ten to twelve units will be able to burn MOX fuel before 2010, while the reprocessing plant will come online in 2007. Mr. Fuji reiterated that no surplus plutonium will be stored.

Mrs. Ellis replied that a well-funded adversary may be willing to steal MOX fuel. She asked how much physical protection and what sort of denial strategy were being put into place to prevent this from happening. The implied well-funded adversary, Mrs. Ellis added, was the DPRK. Mr. Fuji rejected the possibility of MOX being stolen, saying that it had always been transported safely and that he did not foresee any such possibility.

Dr. Bouchard addressed the question of regional fuel cycle arrangements by noting it had not been possible to deal with this question when countries had diﬀ erent back end fuel cycle policies. Now, however, there is an agreement on the organization of the back end. The IAEA had studied various international approaches and hey may oﬀ er a guide into what kind of

145 Energy | Empowering the Individual and the Community arrangements should be constructed. Dr. Bouchard mentioned his own experience in the ﬁ eld and the existence of two nuclear reprocessing plants in Europe, adding that multinational organizations are now heavily involved in the process. He cautioned, however, that the waste disposal problem must take precedence, as it has proven more diﬃ cult to solve, given the “not in my backyard” attitude that exists with regard to nuclear waste.

Shifting to the question of proliferation, Dr. Bouchard stated that “you can stop every application of civil nuclear energy and you still will not stop proliferation.” He allowed that we should avoid letting civil production make proliferation easier, but warned that proliferation does not come about solely as a result of civil nuclear use. It is also related to existing knowledge and the availability of materials. These concerns should be taken in parallel, one does not cause the other. Mr. Jaroslav Maroušek asked Dr. Sørensen about the feasibility of achieving large-scale renewable energy implementation in Europe. He asked him to look at Europe, rather than the world as a whole, and gauge whether the 12% renewables by 2010 target cited by Commissioner Piebalgs was realistic for Europe in its entirety. Mr. Maroušek added that the goals for 2020 were even more ambitious, but that at present time, wind is three times more expensive that other sources in the Czech Republic, and in the Baltic states it is ten times more expensive. Given these conditions, could the proposed goals be fulﬁ lled?

Dr. Sørensen expressed his belief in the feasibility of the energy generation from renewables target being met. Though the study cited in his presentation was global, the situation for individual regions can be extracted. Europe is in a favorable situation – it has a long coastline, which provides it with huge wind energy potential. The Czech Republic is land-locked, which explains why wind power is more expensive there, but coastal countries could produce far more energy than they needed for their own consumption and could trade the surplus. Europe is also favored in terms of biomass potential. The European Commission is currently fi ghting with surplus production of biomass, paying farmers not to grow more. Europe possesses a huge agricultural industry – France, for example, is one of the world’s most prolifi c food exporters – and the residues from all these activities should be more than suffi cient. Europe could unquestionably become an export region for bio-fuels, given that it would already be 80% self-suffi cient with wind power alone. In the short-term, improvements can be made starting today, but looking toward the longer-term, the 12% goal is defi nitely feasible.

Following Dr. Perkowski’s presentation, Bill Martin commented that, with regard to the ZEN concept, “it’s the envisioning we’re interested in, not the building.” He emphasized the fact that ZEN was not about a big construction project, but instead about creating a vision, which could then spread and change the way people think. The focal point must be on imaginative and innovative modeling, the sort of project that can engage students at schools like Peking, Kyoto, Trondheim, and certainly MIT.

Dr. Perkowski agreed, declaring that he does not see ZEN as an engineering project or a construction project. The students from Prague, Japan, and other places that he has seen are, in his view, students interested in the ﬁ nancial and institutional policy aspects of ZEN and not “the Bechtel hard-hat students.” This is a policy and systems study, not a construction project.

146 The second roundtable discussion oﬃ cially started after the presentation given by Dr. Trivelpiece. Professor Kiang returned to the topic of ZEN, remarking that Peking University has been involved in the project for four years and employs geothermal energy. He stated that there are three cities in the world involved in ZEN, with Peking involved with the assistance of a $6 million grant from the Intel Corporation. Prof. Kiang mentioned that obtaining geothermal energy is quite challenging in Beijing, requiring drilling to a depth of 100 meters. Feasibility studies were done for other cities as well, a project in which the National Academy of Science and UC Berkley were involved as well. Prof. Kiang made the argument that, even if ZEN is not a construction project, it is nonetheless very important to construct actual structures in order to have tangible evidence that can be demonstrated and copied.

The professor suggested the concept of ZEN combined with solar and wind energy, suggesting California as a possible location for trials. He wondered what impact solar radiation and changing wind patterns may have on the stability of those power sources. In that same vein, what eﬀ ects does the climate change phenomenon have on solar and wind energy? And, conversely, if there is a massive build-up of solar and wind energy generators, what eﬀ ect will that have on climate? Has any analysis been done in this regard?

Dr. Karel Navrátil began his remarks with a question for Mr. Fuji: “What concepts and models are used to manage insurance risks when you are running nuclear power plants?” Dr. Navrátil mentioned his experience in Germany, where he had signed an insurance contract on his house and had found a clause stating that the only type of damage not covered by the insurance was that caused by a nuclear power accident. Recalling Mr. Martin’s comments from the previous day regarding his discovery of the fact that the word ‘robot’ comes from the Czech word ‘to work,’ Dr. Navrátil added his own example of common linguistic history by noting that the name ‘dollar’ came, by way of German, from the ‘thaler,’ an old Czech coin minted in Jáchymov. He produced another example, drawing the connection between the word ‘pistol’ and the Czech word ‘pisťala,’ or ‘whistle.’

Dr. Navrátil continued by pointing out a potential barrier to the implementation of technical innovations. He proposed a scenario in which an air conditioner in a hospital is ineﬃ cient, but the instillation of a heat pump could reduce the consumption of gas by 30-40%. Within the utility company, those who sell electricity would not object, since heat pumps still require electricity, but the colleagues responsible for selling gas would protest vigorously, since such a move would cut into their sales. Dr. Navrátil argued that a way must be found to communicate all the options available to consumers; otherwise, this sort of moral hazard plays out and promising concepts die out due to a lack of market exposure. He expressed his belief that all people are strategists and cited the example of Germany, where liberalization has resulted in concentration of the market. There are four “major players” and prices, which initially went down, are now higher than before liberalization. Even if, on paper, one may choose from where to buy energy, in reality the options are very limited.

In response to Dr. Navrátil’s question, Mr. Fuji mentioned that the insurance systems in place to deal with major accidents are diﬀ erent in each country. Japan has its system, he US has its own, France has its own. If a nuclear accident damages property, then that damage will be covered by insurance. If a utility plans to invest in the construction of a new power

147 Energy | Empowering the Individual and the Community plant, the usual construction insurance will cover any risks or damages during the period of construction, whether to the utility or individuals. Dr. Navrátil followed up by asking about a Chernobyl-type scenario: if such an accident occurs, which insurance models will pay for it?

Mr. Fuji replied that in Japan, there is ¥30 billion of coverage for damage due to radiation and additional coverage on top of that for other eﬀ ects of an accident that will be covered by the government under certain conditions. Mr. Fuji stated that, based on his understanding, there was a similar system in place in the United States, and that in case of a severe accident, those utilities that own or operate the reactors will supply the money under a provision to cover any damage caused. Dr. Bouchard noted that there is a similar system in place in France that applies to all sorts of technology system accidents, such as large dam breaches, oil tanker spills, and so on. The funds come from a mix of private and government sources.

Responding to Prof. Kiang’s question, Dr. Perkowski stated that the answer has to do with New Old Thinking. ZEN, in his view, is an example of New Old Thinking. Dr. Perkowski cited as fortunate Mr. Minami’s mention of the Ecocute heat pump. Even if it is not implemented fully, the Ecocute provides an example of a technology that could contribute to the ZEN concept. We must involve the students as well as ourselves, and also the municipal authorities, so that the utilities that are proﬁ t-driven will have to work with hardware suppliers and building material suppliers as a team. Dr. Perkowski cited the example of Las Vegas, where the real estate developer of new neighborhoods using the EnergyStar program has demanded negotiations with the utility and the local homebuilders to provide an integrated package. This example, according to Dr. Perkowski, supports the point made by Bill Martin that ZEN should primarily utilize not engineering students but those who study negotiation, politics, and team-building. The utilities must also be made to feel positive about New Old Thinking, which will create the basis for working together.

Dr. Arnold Baker started by describing his comments as more of an observation than a question. He remarked that he had been blending the various excellent presentations through his own economic perspective. “We’re experiencing a very new world that humankind has never seen before. Global economy, fi nance, and information are more open and integrated than ever before.” According to Dr. Baker, this openness existed at the end of the 19th century and then recurred in the late 1980s. With the opening of countries, free trade, fi nancial fl ows, the internet, the silicon revolution, and the development of information technology in general, the world is the most integrated it has ever been. “Companies that used to be multinational are now transnational.” These companies produce components in a supply chain that stretches across borders, irrespective of the governments that they transcend.

Continuing, Dr. Baker made the case that, as companies and to some degree countries seek to optimize their operations, the buff er stocks of materials that used to be held are no longer kept because doing so is no longer effi cient. Since this holding in reserve proved too costly to bear, much of the “lubrication” in markets has disappeared. This has created a new set of externalities for companies but also for countries. Countries like Venezuela and Russia that have resources and decide, to put it charitably, that they have their own national policies aff ect the rest of us. If a country is not pursuing courses of action that improve effi ciency, that raises the demand to where it otherwise wouldn’t be, making the rest of the world pay higher prices.

148 Likewise, there is the case of countries that decide to prioritize the environment and pursue a very green policy. If such a move raises the cost of goods and services that they produce, and they must compete on the open market, then they may ﬁ nd themselves uncompetitive. This integration may thus constrain public policy choices of countries in ways that we’re not used to.

Along with the general acceleration of technological progress, this integration has also seen the future become much more uncertain. At the political level, information technology has made it more diﬃ cult to make important political decisions. If the elections in Italy, Germany, Mexico, the U.S., and Taiwan are all taken into account, given all the information available thanks to the IT revolution, national elections have become much more contested and coalitions have become more fragile. This is happening while the need for sound and rapid decision-making is growing and the cost of making a wrong decision is growing as well. Dr. Baker admitted that he did not have a true bottom line with regard to these comments, but stated that he believed the issue he had touched on were the ones underpinning the discussions that had been taking place. In his view, this is why President Havel had stressed values. In a word of increasing communication, it is important that we communicate with each other. Value systems become more important and the empowerment of a nation or a sub-state actor within a nation can likewise become more important and generate global eﬀ ects. Dr. Baker underscored the need for true communication as we try to struggle through the new world, in which the actions we all take will have a much greater impact than before.

Mr. Maroušek commended Dr. Perkowski’s presentation as an example of real sustainable development. Citing Dr. Baker’s presentation, which stated that a 50% reduction of CO₂ emissions was necessary just to reach equilibrium level, Mr. Maroušek remarked that attaining this goal simply by means of increased effi ciency was a great development. In his view, effi ciency is the way to solve the energy crisis. He also mentioned the concept of ‘energy plus’ buildings, which actually produce rather than consume energy. If there is some energy that cannot be saved or reduced, then renewables should be able to provide the diff erence. If that is not enough, conventional sources will also remain as an option. Mr. Maroušek wondered whether or not the problem of secure energy is vested in priorities. Current priorities include the political and fi nancial support of business and collecting as much of the resources now available as possible. Certainly there are some renewables, and governments have recently started paying more attention to the issue, but energy effi ciency remains something like a third priority. Instead of being made a priority, what we have is a humble beginning.

