Oil rose on speculation that Russian crude may be disrupted because of rising tensions with the U.S., and as the weaker dollar bolstered the hedging appeal of commodities.

U.S. plans for a missile shield in Poland will "spur an arms race" in Europe, Russia's Foreign Ministry said in a statement. About 1.1 million barrels of Caspian Sea crude remains shuttered following a pipeline fire in Turkey on Aug. 5. Russia's invasion of Georgia closed some export routes that could have been used to re-direct Caspian supplies to Europe.

"Geopolitical risk in oil-producing regions, as we're seeing with the tensions between the U.S. and Russia when the spare capacity buffer is low, is making prices volatile," said Thina Saltvedt, a Nordea Bank AB analyst in Oslo. "Historically the correlation between oil and the dollar is high."

Crude oil for October delivery rose as much as $1.44, or 1.3 percent, to $117 a barrel on the New York Mercantile Exchange and was trading at $116.75 at 10:46 a.m. in London. Futures are down 21 percent from a July 11 record of $147.27. Prices are 68 percent higher than a year ago.

The September contract expired yesterday after increasing 45 cents, or 0.4 percent, to settle at $114.98 a barrel.

"It's really a reaction to the Russians' strong reaction to this missile-shield agreement," said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. "The concern is for a supply disruption from the world's second- largest oil producer, Russia."

Weaker Dollar

The U.S. currency fell against the euro, driving investors to dollar-priced assets like gold and crude. The dollar traded at $1.4792 per euro from $1.4747, after slipping to a one-week low of $1.4832. It fell 1.3 percent to 108.61 yen, the biggest decline since July 15, by 10:44 a.m. in London. Gold for immediate delivery gained as much as $3.93, or 0.5 percent, to $817.61 an ounce.

U.S. gasoline supplies fell 6.2 million barrels last week, the U.S. Energy Department said yesterday, more than double analysts' predictions. Analysts had predicted a 3 million-barrel decline, according to a Bloomberg survey.

Motor fuel demand was down 1.6 percent from last year's levels. Oil stockpiles rose 9.39 million barrels to 305.9 million barrels, the biggest gain since March 2001.

"The drawdown in stocks reflects as much refiners adjusting inventories," said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. "There isn't an incentive to build large gasoline inventories" as long as "consumption remains soft."

Brent crude oil for October settlement rose as much as $1.44, or 1.3 percent, to $115.80 a barrel on London's ICE Futures Europe exchange. It was at $115.41 a barrel at 10:45 a.m. London time. It rose $1.11, or 1 percent, to $114.36 a barrel yesterday.

Little more than a month ago the suggestion that Russian troops would be engaged in a war in Georgia leading to the closure of the pipeline from Baku to the Georgian port of Supsu would have triggered a dram-atic rise in oil prices. A barrel of crude was trading at more than $140 and the loss of another million barrels a day of supply could have pushed the figure on and up towards the $200 predicted by some banks and by the chief executive of Gazprom.

In fact prices are almost 20 per cent below their July peak. The fall has come despite a month of assertive Russian nationalism, whose victims to date include not just Mikheil Saakashvili, Georgia's president, but also Robert Dudley, chief executive of TNK-BP, who has been forced into exile in an undisclosed central European location. Other problems also persist - including civil conflict in Nigeria and the failure of the Maliki government in Iraq to agree on the legal structure through which international companies can invest in new oil developments.

Why then the fall? The explanation for the change in sentiment lies in a combination of factors that between them are transforming the level of spare production capacity - a measure that over the past two years has become the leading indicator of world oil prices and a signal to speculators.

First, demand levels have slipped back and look set to end the year more than 500,000 barrels a day below the initial projections. Demand, especially for petrol, is down in the US and Europe as high prices work through to the pumps and as the economic slowdown takes hold. The Japanese economy, the second-largest single source of energy demand in the world - at 4.5m b/d - shrank by more than 2 per cent in the second quarter.

Almost all the remaining growth in oil consumption is now coming from the emerging markets - especially China and India. Even there the rate of increase in demand has slowed in the past six months. In a market that is sensitive to every change, even the Chinese constraints on car use in advance of the Olympics have had an impact.

More important is the other side of the equation. High prices have encouraged producers to expand output and a series of new development projects around the world, such as the delayed Khursaniyah project in Saudi Arabia and new offshore fields in Nigeria and Angola, are due to come on stream over the next six months.

The net result of these changes is that the level of spare capacity, which dropped at one point to little more than 1m b/d, has crept up to about 1.8m b/d and could rise to 3m b/d by next spring. Three million b/d was the historic level of spare capacity in place throughout the 1990s - a comfortable margin of security against problems anywhere in the world. If such levels are restored the stage is set for a reduction of prices through the autumn and winter. Prices could break through the symbolic $100 a barrel level - only this time they will be heading downwards.

