Explaining the Pain

In following years, enormous amounts of private capital went into innovative information technology, dwarfing the sums channeled into the search for alternative forms of energy or techniques to improve fuel efficiency. The federal government did not offer bold leadership to support technological breakthroughs on the supply or the demand side. Nor did it offer funding, better regulations or tax incentives to produce new fuels on a level commensurate with the urgent need to reverse the rapid escalation of the nation's energy dependence and to curb greenhouse-gas emissions.

The energy problem, of course, is worldwide in scope. American efforts alone would not have prevented rising prices or growing carbon emissions. But more powerful American measures would have limited U.S. demand growth and thus alleviated a portion of recent price pressures. More research and development could also have driven down the cost of alternative fuels and demand-reducing technology.

Now all Americans are paying a hefty "neglect" or "complacency tax"—in the form of high oil prices. This "neglect tax" is especially large, because of America's high per capita energy consumption and weak currency.

Americans can either continue paying the neglect tax or support bold conservation and production measures. American officials especially must take a hard look at policies and regulations that inhibit a more rapid supply response, including barriers to nuclear plants, windmills, solar collectors and transmission lines.

Governments elsewhere need to find ways to attract more capital and technology to boost fuel and food output. This exercise should include finding better ways to provide credit to small farmers in poor nations for seeds, fertilizer and irrigation, as well as to small entrepreneurs for distributed energy production.

Finally, a collective global effort is required to eliminate barriers to the flow of capital and expertise to areas where they can make a real difference in cleaner fuel and food output. Within each nation, and among them, in forums such as the World Bank, the U.N.'s Food and Agricultural Organization and the International Energy Agency, efforts must be made to eliminate the policy constraints and market distortions that impede fuel and food supply increases—and thus drive inflation.
—Hormats is vice chairman and Currie is head of commodity research at Goldman Sachs International.