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The case for renewable energy invariably centres on climate change and the damage fossil fuels cause to the planet. But there is a view that our reliance on oil, coal and natural gas is at the heart of the economic crisis that is besieging the West and, unless alternatives are found and fully committed to, these problems aren’t simply going to go away.

Jeremy Rifkin, a Criticaleye Thought Leader and Founder and President of The Foundation on Economic Trends in the US, argues that, when the price of oil hit $147 a barrel in July 2008, it set off a chain reaction that effectively led to the financial crisis. “The entire economic engine of the second industrial revolution came to a stop,” he says. “The price of basic items in stores shot up. Gasoline and electricity prices soared. So did the price of construction materials, pharmaceutical products and packaging products, the list was endless. That, in effect, was the earthquake, while the collapse of the financial markets which occurred some sixty days later was the aftershock.”

As supplies shrink and demand increases, notably from the Asian powerhouses of India and China, the global economy will be hostage to the price of oil and its impact on commodity prices. To put it bluntly, Jeremy’s view is that we have ecologically and fiscally been living beyond our means for too long and finally the accumulated debt is being called in. The answer, he thinks, lies in creating a new economic infrastructure based on renewable energy. It’s a call for bold and brave thinking – something that some feel is lacking among many leaders at the moment.

Richard Ackroyd, Chief Executive of Scottish Water, takes a different stance on the problems currently being faced: “The short-term issue is politicians getting to grips with deleveraging the global economy and resolving the Eurozone issue on a sustainable basis. The second is a long-term one and intrinsically linked to encouraging those economies that can be the engines of growth, [such as China and India], to drive the whole world forward whilst addressing alternative sources of energy in place of oil.”

Fast and slow

A two-speed global economy adds to the complexity. Mark Spelman, Global Head of Strategy at Accenture, comments: “Today’s world is interdependent but also very diverse. The challenges in the West are different from those in the East; even in the developed world there are significant differences. There are the common challenges of government debt, household debt and bank capitalisation but, within Europe, there are significant differences in economic performance, with Germany standing out for its economic robustness based on high saving rates, impressive workforce productivity and strong export performance.”

For the high growth countries in Asia, the dilemma is how to balance the economy between domestic consumption, exports and infrastructure investment. Mark says: “Rising energy costs reduce a country’s capacity to consume but today’s challenges are bigger and broader than just energy – we need to look at the structural imbalances between surplus and deficit countries and the resulting impact on exchange rates.”

Stepping back to gain a broader perspective has rarely been so important. Mary Jo Jacobi, a Criticaleye Associate and former advisor to US Presidents, comments that “the biggest threat to stability is short-termism - it was short-term thinking by politicians and businesses that got us into this mess, including short-term thinking about energy.”

For Mary Jo, the main threats to global economic stability come from understanding the underlying requirements for growth: “In the US, the 2012 elections will be a fight for the heart and soul of America – between those who believe you spend your way out of a crisis through tax and those who believe that government who governs least governs best. I’ve never seen America so divided.”

The question is either how to create or manage growth. Paul Danos, Dean of Tuck School of Business at Dartmouth, says: “The countries with more business-friendly policies will do relatively better, as will those in the energy zones with clever investment strategies for fuel alternatives. Of course, the advanced Western economies seem to be more interested in wealth distribution than in pro-growth policies, but that is a political choice they have made.”

Austerity as a solution for economic woes doesn’t really inspire confidence. According to Jeremy, who closely advises members of the European Union on its energy agenda, the opportunity exists for embracing what he refers to as a "third industrial revolution", bringing together new energy, technology and communication tools to create an infrastructure which takes us into the future.

“A growth plan is needed, but it has to be sustainable. If austerity measures are the only solution, we’re doomed,” says Jeremy, who calls for a new “communication and energy regime” that gives us a multiplier effect for the 21st century like the first industrial revolution did for the 19th century.

How we overcome the crisis may be open to debate and interpretation, but vision, innovation and no small amount of courage will be required from leaders to win through and get to the other side.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew
www.twitter.com/criticaleyeuk