Based on an analysis of a rural household survey data in Hubei province in 2004, we explore patterns of residential fuel use within the conceptual framework of fuel switching using statistical approaches.

Cross sectional data show that the transition from biomass to modern commercial sources is still at an early stage, incomes may have to rise substantially in order for absolute biomass use to fall, and residential fuel use varies tremendously across geographic regions due to disparities in availability of different energy sources. Regression analysis using logistic and tobit models suggest that income, fuel prices, demographic characteristics, and topography have significant effects on fuel switching. Moreover, while switching is occurring, the commercial energy source which appears to be the principal substitute for biomass in rural households is coal. Given that burning coal in the household is a major contributor to general air pollution in China and to negative health outcomes due to indoor air pollution, further transition to modern and clean fuels such as biogas, LPG, natural gas and electricity is important. Further income growth induced by New Countryside Construction and improvement of modern and clean energy accessibility will play a critical role in the switching process.

Google's initiative RE < C seeks to develop sources of renewable energy that are cheaper than coal-fired power. David G. Victor speaks to an audience at Google's Mountain View, CA headquarters about the current status and future prospects for coal -- the right hand side of Google's equation. 

As oil prices surge through $140/barrel at the time of writing, surely one can at least count on the invisible hand of the market to drive further exploration and production and ultimately bring more supplies on line, right? Or perhaps, more ominously, high oil prices presage a darker future of shortage and conflict as global oil fields pass their geological “peak”? In fact, both positions miss a crucial point about the dynamics of the world oil market — that it is increasingly animated by the counterintuitive behavior of the state-owned oil and gas giants that now control the vast majority of the world’s hydrocarbon resources.

“On average national oil companies (NOCs) extract resources at a far lower rate than international oil companies (IOCs), leaving about 700 billion barrels of oil effectively ‘dead’ to the world market.”So-called “national oil companies,” or NOCs, own about 80 percent of the world’s proven reserves of oil, a percentage that has been on the rise as the persistent high price environment encourages countries to assert even tighter control over the rent streams flowing from their resources. NOCs are curious and variegated beasts, and, contrary to the popular imagination, some are highly capable both technically and organizationally. Brazil’s Petrobras is an acknowledged world leader in deepwater drilling, while Norway’s StatoilHydro is highly regarded for its competence and transparent business practices. Saudi Arabia’s national champion, SaudiAramco, is secretive to the outside world but generally considered to be a well-run, technically capable organization. At the other end of the continuum, government infighting and micromanagement hobble Mexico’s Pemex and Kuwait’s KPC. Once-independent PDVSA in Venezuela has been remade by President Hugo Chávez into a government puppet that spends liberally on social programs but consistently undershoots its production targets. And indeed some national oil companies are hardly oil companies at all — Nigeria’s NNPC, for example, is mostly a rent-seeking bureaucracy.

What NOCs do share in common as distinct from the familiar international oil companies (IOCs) is being answerable to a host government, which inevitably brings with it some focus on objectives other than simple profit maximization. Typically, an NOC arises originally from the desire of resource-rich governments (“principals”) to gain more effective control over resource extractors (“agents”) by creating an oil champion owned by the state. Prior to NOC formation, governments are frequently (and often justifiably) wary of exploitation by the foreign oil operators providing hydrocarbon extraction services. Lacking a deep understanding of the costs of production, states are simply unable to be sure they are taxing their agents appropriately. In addition to enhancing control over the hydrocarbon sector and the revenue it brings, states may hope for other benefits from the NOC: cheap energy to fuel a growing economy, employment and development of local industry to support the hydrocarbon sector, or even foreign policy leverage derived from control of key resources.

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A detailed study of NOC performance and strategy at the Program on Energy and Sustainable Development at FSI suggests a useful way of thinking about the effects of NOC resource domination on world oil and gas markets. Price versus quantity supply curves from classical economics assume that increased price will spur efforts to expand supply. Unfortunately, the counterintuitive reality for NOCs is that, when it comes to expanding supply in the current high-price environment, most either 1) can but don’t want to or 2) want to but can’t. The end result is what one could call a “backward-bending” supply curve — additional price increases do little or nothing to boost supply.