Dr. Perkowski responded that in order for us to examine all the priorities available, from the point of view of both supply and demand, and in order to understand how those priorities should be ranked, we need to be as careful as possible to understand what the social needs are. Some places will need advanced sources of energy that can be provided only by additional clean coal or nuclear or by unusual sources. Establishing priorities must start with identifying social needs, especially in the developing world, where in many cases alternatives to conventional energy simply do not exist at the moment. This is why carbon sequestration and new nuclear power plant conﬁ gurations are being studied at the Idaho National Laboratory. Commenting on the need for education, Dr. Perkowski added that “we must educate our students and we must do it ourselves.” He proposed the creation of a team

149 Energy | Empowering the Individual and the Community at the Club of Prague devoted to that task, noting that many students were available and that they would, in his view, readily comprehend the politics, negotiation, and New Old Thinking necessary to move forward. As the current generation of leaders ages, the students will assume responsibility for implementing these visions.

Dr. Kneissl began by noting the hype surrounding ethanol and referenced Dr. Trivelpiece’s presentation, which made the argument that this hype is baseless in terms of energy output. She asked Dr. Trivelpiece whether the breakdown of WTO talks will have an eﬀ ect on the practice of farm subsidies and whether this could have an impact on the national debate regarding ethanol.

Addressing Dr. Perkowski, Dr. Kneissl thanked him for the hope for the future that his presentation had provided and asked about the virtue of traditional architecture. She remarked that, particularly in warm countries, traditional architecture has long tried to improve energy eﬃ ciency, citing homes in Andalusia and the ‘natural air conditioning’ employed in Persia and Egypt. Is there a way to give this some complimentary role, so that the ZEN project can also build conﬁ dence in internal creation, rather than simply calling for the importation of all building designs from the outside?

Dr. Kneissl continued by labeling as “intriguing” the conversation surrounding the diplomacy of natural resource exploitation. In her view, countries have always exercised diplomacy in connection with their resources. She cited Napoleon and the sugar beet question involving the British blockade, as well as the Austrians and the salt wars, remarking that “there is nothing new under the sun.” Dr. Kneissl expressed her belief that we should rid ourselves of the perception of who can exercise diplomacy and in what ways. As long as there are sovereign, territorial states, we are misinterpreting reality by accusing others of exploiting resources as a diplomatic tool.

Dr. Trivelpiece responded that subsidies can be very important and that he was not opposed to them. If a government decides to subsidize oil, for instance, this makes both energy sense and economic sense. In his view, however, farm subsidies have been insulated from the conversation. “To put things into perspective, if there is a cut in the science budget and it falls on the physicists, they will go and say ‘oh my gracious, that’s bad, take it from the chemists instead.’ There is no sense of collaboration, no lobbying for science as a whole.” In Dr. Trivelpiece’s view, the U.S. Congress uses this to great advantage. Farmers, however, operate in a diﬀ erent world. He cited a time when there was a threat of sugar subsidies being withdrawn, coupled with competition from Cuban sugar. All the farmers organizations, even those not involved with sugar, responded by turning to Congress and demanding that their representatives vote to keep the subsidies in place – or else. As it stands, subsidies for ethanol have a great deal of support from the farm lobby. The process by which ethanol is made using federal money has been dubbed by some “the Daschle cycle of energy production.” Though it was in Senator Daschle’s interest to see this production take place, it does not produce net energy. Dr. Trivelpiece again underscored the inﬂ uence held by the farm lobby in the United States and posited that agricultural lobbies elsewhere are quite powerful as well, calling pictures he had seen of French farmers blocking roads with their wagons in protest.

150 Addressing Dr. Perkowski, Dr. Sørensen remarked that even if there is no net energy loss in the ZEN schemes, it is important not to cut transmission lines to the outside world, lest these neighborhoods become powerless in case of an outage or disruption. Turning his comments in the direction of Dr. Trivelpiece, he referenced the huge body of literature in existence that analyzes bio-fuels, particularly the Brazilian example. According to these studies, Dr. Sørensen declared, the net energy balance did indeed work out. When Brazil began producing ethanol thirty years ago, it was, in fact, a net energy negative and was undertaken because Brazil had a foreign balance payment problem. In that situation, they preferred to make their own fuel, even if they lost energy in the process. Today, however, considerably less energy is used to produce Brazilian ethanol than is generated by it. Dr. Sørensen added that these are still ﬁ rst generation bio-fuels; the second generation, which still needs the necessary enzymes and catalysts to be developed, will be even more eﬃ cient. He stated that these were important points to stress, because if the processes cannot be made to work with a positive energy balance, then they are not worthwhile.

Dr. Trivelpiece began his response by noting that Brazil possesses a very diff erent set of circumstances than the United States. It is located near the equator, receives lots of sunlight, and is in possession of a great deal of fl at land, so the sugarcane grown there does not require as much fertilizer. Additionally, Brazil’s energy demand is one-tenth that of the U.S., so their need is not as intense. Dr. Trivelpiece also related that he had recently heard that Brazil was reverting to gasoline in some cases. He mentioned the overlooked fact that American distillate has a great deal of butane insinuated in it. Wellhead butane gas is dissolved into gasoline, but when ethanol is added to it, the eff ect is as if one increased the temperature. As a result, once the mixture contains about 50% ethanol, all the butane has been driven off . In Brazil, this is not a problem. Dr. Sørensen countered that the European Union has produced studies that show energy-effi cient ethanol production to be possible under European conditions.

Dr. Perkowski addressed the idea of ZEN in less-developed parts of the world in response to Dr. Kneissl’s question regarding native architecture. According to Dr. Perkowski, there is just as much value in a ZEN in a village anywhere in the world, one that makes use of native or national architecture. This may be particularly applicable in the equatorial areas, where local customs and architecture remain dominant. He also noted the Japanese understanding of this concept of integration, given the number of centuries-old buildings still found in Japan today. Providing an example of indigenous innovation, Dr. Perkowski referenced a particular bus stop design from South America that creates an evaporative eff ect, cooling off waiting commuters. This same invention, coming from the developing world, is now being used in Tucson, Arizona by businessmen in three-piece suits. In Dr. Perkowski’s estimation, it is the students who will show when, where, and how integration can be successfully achieved, but he expressed confi dence that it could be done.

Mr. Radek Stavěl began his remarks by commenting on the breakthroughs in energy eﬃ ciency and intensity made in Japan. Why, he asked, were these advances possible in Japan and not in Europe or elsewhere? We still have much to learn from our Japanese friends. As important as policy is, we should not forget about technological advances either. Turning to the topic of wind power, Mr. Stavěl remarked that all of the generators he had seen looked like airplane propellers except for those in Japan, which looked like Savonius wind turbines. Why was this design only being used in Japan?

151 Energy | Empowering the Individual and the Community

Dr. Perkowski responded to Mr. Stavěl’s question by referencing his colleagues, who had told him that the turbine design is not as eﬀ ective in some areas due to material degredation and the ways in which some newer designs, based on newer fabrication processes, stand up better than existing installations. Dr. Perkowski mentioned that methods of storing energy were also important; he held up the idea of storing energy within a ZEN as being an example of New Old Thinking. Finding better ways to store energy and ﬁ nding ways to politically negotiate the storage of that energy within neighborhoods are challenges that will require New Old Thinking to solve.

Mr. Konosuke Sugiura cautioned that a project of this sort must be carried out very carefully and should not be done hastily. To take an existing community and use it as a place for experimentation could be very dangerous. Capitalizing on young people’s knowledge is ﬁ ne, but it is necessary to always come up with contingency measures as well. In case of an outage, there must be a backup generation plan. It may be advisable to test some of these features independently rather than trying to build a zero energy complex from the outset.

Mr. Sugiura described himself as someone who had just been introduced to the ZEN concept and, accordingly, had questions about it. He suggested that, instead of taking a real community, it could be looked at as a vision, modeled, and tested through computer simulations, and the results could then be compiled, analyzed, and made public. The knowledge produced could then become a showcase for a new societal model. At that point, a community might volunteer to be a part of this project and oﬀ er themselves as an experimental case.

Mr. Ichiro Maeda followed by emphasizing the desirability of energy-saving technology, such as the Ecocute, whose use he described as currently being very limited. He wondered if perhaps certain market mechanisms were ﬂ awed, given the limited market penetration of energy-saving innovations. Highlighting those technologies and educating people about their availability and use may therefore be necessary. Addressing Dr. Trivelpiece, Mr. Maeda noted that sometimes policy goes wrong and is not in line with market models. How can energy-saving technology be disseminated throughout the market?

Ms. Jessica Morrey directed her remarks to the Japanese participants. She pointed out that she had not heard them speak about renewable energy within Japan. How much are renewables used in Japan, and is there any sort of focus on their development? Citing President Havel’s remarks, Ms. Morrey stated that “we know what’s wrong with the world, and yet we don’t do anything.” Admitting that perhaps these ideas were more appropriate to the visioning arena, she mentioned learning by doing and the idea of planting a tree today, referencing a Chinese proverb quoted by Prof. Kiang in his presentation. Ms. Morrey expressed her hope that places like ZEN are actually built so that it does not remain merely an idea in people’s minds. Though many people, especially those gathered at the Club of Prague, are visionaries capable of imagining what is possible, many others, including many policymakers, are not. Such people may need to see a real example of something like ZEN being done before they buy into the concept. To many, what has not been done yet is impossible, so that such visionary projects may have to actually be completed in order to inspire and proliferate.

152 Mr. Oyama responded to Ms. Morrey’s question by stating that the goal for renewable resource energy generation in Japan is 3% by 2010. Currently, that fi gure is at 1%. He pointed out that, unlike the EU, Japan has a dearth of fl at land, so that there is a lack of steady wind and wind energy collection becomes more diffi cult. Current production from renewables is one million kilowatts and the goal is to increase that number to three million by 2010. Due to natural and technical constraints, however, the modifi cations are still being made to the collection equipment, such as using batteries to compensate for the irregularity of the wind strength. Each utility is also purchasing some biomass for energy generation.

Mr. Fumio Kawaguchi remarked that he found Dr. Trivelpiece’s presentation very interesting. He highlighted the point made by Dr. Trivelpiece that there are other critical scarce resources, such as fertilizer, which must be generated. Mr. Kawaguchi noted that attempts had been made to produce ammonia for fertilizer during the power generation process. Given that phosphates are not available in some regions, how can this be addressed?

Dr. Trivelpiece began his response by observing that there are many ways to make fertilizer, but he described the issue in the U.S. as stemming from the rise in price of natural gas from a few dollars per unit to fourteen dollars per unit. Utility companies could pass on this increase in cost to the consumer, but Dow Chemical, which produces fertilizer, could not, and it discovered that it was losing one billion dollars per quarter as a result. According to Dr. Trivelpiece, Dow reasoned that it would be more beneﬁ cial to build a new plant in the United Arab Emirates and buy its natural gas there for ﬁ fty cents per unit, put those units on a ship, and make a great deal of money selling them in the U.S. Now there is one more item on a growing list of key resources that another nation can interdict in order to make the U.S. pursue another strategy or policy. “Hydrogen has become an internationally critical material.” For those countries that rely on fertilizer, this could prove to be a big problem. Phosphorus-based fertilizers work well, but fourteen million tons, which is what the U.S. needs, is a very large amount, so that suddenly losing access to the requisite materials could be a critical issue.

Mr. Tsuyoshi Kano continued the discussion by declaring that he would like to address some New New Thinking. In his view, the most innovative new technologies are coming in the fi eld of materials. Present information technologies are based on silicon, but crystals could fi t in perfectly in place of the existing technology, providing a permanent solution to various problems. Mr. Kano underscored the seriousness of those problems, stating that present technological barriers are currently too high for progress in a variety of fi elds to take place. He detailed a project he is currently promoting that involves the creation of a crystal composed of 200-nm particles which is perfectly uniform and very diffi cult to prepare. When suspended in an aqueous solution, the particles will order themselves into a crystalline structure while also matching up with optical wavelengths. Such a crystal can then be solidifi ed and used as a sort of semiconductor for light waves.