Those brave enough to predict oil prices are usually wrong, but the perception that the fundamentals have changed has begun to affect the trading market and behaviour of speculators. That is why the Russian invasion of Georgia had so little impact. Speculators in particular are pulling out of oil - with a few beginning to bet on a further substantial fall. In the words of one London trader: when prices have risen by more than 100 per cent in 12 months the chances are that the next move will be downwards.

None of this resolves the long-term challenges facing energy policymakers. The world is still dependent on hydrocarbons for more than 80 per cent of daily energy needs. A year of rising prices has only served to shift demand to coal. As a result carbon emissions continue to rise. The dependence of the world's consumers on Saudi Arabia, Russia and a few other producers remains high. Imports are set to rise in the US, Europe, China and Japan.

The big oil companies are losing market share and seem unable to secure significant access to the few new discoveries being made in areas such as Brazil. The bulk of supplies are controlled by state companies. With Russia and the core of the Middle East closed off, big oil groups face a fundamental challenge to their raison d'être. Falling prices will relieve some of the pressure on consumers but complacency would be misplaced. This is a lull in the storm not a reversion to normality. The need for a transition to a more diversified, lower-carbon energy economy is as urgent as ever.

The writer is chairman of the Centre for Energy Studies at the Cambridge Judge Business School

Oil market bulls aren't giving up without a fight.

Crude futures fell to as low as $112.61 a barrel early Wednesday after the government said U.S. oil inventories last week jumped 9.39 million barrels, to an 11-week high of 305.9 million, confirming that there's no shortage of supply.

Making a stand?

But prices rebounded, and the September futures contract closed up 45 cents at $114.98 a barrel, its second straight daily gain. Oil hadn't been up for two consecutive days since mid-July.

The market got a psychological boost from Goldman, Sachs & Co. after the brokerage's commodity analysts reiterated their prediction that crude would rebound to $149 a barrel by the end of the year. (Let's give them credit for being precise, but a prediction of $150 probably would have made the point, no?)

Oil bulls have been trying to make a stand over the last eight sessions, after the barrel price plunged from a closing peak of $145.29 on July 3 to $115.10 by Aug. 8.

Is this the end of the slide? Market bears expect oil demand in the developed world to continue to weaken given the economy's struggles, and they say that should put additional downward pressure on prices.

So if there's little or no upbeat news on the global economy in September, the path of least resistance for oil should be clear, said Stephen Schork, who writes the Schork Report on energy market trends from Villanova, Pa.

"I think this is still a bear market," he said, adding that demand remained weak. "I think we're going below $100."

Also, the dollar's recent rally has stalled out this week, which is helping commodities in general to recoup some ground.

The bullish case for oil: Apart from the ever-present geopolitical threats to supplies, global fundamentals still favor a rebound in prices by year's end, Goldman Sachs insists. The brokerage is betting that rising demand in the developing world (China, etc.) will trump weakness in the developed world.

Just as important, Goldman expects the market to soon refocus on the long-term supply picture.

"The end of the oil bull market of the '70s was caused by a sharp increase in supplies from large non-OPEC regions" such as Mexico and Norway, the firm notes. This time, it says, "nothing similar is expected for several years."

Political gridlock has overtaken security risk as the primary hurdle facing the rehabilitation of Iraq's oil industry, according to oil executives and analysts.

Cabinet disagreements and unrealistic expectations from Baghdad are already threatening to scupper the oil ministry's plans to sign short-term technical support agreements with international oil companies.

This could also complicate the more ambitious plans to agree longer-term development contracts that would involve big investments by oil majors. Iraq's oil ministry last month invited foreign companies to bid for contracts to develop eight oil and gas fields for the first time in three decades.

Charles Ries, US co-ordinator for Iraq's economic transition, recently told reporters that the short-term contracts, which would train and assist Iraqi engineers to raise oil output, now at 2.4m barrels a day, by an extra 500,000 b/d, were not likely to go through.

Anadarko, the US independent, has walked away from the short-term deals on offer, citing unfavourable terms. Others, including BP and Royal Dutch Shell, say talks are continuing. However, analysts have suggested no agreement is likely before the end of Ramadan, putting any deals off until at least October.

In its most recent report, the International Energy Agency, the oil consuming countries' watchdog, said it might have to revise down its forecasts of Iraqi capacity expansions because of doubts over the technical support contracts.

Oil executives said the deals had been mired in confusion. Some said the agreements on offer had lost much of their appeal when Iraq reduced the contracts' lengths from two years to one, and when it became clear Iraq would not give companies that signed short-term contracts preferential treatment for the more sought-after long-term deals.