“The world has plentiful hydrocarbons in the ground, but that’s where many of them are going to stay due to the unique organizational and political dynamics of the NOCs.”In the “can but don’t want to” category are resourcerich governments that have decided they cannot assimilate any more money. Already, their investments are running into political resistance around the globe — witness Dubai’s failed attempt to purchase U.S. port management contracts, CNOOC’s failed bid for Unocal, or the increasing calls for curbs on the activities of sovereign wealth funds. Nations may decide they have enough cash and are better off leaving resources in the ground where they safely await monetization at a later date.

In the “want to but can’t” camp are countries and their NOCs that are simply unable to provide the stable political and regulatory climate to support additional build-out of expensive production and transport infrastructure. This situation is particularly common for natural gas, where long investor time horizons are needed to bankroll the multibilliondollar capital costs of pipelines or liquefied natural gas (LNG) terminals.

Meanwhile, international oil companies are left on the sidelines salivating helplessly over the vast reserves in NOC hands. Venezuela’s Orinoco region could yield hundreds of billions of barrels of heavy crude, but the government and a nowpliant PDVSA invite favored countries and their NOCs to explore rather than selecting the operators most capable of extracting the challenging but plentiful resource. Technical expertise and massive investment are required to fully develop vast Russian gas fields including Kovykta, Shtokman, and Yamal, but IOCs already burned by nationalizations and shifting rules in these and other Russian ventures are unlikely to be in a position to supply enough of either. In the face of dwindling resources they can tap, IOCs will need to diversify their business models, perhaps tackling technologically challenging options like oil sands or liquids from coal in conjunction with the carbon storage techniques that could make these palatable from a climate change perspective. Ironically, the only “easy” oil for IOCs has become oil that is geologically and technologically difficult.

While oil price is dependent on many factors (including global economic health) and is impossible to forecast with certainty, one can confidently predict continued tight supply of oil and gas, especially given global demand that will be propped up indefinitely by rising consumption in China and India. The world has plentiful hydrocarbons in the ground, but that’s where many of them are going to stay due to the unique organizational and political dynamics of the NOCs. Leverage over the market is weak; measures to reduce demand for oil and gas (though politically unpopular) or to spur development of alternative fuels and associated infrastructure (though slow to develop at scale) may be all that we have.

Michael Wara and David G. Victor's recent work "A Realistic Policy on International Carbon Offsets" addresses problems with the world's largest offset program, the UN's Clean Development Mechanism. Wara and Victor argue that much of the CDM investment doesn' actually meet the UN's crucial additionality standards, and they outline ways to fix the problem.

David Victor Discusses Climate Policy, Offsets, and Incentives in the Wall Street Journal

In the News: Wall Street Journal on July 23, 2008

Income from carbon offsets has become French chemical manufacturer Rhodia SA's most profitable business. The WSJ estimates payouts to the firm from projects in Brazil and South Korea could total $1 billion over seven years, raising questions about the incentive structure of the CDM. David G. Victor argues that carbon markets are not sending the appropriate signals to the developing world.

• » Wall Street Journal

Michael Wara and David Victor Address the Role of Offsets in California's Cap and Trade Plan

In the News: Science Magazine

California's plan to cut carbon emissions 10% by 2020 relies on offsets as a part of a cap and trade scheme. Michael Wara points out the challenges that face the state as it designs its offset program, and David G. Victor sheds light on difficulties faced by the world's largest offset program, the UN's CDM protocol.

• » Science Magazine

Michael Wara Discusses Coal and the CDM

In the News: Wall Street Journal on July 11, 2008

The CDM Executive Board recently approved several gas-fired power plants under the UN's carbon offset scheme, opening the door for subsidizing coal generation and stoking controversy. Michael Wara questions the additionality of such projects and argues subsidies are better spent on other clean-energy development.

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• » Wall Street Journal

CISAC science fellow Undraa Agvaanluvsan faces no small task this summer: She has returned to her native Mongolia to help draft first-time legal and security protocols to ensure that the country’s uranium-based nuclear industry develops safely while also attracting international investment. “Our government needs to be prepared to move ahead,” the nuclear physicist said. “Mining needs to be regulated, there need to be laws specific to uranium so that extraction won’t cause a risk to security.”

