Industrial transformation towards sustainability of the energy system

Human induced climate change is one of the single most significant indicators that human society is not pursuing a sustainable trajectory. Managing the risks requires a major transformation of the way energy needs are met. Such a transformation includes changes in the production and consumption system and the incentive structure that shapes this system. The major driving force for transformation is the public concern about the environmental impact of the present fossil fuel based energy system. We may expect that energy producers, encouraged by governments, NGOs and consumer preferences will be responding to these concerns and expectations sooner or later. In fact a number of major international energy companies are presently adjusting their strategies to the needs and concerns of the public. A mix of measures including energy efficiency, a switch to natural gas, major investments in low carbon and renewable energy technologies and underground storage of carbon are elements of such new strategies. Consumers in a number of OECD countries have expressed their willingness to pay more for energy, provided it is green and clean. NGOs continue to put pressure on governments to deal with the climate problem. The challenge for governments is to develop an institutional framework that helps the producers and consumers to go through a transformation of the energy system. As different groups in society are likely to support different strategies, this paper suggests that a pluralistic policy approach including efficiency standards, renewable energy portfolio standards, carbon taxes, and the introduction of a system of tradable emission permits is the most promising approach for a transformation towards a low carbon energy economy. Research can support a transformation of the energy system by exploring the various transformation scenarios. Such research should take a multi-disciplinary approach, it should focus on the energy system as a whole, including production, consumption and the incentive structure that shapes the interaction between the two and it should be international in scope. This revised version was published online in July 2006 with corrections to the Cover Date.