No such crystal exists naturally and it is very challenging to prepare one artiﬁ cially; a microgravity environment was used in the ﬁ rst experiment, which performed from December 2005 to April 2006. In Mr. Kano’s estimation, the experiment was successful and the results are very promising. He proposed that when the International Space Station is completed, it should be used for challenging experiments of this sort. Proposals for government funding

153 Energy | Empowering the Individual and the Community in Japan are, according to Mr. Kano, becoming increasingly diffi cult, and he asked that those in attendance consider and encourage such eff orts due to their great potential benefi t, especially for the next generation. The next generation, young people, need to be stimulated – they require dreams, and so initiatives like the crystal project, though very diffi cult, are very exciting and could be the solution to many problems. An explosion of technology could result if the project is successful. It is also directly tied to the energy crisis, since such a crystal could be used to focus lasers to a very high degree, thereby producing extreme temperatures and stimulating nuclear fusion.

Dr. Perkowski off ered an answer to Mr. Sugiura point about doing simulations fi rst, stating his concurrence and mentioning that several such simulations had already been performed. He also agreed with Mr. Maeda’s point about the need for implementing practical energy-saving technologies, declaring that he would enjoy the opportunity to install better, more effi cient lighting in Prague Castle or in Japan or in Norway. “Let’s start carefully, but let’s start.”

Dr. Bouchard summarized the session by stating that we should not forget effi ciency, economy, or the laws of thermodynamics, but should also seek to act positively. Savings are necessary, but they are not suffi cient. Economic considerations, the relationship between need and cost, must not be overlooked as well. At the end, the economy will judge success or failure. To act positively, we must spend more time improving various solutions rather than fi ghting about which ones to implement – all proposals should be explored and the most successful ones will make themselves known.

154

TECHNOLOGY, MARKET, POLICY & CONCLUSION DAY 2 | SESSION 4 | Policy & Market Solutions to Support New Old Thinking

moderator | JIŘÍ SCHNEIDER

CURRENT AND FUTURE POLICY FRAMEWORK Jiří Schneider

October 12, 2006

Unfortunately, I don’t have any ready-to-use policy package to present to you. One thing I would like to do is draw your attention to a topic that we addressed in our session brieﬁ ngs: the bottom-up approach. I think that evidence of this approach can be seen in some of the excellent suggestions that have been raised so far. I would agree with the humble suggestion of my co-chairman to not try to micromanage any spectacular follow-ups. We expect that something special is going to grow and develop from these proceedings and we must let that happen organically.

My second remark has to do with policy cycles. What we are doing now is discussing the management of policy change. This must be done at the right time, in the right place. The impact must be made at the right moment of the policy cycle of analysis, collection of data, implementation of measures, and feedback. What is the result of this dynamic? I think we must consider how to manage this mess of policy cycles, which operate at diff erent times and on diff erent levels. Many people here have complained about continuing, seemingly never- ending elections. It is something that we have in democracies – there are always elections somewhere. This, too, fi ts into the policy cycles, and we must consider it as we formulate our proposals. By way of example, let us recall Ms. Morrey’s discussion of civil projects and look at it through the lens of the Lord Mayor of Prague, Mr. Bém, considering his prospects today, ten days from the mayoral election. This is something that we have to think about when we are trying to sell these projects. We must think about when and where politicians are most attentive.

Of course, this all has a great deal to do with something that has already been mentioned, which is levels of governance. We have talked about the municipal level, which I think is very important. It seems to me that much can be accomplished on this level, and this can be one of our potential areas of focus. We should not forget, however, the regional level, as well as the uniquely European dynamic that we have to cope with – the supranational, EU level of governance.

Let me off er one remark about values. During the course of the conference, I have thought about how and in what way we can demonstrate our values. I believe there are two techniques or areas through which we can do this. One is marketing. Good marketing is not just about profi t, it is about values and customers. Policy and politics are also about values. As one defi nition puts it, politics is the allocation of values of resources. We are here to talk about resources, so we must also talk about values. We cannot get rid of politics and policy cycles, so, we must prepare policy packages that are cognizant of these dynamics.

159 Energy | Empowering the Individual and the Community

I have tried to provoke you with the question of whether it is really possible to solve the energy crisis within the marketplace, with market forces acting as the prime motivator of energy decisions. Who is setting the parameters of the energy marketplace? Again, governance. I would like to see some of the issues that have been touched upon be addressed further. Taxation, for instance, has been mentioned. Are we going to be pragmatic on this subject, believing that anything is feasible, anything can bring results, and any of the tools available may be equally eﬀ ective? Or are some tools preferable to others? We can think of the many kinds of possible regulatory tools, a number of which are listed in the paper we prepared. Public procurement, spending public money on a project – this can make a big diﬀ erence when it comes to achieving a particular goal. What kinds of incentives can we introduce? Also, from a legalistic point of view, we can impose certain legal arrangements and requirements between actors in the energy market. How do we view such an option? Europe is famous for its detailed regulation. If we tried to create a real project here today, one shudders to think of all the approvals that we would have to get. The red tape is enormous. Are we able to cut through it and achieve our policy goals?

There are some tools in this struggle that are not so spectacular but really rather humble: databases, clearinghouses, and so on. Are we truly aware of all the possible solutions? In the internet age, we fi nd ourselves overloaded with information, but are we capable of sifting through all the data and fi nding the solutions? It may be that the students are the brightest in this regard; the younger people are the ones most capable of fi nding the right information and putting it together into the right kind of package. Be that as it may, all of us must also work to fi nd solutions and formulate them in an accessible and readily implementable manner.

160 FINANCING ENERGY ALTERNATIVES David Elliman

October 12, 2006

Thank you for the opportunity to speak before you today. My talk will focus on the economic consequences of diff erent energy choices. The costs of energy alternatives can be divided into those, which require an initial capital investment, and those, which are incurred during use. The fi nancial community is focused on the former, or capital, component of societal costs. These are the expenses incurred prior to the successful adoption of an energy alternative. For the investor, such advances always include an element of risk. The degree of risk infl uences both the cost and amount of capital available for an undertaking. Changing energy usage on the scale necessary to eff ect fuel choices, environmental impacts or geopolitical capital fl ows is a massive undertaking necessitating an unprecedented partnership between public and private institutions. My analysis is presented from the standpoint of the United States but the analytic framework is applicable to other sovereignties as well. Value judgments may be quite diff erent, depending on perspective. Let me frame the issues.

Energy is consumed from multiple sources and used in diﬀ erent ways. While there are many ways to distinguish patterns of use, I will diﬀ erentiate energy consumption by fuel source, distribution method and the need for mobility. Energy consumption begins with the conversion of a fuel source. This may occur locally, such as in a home or automobile, or centrally, such as in an electric power plant. Economically optimal fuel sources vary depending on these patterns of use. We cannot, for instance, envision an atomic-powered automobile.

The world’s stores of energy are limited; only fossil fuels, biofuels and radioactivity are available with today’s technology. Renewable sources of energy, such as hydroelectric, solar, wind and geothermal can be captured and utilized for electric generation. The mix of energy solutions utilized by the United States is the product of private market development, partially shaped by public incentive programs, such as liability protection for owners of nuclear power generation facilities, tax credits for wind energy and depletion deductions for oil. Left alone, the free market will make its energy choices based on economics alone. Policy choices must include other considerations.

Economics, security and human costs constitute the energy policy triad. Under security, I include concerns about the amount, ready availability and reliability of a fuel supply. The concentration of energy reserves in unstable areas of the world creates risks to our economy. Human costs include the enormous concerns over environmental impact, the need to maintain a military presence for mitigation of security concerns and the hazards attendant to the exploitation of each energy source. As recent tragedies in both the U.S. and China demonstrate, coal mining remains one of mankind’s’ most dangerous occupations. Based on this triad, I have developed a simple matrix, which scores each fuel type on a simple high-

161 Energy | Empowering the Individual and the Community medium-low scale. Let me emphasize that these scores reﬂ ect my opinions alone. Only hydroelectric power earns optimum marks. Unfortunately, potential supply is fully utilized and this source cannot help meet growing energy demands. Petroleum ranks lowest, with coal, gas, nuclear, solar, wind and biofuels all earning intermediate marks. When I compare the scores on this matrix with our usage of fuels, I discover an inverse relationship. Our most important fuel, petroleum, is also our least attractive. Let me now turn to how we use our energy. Consumption can be segregated into two broad categories: mobile and stationary. For mobile uses, an energy source or store must travel with the application. Stationary energy usage can be supplied either locally or from a centralized facility. Stationary applications fall into three broad categories: electric, commercial/industrial and residential (heating). Mobile applications encompass commercial and personal transportation. Each application has unique characteristics, which inﬂ uence the choice of a fuel source. Looked at in the aggregate, our energy choices are undesirable. Petroleum, the least desirable fuel, contributes the most to our Btu consumption, approximately 40%. Hydropower and other renewables comprise only 10%. The motivation for these choices is apparent when we consider the constraints imposed by the requirements of each application.

The electric grid extracts the most energy from coal, contributing approximately 50% of total production. Other important sources include nuclear, gas and hydroelectric, adding 20%, 17% and 9% respectively. Petroleum, solar and wind together make a small contribution, collectively less than 5%. On a cost per Btu basis, coal, hydro and nuclear are our most economically attractive fuels. They share a drawback: it is very diﬃ cult to vary output from these sources to meet short-term ﬂ uctuations in demand. As I stated earlier, gas accounts for 17% of the energy used in producing electricity. It accounts for almost 40% of installed generation capacity. Utilities turn to gas for peak spikes in demand. This mix is quite attractive from all perspectives: economics, security and human, particularly if the adoption of clean coal technology is mandated.

The balance of our stationary infrastructure follows a diﬀ erent model. Fuel is delivered locally and consumed on the premises of its application. Obviously, some of the fuels used to generate electricity cannot meet the needs of this model. Hydropower and nuclear are eliminated. The use of coal is greatly diminished. Petroleum becomes more signiﬁ cant, supplying 8% of the energy consumed. Natural gas dominates.

Putting all the stationary applications together, and correcting for the inputs to the electric grid, our fuel mix remains balanced from the perspective of my triad. Gas dominates the mix. Coal and nuclear make major contributions. Other sources remain minor.

Where does all the oil go? Taken together, stationary applications only account for a quarter of our daily usage. The answer is transportation, which consumes almost 40% of daily energy used in the United States. For mobile applications, petroleum is not just the most important fuel; it is the only fuel. We have no practical alternative to its use. During his State of the Union Address last January, George Bush declared that America is addicted to imported oil. Foreign sources supply three-quarters of our daily consumption for transportation. The crisis in the United States is not energy; we have suﬃ cient coal reserves to last indeﬁ nitely. The real energy crisis in the United States is our use of and reliance on imported oil.

162 The problems of our transport sector contrast starkly with the stationary infrastructure. The fuel mix for stationary applications is varied and fl exible. Adaptation to desired changes can be accommodated by the inherent fl exibility of the system. Of course, we should continue to focus our energies on conservation and effi ciency as we evolve our usage toward those energy sources, which meet all policy objectives and not just the pull of free-market economics. Such changes can be spurred by incremental tax and investment incentives. Heroic eff orts are neither necessary nor desirable.

Crisis is not too strong a term for the mobile sector. As demand for petroleum increases worldwide, the real price of oil has started to climb. Expensive and risky new oil discoveries cannot keep pace with physical depletion. Governments in oil-rich countries conceal the true condition of their reserves. Our reliance and hazard increase daily. Vulnerability to supply interruption only increases. Without a robust transportation sector, our economy will slow dramatically. We must address the problem.

Within the next generation, the United States will have to wean itself from petroleum dependency. We can adapt our existing facilities to new fuel types, or shift our reliance to other energy sources. This latter choice implies the replacement of our existing investment in a petroleum economy. Such a transformation is a massive undertaking and very capital- intensive. Substitution of alternative liquid fuels, such as biodiesel and gasiﬁ ed coal are potentially much less disruptive. Viewed from the perspective of the fuel policy triad, they are also less attractive, with lower potential scores on each of the three policy parameters of economy, security and human cost.