Mongolia boasts rich uranium reserves and the mining industry contributes to about 25 percent of the country’s economy. Before the collapse of the Soviet Union, Russian partners exported Mongolian uranium ore for military purposes to a well-guarded enrichment facility in nearby Angarsk, Siberia, Undraa said. (Mongolians use only one name — Agvaanluvsan is Undraa’s late father’s name.) After the collapse of the Soviet Union in 1991, mining in Mongolia almost stopped. “Today the security concern is completely different,” Undraa said. “It is said that some people even dig uranium, among other minerals, out of the ground with no legal right to do so. They’re called ‘ninjas.’ It’s worrisome and it’s completely unregulated.”

According to Undraa, foreign investors want to develop Mongolia’s uranium mines quickly. “Mining companies may be supportive of nuclear nonproliferation but their main objective is their business bottom-line,” she said. “There is not enough concern for security. The area we’re concerned with — nonproliferation and national security — seems very far from them.”

Since November, Undraa has split her time between CISAC and Lawrence Livermore National Laboratory, where she has worked in the lab’s nuclear experimental group for three years. At CISAC, she has focused on the development of Mongolia’s civilian nuclear industry and how such changes are influencing the country’s fledgling democracy and market economy. Mongolia was a socialist state until a peaceful democratic revolution took place in 1990. The vast, landlocked country, squeezed between Russia and China with a population of 3 million, is now a multiparty capitalist democracy.

Undraa, 35, plans to return to Encina Hall this fall to continue this work with CISAC Co-Director Siegfried S. Hecker and consulting professor Chaim Braun. Under the auspices of the recently established Mongolian-American Scientific Research Center in Ulaanbaatar, the scientist is helping to organize two international conferences in the Mongolian capital this September on uranium mining and nuclear physics. Undraa hopes the conference findings will help her country, a non-nuclear weapons state, develop uranium mining profitably and responsibly.

“Mongolia plans to build a nuclear industry, starting from a zero baseline,” Undraa’s research plan states. “With a clean slate, how should Mongolia develop its uranium industry? What does Mongolia need to do to position itself as a trustworthy, global supplier of uranium?”

“With a clean slate, how should Mongolia develop its uranium industry? What does Mongolia need to do to position itself as a trustworthy, global supplier of uranium?”Undraa also wants to assess whether it makes economic sense for a developing Mongolia to turn to nuclear power or construct high-pressure coal-powered plants, which cost less and are faster to build and operate. She is acutely aware of the effects of climate change — in the late 1990s and early 2000s, millions of livestock across Mongolia’s steppes and deserts died due to harsh winters and summer droughts. “I have family members who lost their nomadic way of life — camels, sheep, goats, cattle died,” she said. “They had to move to the city because there was no point staying in the countryside.” As a result, the population of Ulaanbaatar has soared in recent years, with a parallel increase in pollution from coal fires burned by people living in traditional gers or yurts. “People say the pollution there is worse than Mexico City, worse than Beijing,” the scientist said.

Mining for Mongolia

On the uranium production front, Undraa wants to investigate whether her country should develop its own enrichment plant or collaborate with the Soviet-era facility in Angarsk. AREVA, the French multinational industrial nuclear power conglomerate, also is interested in building a power plant in Mongolia in exchange for raw uranium, she said.

An alterative proposal suggested by Sidney Drell, CISAC founding co-director, and Burton Richter, SLAC director emeritus, would establish a multinational uranium enrichment facility in Mongolia with possible collaboration from Japan, a country with a good track record for nuclear transparency. Such a facility could help meet the demands of growing energy markets in nearby China, India, and South Korea. Undraa said she supports exploring this option, which could bolster Mongolia’s position as a global producer of enriched uranium for nuclear power plants. “Mongolia is a democracy with friendly relations with Russia, China, the European Union, Japan, North and South Korea, as well as the United States,” she said during a May 7 presentation at CISAC. “This is a long shot,” Hecker said. “But perhaps an enriched uranium fuel guarantee from Mongolia instead of the United States may be more successful in keeping some countries from building their own enrichment facilities.”

Science as a tool to effect policy

Undraa hopes that her hands-on research at CISAC will help her homeland. “Being from Stanford has given me a platform to talk to the uranium mining people,” she said. “It gives me a right to talk to them as a scientist who is concerned with these global issues.”

