Global Energy After the Crisis

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Commercially traded energy is what classical economists used to call a "basic good": directly or indirectly, it enters the production of every other produced commodity or service. Nonrenewable fossil-fuel energy and nuclear energy are produced by first converting and then burning natural resources. Because these resources are finite and unevenly distributed, they seem to become increasingly hard to come by when global economic activity expands. The need to maintain regular access to them is the simple logic behind the concept of energy security. Recently, these traditional concerns have been exacerbated by another threat: the fear that the atmosphere's capacity to absorb carbon emissions caused by humans may be exhausted long before humans' capacity to find hydrocarbons in the earth's crust and burn them for energy is.

In many places, the main means of addressing these concerns has been to rely on markets, which make it easier to diversify supply and demand, substitute fuels, and make the most of the gains in efficiency brought on by technological change. More recently, the idea of putting a price on carbon has extended this approach to protecting the environment.

But now global energy consumers are losing trust in these pricing mechanisms. In the five years prior to the summer of 2008, oil prices rose by 370 percent, traded coal by 460 percent, and natural gas by 120 percent. The prices of other raw materials, metals, and even food increased in lockstep. The only other time since World War II that prices rose that much was in the early 1970s. Back then, as recently, prices were driven by a surge in global economic growth.