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Unless there is a shift in world energy policies, global energy demand is set to accelerate, putting increasing strain on the world economy and the environment. Yet additional annual investments in energy productivity of $170 billion through 2020 could cut global energy demand growth by at least half—the equivalent of 64 million barrels of oil a day or almost one and a half times today’s entire U.S. energy consumption.

MGI research suggests that the economics of investing in energy productivity—the level of output we achieve from the energy we consume—are very attractive. With an average internal rate of return of 17 percent, such investments would generate energy savings ramping up to $900 billion annually by 2020. Energy productivity is also the most cost-effective way to reduce global emissions of greenhouse gases (GHG). Capturing the energy productivity opportunity could deliver up to half of the abatement of global GHG required to cap the long-term concentration of GHG in the atmosphere to 450–550 parts per million—a level experts say will be necessary to prevent the mean temperature from increasing by more than two degrees centigrade. Moreover, the opportunities to boost energy productivity use existing technologies that pay for themselves and therefore free up resources for investment or consumption elsewhere.

The capital required appears to be well within reach. The annual sum is equivalent to some 1.6 percent of global fixed-capital investment today, or 0.4 percent of current global GDP.MGI finds that global industrial sectors need just under half of the total capital required to capture the energy productivity opportunities we have identified—$83 billion a year. Residential sectors around the world need some $40 billion a year, roughly one-quarter of the total. The capital needs of commercial and transportation end-use sectors are smaller at $22 billion and $25 billion a year, respectively. Breaking down capital requirements geographically, developing regions represent two-thirds of the incremental capital needed, with China alone accounting for $28 billion or 16 percent of the total $170 billion annual requirement. The United States accounts for $38 billion or 22 percent of the total.

A wide range of energy-market failures currently discourage consumers and businesses from embracing higher energy productivity, and they deter investors from making the capital outlays that would help end users to overcome initial financing barriers. These market failures include fuel subsidies that directly discourage productive energy use, a lack of information available to consumers about the kinds of energy productivity choices that are available to them, and agency issues in high-turnover commercial businesses.

To overcome today’s barriers to higher energy productivity, MGI identified four areas for action: setting energy efficiency standards for appliances and equipment, upgrading the energy efficiency of new buildings and remodels, raising corporate standards for energy efficiency, and investing in energy intermediaries. Read the full perspective (PDF - 1.8 MB)

When Tesla Motors, a pioneer in electric-powered cars, set out to make a luxury roadster for the American market, it had the global supply chain in mind. Tesla planned to manufacture 1,000-pound battery packs in Thailand, ship them to Britain for installation, then bring the mostly assembled cars back to the United States.

Elaine Thompson/Associated Press A MORE REGIONALIZED TRADING WORLD Appliances, like those for sale in a Seattle store, above, are being affected by sharp increases in transportation costs.

But when it began production this spring, the company decided to make the batteries and assemble the cars near its home base in California, cutting more than 5,000 miles from the shipping bill for each vehicle.

“It was kind of a no-brain decision for us,” said Darryl Siry, the company’s senior vice president of global sales, marketing and service. “A major reason was to avoid the transportation costs, which are terrible.”

The world economy has become so integrated that shoppers find relatively few T-shirts and sneakers in Wal-Mart and Target carrying a “Made in the U.S.A.” label. But globalization may be losing some of the inexorable economic power it had for much of the past quarter-century, even as it faces fresh challenges as a political ideology.

Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages. Rising concern about global warming, the reaction against lost jobs in rich countries, worries about food safety and security, and the collapse of world trade talks in Geneva last week also signal that political and environmental concerns may make the calculus of globalization far more complex.

“If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars,” said Naomi Klein, the author of “The Shock Doctrine: The Rise of Disaster Capitalism.”

Staton R. Winter/Bloomberg News Bread in a New Zealand supermarket. Soaring transportation costs also have an impact on food, from bananas to salmon.

“That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally, and I think that’s great.”

Many economists argue that globalization will not shift into reverse even if oil prices continue their rising trend. But many see evidence that companies looking to keep prices low will have to move some production closer to consumers. Globe-spanning supply chains — Brazilian iron ore turned into Chinese steel used to make washing machines shipped to Long Beach, Calif., and then trucked to appliance stores in Chicago — make less sense today than they did a few years ago.

To avoid having to ship all its products from abroad, the Swedish furniture manufacturer Ikea opened its first factory in the United States in May. Some electronics companies that left Mexico in recent years for the lower wages in China are now returning to Mexico, because they can lower costs by trucking their output overland to American consumers.

Neighborhood Effect

Decisions like those suggest that what some economists call a neighborhood effect — putting factories closer to components suppliers and to consumers, to reduce transportation costs — could grow in importance if oil remains expensive. A barrel sold for $125 on Friday, compared with lows of $10 a decade ago.