The work brings Undraa full circle — as a teenager she wanted to become a diplomat but her father, a coal miner, was pro-western and pro-democratic during the socialist period and he knew that his daughter would face difficulties if she tried to enter the field. He instilled in Undraa what she calls “an American way” of thinking. “I was a very American girl in communist Mongolia in the 1980s,” she said smiling. “What he said was, ‘You’re entitled to have a view, so have a view. You’re entitled to ask questions, so ask questions.’” He also stressed the importance of pursuing education. Undraa took that lesson to heart, excelling in mathematics, then earning bachelor’s and master’s degrees in physics from the National University of Mongolia and a doctorate from North Carolina State University.

In addition to helping Mongolia develop protocols for uranium mining and enrichment, Undraa and her husband, Dugersuren Dashdorj, also a nuclear physicist, and like-minded colleagues such as the country’s foreign minister, Sanjaasuren Oyen — the first Mongolian to earn a doctorate from Cambridge — are considering plans to establish their nation’s first major interdisciplinary research English-language university. The project is representative of Undraa’s drive to make a difference in Mongolia. “We don’t have to be bound by how it has been done in the past,” she said. “We can do it differently. We realize this is not a one-to-two-year project — it will take decades to establish. But one has to start somewhere.”

Carbon Capture and Storage (CCS) technologies form a key piece of virtually all roadmaps for global carbon dioxide (CO2) emissions reductions---many studies predict that CCS will contribute 20-50% of the necessary CO2 emissions reductions by 2100. To assess actual progress of CCS projects towards fulfilling these expectations, the PESD Carbon Storage Project Database tracks all publicly announced CCS projects worldwide.

The first version of the PESD Carbon Storage Project Database, developed by PESD researchers Varun Rai, Ngai-Chi Chung, Mark C. Thurber, and David G. Victor, was released on June 30, 2008. Through careful examination of numerous information sources, the database groups all CCS projects into three categories according to the probability of their completion: currently operating (100% likelihood), possible (estimated 50-90% likelihood), and speculative (estimated 0-50% likelihood).

The authors observe that even under the aggressive scenario that all “possible” projects are indeed realized, this will result in about 60 Mt CO2/yr of reductions worldwide by 2025, far short of the 300 Mt CO2/yr of reductions that are projected as technologically feasible using CCS by 2030 in the U.S. alone.

The PESD Carbon Storage Project Database will be updated regularly. The authors welcome comments and feedback that will help improve the database, including identification of other projects which should be included or refinements to the probabilities and storage estimates for specific projects.

On November 16, 2006, FSI convened its annual international conference, A World at Risk, devoted to systemic and human risk confronting the global community. Remarks by Stanford Provost John Etchemendy, FSI Director Coit D. Blacker, former Secretary of State Warren Christopher, former Secretary of Defense William J. Perry, and former Secretary of State George Shultz set the stage for stimulating discussions. Interactive panel sessions encouraged in-depth exploration of major issues with Stanford faculty, outside experts, and policymakers.

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Invoking Jane and Leland Stanford’s desire to educate students to become useful, contributing citizens, Etchemendy said, “We can best serve that mission today by producing graduates well-versed in the complex problems of a world at risk and willing to make the difficult choices that might lead to their solution.”

“It has been acutely apparent to us at FSI that we must actively engage a world at risk,” stated FSI director Coit D. “Chip” Blacker, “risk posed by the growing number of nuclear issues on the international agenda; the insurgency in Iraq; global poverty, hunger, and environmental degradation; the tensions of nationalism versus regionalism in Asia; infectious diseases; terrorism; and the geopolitical, financial, and ecological risks of the West’s current energy policies, especially its voracious appetite for oil.”

Introducing three Stanford luminaries, Blacker said, “One of the remarkable things about Stanford is the privilege of working with some of the outstanding intellects and statesmen of our time. Warren Christopher, William Perry, and George Shultz tower among them.”

“As Stanford University’s primary forum for the consideration of the major international issues of our time, we at FSI are dedicated to interdisciplinary research and teaching on some of the most pressing and complex problems facing the global community today.” – Coit D. “Chip” Blacker, Director, Freeman Spogli Institute“The Middle East has descended into hate, violence, and chaos,” said Warren Christopher, the nation’s 63rd secretary of state. “It really is a dangerous mess.” Discussing the Israeli incursion into Lebanon, the war in Iraq, and Iran’s regional and nuclear ambitions, he said the U.S. has aggravated these threats by “action and inaction.” Nonetheless, the U.S. remains the most influential foreign power in the region. “We must not give up on the Middle East,” he said. “We have to return to old-fashioned diplomacy with all its frustrations and delays.”