The appeal of transforming every car, plane, truck and train to reliance on another form of propulsion, such as hydrogen or stored electricity in a battery, is tempered by the massive cost of the undertaking. Our existing investment in these vehicles, along with attendant fuel stations, oil reﬁ neries, tankers, pipelines, drilling rigs, and other capital goods falls between $5 and 10 trillion dollars, mostly in vehicular form. All would become functionally obsolete and have to be replaced. The existing investment turns over on a ten-year cycle, and these funds can help. If the necessary support systems were in place, personal transportation would not need to be risk-ﬁ nanced. The balance of the infrastructure requires more than $1 trillion in advance. In order to avoid major disruption, both transportation models would have to coexist during the transition, adding to the cost. Adding the need for new technology development would further expand the cost of a new transportation energy model beyond our current petroleum-based imbedded investment.

The initiative required to ﬁ nance a new transportation technology does not exist in the private sector. Here are two among the truisms of ﬁ nance: as risk increases, the supply of available capital contracts, and as risk increases, the cost of capital increases. To put this project in perspective, the total available venture capital in the United States now stands at about $280 billion. Even if we were to abandon all other worthy opportunities and devote this entire amount to our energy supply crisis, it would be inadequate to create the necessary infrastructure to support a radically new mobile model. On the other end of the spectrum, the largest single issuer of securities in the United States is the federal government. Net issuance of government debt stands at almost $5 trillion, with much more in guarantees and

163 Energy | Empowering the Individual and the Community unfunded obligations. I do not mean to understate the scale of this problem. This scope is the economic equivalent of waging a major war. Like a war, it can only happen in an environment of perceived crisis. Such an atmosphere does not exist today.

Fortunately, we do not yet need the full commitment. It looms before us. There are three stages to the development of a new transportation infrastructure, each increasingly costly: the Venture Stage, during which the marketability of new technologies are proven, the Industrial Stage, during which the facilities necessary for service are fabricated and implemented, and the Adoption Stage. Risk capital will have to enable the ﬁ rst two of these stages. The third, and largest, will be ﬁ nanced by the public with the purchase of an automobile, truck, boat and plane. The resources comfortably exist within the private sector to meet the demands of technology development. Those funds will not materialize without an exit strategy. Every available value proposition requires a viable and visible Industrial Stage. Government involvement alone can tip this balance.

Our government should not manage these investments. The private sector has proven its superiority in capital allocation and operational effi ciency. Nor should the backstops off ered be suffi ciently generous to foster a climate of moral hazard, with only potential profi t and little risk to the entrepreneur. During the Venture Stage, incentives such as matching funds, tax incentives, such as capital gains relief and research credits, and funding of basic research fi t within these parameters and should spur technology development. These are not in place today. In fact, federal research support for energy research stands at a miserly $3 billion per year. By contrast, the budget for the National Institute of Health approaches $30 billion. In 1980, the budgets were nearly identical.

As development moves into the Industrial Stage, diff erent incentives will be needed. Tax policy remains a useful tool, but subsidies should take the form of investment credits and rapid depreciation of capital facilities. Revenue guarantees for fi rst-generation projects will enable fi nancing, lower costs and speed development. Information services and liability coverage are other areas in which government can help. Perhaps most importantly, the business community needs to be convinced of commitment. Adoption is the consumer stage. The current success of hybrid cars suggests that consumers are ready for a petroleum alternative. If current economics alone are not enough, a carrot and stick approach can help. Tax breaks on vehicular purchases and fuel subsidies can be off ered. Reactionaries and recidivists should be punished with escalating registration costs, increasing taxes on petroleum-based fuels and punishing sales taxes.

Energy crises will recur. As demand continues to outpace supply, frequency and severity will increase. Left to its own, the private sector will not ﬁ nd a solution. The risks and capital requirements are too high. Change needs to begin with the public sector. I have oﬀ ered some ideas for how a forward-looking government could shape the face of our energy future. The question is not whether but when and how. Reliance on a continually growing world supply of petroleum is folly. A properly constructed partnership of government resources and private capital can work together for a better solution.

164

Energy | Empowering the Individual and the Community

SESSION 4 DISCUSSION EXECUTIVE SUMMARY

At the conclusion of the presentation made by Mr. Jiří Schneider, Mr. Patrick Hardouin followed with a series of comments. He revealed the fact that he was involved ten to ﬁ fteen years ago in an environmental movement in France as a “literal activist.” This movement, which was very much in the minority, believed that nuclear energy might not be part of the problem but part of the solution. “Of course, we lost the election.” Mr. Hardouin noted, however, that as he listened to the discussions during the conference, he was struck by the thought that much of the thinking that was at that time on the agenda of the Green Party is now being debated in this kind of forum. He added that his interest in this also comes from his position, which deals with international stability and security. There may be many local and technological solutions to the energy crisis, but the security aspect and the international ramiﬁ cations of energy will remain for a long time.

According to Mr. Hardouin, it is necessary to face the reality that change is very slow. The issues that have been discussed are partly linked to the diff erentiation of the public and private aspects of energy, the disconnect between energy as a private commodity and energy as a public good. As far as international security is concerned, the issue of the defense of the public good dimension is a critical one, especially in countries that are major energy producers and exporters. If we want to address the risk of energy dependency, we have to look at the issue of governance and at the energy sector of those countries for whom energy is their main export. The defi nition of what belongs to the market economy and what belongs to the state economy is a crucial debate within these countries and it forms an important part of the international security agenda. The openness of markets, the existence of frameworks for investment, the sharing of technology, and the defi nition of what belongs to market forces are all critical issues, as is the existence of democratic debate and controls.

166 Following Mr. David Elliman’s presentation, moderator Jiří Schneider began the roundtable by saying that he was happy Mr. Elliman had shown the role of both carrots and sticks with regard to encouraging greater energy effi ciency on the part of the private sector. Dr. Arnold Baker spoke next, wondering whether public policy was even capable of dealing with effi ciency gaps of the size involved. He reiterated a point made in his presentation: given the quantity of oil that the oil-exporting countries export and the oil-importing countries important, and given the quantity of carbon emissions currently being produced, stabilizing the concentration of carbon in the atmosphere would require permanently cutting fossil fuel use by perhaps one- half. “At the risk of being controversial, public policy certainly does play a role, but I’m not sure I see the cohesion within national governments to drive the change needed within our own countries, much less to get collaboration and cooperation around the globe.” Dr. Baker off ered the example of the internet, in which a small investment in research and development twenty years ago with DARPA (Defense Advanced Research Projects Agency) has paid off by fundamentally changing the way in which the world communicates. This did not come about through government taxes on telephones and faxes; instead, it was a small, nebulous government-funded program that grew on its merits. Dr. Baker suggested that perhaps, in addition to trying to improve public policy, government leaders may want to help see through technological innovations, in materials and other areas, that could grow into technological solutions to the broader problems being faced.

Mr. Schneider declared that one cannot expect change from the political class without shocks, although those shocks can be positive ones. He cited Mr. Hardouin’s point about change coming in the West only after the oil shock of 1973 and the revelation of climate change. “We need wakeup calls.” What is necessary, in Mr. Schneider’s view, are prepared packages or studies that can be oﬀ ered to politicians so that they will start calling on the research community and asking ‘tell us what we have to do.’ If scientists already have viable proposals ready, they will be in a much better position in terms of seeing them be implemented.

Dr. Trivelpiece brieﬂ y stated his disagreement with Dr. Baker’s characterization of early internet development as nebulous and “without much purpose.” In reality, according to Dr. Trivelpiece, ARPANET, which was the early precursor to the internet, was created with a very speciﬁ c purpose in mind. At the time, the United States was concerned about the possibility of its phone lines being interdicted during a nuclear attack. The idea behind the ARPANET was break up a phone call and send it around in packets across many phone lines, so that cutting one line would not prevent the military from communicating among its various elements. The proceeding development of the internet may have taken on wildly divergent paths, but the initial project was quite focused.

Moving forward, Dr. Kneissl asked what role should be granted to the insurance companies. She noted that they are becoming more and more involved in the ﬁ nancial sector and in investment, even turning into banks themselves and oﬀ ering a variety of products and services. Given this development, what role should they play in the energy question?

167 Energy | Empowering the Individual and the Community

Mr. Hardouin stated that he knew such statements were ones that have been traditionally heard and assured the audience that he was not naďve. Nor was he claiming that democracy and the market are solving the issue of energy security. However, it is better to deal with energy security through market mechanisms and public debate rather than by having states facing off . It is better to deal with democratic states than with totalitarian, authoritarian, or OPEC regimes. Mr. Hardouin underscored that not just importing and exporting countries were aff ected: models of governance, decisions taken, and laws enacted after the 1973 energy shock and due to climate change have had global repercussions. Does our organization of global energy governance adapt to new issues adequately? Is the international community tackling the issues through the right mechanism and in the right way? Following Mr. David Elliman’s presentation, moderator Jiří Schneider began the roundtable by saying that he was happy Mr. Elliman had shown the role of both carrots and sticks with regard to encouraging greater energy effi ciency on the part of the private sector. Dr. Arnold Baker spoke next, wondering whether public policy was even capable of dealing with effi ciency gaps of the size involved. He reiterated a point made in his presentation: given the quantity of oil that the oil-exporting countries export and the oil-importing countries important, and given the quantity of carbon emissions currently being produced, stabilizing the concentration of carbon in the atmosphere would require permanently cutting fossil fuel use by perhaps one- half. “At the risk of being controversial, public policy certainly does play a role, but I’m not sure I see the cohesion within national governments to drive the change needed within our

168 own countries, much less to get collaboration and cooperation around the globe.” Dr. Baker oﬀ ered the example of the internet, in which a small investment in research and development twenty years ago with DARPA (Defense Advanced Research Projects Agency) has paid oﬀ by fundamentally changing the way in which the world communicates. This did not come about through government taxes on telephones and faxes; instead, it was a small, nebulous government-funded program that grew on its merits. Dr. Baker suggested that perhaps, in addition to trying to improve public policy, government leaders may want to help see through technological innovations, in materials and other areas, that could grow into technological solutions to the broader problems being faced.

Mr. Elliman responded that, in general, distinctions between the types of ﬁ nancial institutions are falling. The diﬀ erences that distinguish what is a bank, an insurance company, or an investment bank are becoming distinctions in name only. There are many ways to manage risk, and everybody is competing with everybody else. Whether a bank buys an insurance company, as in the case of Citigroup, or an insurance company buys a bank is irrelevant. The primary focus in all cases is the expanding the size and capacity of the institution.

With regard to what is in those institutions’ trading portfolios, Mr. Elliman remarked that in the contemporary world, despite all the various concerns, there is abundant access to capital for traders. “The cost of capital is very low. Attractive projects are relatively easily fi nanced.” This fact also applies to the energy industry, assuming the project is packaged properly. If the international fi nancial community fi nds areas that are potentially lucrative and there is a market on both sides, such as the trading of carbon credits, then it will certainly jump in.

169 Energy | Empowering the Individual and the Community

Mr. Schneider asked Mr. Elliman whether he could imagine insurance companies introducing bonuses for effi cient solutions, i.e. effi cient cars or effi cient houses. Would such packages be feasible fi nancially? In response, Mr. Elliman stated that he did not believe that was the role of insurance companies. In his view, it has to be up to the government to manipulate the outcome through taxation and other incentives. There are numerous precedents for this sort of public policy intervention, such as previously-mentioned subsidies for ethanol. According to Mr. Elliman, the nuclear industry in the United States exists because the government assumed the risks that came with it. “There are policy matters that transcend the capacity of the fi nancial community.”

Dr. Perkowski suggested that there are cases in which stockholders can initiate change. In addition, insurance rating agencies can produce change because they certify the risk involved in various projects. Dr. Elliman answered that securities rating agencies are not part of the insurance industry; their customers are, broadly, the ﬁ nancial industry. These agencies cannot make the potential of a project better or worse than it is. One cannot take a technology that is uncompetitive, bring it to a rating agency, and somehow make it any better. The agencies would consider the impact of a government program that enhanced the prospects of a particular project, but the beginning is the government program itself.