“If prices stay at these levels, that could lead to some significant rearrangement of production, among sectors and countries,” said C. Fred Bergsten, author of “The United States and the World Economy” and director of the Peter G. Peterson Institute for International Economics, in Washington. “You could have a very significant shock to traditional consumption patterns and also some important growth effects.”

The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.

The study, published in May by the Canadian investment bank CIBC World Markets, calculates that the recent surge in shipping costs is on average the equivalent of a 9 percent tariff on trade. “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” the report concluded, and as a result “has effectively offset all the trade liberalization efforts of the last three decades.”

The spike in shipping costs comes at a moment when concern about the environmental impact of globalization is also growing. Many companies have in recent years shifted production from countries with greater energy efficiency and more rigorous standards on carbon emissions, especially in Europe, to those that are more lax, like China and India.

But if the international community fulfills its pledge to negotiate a successor to the Kyoto Protocol to combat climate change, even China and India would have to reduce the growth of their emissions, and the relative costs of production in countries that use energy inefficiently could grow.

Justin Sullivan/Getty Images A Tesla electric-powered roadster in California. The spike in shipping costs comes at a moment when concern about the environmental impact of globalization is also growing.

The political landscape may also be changing. Dissatisfaction with globalization has led to the election of governments in Latin America hostile to the process. A somewhat similar reaction can be seen in the United States, where both Senators Barack Obama and Hillary Rodham Clinton promised during the Democratic primary season to “re-evaluate” the nation’s existing free trade agreements.

Last week, efforts to complete what is known as the Doha round of trade talks collapsed in acrimony, dealing a serious blow to tariff reduction. The negotiations, begun in 2001, failed after China and India battled the United States over agricultural tariffs, with the two developing countries insisting on broad rights to protect themselves against surges of food imports that could hurt their farmers.

Some critics of globalization are encouraged by those developments, which they see as a welcome check on the process. On environmentalist blogs, some are even gleefully promoting a “globalization death watch.”

Many leading economists say such predictions are probably overblown. “It would be a mistake, a misinterpretation, to think that a huge rollback or reversal of fundamental trends is under way,” said Jeffrey D. Sachs, director of the Earth Institute at Columbia University. “Distance and trade costs do matter, but we are still in a globalized era.”

As economists and business executives well know, shipping costs are only one factor in determining the flow of international trade. When companies decide where to invest in a new factory or from whom to buy a product, they also take into account exchange rates, consumer confidence, labor costs, government regulations and the availability of skilled managers.

‘People Were Profligate’

What may be coming to an end are price-driven oddities like chicken and fish crossing the ocean from the Western Hemisphere to be filleted and packaged in Asia not to be consumed there, but to be shipped back across the Pacific again. “Because of low costs, people were profligate,” said Nayan Chanda, author of “Bound Together,” a history of globalization.

The industries most likely to be affected by the sharp rise in transportation costs are those producing heavy or bulky goods that are particularly expensive to ship relative to their sale price. Steel is an example. China’s steel exports to the United States are now tumbling by more than 20 percent on a year-over-year basis, their worst performance in a decade, while American steel production has been rising after years of decline. Motors and machinery of all types, car parts, industrial presses, refrigerators, television sets and other home appliances could also be affected.

Plants in industries that require relatively less investment in infrastructure, like furniture, footwear and toys, are already showing signs of mobility as shipping costs rise.

Until recently, standard practice in the furniture industry was to ship American timber from ports like Norfolk, Baltimore and Charleston to China, where oak and cherry would be milled into sofas, beds, tables, cabinets and chairs, which were then shipped back to the United States.

But with transportation costs rising, more wood is now going to traditional domestic furniture-making centers in North Carolina and Virginia, where the industry had all but been wiped out. While the opening of the American Ikea plant, in Danville, Va., a traditional furniture-producing center hit hard by the outsourcing of production to Asia, is perhaps most emblematic of such changes, other manufacturers are also shifting some production back to the United States.

Among them is Craftmaster Furniture, a company founded in North Carolina but now Chinese-owned. And at an industry fair in April, La-Z-Boy announced a new line that will begin production in North Carolina this month.

“There’s just a handful of us left, but it has become easier for us domestic folks to compete,” said Steven Kincaid of Kincaid Furniture in Hudson, N.C., a division of La-Z-Boy.

Avocado Salad in January

Soaring transportation costs also have an impact on food, from bananas to salmon. Higher shipping rates could eventually transform some items now found in the typical middle-class pantry into luxuries and further promote the so-called local food movement popular in many American and European cities.

