The global financial system is experiencing its greatest crisis since World War II. Each day brings broader recognition that the international financial architecture needs radical reform. To many, the adequacy of the old system was already in question. The growth of surpluses in oil producing states and in emerging market economies has created a redistribution of wealth worldwide. Capital now flows from the oil producing and emerging market economies towards the industrialized economies, primarily the United States. This new reality has created a crisis of legitimacy of the current financial system.

The urgency of coping with the current financial crisis has temporarily overshadowed two other global crises: energy security and climate change. The premise of the current proposed research is that all three issues are linked and must be tackled in combination.

Energy is the core issue. It is also the area where the conflict is greatest. The interests of oil producing and consuming countries seem to be irreconcilably at odds. Producers prefer high prices, consumers want low prices. The consuming countries would welcome the development of alternative energy sources, the producing countries hope this is delayed far into the future. Oil consuming countries want to encourage investment to expand supply, while the oil producers are reluctant to invest since past history shows that if prices fall they will absorb the costs. 

The dilemma of energy security is complicated by goals of reducing global greenhouse emissions (GGE). The best way to reduce GGE is to keep carbon in the ground. If there is significant progress on alternative energy this may happen, but then investment in new oil deposits will earn very low returns. Hence, the prospect of alternative energy technologies may induce suppliers to produce more now before the technologies are in place. In that case GGE actually rises. The fundamental point is that energy security and environmental security are also tied together.

All this would seem to suggest that cooperation is fruitless. Nonetheless, there may be directions in which producers and consumers can cooperate. Global energy security is ultimately a matter of sharing the risk of developing new sources of supply. Therefore, if consumers are to succeed in inducing the producers to expand supply through investment, they will have to share the risk.

The purpose of this project is to focus on the set of problems that arise from consideration of global energy security in the context of the broader set of themes, namely, those of reforming the international financial architecture, global energy security and environmental policy. The emphasis will be on the interactions of these three elements.