“We live in dangerous times,” stated William J. Perry, the nation’s 19th secretary of defense and an FSI senior fellow. “Last month about 1,000 of our service personnel in Iraq were killed, maimed, or wounded; the Taliban is resurging in Afghanistan; North Korea just tested a nuclear bomb; and Iran is not far behind. China’s power is rising and Russia’s democracy is falling.” As Elie Wiesel wrote, he said, “Peace is not God’s gift to its children. Peace is our gift to each other.” Comparing major security issues of 1994 to today, Perry assessed the nuclear arms race, North Korea, Iran, and Iraq. He noted that the Clinton administration had eliminated more than 10,000 nuclear weapons and urged that the work continue, because “the danger of terrorists getting a nuclear bomb is very real.”

Citing North Korea’s 2006 missile and nuclear tests, Perry said he was concerned that a robust North Korean nuclear program will stimulate a “dangerous arms race in the Pacific” and increase “the danger of a terrorist group getting a nuclear bomb.” “Iran is moving inexorably toward becoming a nuclear power,” Perry said. “We are facing new dangers,” he concluded, “and we must adjust our thinking accordingly.”

“The world has never been at a more promising moment than it is today,” said George Shultz, the nation’s 60th secretary of state. “All across the world, economic expansion is taking place. The U.S. is giving fantastic leadership to the global economy.” For Shultz, the imperative is to prevent the security challenges “from aborting all these fantastic opportunities.”

“The Middle East has descended into hate, violence, and chaos. The U.S. remains the most influential foreign power in the region. We have to return to old-fashioned diplomacy with all its frustrations and delays.” – Former Secretary of State Warren ChristopherU.S. leadership should inspire the world, Shultz said, advocating four initiatives. We should aspire to have a world with no nuclear weapons. We should take a different approach to global warning, based on the Montreal Protocols. “This is a gigantic problem we need to do something about and can do something about,” he said. We should build greater understanding of the world of Islam. We must combat rising protectionism. The postwar system reduced tariffs and quotas, promoting trade and growth. “The best defense is a good offense,” Shultz stated. “We need a lot of leadership in that arena.”

Plenary I, chaired by Chip Blacker, examined systemic risk. Elisabeth Paté-Cornell, Burton and Deedee McMurtry Professor and Chair of Management Science and Engineering, discussed how scientists measure risk, asking what can happen, what are the chances it will, and what are the consequences? “The good news is that the worst is not always the most certain,” she noted. Citing challenges of intelligence analysis, she said, “Certainty is rare; signals are imperfect; there is a tendency to focus on one possibility (groupthink) and underestimate others; and it is difficult to assess and communicate uncertainties.” “Success is not guessing in the face of uncertainties,” she said. “It is describing accurately what is known, what is unknown, and what has changed.”

Scott D. Sagan, professor of political science and director of CISAC, examined “Iran and the Collapse of the Global Non-proliferation Regime?” The crux of the issue, Sagan noted, is the emergence of two dangerous beliefs, “deterrence optimism” and “proliferation fatalism.” In Sagan’s view, too little attention has been given to why Iran seeks a nuclear weapon. Arguing that U.N. sanctions are unlikely to work and military options are problematic, Sagan said a negotiated settlement is still possible if the U.S. offers security guarantees to Iran, contingent on Tehran’s agreement to constraints on future nuclear development. As Sagan concluded, “Instead of accepting what appears inevitable, we should work to prevent the unacceptable.”

Siegfried S. Hecker, CISAC co-director, tackled the challenge of “Keeping Fissile Materials out of Terrorist Hands.” Although nuclear terrorism is an old problem, today there is easier access to nuclear materials, greater technological sophistication, and a greater proclivity toward violence. The greatest risk, he said, “is an improvised nuclear device built from stolen or diverted fissile materials.” “Given a few tens of kilograms of fissile material, essentially a grapefruit-sized chunk of plutonium,” he stated, “terrorists will be able to build and detonate an inefficient, but devastating Hiroshima- or Nagasaki-like bomb.” The most likely threat is a so-called “dirty bomb,” he said, which would be a “weapon of mass disruption, not destruction,” but still able to cause panic, contamination, and economic disruption, making risk analysis imperative to mitigate its consequences.