Global companies like General Electric, DuPont, Alcoa and Procter & Gamble are beginning to respond to the simultaneous increases in shipping and environmental costs with green policies meant to reduce both fuel consumption and carbon emissions. That pressure is likely to increase as both manufacturers and retailers seek ways to tighten the global supply chain.

“Being green is in their best interests not so much in making money as saving money,” said Gary Yohe, an environmental economist at Wesleyan University. “Green companies are likely to be a permanent trend, as these vulnerabilities continue, but it’s going to take a long time for all this to settle down.”

In addition, the sharp increase in transportation costs has implications for the “just-in-time” system pioneered in Japan and later adopted the world over. It is a highly profitable business strategy aimed at reducing warehousing and inventory costs by arranging for raw materials and other supplies to arrive only when needed, and not before.

Jeffrey E. Garten, the author of “World View: Global Strategies for the New Economy” and a former dean of the Yale School of Management, said that companies “cannot take a risk that the just-in-time system won’t function, because the whole global trading system is based on that notion.” As a result, he said, “they are going to have to have redundancies in the supply chain, like more warehousing and multiple sources of supply and even production.”

One likely outcome if transportation rates stay high, economists said, would be a strengthening of the neighborhood effect. Instead of seeking supplies wherever they can be bought most cheaply, regardless of location, and outsourcing the assembly of products all over the world, manufacturers would instead concentrate on performing those activities as close to home as possible.

In a more regionalized trading world, economists say, China would probably end up buying more of the iron ore it needs from Australia and less from Brazil, and farming out an even greater proportion of its manufacturing work to places like Vietnam and Thailand. Similarly, Mexico’s maquiladora sector, the assembly plants concentrated near its border with the United States, would become more attractive to manufacturers with an eye on the American market.

But a trend toward regionalization would not necessarily benefit the United States, economists caution. Not only has it lost some of its manufacturing base and skills over the past quarter-century, and experienced a decline in consumer confidence as part of the current slowdown, but it is also far from the economies that have become the most dynamic in the world, those of Asia.

“Despite everything, the American economy is still the biggest Rottweiler on the block,” said Jagdish N. Bhagwati, the author of “In Defense of Globalization” and a professor of economics at Columbia. “But if it’s expensive to get products from there to here, it’s also expensive to get them from here to there.”

No more. Amite Foundry's orders jumped 25% in 2007 and 30% more so far this year, spurring the company to hire dozens of workers. Why the turnaround? The price of oil. With the cost of a barrel of crude well north of $120, anything that can provide additional supplies, alternatives, or gains in energy efficiency is booming. One example: Canada's oil sands. They're boosting sales of Caterpillar's (CAT) 380-ton-capacity mining trucks—and Caterpillar uses nearly 50 tons of Amite's steel castings per vehicle. Sure, increased energy and commodity costs make it more expensive to produce and ship steel, says Roy Roux, sales chief at parent Ameri-Cast Technologies, but "high oil prices are mostly good for us."

Paying for the Past

Obviously, the soaring cost of energy is causing plenty of pain for Americans, especially at a time when they're being hammered by declining house values and rising food prices. The pain isn't about to ease, either. "We haven't yet seen the cost of heating," warns R. Neal Elliott of the American Council for an Energy-Efficient Economy. That will kick in this fall and winter, with dramatic increases in the prices of heating oil, natural gas, and even electricity.

But Amite Foundry's resurgence is just one of countless examples of a deeper truth: Expensive energy, in many ways, is good. Why? When the price of oil goes up, people will use less, find substitutes, and develop new supplies. Those effects are just basic economics. Things are so painful now, many economists say, because of the past two decades of cheap oil. Prices stayed low in part because they didn't reflect the full cost of extras such as pollution, so there was little incentive to use energy more wisely. If those extras had been counted, the country would be better prepared for both today's soaring prices and the day that global oil production begins to decline.

That's why there is growing interest, from both the left and right, in a policy that uses taxes to put a floor under the price of oil. Above a certain level—say $90—there would be no tax. But if the world market price dropped below that, taxes would kick in to make U.S. users pay the target amount.

Expensive energy is a powerful medicine. It may hurt when taken, but it brings long-term cures for a host of ills. It compels companies and people to put fewer miles on the car, ditch the SUV, or install more efficient heating, as Eastern Maine Medical Center in Bangor did: The hospital saves $1 million annually with a system it installed two years ago. Higher costs are beginning to nudge America away from its traditional traffic-congested suburban sprawl to denser, less car-dependent communities. Utah has a government-sponsored bike-to-work program. "When the Republican governor of the reddest state in the union is promoting bicycling as a preferred mode of transportation, you know people are paying attention to the price signals," says Keith Bartholomew, professor of urban planning at the University of Utah.