Dr. Bent Sørensen continued the topic by describing how, in Denmark, there are insurance companies linked to other types of institutions that off er lower rates to people who invest in effi cient buildings. He described the conversation as dealing with the “transformation of energy system.” He echoed the point made by Mr. Elliman that very clearly there is a role for cooperation between government and business. It is important to identify the problems involved in reaching a decision on how to proceed. If the decision were left to the market alone, there would be externalities that were not included in the decision-making process. There is not a “total lifecycle analysis” of all the diff erent possible decisions – that is not how the market operates. The time horizon of the marketplace that the one seen in lifecycle studies.

Governments must step in, but they won’t unless they have a reason to. They only way they will intervene if there is no underlying strategic reason is if the population makes it clear that it want them to do so. There must be a clear signal from the populace that they want this. Public awareness of the energy problem is a key driving force of any steps toward a real solution. It is necessary to have public support, or else governments will be unable to act.

Dr. Sørensen continued by emphasizing that solutions of all kinds must be compared. By way of example, he referenced the allusion made the previous day to intergenerational interest rates. There are many suggestions off ered by lobbying groups and solutions of various stripes are presented, but many of them contain a number of assumptions. Dr. Sørensen noted that he had seen a study of a nuclear power plant that, due to the structure and level of the interest rates involved, found it more profi table to simply hold the waste it produced, rather than having it treated. He closed by underscoring the need for a public debate with experts from various sectors in order to fi nd the most widely benefi cial decisions.

Mr. Bill Martin remarked that discussing interest rates was a very correct thing to do, and he went on to explain why these rates matter. In the United States, the Oﬃ ce of Management

170 and Budget (OMB) decides on the relative importance of healthcare, energy, defense, and the like. There is now a soaring deﬁ cit and relatively little money to go around, and government funding is a zero-sum game. So how does OMB calculate who gets what? They use an interest rate, one that devalues the future. Money is less valuable in the future than in the present. Therefore, in Mr. Martin’s view, interest rates matter tremendously. He continued by asking how important energy is in the Czech Republic, compared to healthcare or social security or the myriad of other competing demands.

Mr. Elliman responded that he had never had the pleasure of dealing with OMB, although he did know about it. He brought up what was, in his view, another problem of future costs: they are constantly underestimated. “When companies estimate the future costs of health care for retirees, pensions, things of that nature, they lowball the ﬁ gures because it makes their ﬁ nancial outlook appear better.” He added that, by contrast, nuclear power plants are required to provide the funds for their own decommissioning far ahead of time.

Ms. Jessica Morrey pointed out that funding early internet development was a public policy decision. Current policy, however, has deprioritized funding energy research and, accordingly, such funding has gone down dramatically. “It is impossible to separate the market from government policy here.” Commenting on the diffi culty of creating international agreement, Ms. Morrey referenced Prime Minister Campbell’s point that agreements create longevity and therefore stability, which in turn makes further agreement easier. She off ered the Pew approach as being very fl exible, but observed that the real work happens at the city level. Japanese frustration with the U.S. and its propensity for skirting agreements was also cited. Ms. Morrey directed her query to the representatives of Japanese utilities, commenting that perhaps they had fi gured out an answer to the question of how to incentivize effi ciency for utilities. “If you’re selling energy, why be effi cient?”

Mr. Elliman answered fi rst, noting that in the United States, utilities do not have pricing power – instead, prices are regulated by diff erent parts of the government. Utility companies are given prolifi c incentives if they can be more effi cient. In that respect, utilities are not a true private industry.

Mr. Minami began response by laying out the philosophical basis of utilities. Why do corporations exist in society? Traditionally, the answer has been to generate revenues for the shareholders, but Mr. Minami stated that he did not agree fully with that idea. The corporation has its own personality because has a public side to it. Utilities, banks, and other companies all have some sort of public personality, and each kind of institution is created based on the respective laws. In Mr. Minami’s view, the purpose of creating utilities is not to make proﬁ t but to meet the needs of the public by supplying electricity and contributing to the welfare of society. Those people who agree with the company, its methods, and its principles, also agree to provide funding.

That is how these corporations are structured, and if corporations exist for the beneﬁ t of society, then what is called for now is not a quantitative expansion of production but, instead, contributing to the solution of the energy crisis. It is the responsibility of corporations to deal with resource depletion and its costs and not just to provide proﬁ ts to shareholders. There are

171 Energy | Empowering the Individual and the Community many stakeholders in the operation of utilities and, according to Mr. Minami, the main purpose is to meet the needs of society. TEPCO (the Tokyo Electric Power Company) receives funding from banks and, when necessary, provides returns to those banks by issuing bonds.

Mr. Minami returned to the question of incentives for effi ciency among utilities and observed that the same question is often posed by TEPCO’s consumers. He insisted that utilities would like consumers to use energy effi ciently and that they are indeed addressing conservation. “I don’t want consumers to waste electricity.” Mr. Minami referred to the discussion in his presentation about the search for the “best mix” of resources to be used for power generation. This “best mix” also seeks to optimize effi ciency and minimize environmental impact. Utilities themselves want to produce energy effi ciently and to do it in the most environmentally sound way.

Mr. Minami also noted the rise in popularity of hybrid cars, which use a combination of fossil fuels and electricity. Hybrid technology, which relied on electric power, has produced tremendous improvements in fuel economy. This is one example of how utilities can help improve effi ciency and have an incentive to do so – they can promote new and more effi cient technologies that employ electricity. Another example, according to Mr. Minami, is the heat pump, which he had spoken about earlier. Heat pumps can make effi ciency three to fi ve times greater than at present.

Although TEPCO would like to maintain its growth by continuing to convert various resources to energy, there is a certain limit to this sort of growth. Growing electricity production is not suﬃ cient to grow the company. For that reason, TEPCO currently allocates 10% of its revenue to new businesses like telecommunications. In that way, the company can draw revenue not only from electricity sales but also by developing products related to the use of electricity. Electricity is not going to disappear, and even if the total amount that is being sold and transmitted decreases, its value will remain high.

Drawing on Mr. Minami’s statement regarding the mission to serve societal needs, Mr. Roger Robinson brought up the topic of corporate social responsibility and good corporate governance. Looking at the evolution of public policy and its relationship with the energy sector, Mr. Robinson cited research done by his company on every business that had established commercial ties with terrorist-sponsoring states. Of the 13,000 companies that were looked at, 475 of them were large, publicly traded companies, ones whose stock is owned by almost anyone with a portfolio. Over 250 of these companies do business with Iran, about 130 do business with Sudan. According to Mr. Robinson, there is a new public policy dimension that is strongly impacting on the energy sector. A full 70% of the companies doing business in terrorist-sponsoring states are in the energy sector. This has made his company’s product, risk management, largely an energy product.

Mr. Robinson also mentioned that in the world of corporate governance and social responsibility, there is a new human rights emphasis. However, the concept is not so new. During the time of South African apartheid, there was also an eﬀ ort to put pressure on the regime through commercial means. Recently, though, we are seeing large-scale divestment from companies aiding and abetting the genocide in Darfur. This is a major development.

172 What sector are those companies in? The energy sector. Mr. Robinson brought up the example of Talisman Energy Inc. of Canada, which saw record earnings and yet was taking a 30% discount to its share value because of the scope of the divestment campaign being taken against it by TIAA-CREF. This was a case, according to Mr. Robinson, of large investment groups responding to having their buildings surrounded by investors demanding divestment. This is the rise of “security-minded investor activism.”

Another new development is “terror-free investment,” in which investors are moving away from companies that are comfortable doing business with terrorist-sponsoring states. The government has not been behind this at all – this is people power. Mr. Robinson cited Nicholas Martin as having but not only one of the thousands of students involved in such eff orts but also a true leader in this regard, helping to empower college campuses. PetroChina was given as another example of this trend, as it had been divested by many universities and states for its involvement with Sudan. If done on a suffi ciently large scale, such eff orts can have a signifi cant eff ect, especially if done at the same time.

“In the information age, shareholders are starting to align their personal values and their sense of fi nancial risk with their portfolios.” As evidence of this, Mr. Robinson noted the creation within the Securities and Exchange Commission of the Offi ce of Global Security Risk, which was necessitated by the fact that the fi nancial risk to these companies is so asymmetrical and so inordinately high. “To be involved with terrorist states or WMD or genocide can deeply damage your stock.” There is now a whole new set of tripwires that can trip up a company’s corporate reputation, its profi t margins, and so forth. This is now considered a major risk and it is present in some of the biggest oil markets in the world, which goes back to the point that dangerous regimes sit on top of some of the world’s largest reserves.

Mr. Robinson described his remarks as an eff ort to surface a new set of considerations that very much involve public policy but also go right to the heart of investment world that is known so well by Mr. Elliman. On some level, these trends merely represent another form of old-fashioned fi nancial risk, but the inordinately large variety of risk is notable and has caught some actors, like China, Talisman, and Total Inc., by surprise. In Mr. Robinson’s view, this is only the beginning. Trillions of dollars of funds are under management that is going to start making decisions about just whose stock it is willing to hold. “Welcome to the 21st century of security,” which will be defi ned not only by typical military and political concerns but also by more humanitarian concerns. Human rights groups are now going after corporate responsibility, demanding that companies share their values – and they are right to do so. Mr. Elliman replied that if this is a new and permanent feature of the market, then it is because the whole market has decided that the risk is too high and that the value of terror-abetting companies is lowered too much as a result. Mr. Elliman wondered if some investors would approach this phenomenon from the other side, buying up the stock of such companies at prices that have been driven artifi cially low by divestment campaigns.

Mr. Robinson explained that his company had back-tested portfolios to see what would happen if you eliminated all the companies involved with terrorist-sponsoring states. It had not, however, looked at cases where companies had been identiﬁ ed by the markets as being undervalued because of divestment activity and were subsequently seen by some

173 Energy | Empowering the Individual and the Community as an opportunity – such examples are still very few. Mr. Robinson remarked that in his personal opinion, Talisman became so radioactive socially, from a public perspective, that the idea of a leveraged buyout was simply not forthcoming. Ultimately, Talisman left Sudan and was bought by Indianoil. Others will emerge who are willing to step in and substitute. Many of those companies will be the very same ones, ﬁ rms from China, Russia, India, France – “countries with thicker skins involving social and security dimensions.” Japan, he noted, was not one of those countries.

Mr. Schneider underlined what he saw as being a key word from Mr. Robinson’s remarks: reputation. According to Mr. Schneider, much of this issue has to do with our considerations. This is why companies pursue effi ciency. What drives them in this case is not a question of profi t but one of reputation. He fi nished by urging that more thought be given to the matter.

Dr. Kneissl followed by mentioning the experience of Royal Dutch Shell in Nigeria, where it took such a beating to its image that it did not want to get involved in a place like Sudan. When Sudan went online, it was thanks to a Chinese, Malaysian, and Indian consortium. Experience has changed the mindset in Europe. For example, after 9/11, there was a great withdrawal of assets from accounts that the United States could have frozen. Dr. Kneissl expressed her amazement that Saudi Arabia was not on the list of terrorism-sponsoring states, while Syria – which produces very little oil – was included. She noted that she regularly enjoyed the speeches of Robert Baer, who has been outspoken about the U.S. “sleeping with the devil” in terms of its partnership with the Saudis. In Dr. Kneissl’s words, “Saudi Arabia is not the solution to the problem but the problem itself.”

She also mentioned that Syria, when faced with the consequences of a U.S. embargo, shifted its currency for foreign trading from U.S. dollars to euros. Though Syria is not a very big or important trader, this is one type of reaction. The Iranians have recently announced that the governor of their national bank is reacting to actions against it by replacing its dollar reserves with euro reserves. Iran, she noted, is an actor on the gold market and can heavily inﬂ uence that sector. Dr. Kneissl declared herself to be fully in favor of corporate responsibility but remarked that it should be done through objective criteria when applied to states. Elaborating on this point, she asked what the international community had done or would do regarding the actions taken in Zimbabwe or in response to Putin’s currently replacement of dollars with euros and the British pound. Picking and choosing responses introduces additional unpredictability into the system, which is a negative.