“We are facing new dangers and we must adjust our thinking accordingly. As President Lincoln said, ‘The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew, and act anew.’” – Former Secretary of Defense William J. PerryTurning to human risk, Michael Osterholm, director of the University of Minnesota’s Center for Infectious Disease Research and Policy, addressed “Pandemic Influenza: Harbinger of Things to Come?” “The risk is one that a pandemic is going to happen,” he told a riveted audience. Comparing the great influenza of 1918 with the pandemics of 1957 and 1968, he noted that pandemics have differed in season of onset, mortality rates, and number of cases. Avian influenza has a 65 percent mortality rate and could affect 30–60 percent of the world’s 6.5 billion people, producing 1.6 billion deaths worldwide and 1.9 million deaths in the U.S. Inevitably, mutation will reduce its lethality.

“It is not a matter of if, just when and where” the pandemic will strike, said Osterholm. Noting that vaccines will not be available in numbers needed, he argued for measures to safeguard families, communities, and essential infrastructure, such as police, firefighters, and health-care workers. Just-in-time inventory practices, he said, have increased vulnerability to disruptions in food supply, transportation, equipment, and communications, making it vital to plan in earnest, now.

Plenary II, chaired by FSI deputy director Michael A. McFaul, assessed risks to humans from “Natural, National, and International Disasters.” Stephen E. Flynn, Jeane J. Kirkpatrick Senior Fellow at the Council on Foreign Relations and a trade and transportation security expert, decried the “artificial firewalls between homeland and national security.” The Hart-Rudman Commission of 1998 warned of a catastrophic attack on U.S. soil, yet we did not rethink national security even after 9/11. We must approach security as a transnational issue, with no clear “domestic” and “international” lines, he urged. More than 65 percent of critical infrastructure is privately owned and has been given inadequate attention by federal authorities. Hurricane Katrina exposed the vulnerabilities. “We face more threats from acts of God than acts of man,” Flynn stated. We need to move from a concept of “security” to one of “resiliency,” he said, greatly improving our ability to withstand a man-made or natural disaster.

David G. Victor, FSI senior fellow and professor of law, addressed three faces of energy security: oil, natural gas, and climate change. Oil prices are volatile, future fields are in places difficult to do business, and the global supply infrastructure is vulnerable, posing the risk of a one- to six-month supply disruption. For Victor, who directs FSI’s Program on Energy and Sustainable Development, the big threat is less supply than a potential demand-side shock, driven by the U.S. and China. Europe relies on an unreliable Russia for 25–30 percent of its natural gas needs, making it imperative to switch to cheaper, more reliable LNG from North Africa and the Middle East. Oil and gas price volatility has driven further dependence on coal-fired plants, with dire consequences for carbon emissions. New coal plant lifetime emissions, Victor said, are equal to all historic coal emissions, making it critical to invest in advanced technology to protect the environment.

“The world has never been at a more promising moment than it is today. All across the world economic expansion is taking place. Poverty is being reduced dramatically as China and India expand, along with Brazil.” – Former Secretary of State George ShultzPeter Bergen, CNN terrorism analyst and producer of Osama bin Laden’s first television interview, offered the dinner keynote, “Successes and Failures of the War on Terrorism Since 9/11.” Assessing negatives, Bergen noted that al Qaeda continues to carry on attacks from its base in Pakistan; Afghanistan is beset by instability; more than 20 million Muslims in Europe remain dangerously un-integrated; bin Laden has not been apprehended and continues to inspire followers through terrorist attacks; Iraq is an unstable breeding ground for jihad; and anti-Americanism is on the rise. Enumerating positives, there has been no follow-on attack on the U.S.; the government has made the country safer; many Muslims have rejected jihad; plots have been foiled and suspects apprehended across the globe. Weighing whether fighting the terrorists abroad has made the U.S. safer here, Bergen was equivocal: The U.S. can identify and eliminate only so many people and cannot stay in Bagdad forever. A network of educated, dedicated terrorists remains, he warned, capable of bringing down commercial aircraft or deploying a radiological bomb.