These changes are saving lives—fewer traffic deaths—and improving health as people get out of their cars. A study from Washington University in St. Louis suggests that 8% of the rise in obesity since the 1980s was due to low gas prices, which led to less walking and biking and more restaurant meals. Silicon Valley engineer Andy King parked his Chevy Suburban in favor of a bike for commuting and says he has dropped 35 pounds since February. "It's good for my body and soul," King says.

High energy prices also water the flowers of innovation, making investments in alternatives pay off and juicing the search for more oil. Military-funded researchers have made jet fuel from plants. Toyota (TM) and General Motors (GM) are testing plug-in hybrid cars that can run 40 miles on electricity alone. Companies are building vast expanses of mirrors in the desert to make steam, and thus electricity, from the sun. There are new systems to control power consumption by homes and businesses from afar and programs to insulate inner-city houses, providing energy savings—and jobs. The U.S. uses just over 20 million barrels of oil per day heating homes, powering industry, and fueling cars, trucks, and planes. Energy-saving initiatives, "could easily take 4 million to 5 million barrels a day of demand off the market in 10 years," says Stanford professor Hillard G. Huntington, executive director of the Energy Modeling Forum, a group of energy experts.

Keeping More Wealth at Home

Such reductions, in turn, have potent virtues. They cut pollution and slash carbon dioxide emissions, which cause global warming. They reduce the need for a military presence to ensure global commerce in oil. And they slow the flood of dollars to the Middle East, Russia, and Venezuela, keeping more wealth in the U.S. instead of handing it over to often unfriendly suppliers. This effect would grow with a tax that set a floor on price, cutting demand. And the tax revenue—the difference between the floor and the world price—would stay in the U.S. to boost investment. "I don't think anyone can deny we'd be better off if we were not shipping billions of dollars to Chávez, Putin, and the Saudis, and developing products and services we can sell abroad instead," says Andrew J. Hoffman, professor of sustainable enterprise at the University of Michigan.

America has been here before. Although the country was shaped by an utter lack of concern over energy costs, the 1970s oil shocks changed that. "We never thought about the fact that everything depended on cheap energy," says Columbia University professor Kenneth T. Jackson, author of Crabgrass Frontier: The Suburbanization of the United States.

The myth of unlimited energy took a tumble as oil prices soared. By 1980, crude had jumped to $103 per barrel (in today's dollars). The country responded, buying smaller cars, passing stricter fuel economy standards, making industry more efficient, and boosting oil exploration and drilling. Americans learned to use half as much energy per dollar of gross domestic product as they did before the crisis—gains that have paid off handsomely. "All the heavy lifting we did in the 1980s to reduce reliance on energy has made us less vulnerable to the energy shocks today," says Tufts University economist Gilbert E. Metcalf.

But that momentum toward greater energy efficiency was soon lost. Within five years, because of the substantial reduction in demand, the world was awash in oil. The Saudis slashed production from 9.9 million barrels per day in 1980 to 3.4 million in 1985—and still weren't able to keep the price per barrel from plunging below $11 in 1986 (the equivalent of $22 today).

For two decades, oil prices stayed relatively low—with predictable results. Americans bought millions of SUVs. Investment in alternatives, oil drilling, and efficiency withered. The National Renewable Energy Laboratory shut down its algae biofuel program. "In the U.S., we get fired up about doing something when oil prices are high, then when prices drop, we forget about it," says Fred Tennant, vice-president for business development at PetroAlgae, a biofuel startup in Melbourne, Fla.

Prices are sky-high again, and the invisible hand is pushing hard. Americans are driving less—gasoline use was down 5.2% in early July compared with the same period last year. Sales of Ford's (F) F-Series pickup, the longtime best-selling vehicle in the country, are off 22% this year, while for the 31-mpg Honda Fit, sales are up 69%.

Gas prices reached a tipping point for Ann Arbor (Mich.) auto repair shop owner Dikran Khanian. His extended-cab Chevy Silverado pickup had "a seat like a La-Z-Boy, and the power was exhilarating," he says. But when his truck was totaled in an accident last year, he felt some relief along with the shock. The crash freed him to buy the 22-mpg Honda Element he'd been eyeing. "I was in love with the Silverado's big engine, but some things have to come to an end," he says. Khanian has cut back on driving, taking his recycling to the supermarket when he buys groceries instead of making two trips, and he's eased off on the accelerator. "My friends say: 'Dick, you drive like an old woman,'" he muses. "I say" 'Don't you know you can save 20% just by controlling your big toe?'" Now his gasoline bill is $200 a month, one-third of what he'd be paying with the Silverado.

