In a year that seemed an endless crisis, let's talk about one crisis that failed to live up to its all-star billing. The energy "crisis," to use George W. Bush's description, was supposed to plunge the United States, and Canada by extension, into frozen darkness as oil and electricity supplies ran dangerously short. The President was so worried that voters wouldn't find enough fuel for the four-wheeled Exxon Valdezes known as SUVs that he vowed to open the Arctic Wildlife National Refuge, the last true wilderness in the United States, for drilling.

When politicians shout crisis, you can usually assume the opposite. The energy crisis was no exception. Late last year, oil prices reached a peak of $38 (U.S.) a barrel. They're now at about $19. Natural gas prices have plummeted. The disgust of members of the Organization of Petroleum Exporting Countries over Israel's treatment of the Palestinians was not so intense that OPEC threatened a 1973-style oil embargo. California's electricity shortage, which came with sporadic blackouts, proved short-lived. The state is now exporting electricity. The market worked: As electricity prices rose, demand dropped and balance was restored. Opponents of California-style deregulation predict a catastrophe when Ontario opens its electricity market in the spring. The fear mongers will be disappointed.

In spite of the dramatic letdown on the energy crisis front, Sept. 11 exposed a raw truth. The United States is still heavily reliant on OPEC, especially Saudi Arabia, and such reliance will come with more risk than ever. If a Taliban-style fundamentalist regime takes control of Saudi Arabia, the potential for oil supply disruption -- an embargo even -- will rise exponentially. The U.S. response to this reality has been to a) spend tens of billions of dollars protecting Middle East supplies and, when necessary, go to war, b) make U.S. wilderness areas safe for drillers and c) encourage the development of non-OPEC supplies.

The problem with the first is that it's costly, both in terms of money and lives. The problem with the second is that sacrificing the environment is a big price to pay for what might yield just enough oil to meet U.S. consumption for a few months. The last item poses the biggest problem. As The Economist pointed out in its Dec. 15 issue, Saudi Arabia still holds a quarter of the world's proven oil reserves. It also has the advantage of extremely cheap production. Non-OPEC output may have risen substantially in recent decades, but its most prolific fields, such as the North Sea, are in rapid decline. Canada has lots of oil, but most of it is locked in tar sands that have to be mined at great relative expense. Barring the discovery of another Saudi Arabia in a friendly country, the fact is the Western world will be more dependent on Saudi reserves in a few years than it is now.

For the United States, the most sensible solution is the one that is talked about in hushed tones, as if it were positively unAmerican: conservation. But tell a country addicted to monster SUVs that they should be driving econo-boxes instead and you'll be dismissed as a Communist. Mention the merits of European-style fuel tax increases to curtail consumption and you'll be tried for treason.

There are fairer ways than gasoline taxes to stimulate conservation. The Economist advocates a carbon-emissions tax, which presumably would apply to all users of fossil fuels. Here's a more progressive variation on the same theme: Tradeable emission rights. Toronto's Energy Probe is among those advocating its introduction.

In the United States, the Environmental Protection Agency administers a sulphur dioxide trading system. Big producers of the gas, such as power utilities, operate under emission caps. If they need to emit more, they have to buy surplus emission rights from companies that don't need them. The beauty of the system is twofold: It encourages efficiency and it doesn't involve paying a tax to the government.

Now imagine the same format applied to all industries, businesses and households. Your household would be given a carbon emission cap for the year. If owning a second car means you will exceed that cap, you could buy a credit on the open market from some bicycle-driving tree-hugger. The system would discourage energy consumption, reduce greenhouse gas emissions and other pollution, encourage the development of alternative energy and transportation systems and create a whole new industry. It would also be fair, because it would apply to everyone. If you think this is crazy, consider the alternative.
ereguly@globeandmail.ca