The Current Oil Shock

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It is true that China and India, which together account for two-fifths of the human race, are now major contributors to the growth in global oil demand. But it's an indisputable fact that only by increasing per capita energy consumption from current abysmally low levels can the Chinese and Indian governments hope to lift hundreds of millions of people out of grinding poverty.

In a country like India, for instance, half of all households lack electricity, so hurricane lanterns, fueled by kerosene, are a basic necessity. Subsidized kerosene, also used for cooking stoves, helps hundreds of millions of poor Indians. To cut or eliminate the subsidy on kerosene would only intensify poverty.

In truth, when it comes to energy conservation, the main focus at the moment should be on the 30-member Organization for Economic Co-operation and Development (OECD), a group of the globe's richest nations which cumulatively consumes nearly three out of every five barrels of oil used anywhere.

Among OECD members, Japan provides a model to be emulated.

Japan's Exemplary Performance

When it comes to energy conservation, Japan provides a glaring counterpoint to the United States. Consider what's happened in both countries since the first oil shock of the mid-1970s when prices quadrupled.

That price hike initially led to a drive for fuel efficiency in the U.S., Western Europe, and Japan. It also gave a boost to the idea of developing renewable sources of energy. Ever since, Japan has followed a consistent, long-range policy of reduction in petroleum usage, while the U.S. first wavered and then fell back dramatically.

Under the presidencies of Gerald Ford and Jimmy Carter, the U.S. modestly improved the fuel efficiency of its vehicles, as stipulated by a federal law. President Carter also announced a $100 million federal research and development program focused on solar power and symbolically had a solar water heater installed on the White House roof.

During the subsequent presidency of Ronald Reagan, when oil prices fell sharply, energy efficiency and conservation policies went with them, as did the idea of developing renewable sources of energy. This was dramatized when Reagan ordered the removal of that solar panel from the White House.

In the private sector, utilities promptly slashed by half their investments in energy efficiency. President George H.W. Bush, an oil man, followed Reagan's lead. And his son, George W. (along Vice President Dick Cheney, former chief executive of energy services giant Halliburton) has done absolutely nothing to wean Americans away from their much talked about "addiction to oil."

Even now, instead of urging Americans to cut oil usage (and putting a little legislative heft behind those urgings), politicians of both parties are blaming soaring gas and diesel prices on "speculators," conveniently ignoring how thin a line divides "speculators" from "investors."

In Japan, on the other hand, the government and private companies have stayed on course since the First Oil Shock. Despite the doubling of Japan's gross domestic product during the 1970s and 1980s, its annual overall levels of energy consumption have remained unchanged. Today, Japan uses only half as much energy for every dollar's worth of economic activity as the European Union or the United States. In addition, national and local authorities have continually enforced strict energy-conservation standards for new buildings.

It is, again, Japan that has made significant progress when it comes to renewable sources of energy. By 2006, for instance, it was responsible for producing almost half of total global solar power, well ahead of the U.S., even though it was an American, Russell Ohl, who invented the silicon solar cell, the building block of solar photovoltaic panels, which convert sunshine into electricity.

What to Do: Medium-Term Solutions

Worldwide, over half of all oil is used for transport. Though we instantly associate a car or truck with an internal combustion engine (ICE), it was not always so. At the turn of the twentieth century, cars were also powered by steam engines or batteries.

Now, our salvation lies in finding a way back to the pre-ICE era. It is incumbent upon the automobile companies in rich nations to accelerate the process of divorcing vehicles from the internal combustion engine. Cars of the future can be powered by batteries, hydrogen cells, or solar panels—or a combination of the above.

Typically, Japanese companies are in the forefront of research and development on this. It was Toyota which first introduced a "concept" hybrid car in 1995, combining batteries with the internal combustion engine, and began mass producing them some years later.

This June, Honda set up an assembly line for producing a hydrogen-powered car, the FCX Clarity. This model already can travel 280 miles on a tank of liquid hydrogen. But it will go into mass production only after there is an infrastructure of liquefied hydrogen stations in place in Japan and in California, which will take time. So far there are only 13 hydrogen stations, funded by the government, in the Tokyo area. Meanwhile, aware of the enormous cost of its product, it is initially planning to lease the FXC Clarity to drivers for $600 a month.

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