Long-Term Uncertainties

Add together the actions of millions of drivers like Khanian. Throw in a switch to ocean shipments from air freight for some tech products, a new airplane dispatching system at UPS that means less time spent idling, Adobe's (ADBE) move to turn off fans in the parking garage when they're not needed, and myriad other small initiatives. Then toss in lower demand around the world and factor in increased supplies from Canada's tar sands and growing crude production in OPEC countries and elsewhere.

Just as the low prices of the late 1980s and '90s undid some positive effects of expensive oil, the mere possibility that prices could fall is weakening the market forces pushing toward greater energy efficiency. What really drives behavior is not the actual price, but the perception of where costs will be over the long term. That helps explain why Americans didn't cut back while gasoline prices climbed a few years ago. "After Katrina, gas got close to $3, and then prices moderated," says Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. Only when gas broke the $4 barrier, with no relief in sight, did the wake-up call come.

Strong as it is, that call is being muted by uncertainty about where prices will go. Some experts see $200-per-barrel oil in their crystal balls; others predict $75 or lower. As a result, technologies that should make economic sense at $100 per barrel aren't being funded, says venture capitalist Vinod Khosla. "We are getting the worst of both worlds—high prices and low investment," says Khosla, a co-founder of Sun Microsystems (JAVA) and now a backer of alternative energy ventures.

That's why Khosla and many economists and energy experts are pushing the idea of a floor on the price of oil. The certainty of a relatively high price would stimulate enough investment in alternatives, efficiency, and new supplies to keep future prices from rising much above that level, Khosla argues. It adds no new pain, since the tax would start only after consumers and companies have already gotten considerable relief from today's prices. It would have been better to tax citizens decades ago—forcing Americans to become more energy-conscious—but that was a near-impossibility politically. Since external forces have now accomplished the same thing, though, a floor is a good second-best, economists say.

It's not quite that simple, of course. Some big industries will be hurt by any policy that boosts energy prices: Airlines, shipping companies, manufacturers, utilities—indeed, anyone who can't easily cut back. And if oil were the only fossil fuel to be taxed, it could bring a distorting shift toward natural gas and coal. So it would be better, some economists say, to institute such a levy as part of a broader energy policy. With growing concern over global warming, a tax on carbon dioxide emissions makes the most sense.

Another danger is that Uncle Sam would fritter away the new revenue. Some economists suggest using the money to invest in oil alternatives, while others would return it to people in, say, lower income taxes. Again, it's basic economics: Use taxes to keep prices high for something we want to use less of—oil—and use the money to reduce the cost of things we want more of—growth and productivity. There's a debate about whether the benefits of such a tax-shifting strategy are outweighed by the loss of innovation that might result from government intervention. But many economists say any negative effects would be relatively small. "It may not be a free lunch, but it's clearly a lunch worth paying for," says Stanford economist Lawrence H. Goulder.

Take the Train

British Columbia has shown that it's politically possible, too. On July 1, it added a small tax on gasoline designed to account for the costs of carbon dioxide emissions. The revenue will be returned in reduced income and business taxes. To ease the initial sting, the government sent each citizen a check for $100 at the end of June—a move that will help lower-income people who are struggling with higher energy prices. Taxing energy, and returning the money to people in other ways, "is pretty much an economist's dream," says Ian Perry, senior fellow at Resources for the Future, a Washington think tank.

If the U.S. manages the difficult feat of keeping the price of energy consistently high, what will the future look like? For a glimpse, take a ride on Atlanta's transit system, MARTA, with Kerri Hochgesang. The cost of commuting in her Nissan Xterra (NSANY) had ballooned to $460 per month, so in late June the 32-year-old lawyer switched to the train. "I thought it would be miserable and take forever," she says. It didn't: Her 25-mile commute is now 45 minutes instead of an hour and 20 minutes, and she can read instead of dodging traffic. "It's newfound 'me' time," says Hochgesang.

Thanks to new riders like Hochgesang, trips on MARTA in June and July are up 13%, year-on-year. Says Beverly Scott, MARTA's chief: "My husband jokes with me: 'You're the only one I know that jumps around the room going, Yeah! Yeah!'" when gas prices go up. Rush-hour traffic around Atlanta is down as much as 15%, says Mark Demidovich, an engineer at the Georgia Transportation Dept. "That converts to 10,000 or 12,000 fewer cars a day," he says.

Change doesn't come quickly. Few people will quickly move downtown or near transit stops because of high gas prices, says Charles J. Courte-manche, an economics professor at the University of North Carolina, Greensboro. But when they move for other reasons, they'll make different choices. Courte-manche did: In May he moved from a St. Louis suburb a half-hour's drive from his office to downtown Greensboro, a 10-minute bike ride to work. "We've probably passed the zenith of the suburban auto-oriented planning era," says Royce Hanson, chairman of the Montgomery County (Md.) Planning Board.