Mr. Jaroslav Maroušek expressed his view that, with regard to the world energy supply, instability cannot be permanently removed unless a diﬀ erent stage of development is reached. In his view, the only way to eliminate the addiction to oil is to accelerate breakthroughs in advanced energy research, along with a reduction in imports. “We in the Czech Republic believe that not only the Mediterranean but also even Russia is not a 100% stable region.” Referring to Mr. Minami’s comments, Mr. Maroušek highlighted the importance of the relationship between utilities and eﬃ ciency. Ten years ago, the European Union issued a new directive which opened up competition in the electricity market, and since then all utilities have become involved in competition. Mr. Maroušek observed that, in the presentation given the previous day by a representative of Czech Coal, there was nothing said about

174 APPENDIX A Biographies of Participants

Takashi Atoda began his writing career while working for the National Diet Library and made his debut as a writer with “Reizoko yori aiwo kimete” (From fridge with love) in 1978. He received the Mystery Writers of Japan Award for “Raihosha”(A visitor), and the Naoki Literary Prize for his collection of short stories “Napoleon kyo” (Napoleon Mania) in 1979. He was awarded the Yoshikawa eiji Literary Award for “Shin Toroia monogatari” (Neo Trojan Story). He is currently a member of the selection committee of the Naoki Literary award, visiting professor at Waseda University, managing director of the Japanese P.E.N. Club, and Chair of the Culture Council of the Japanese Ministry of Education, Culture, Sports, Science and Technology.

Arnold B. Baker is the Chief Economist of Sandia National Laboratories. He is a Deputy to the Senior Vice President and Deputy Laboratories Director for Integrated Technologies and Systems, and serves as principle political economic advisor. He is a Past President (2005) of the International Association for Energy Economics and former President of the U.S. Association for Energy Economics (2002). He holds a BA in History and MA and Ph.D. degrees in economics from Virginia Polytechnic Institute and State University.

Jacques Bouchard holds an engineering degree from L’Ecole Centrale de Paris, as well as a Ph.D. in reactor physics. He joined the Commission for Atomic Energy in 1964 and has held various positions since then, including Head of the Experimental Physics Unit, Head of the Nuclear Engineering Department, Head of the Fast Neutron Reactor Department, Head of the Nuclear Reactor Division, and Director of the Military Application Division. He is currently Special Adviser to the Chairman and CEO of the CEA and also Professor at L’Ecole des Mines de Paris. Mr. Bouchard was the President of the French Nuclear Energy Society from 2001 to 2003.

Kim Campbell, the former Prime Minister of Canada, has served as Secretary General of the Club of Madrid from 2004 to the present. Between 2003 and 2005, she was the President of the International Women’s Forum. From 1999 to 2003, she was the Chair of the Council of Women World Leaders. She was also a Fellow of the Center for Public Leadership at the Kennedy School of Government at Harvard University, and was a member of the International Council of the Asia Society of New York and Global Security Institute, the Middle Powers Initiative, and

175 Energy | Empowering the Individual and the Community the Forum of Federations. She was also a trustee of the Crisis Group. Before taking offi ce as the Canadian head of governed, she served as Minister of State for Indian Aff airs and Northern Development (1989), Minister of Justice and Attorney General (1990), as well as Minister of National Defense and Veterans’ Aff airs (1993). Oldřich Černý holds an MA in English and Czech from the Faculty of Philosophy of Charles University in Prague. He now is Executive Director of the Forum 2000 Foundation and Executive Director of the Prague Security Studies Institute. Previously, he served as Director General of the Czech Foreign Intelligence Service, and as National Security Advisor to the President of Czechoslovakia, Václav Havel. In 1990, he was Director and Producer of the New York Festival of Banned Czech Films in Celebration of the Velvet Revolution. During communism, he worked as a freelance translator of British & American Fiction into Czech, a theater producer, and an editor of books for children.

David D. Elliman is the Founder, Principal and Chief Investment Oﬃ cer of the Elmrock Group of Companies. His public directorships include CapMAC Holdings, Inc., 1994-1998, and Applied Signal Technology, Inc., 1993-present. He holds an MBA in Finance from the Wharton Graduate School, an MS in Cell Biology from the University of California, Irvine, and an AB in Biology from the University of Pennsylvania. David is also a competitive sailor and two-time winner of the Northern Ocean Racing Trophy and a member of the Yachting Hall of Fame.

Dori Ellis holds BS and MS degrees in Mechanical Engineering from the University of New Mexico. She is currently Director of Global Security Programs at Sandia National Laboratories in Albuquerque, New Mexico. Her responsibilities encompass nonproliferation and nuclear materials control; maritime and border security; bio-security and nonproliferation; arms control analysis; the Cooperative Monitoring Centers; collaborations with more than 100 countries in various training, threat reduction, conﬁ dence building, and monitoring activities; and various activities in combating terrorism.

Yohsaku Fuji graduated form the Kyoto University, Faculty of Engineering in 1960. He joined the Kansai Electric Power Co., Inc. in April of 1960. Having served in a variety of roles with the company, including Senior General Manager, Senior Managing Director, and President and Director, Mr. Fuji is now Board Director and Senior Adviser. He is married and has two adult children.

Patrick Hardouin is a diplomat and economist and has been NATO Deputy Assistant Secretary General for Political Aﬀ airs since 2003. He has also served as NATO Director for Economic Aﬀ airs since 2000. Dr. Hardouin was employed from 1979-2000 at L’Institut d’études politiques de Paris (Sciences-po), from which he holds a Doctorate in Economics and where he served as Professor of Economics, Deputy Director, and consultant in private and public management. He has been awarded the title of Doctor, Honoraris Causa, by the Moscow State University of Economics, Statistics and Informatics.

Malek Atallah Kabariti holds a Master of Science in Mechanical Engineering from the West Virginia University. After having directed the Renewable Energy Research Center of the Royal Scientiﬁ c Society, he is now the President of the National Energy Research Center in Amman. He specializes in Management of R&D projects and is a consultant in the ﬁ eld of solar energy, heating, and cooling.

176 Tsuyoshi Kano holds a Ph.D. from the Faculty of Engineering at Tokyo University, having completed work on the “Luminescence of Rare Earths.” From 1960 to 1994, he engaged in Research & Development of Materials at the Hitachi Central Research Lab. (dispatched to Space Technology Corporation, 1986-1994). He currently works as an advisor to the Japanese Aerospace Exploration Agency, more speciﬁ cally to the Applied Research Utilization Promotion Group.

C. S. Kiang received a B.S. in Physics from National Taiwan University and a Ph.D in Physics from the Georgia Institute of Technology. Prof. Kiang has been the Founding Dean of the newly established College of Environmental Sciences at Peking University since June 2002. Before that, he spent more than thirty years of his career in the U.S., serving in various positions at a number of public, private, and academic institutes. Currently, he serves as Chairman of the Peking University Environment Fund.

Karin Kneissl holds a Ph. D. in law from Vienna University and is an independent scholar and correspondent, covering political and energy issues in the Middle East. She also teaches International Relations at the Vienna Diplomatic Academy, as well as at various universities in Lebanon and France. From 1989 to 1998 served in the Austrian Federal Ministry for Foreign Aﬀ airs. Her recent book, The Energy Poker, was published in German in Munich in 2006 and deals with the role of oil and gas in geopolitics and world economics.

Ichiro Maeda has been Deputy General Manger of the Washington Offi ce of the Tokyo Electric Power Company (TEPCO) since June 2004. He joined TEPCO in 1980 after graduating from Waseda University with a Bachelor of Arts in Political Science. Mr. Maeda has fi lled leadership roles in many projects throughout Europe, North America, and Southeast Asia. He has extensive experience working with international organizations such as IEA and E8 and served as Group Manager of the International Aff airs Department before coming to Washington, D.C.

Jaroslav Maroušek holds a degree in Economics and Energy Management from Czech Technical University, as well as a Candidatus Science in the fi eld of energy economics. He has served as the Director of the Energy Division of VÚPEK (The Research Institute for the Fuel and Energy Sector) in Prague and as a consultant to and a consultant to the World Bank and the United Nations Development Programme. He is currently the Director of SEVEn and is a member of the Boards of Directors of energy effi ciency centers in Poland (FEWE), Bulgary (Eneff ect), and Ukraine (ArenaEko).

William F. Martin is chairman and co-founder of Washington Policy and Analysis. As an energy economist, he has served as Deputy Secretary of Energy and Executive Secretary of the National Security Council. From 1983-85, he was Special Assistant to President Reagan, responsible for the coordination of the President’s head of state meetings. As a government oﬃ cial, Mr. Martin also chaired the US-Japan Energy Working Group under Prime Minister Nakasone and President Reagan. He currently serves as Chairman of the Prague Security Studies Corporate Council.

177 Energy | Empowering the Individual and the Community

Nobuya Minami is Advisor at the Tokyo Electric Power Company (TEPCO). He attended the University of Tokyo and graduated from the Faculty of Law. Mr. Minami joined TEPCO in 1958 and has held various positions, including as Manager of the Suginami Branch Oﬃ ce, General Manager of Corporate Planning Department, and Executive Vice President. In 1999, he was nominated to become President of TEPCO and held this position until assuming his current position as Advisor in 2002.

Karel Navrátil has been the Managing Director of Vensys-CKD, s.r.o., a Czech – German joint venture for the sales and services of wind turbines manufactured by CKD NOVE ENERGO, a.s. in Prague, since 2005. He graduated with a degree in electrical engineering from the University of Paderborn in 1991 and completed his doctoral dissertation on Economic Impacts of Renewable Energy Sources in Power Systems in 1998.

Nicholas Martin is currently a visiting fellow at the United Nations University for Peace (UPEACE) campus in Costa Rica and serves as Deputy Director of UPEACE/US. He received an honors B.A. from Swarthmore College and an M.A. in Education for Peace from the United Nations University for Peace. Mr. Martin has worked at Xi’an Teachers College in China as an American classroom pedagogy professor. In 2004, he helped start the Genocide Intervention Network (GI-NET) to raise awareness and money for the African Union mission in Darfur.

Masayuki Oyama is Representative Director & Executive Vice President of the Tohoku Electric Power Co., Inc., which he joined in 1966. He holds a degree from the faculty of technology at Yamagata University. After working in the transmission engineering section, Mr. Oyama accumulated a wealth of expertise in the area of corporate planning. In June 2005 he was appointed to his current post, supervising the Corporate Planning Department and the Power System Division.

Joseph Perkowski received his Ph.D. from M.I.T., with a focus on advanced energy and environmental systems. While on the staff of Petro-Canada, he was involved in projects ranging from off shore oil and gas systems development to supertanker delivery of Arctic- based LNG. He has been Vice-President of Design and Construction of a large commercial offi ce building corporation, and has managed projects such as high-speed rail and automated highway systems development. Currently he is Manager of Energy Initiatives at the Idaho National Laboratory in Idaho Falls, Idaho.

Fumio Kawaguchi graduated with a degree from the Commercial Science Department of Waseda University in Tokyo in 1964. He joined the Chubu Electric Power Company, Inc. (CEPC) in April of that year and has held a variety of positions with the company, including General Manager of Purchasing & Contracting Department and Director of the Nagoya Regional Oﬃ ce. Mr. Kawaguchi became Chairman and Director of CEPC in June 2006.

Roger W. Robinson, Jr., in addition to his role as a Co-Founder of the Prague Security Studies Institute, is President and CEO of Conﬂ ict Securities Advisory Group, Inc. Mr. Robinson served as Chairman and Vice Chairman of the Congressionally-mandated U.S.-China Economic and Security Review Commission from 2001 through 2005. Previously, Mr. Robinson was Senior

178 Director of International Economic Aﬀ airs at the National Security Council (NSC) and Executive Secretary of the Cabinet-level Senior Inter-Departmental Group for International Economic Policy under President Reagan.