No one discounts the pain of high energy costs. But it can also bring real gains. The New York Times reports that teenage cruising is down nationwide. Whirlpool (WHR) says sales of high-efficiency washing machines are up, saving both water and energy. At the National Renewable Energy Laboratory, algae biofuel research is back, funded this time not by the government but by Chevron (CVX) and ConocoPhillips (COP), which could use plant oils in their refineries. Clever policy ideas, such as a "crusher" tax credit to smash SUVs and use the steel to make fuel-efficient cars, are sprouting in Washington. And in Maine, "people are coming out of the woodwork to invest in energy efficiency or alternatives," says John Kerry, director of the Governor's Office of Energy Independence & Security. "I think energy costs will become an economic engine."

• ISBN 978-0-478-31671-1 (PDF)
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• ISBN 978-0-478-31670-4 (print)

Oil is New Zealand's largest and arguably most problematic energy source. Policies related to oil have wide impacts, including those on the economy, the environment, consumers, foreign affairs, and transport planning. Because of their wide impact, issues related to oil frequently attract great public interest and, sometimes, contentious debate. Yet oil is also a sophisticated industry, and to usefully contribute to the dialogue requires a certain level of technological, economic, and institutional knowledge that can appear daunting to the newcomer.

"Oil: An Introduction for New Zealanders" is designed to provide an easy-to-read background briefing for anyone who will be dealing with oil-related policy issues. These include elected officials, business leaders, non-governmental organisation leaders, researchers, students, and concerned citizens. The book does not attempt to analyse any policy issues, but rather to provide basic information that will be useful to anyone who does.

Topics covered include oil production and refining technology; the uncertainties surrounding statistics on world oil reserves and resources; the management of New Zealand's own oil resources; the structure and regulation of New Zealand's oil industry; and New Zealand's involvement with international efforts to promote oil security. A chapter on "Oil and Financial Markets" focuses on the question of whether quotes from futures markets provide a good means to predict the future price of oil. A chapter on "The Economics of Exhaustible Resources" focuses on the question of whether government intervention in the oil market can be justified on the basis that oil is an exhaustible resource.

Ralph D. Samuelson is Chief Advisor - Energy Modelling at the New Zealand Ministry of Economic Development. He holds a Ph.D. in Engineering-Economic Systems from Stanford University and has over 20 years experience with energy as a government official and consultant.

"Oil:An Introduction for New Zealanders" can be accessed online free of charge. Hard copies can be ordered for $26.67 (excluding postage and GST) using the order form.

Julie Burchill can't stand them. According to her new book, Not in my Name: A Compendium of Modern Hypocrisy, she thinks all environmentalists are po-faced, unsexy, public school alumni who drivel on about the end of the world because they don't want the working classes to have any fun, go on foreign holidays or buy cheap clothes.

Michael O'Leary, the chief executive of Ryanair, agrees. In an interview with Rachel Sylvester and me, he told us that the “nutbag ecologists” are the overindulged rich who have nothing better to do with their lives than talk about hot air and beans.

So the salad days are over; it's the end of the greens. Where only a year ago the smart new eco-warriors were revered, wormeries and unbleached cashmere jeans are now seen as a middle-class indulgence.

But the problem for the green lobby isn't that it has been overrun by “toffs”: it's the chilly economic climate that has frozen the shoots of environmentalism. Espousing the green life, with its misshapen vegetables and non-disposable nappies, is increasingly being seen as a luxury by everyone.

Only a year ago, according to MORI, 15 per cent of those polled put the environment in their top three concerns. That figure has dropped by a third to 10 per cent this month. Now that people are fighting for their own survival rather than their grandchildren's, they put crime, the economy and rising prices at the top of their list.

According to Andrew Cooper, director of the research company, Populus: “There is a direct correlation between how people perceive the economy and the importance they place on the environment. When times are tough people resent paying more to salve their conscience.” This means that fewer people are now buying organic chickens from smart supermarkets when they can pay £3.99 at Lidl. With all food prices rising, the organic market is being credit-crunched. Demand for it grew by 70 per cent from 2002 to 2007; now it has stalled, according to the consultancy Organic Monitor.

The vast new organic Whole Foods Store on Kensington High Street in London is so quiet you can hear the cheese breathe in the specially designed glass room. Meanwhile the demand for takeaway pizzas and McDonald's has risen as people find the cheapest way to eat.

When David Cameron became leader of the Conservative Party he said that green issues were at the top of his agenda. His slogan for the local elections last year was “Vote Blue, Go Green”. But in the past few months he has realised that voters have lost the appetite for their greens.

He has only given one environmental speech since Christmas. Once he used to talk about putting a £3,000 windmill on top of his house. Now the message is not about conserving the planet but preserving his bank balance. He wears catalogue clothes, grows his own vegetables and holidays barefoot in Britain because it is less extravagant, not because he is trying to reduce his global footprint.

In fact, when the Tory leader's bicycle was stolen a week ago, the message of the story was not how green he was for riding his bike, but how broken our society has become when a politician finds his bike nicked from under his nose.

Boris Johnson was the first to realise that the tolerance for green taxes may have peaked. When he became Mayor of London, he dropped plans to charge a £25 congestion fee on gas-guzzling cars.

The Tories have quietly been reviewing many of their green policies. A range of measures designed to penalise motoring and other polluting activities has been put on hold in case they alienate families struggling to pay their bills. A proposal to tax the highest emitting cars up to £500 more than the greenest vehicles has been quietly shelved, as has the plan to raise taxes on short-haul flights. Instead George Osborne, the Shadow Chancellor, has promised to cut tax on fuel when oil prices rise.

Gordon Brown has also stopped discussing his solar panels and compost heap in Scotland and is trying to dissociate himself from local council rubbish taxes - even though they have been driven by central government plans to put up landfill charges.

Both parties are looking at ways of rewarding people for being green rather than penalising them for throwing out their yoghurt pots with their teabags. Mr Osborne, in a speech last month, admitted: “When people are feeling the pinch, we need to make it pay to go green. Instead of being fined for not recycling, households should be paid for recycling.”

When Barack Obama first decided to run for the presidency, he embraced the green cause. Al Gore's film, An Inconvenient Truth, about global warming had just become the biggest grossing documentary in history and Mr Gore had won the Nobel prize. But recently Mr Obama has been talking more about thrift than trees. Instead of showing off his recycling skills, he explains that his children don't receive Christmas or birthday presents.

It's not just the economic downturn that has harmed the green order. People have become wary of environmental causes that can turn out to do more harm than good. They don't want wind turbines marching across Britain's moors when nuclear power stations can do more to reduce greenhouse gas emissions. They worry that washing and bleaching all those non-disposable nappies may be damaging the ozone layer, that the massive incentives for biofuels have distorted the world food market, and that green taxes are actually stealth taxes.

But paradoxically, just as Britain is turning its back on the environment, the country is finally becoming greener. Fewer people are moving house so they are buying fewer new white goods such as washing machines and fridges. They may not be queueing up for £9 organic Poilâne bread, but for the first time in a decade they are discarding less food. They buy less impulsively and think more carefully before their weekly shop. Children are wearing hand-me-down uniforms rather than new ones made in sweatshops.

Bottled water sales have fallen. Garden centres have reported a 10 per cent rise in the sales of vegetable seeds in the past 12 months. People are saving money by growing their own potatoes and carrots. They are turning off their central heating for a few more months of the year and ditching their second car rather than buying an electric runaround. And instead of carbon-offsetting their holidays, they are simply going on fewer of them.

It's the downturn that has made greenery look unappetising - but it may yet prove to do more than anything to save the planet.

"Carbon neutrality" is definitely in, with everyone from Al Gore to U2 to the Mariners calculating their carbon footprints and offsetting it with donations to wind-energy plants or tree-planting programs.

And now the average environmentally conscious citizen can get in on the act. All you have to do is pick from a large offering of online carbon calculators, plug in numbers from utility bills and transportation habits and press "submit."

The calculators compute the amount of carbon produced each year -- your so-called "carbon footprint" -- and tell you how much money to give to compensate for it. With a few clicks of the mouse, anyone can achieve the ultimate state of environmental perfection: carbon neutrality.

That is, if you can believe the calculator you're using.

A recent University of Washington study found that when the same values were used with 10 different online calculators, the results varied greatly. In one category, the bottom line for a typical American homeowner varied by more than 32,800 pounds of carbon produced per year.

The variation suggests tallies of carbon emissions have been oversimplified to produce a "one-click" solution to an extremely complicated problem -- global warming. Some experts fear calculators suggesting a person plant a few trees to offset driving a gas guzzler may actually discourage needed lifestyle changes that can benefit the planet.

"Everyone assumes that every calculator they use will produce an accurate result, but in reality, there are vast inconsistencies between the calculations being done," said Anne Steinemann, a UW civil and environmental engineering professor who headed the research. "I was really surprised by the magnitude of inconsistency."

That inconsistency isn't news to King County Executive Ron Sims, who is working toward creating a standard calculator for local governments to use.

"I wouldn't grab a calculator and say, 'Here's the ton I just reduced,' because you don't know that for sure," he said. "I don't think a calculator can give you that kind of guide."