Vladimír Schmalz received his degree from the Faculty of International Trade of the Prague University of Economics in 1994. From 1991 to 2004, he held the position of General Director, and later Chairman of the Board, of SAWBAC, a company specializing in facility management. He has thirteen years of work experience in company management, primarily in mainly experience in team leadership and motivation, analysis, planning, and control. In June 2004, he was appointed Director for Mergers & Acquisitions by the Board of Directors of ČEZ, a. s.

Jiří Schneider, Program Director at the Prague Security Studies Institute, previously held various positions at the Czech Ministry of Foreign Aﬀ airs, served as the Czech Ambassador to Israel, and was a Member of the Czechoslovak Federal Parliament. Mr. Schneider holds a Diploma in Religious Studies from the University of Cambridge and a Diploma in Physical Geodesy from Czech Technical College. He has lectured on international relations at Charles University in Prague, Masaryk University (Brno), New York University, and Anglo-American College (Prague).

Bent Sørensen holds a doctorate from the Niels Bohr Institute and a Diploma in Advanced Management from INSEAD, Fontainebleau. He is currently Professor at Roskilde University and President of NOVATOR Advanced Technology Consulting. He has been an advisor for OECD, as well as numerous governments and UN agencies, including the IPCC working group on climate change mitigation. He served as technical director and board member of Cowiconsult Inc., received the Australian-European Award and European Solar Prize, and was knighted by HRH Queen Margrethe of Denmark.

Radek Stavěl received a degree in Economics and Political Science from the Prague University of Economics in 1995. He has been working for Czech Coal since 2003. He is now a member of the senior executive management and serves as Director of Communications. Mr. Stavěl is responsible for sustainable development, corporate communications, including public relations and public aﬀ airs, and special projects development. His previous professional experience was in consultancy, most recently at Burson-Marsteller, dealing particularly with utilities and energy-related clients.

Konosuke Sugiura received his degree from the Faculty of Law at Tokyo University and subsequently joined the Tokyo Electric Power Company (TEPCO). He has worked with the Labour Relations department and served as General Manager of the TEPCO Washngton Oﬃ ce from 1989 to 1995. Since 1998, he has occupied the role of Vice President of Washington Policy & Analisys.

Alvin Trivelpiece retired as Director of the Oak Ridge National Laboratory, as well as President of Lockheed Martin Energy Research Corporation, in 2000. He is a consultant to Sandia National Laboratories and other organizations. Prior to ORNL, he was the CEO of the American Association for the Advancement of Science. Dr. Trivelpiece was the director of the Oﬃ ce of

179 Energy | Empowering the Individual and the Community

Energy Research (now Science) in the U.S. Dept of Energy 1981-87. He served as Professor of Physics at the University of Maryland, College Park from 1966 to 1976 and is a Member of the National Academy of Engineering.

Alexandr Vondra is the current Minister of Foreign Aﬀ airs of the Czech Republic. From the mid-1980´s, A. Vondra participated in the activities of Czechoslovakia´s democratic opposition. In 1989, he became a spokesperson for Charter 77. In November of the same year, he became a co-founder and leading member of the Civic Forum movement. In 1990-1992, A. Vondra served as foreign policy advisor to President Vaclav Havel. In the summer of 1992, he was appointed the First Deputy Minister of International Aﬀ airs. From March 1997 until July 2001, A. Vondra served as the Czech Ambassador to the United States. From March 2001 till January 2003, Mr. Vondra served as the Czech Government Commissioner to the NATO Prague Summit.

180 APPENDIX B Session Briefs

Suplement to Session 1 | Alternative Energy Futures Session I will present the energy crisis facing the international community in the coming decades, both in terms of security and the environment. Given current income and population growth in both the developed and developing world, energy demand in 2050 is expected to increase by two to three times. To illustrate the magnitude of this challenge, this session will explore three alternative scenarios of global energy demand and supply into the year 2050.

The aim of session I is to help participants get a sense of the enormity of the energy problem if the world continues to follow the Business-as-Usual path, and the limited solution that a “tech fi x” scenario presents. Participants have the task of defi ning the “New Old Thinking” scenario. Presentations during Session I will introduce innovative solutions that have already had success as a jumping off point for further discussion.

Debate-Provoking Questions for Session I

What are the likely global energy demand and supply patterns needed to sustain economic development and prosperity for all nations?

What are the particular energy situations in the largest developed/emerging regions and countries such as the EU, the US, Japan, China and India?

What will be the impact of alternative energy strategies on individual businesses and consumers?

Can adjustments in the way we perceive the energy challenge based upon a deeper set of “conservation” values provide us with the same quality of life without resulting in an increased depletion of resources?

Can energy scenario models provide the necessary mutual understanding of the upcoming future?

How will global requirements for good energy continue to expand during the short and medium term time horizon?

181 Energy | Empowering the Individual and the Community

Suplement to Session 2

New Old Thinking | Values in Energy Demand and Supply

This session aims at exploring the energy issue with emphasis on multidisciplinary approaches and values such as humility and responsibility. It will explore the possibility of common values and cultural wisdom in guiding demand management solutions and supply decisions in order to move the future energy scenario to a more satisfactory outcome than that resulting from the Tech Fix. President Václav Havel, in his contribution, stresses the need for a fundamental change in humanity’s attitude towards the world and the values of life. Presenters will build upon this theme and on global trends with the expressed intent to identify global energy challenges from the “thinkers’ perspective.”

This session also the aim to review the available options for securing the energy necessary to create a sustainable society using an optimal blend of values and technology, and how we can realize this vision

The questions posed by this panel include:

What are the options for securing the energy necessary to create a sustainable society using an optimal blend of values and technology?

Can new ways of thinking about energy help us ensure a safer energy future?

Can a new energy paradigm be identiﬁ ed by using multidisciplinary approaches?

How and to what extent can communities´ get involved in energy management?

What are the motivations that would guide societies to take responsibility for their energy demands?

182 Suplement to Session 3

Programs to Support “New Old Thinking”

At the present moment, we look towards expansion of existing sources of oil, gas, coal, nuclear, and renewable supplies to meet rising global needs. Hence, session III will examine the nature of these resources and how they are likely to be limited by geology and location of reserves, expense of extraction, scale of infrastructure requirements and/or environmental challenges. Session III also aims to consider eﬀ orts to modify the energy demand side of the equation, including the scope of new technologies for buildings, industry and transportation.

Rather than limited growth due to possible global constraints, it is prudent to consider strategies for quality growth at both the global and the local level. We believe that local communities, businesses and individuals can empower themselves by employing improved demand management techniques hand in hand with the deployment of advanced supply technologies.

Debate-Provoking Questions for Session III

How we can explore, develop and recycle key energy resources to achieve greater safety, more eﬃ cient use and eﬀ ective disposal of: Oil and Natural Gas, Coal, Nuclear Energy and Renewables.

How can the growth rate in new energy demand be satisﬁ ed by new technologies and sound demand management techniques which maintain the safe “quality of life” but result in less resource consumption in the following sectors: Automobile and broader transportation, Housing and commercial establishments, Electricity generation sector

Ultimately – and perhaps most importantly – can new ways of thinking about energy programs help us to ensure a safer and more prosperous energy future? Can a new energy paradigm be identiﬁ ed through the following means:

Rather than focusing on competition for “acquiring” resources, focusing instead on healthy competition in the marketplace and thus allowing for free and more transparent trade.

Rather than focusing exclusively on more centralized approaches to energy, empowering the individual, family and community to meet individual needs through more holistic thinking and more effi cient technology without sacrifi cing comfort or economic opportunity, and without increasing overall energy dependence even as energy effi ciency increases.

183 Energy | Empowering the Individual and the Community

Suplement to Session 4

Policy and Market Solutions to Support New Thinking

The questions posed by this panel include:

What are the options for securing the energy necessary to create a sustainable society using an optimal blend of values and technology?

Can new ways of thinking about energy help us ensure a safer energy future?

Can a new energy paradigm be identiﬁ ed by using multidisciplinary approaches?

How and to what extent can communities´ get involved in energy management?

What are the motivations that would guide societies to take responsibility for their energy demands?

184 APPENDIX C Student Session with Dr. Karin Kneissl | Executive Summary

Dr. Kneissl opened by noting that Iran currently seemed to be at the top of everyone’s agenda, and so that country would be the topic for the session. She began her remarks by observing that Iran functions according to its own rules and cannot truly be understood from the outside. For that reason, she admitted, she cannot claim to know exactly what is going on. The best one can do is to remember that during every journey, it is necessary to open one window or another, to enter a diﬀ erent mentality.

What greatly surprises Westerners about Iran, according to Dr. Kneissl, is that it is a very secular society. The reference point of Islam is not the most important thing to the average Iranian. They view themselves more as Iranians than as Muslims. In terms of the everyday life, as well as legislation, the reforms promised by the Khatami government were not achieved, could not be achieved. During his presidency, there was a great deal of talk on how to save the soul of the revolution, at the same time refusing to admit that, twenty-six years after the fact, the revolution had failed.

An Austrian bishop, the cardinal of Vienna, was invited to Iran in February 2001 and gave a highly applauded speech at Tehran University. In the background talks that took place during his visit, one of the topics that continually came up was Vatican II, the question of how the Catholics had modernized their faith. “Iranians wanted to know about Vatican II. It was a signal that they knew they had failed.” Dr. Kneissl remarked that even Hussein Khomeini had conﬁ rmed that the practice of having a religious leader conﬁ rm every piece of legislation does not work. Iran has, in fact, formed a variety of institutions, “a certain democracy,” and much more so than other states in the Muslim world.

The government, in Dr. Kneissl’s view, has doubts about its own success story. The past few years have seen a number of things going, including the growth of student movements and massive demonstrations. Many of those who had voted for Khatami suﬀ ered at the hands of the regime and at the hands of the police especially. Dr. Kneissl mentioned “All Things Can Be Read” by Allawi, a book about the blogger scene in Iran, as detailing the civil culture that exists there today. The people are frustrated by the non-delivery of what was promised. As for achievements, there have been two important ones. The ﬁ rst is the creation of something like a middle class, which did not exist before.

The second is the advancement of women. Women can now be found in all public places, ministries, and institutions. The reasons for this particular development have a great deal to do with the tremendous disturbance Iranian society experienced as a result of the revolution and the Iran-Iraq War. Traditional family values and customs were disrupted, and as a result,

185 Energy | Empowering the Individual and the Community many women were able to obtain an education, which had not previously been possible on such a scale. Some of this took place out of sheer necessity due to the death of so many men during the war. In general, “the demographic situation has shifted enormously. Women no longer marry at eighteen and have ten kids.” The average fertility rate in Iran used to be 3.6 births per woman; now it is somewhere between those of France and Germany. A sort of emancipation is taking place, which is another sign of secularism.

Dr. Kneissl noted the electoral victories of Hamas in the Palestinian territories and the Muslim Brotherhood in Egypt and made the argument that throughout the Muslim world, wherever there are pro-Western despots, the population itself is actually rather anti-Western. These populations identify ﬁ rst and foremost with the wider community of Muslims; their religious identity is their primary one. This is also true in certain Muslim communities within the Western world, as in France and Germany. This is not true, however, in Iran.

According to Dr. Kneissl, Iranians generally look down on Arabs, who cannot compare to the great achievements of Persian high civilization. There is a much closer mental rapprochement with India and Turkey than with the Arabs. The current Iranian regime, which was elected in August of 2005, has indeed played the Islamic card a great deal. In Dr. Kneissl’s view, President Ahmadinejad wants to gain a leadership role within the wider Middle East and the Muslim world as a whole. This development, she stated, took place as a result of factors produced by Western nations. In 2001, when the U.S. invasion of Afghanistan took place, Iran was happy to let it happen. The Iranians certainly had no love for the Taliban. They used the invasion as an opportunity to oﬀ er rapprochement to the U.S., which Washington did not really accept. The current chaos in Afghanistan, meanwhile, has lead to an increase in Iranian inﬂ uence in that country. At the same time, there is a huge drug problem in Iran, and the authorities are not at all happy that the Afghani drug growers who were repressed by the Taliban are back in business now.