Since there's no oversight of the increasingly popular calculators, Steinemann agreed that there's nothing preventing anyone from running a Web site that claims to calculate carbon footprints.

And if the results can't be trusted, that means some people may be changing their lifestyle or donating money for carbon "offsets," such as those offered by public utilities, under false assumptions.

The Seattle P-I did its own test of the calculators, based on the utility bills, miles driven, miles flown and other data submitted by environmental reporter Lisa Stiffler.

Stiffler and her husband, Brent Roraback, a software company manager, are like many environmentally conscious Seattleites. They recycle, compost, own a hybrid car and keep their electricity bills much lower than the national average of $100 for two people.

The biggest carbon producer in their lives is probably the 23,000 miles Roraback flies each year for his job.

Using the calculators cited in the UW study, the couple's carbon footprint varied significantly.

The Bonneville Environmental Foundation calculator computed that the couple produces 75,795 pounds of carbon dioxide per year, while the U.S. Environmental Protection Agency tallied them at a more modest 27,029 pounds.

That's a greater variation than in Steinemann's study, which broke the calculators down into types of household and transportation emissions. One reason for the wide range is that emissions from air travel, the couple's largest carbon producer, are often calculated very differently, said Clark Williams-Derry, research director at Sightline Institute, a nonprofit research center that studies carbon calculators.

Another part of the variation stems from the fact that different calculators include different behaviors in their calculations. For example, some ask for the amount of garbage a household produces each year, while others use the national average (1,606 pounds), and others don't include garbage at all.

Another reason for the differences is that most calculators use different internal numbers as conversion factors and standards to come up with their results, Steinemann said.

"There are so many different ways to calculate, using different variables, different standards and different assumptions," she said. "There's no one absolute right best number, so each calculator seems to use something different."

Web sites offering the calculators also often don't let the user see what those numbers are.

"The other problem is that individual calculators don't tell you the assumptions behind their calculations," Steinemann said. "Even if there isn't one standard calculator, they should at least be able to be transparent, so people know what's being included, what isn't being included, and what's not being calculated."

Of the 10 Web sites with calculators, only two show the differences that specific lifestyle changes, such as driving less and recycling more, would make on a person's "footprint."

Half offered payment plans a person can use to pay back the environment for the carbon produced. For Stiffler, those price tags ranged from $50 to plant trees (American Forests) to $1,012 (Bonneville) to invest in wind energy.

Since the calculators' results vary so much and probably do not include every source of carbon emissions in a person's lifestyle, these offsets may not really balance out carbon production, Steinemann said.

"The calculators probably underestimate emissions, and so offsets may not cover everything," she said.

The end result is that the Mariners, U2 and even Gore may not be as "neutral" as they think.

Williams-Derry agreed that calculators could be misleading for people using them to make specific choices, such as whether to heat a home with electricity or gas. But, overall, he still sees the calculators as useful.

"If you're just trying to identify big areas in your life that are producing carbon, there's no question that there's a value there," he said. "Imperfect information is better than none at all. Otherwise we'd be operating completely in the dark."

But Sims thinks the calculators may do more harm than good. Instead of encouraging people to examine their lifestyles and look for things they can change, the calculators offer an "easy out" where consumers can simply donate money to make their impact disappear.

"I want to move away from calculators and tell people more what they can do," he said. "There are individual things we know we need to do in our lifestyles, but I think that if you use a calculator to make a change, you may find yourself being disappointed over time."

Small lifestyle changes will make a far bigger impact than buying offsets, Sims said.

"We need to create a culture of people doing those small things that will result in big change."

CARBON CALCULATORS

The Web sites offer calculators that the UW study examined:

American Forests, nonprofit forest conservation organization -- americanforests.org/resources/ccc

BeGreen, from Green Mountain Energy Co., which sells environmentally friendly energy products and carbon offsets -- begreennow.com/calculator

Bonneville Environmental Foundation, nonprofit that markets renewable energy products -- greentagsusa.org/greentags/calculator

CarbonCounter, from The Climate Trust, an environmental nonprofit -- carboncounter.org

Chuck Wright Consulting, sustainable energy consulting firm -- chuck-wright.com/calculators/

Clear Water, environmental advocacy group for the Hudson River -- clearwater.org/carbon.html

The Conservation Fund, environmental nonprofit -- gozero.conservationfund.org/calc/calculate

Environmental Protection Agency -- epa.gov/climatechange/emissions/ind_calculator.html

SafeClimate, from World Resources Institute, an environmental think tank -- safeclimate.net

TerraPass, social enterprise that sells carbon offsets -- terrapass.com/carbon-footprint-calculator