In principle, Iran enjoyed the fall of Saddam, for whom they had quite a strong hatred. It was also a window of opportunity for Iranians to regain inﬂ uence over Shiite holy shrines in Karballah and Najaf. The Shia constitute a majority in both Iran and Iraq. This fact, aside from serving as a tie between the two countries, also means that neither can truly be the leader of the Muslim world, which is primarily Sunni and views the Shia as heretics. Nevertheless, by presenting themselves as the last bastion for the Palestinians and other oppressed peoples, especially Muslims, Ahmadinejad and the Iranian authorities are stepping into the leadership vacuum that exists in the Muslim world. “(Hugo) Chavez is looking for the same thing, minus the Islamism.” These leaders may be looking to model themselves after past strongmen like Nasser and Tito. Given the situation with the Palestinians and the rather ambiguous behavior by the E.U. when it comes to the Hamas government, there has been a tremendous loss of Western credibility in the eyes of Muslims.

The Lebanon-Israel War, which Dr. Kneissl described as being a miscalculation in her eyes, has also reinforced Iran. “Because Hezbollah was not destroyed, can not be destroyed, this was a victory for them and Iran.” Opinions polls conducted in Egypt reported that a majority thought that Ahmadinejad and Nasrallah were the most popular politicians in the Muslim world. “Remember, they are Shia and therefore seen as blasphemers. This is truly amazing.

186 Iran is much more popular on the foreign policy level than it should be.” This is not because of any genius on the part of Iran’s president or its diplomats but because of Western and Israeli mistakes. Iran is also the second or third richest country in the world in terms of gas reserves. They have plenty of options for delivery in this regard: the Nabaku project, Turkmenistan, through Turkey to Europe. However, Iran is not seen as a reliable partner. The Iranians do not know how much gas they have and they must ﬁ ll their own consumption, which is huge and made worse by the fact that they waste a great deal of energy.

It is possible, in Dr. Kneissl’s view, that Iran would prefer to turn east, and this is the direction she sees them moving in. “That is defi nitely where the Russians would like to see them: ‘Stay out of Europe, that’s ours.’” The entire setting of the Persian culture is never really understood. The Iranians have always been an empire and they want to be treated like an empire. They want to speak directly to other empires, such as the United States. Dr. Kneissl stated that it would be incredibly stupid and an act of suicide for the U.S. to attack Iran military. Rather, it is necessary for the U.S. to talk to Iran. She drew a parallel to Henry Kissinger’s trip to China in 1972 as a description of the gesture needed. However, “there is no Kissinger around today.” Dr. Kneissl suggested the possibility of Condoleezza Rice making such a trip. She noted that she had discussed such possibilities with one of the top offi cials in Iran. The offi cial asked her if she spoke Hebrew, to which she responded that she did and that she had graduated from Hebrew University in Jerusalem.

Dr. Kneissl closed her remarks by noting the belief expressed by this oﬃ cial, who stated that there will eventually be a face-to-face discussion between President Bush and President Ahmadinejad and that when it takes place, “they will understand each other perfectly because they’ve both met God.”

A question-and-answer session commenced following the conclusion of Dr. Kneissl’s comments. The ﬁ rst question asked whether there was a real demand for nuclear energy in Iran. She began her answer by noting that the Iranian nuclear program was not a new idea but was started during the 1960s on the advice of the U.S. government, which at the time was a strong ally. The Shah was told to diversify his country’s energy base, and the project received signiﬁ cant American and French support. The program eventually “fell asleep” and it was neglected following the revolution, but it was never forgotten.

Dr. Kneissl admitted that she did not know to what extent there is a desire for nuclear weapon capability. The original basis for nuclear development was diversiﬁ cation. In the ﬁ rst chapter of EU talks with Iran, prior to Ahmadinejad’s election, there were a great many options on the table. However, the IAEA strongly criticized Iran in 2003 and the current relationship is described as ‘a work in progress.’ As long as Iran complies with the Non-Proliferation Treaty, the IAEA is happy. The entire matter has been referred to the U.N. Security Council, where there will be no consensus and therefore no real progress will be accomplished. As a result, there are ongoing attempts to move the issue back to a lower level, where it may be not quite as politicized. On the issue of nuclear power, however, the majority of Iranians are behind Ahmadinejad. They view it as a matter of national pride, and even those who hate the regime express support for his stance in this case.

187 Energy | Empowering the Individual and the Community

Dr. Kneissl remarked that she left diplomacy because too much takes place in the limelight of the media. It is necessary to have opportunities for discrete conversation – otherwise, nothing will get done, because it is too diffi cult to make compromises in full view. In her view, there is no military solution to this question, and economic or diplomatic sanctions are also very unlikely to work. She observed that the case of South Africa and apartheid was the only time when sanctions truly proved eff ective in producing the desired change in policy, and that was only after twenty-fi ve years.

The next question followed up on what had been said by asking what kind of approach should therefore be used in dealing with Iran. Dr. Kneissl responded that it is necessary to take Iran seriously and to acknowledge that they are a player and not a pariah state. There are many little entrepreneurs in Iran and many excellent young people who have been abroad and who need to be developed and cultivated. She described the general Iranian attitude as being “please leave us alone, let us do it ourselves.” Despite the internal dissent and discontent that exists, Iranians will close ranks if pushed. “None of them wants a second revolution.’

The people are tired, they wanted evolutionary change and hoped Khatami could provide it, but he could not. Dr. Kneissl drew a parallel between Khatami and Mikhail Gorbachev, saying that both were desperate politicians who were trying to reform a failing system and ended up being more popular outside their country than domestically. She remarked that she would personally never dare to try to negotiate with Ahmadinejad, but stated that there is no other choice. Engagement is necessary in order to “open the gates, let people breath and decide for themselves.” Ahmadinejad is reputed to have a good relationship with the supreme leader but it is noteworthy that he is not himself a cleric, unlike past presidents. He is thus perceived as being a transitional ﬁ gure. Dr. Kneissl made the case that, though Ahmadinejad is a populist, he is not as stupid as he appears and was actually quite witty in his interview with CNN, displaying the other side of his persona.

The next questioner described speaking with people from Iran during the summer of 2006 and reported that many of them said they hated the clerics and that they should be killed. He asked whether Dr. Kneissl had seen the same sort of sentiment. The questioner recalled going to the bathroom in Iran and seeing a little inscription on the door that said “death to the clerics.” People may think they have a right to nuclear energy, but how quickly can it be developed? The questioner also noted that more than ﬁ fty percent of students are women, but after graduation many youths are unable to ﬁ nd employment. There is a great deal of desire for change, but the establishment perceives change as a threat and is very rigid in response. “Will this be violent in the end?”

Dr. Kneissl responded that the only organized opposition in Iran today comes from former president Rafsanjani, who is known to be corrupt and who lost the election to Ahmadinejad. He holds a position within the establishment as head of the Expediency Council, the intermediary organization between Parliament and the revolutionary oﬃ cers. Rafsanjani is the one who really organizes the opposition, not only on the basis of personality but because he has a great deal of money. Ahmadinejad, meanwhile, looks the part of a populist – he continues to live in a small apartment in Tehran. Dr. Kneissl remarked that she could imagine a transition happening in a peaceful way, but also stated that if there was another uprising, violence could

188 ensue. She noted that the student protests in 2002 and 2003 had scared the regime, and it responded with a huge crackdown and mass arrests. Ahmadinejad and his government do have signiﬁ cant monetary reserves at their disposal, as well as a large conventional army that, in her view, should cause more concern than any nuclear capability.

The speaker that followed posed the question of whether Iran’s government was, in fact, looking for doomsday, as has been charged by those who have labeled the regime ‘apocalyptic.’ The questioner mentioned that he had asked the same question of former Israeli Prime Minister Ehud Barak ﬁ ve days prior, and that Barak’s answer had been “no.”

Dr. Kneissl began by pointing out that Tel Aviv’s proximity to Jerusalem means that any nuclear attack on the former would also destroy the latter. For that reason, she declared, an Iranian nuclear attack on Tel Aviv was not going to happen. What the Iranians want to do is create a balance of power that is favorable to them. She mentioned that Israeli forces were currently operating in northern Iraq, training Kurdish ﬁ ghters, although she admitted she did not know exactly why. However, this development has created concern in Iran, which has its own Kurdish minority and must deal with the prospect of Kurdish nationalism. Dr. Kneissl mentioned the possibility of a deal between the Iran and Turkey to hold down Kurdish separatism activity. All the countries with signiﬁ cant Kurdish populations are afraid of the rise of an independent Kurdistan, which could arise to swallow some of their territory and challenge their power.

The next question asked whether Iraq would align with Iran if the Shia were to take control of the Iraqi government. Dr. Kneissl answered in the aﬃ rmative and observed that this was already the case, with the connections between Iran and Iraq’s current government growing ever stronger. This, she claimed, was the reason that the United States ﬁ nally decided to seek some sort of dialogue with Iran – the ties between Iran and Iraq became impossible to ignore. “When the U.S. leaves – and I think it will be soon – they will need someone to help keep order. That’s Iran.”

A related question came next, asking whether the Shia rulers in Iraq would take orders from Teheran. Dr. Kneissl responded that the Persian-Arab enmity goes both ways, and ethnic or nationalistic sentiment made it unlikely that cooperation would turn into subjugation.

189 Energy | Empowering the Individual and the Community

APPENDIX D Club of Prague in 2007

The information exchanged at this conference has deﬁ nitively shown that energy remains a fundamental challenge of our time - and that wise and thoughtful approaches are necessary to fulﬁ ll the objective of economic prosperity and environmental quality for the world.

This meeting of the Club of Prague has brought together economists, government oﬃ cials’ engineers, scientists, philosophers and writers from the UK, Austria, France, Denmark, Russia, China, Japan, US, Jordan, Latvia, and the Czech Republic. The diversity of profession and nationality is necessary for “new ways of thinking about energy.”

Mission statement:

The Club of Prague is an innovative networking project combining diﬀ erent approaches to integrating energy with economy, environment and values. We are dedicated to empowering individuals and communities by thinking about developing and deploying advanced technologies for energy production and use. New advanced technologies can ensure global economic prosperity, international security and a healthy global environment.

Expansion of membership:

We welcome this core group of Members of the Club of Prague and their associates. Members are urged to identify other possible members and also to identify one person from each of their organizations to serve as an associate. The PSSI secretariat of the Club of Prague will work with this associate network on programs and logistics for the next meeting.

Scope of work:

It is proposed that members consider white papers/programs in three or more of the following areas: (l) energy scenario development (2) New ways of thinking about energy from the perspective of the rich cultural base of our members (3) Technology Matrix: constructing a technology matrix to identify promising advances in research and development of key energy resources (4) Meeting transportation needs -- alternative fuels and systems for transportation (5) Zen work program -- identifying universities and projects to model Zero Energy Neighborhoods. (6) Strategies for investing in the energy future. We ask that each of you volunteer for one of these speciﬁ c working groups. The secretariat and your associates will prepare “white papers” in these areas for the next meeting.

190 Summer Student Program:

It is recommended that a week long summer student program be convened in Prague in July, 2007, drawing at least one university student from each of the participating nations. Faculty for the session will be provided and organized by PSSI.

Funding:

We deeply appreciate the support of our sponsors for this meeting and hope that the discussions and the program discussed yesterday and today warrant further support. It is estimated that the PSSI annual secretariat costs in Prague will be approximately l00, 000 euros which will include a full time program director, research associates (two - part-time), overhead costs, travel and oﬃ ce expenses. Conferences and events would incur additional costs.

191