International oil companies are far from shrugging off their security concerns over sending large numbers of employees to Iraq. Shell, for example, conducts all its work on Iraq outside the country, advising and training Iraqi staff working on the Kirkuk and Missan oilfields, and working on plans to use the gas produced as a byproduct of oil extraction and burned off in flares.

But at least one western energy group is becoming bolder. Eni, the Italian oil company, recently sent its head of exploration and production and its head of oil and gas for a visit.

For Eni and other big companies, the ultimate prize would be longer-term deals that allowed them to produce oil from Iraq's huge fields, and seek more fields in the unexplored areas.

The country's oil ministry wants to sign field development deals as early as next year, and has said it will reveal terms next month.

But companies are still concerned at the lack of new legislation governing the industry. Moves to agree on a new law have been derailed amid disagreements between the Kurdish minority and the Arab majority.

Meanwhile, China National Petroleum Corporation, the state-owned oil company that is the parent of the listed Petrochina group, may be the first foreign company to sign an oil deal with Baghdad since the fall of Saddam Hussein: a service contract to develop the Ahdab field.

Hussein Shahristani, Iraq's oil minister, was quoted in an Iraqi newspaper on Tuesday as saying that a $1.2bn (€817m, £644m) deal with China had been under discussion for a year.

CNPC refused to comment, but an industry official in Beijing confirmed the talks were taking place with the Iraqi authorities, and that an Iraqi minister was expected to visit Beijing next week.

Additional reporting by Geoff Dyer in Beijing

The BP Plc-led Baku-Tbilisi-Ceyhan pipeline, which transports oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, will resume tanker loadings next week following fire damage earlier this month.

BP, Europe's second-largest oil company, and other exporters of Azeri oil have been unable to use the 1,768- kilometer (1,100-mile) link since Aug. 5 when a blaze engulfed the pipeline in Erzincan province in northeastern Turkey.

BP, StatoilHydro ASA and partners had to reduce production at oil fields in the Azeri part of the Caspian Sea after flows halted through the pipeline, which has a capacity of 1 million barrels a day, about 1 percent of the world's supply. The military conflict in Georgia also highlighted risks for crude oil and natural gas transportation across the Caucasus.

BTC Co., which operates the link, will start "testing of the line today before a move to full operation," the Turkey- based company said in an e-mailed statement. "This will involve some limited and intermittent flow of oil through the pipeline."

Inspection of damage at BTC shows no sign the fire was caused by a bomb, Energy Minister Hilmi Guler said Aug. 18. He denied claims by the Kurdistan Workers' Party, a Kurdish separatist movement in Turkey, that it attacked the link as part of its campaign for autonomy in southeast Turkey.

Shipping Schedule

A statement was sent to transporters so that "the shipping schedule can be updated today for loadings to begin next week," Murat Lecompte, external affairs director for BTC, said in a telephone interview. Repairs are completed and exporters will be putting oil into the pipeline, while the testing will take a few days to complete, he said.

Another pipeline, which pumps 100,000 barrels of crude a day from the Azeri capital of Baku to the Georgian port of Supsa, has been shut on security concerns because of the fighting in Georgia. Shippers declared force majeure on exports from the Supsa and Ceyhan ports, a legal clause that exempts them from meeting contracts because of circumstances beyond their control.

BP and partners also suspended for two days last week natural gas exports from Azerbaijan to Georgia and Turkey through the South Caucasus pipeline. Gas exports from the Shah- Deniz field in the Azeri sector of the Caspian Sea resumed on Aug. 14.

Russian Troops

Russia has started withdrawing its troops from Georgia after President Dmitry Medvedev announced the pullout Aug. 17. Fighting between Georgian and the Russian troops disrupted supplies of about 1.6 million barrels of oil equivalent a day from the Caspian Sea region to world markets, the Moscow-based brokerage Troika Dialog said this month.

BP isn't aware of any damage to any of its pipelines in Georgia because of fighting, Toby Odone, a London-based spokesman at the company, said today by phone.

Georgian Black Sea ports are running out of crude and oil- product supplies also because Russian military troops have blocked rail lines near the city of Khashuri, Vako Kavzharadze, a shipping agent at TeRo Co. Ltd. in the Georgian port of Batumi, said today in an e-mailed statement. Rail transportation will probably resume in three to four days.

BP, State Oil Company of Azerbaijan, or Socar, and other exporters halted crude and product exports by rail through Georgia to the Black Sea after a bridge was blown up near the village of Grakali on Aug. 16.

Rail Links

An "alternative bridge is fixed, however Russian troops blocked the railways near the city of Khashuri," about 100 kilometers (60 miles) from Tbilisi, Kavzharadze said.

Anatoly Nogovitsyn, deputy chief of Russia's General Staff, denied his military was involved in the bridge attack or was blocking railways.

Azerbaijan will also export oil via Iran after routes through Turkey and the Caucasus were disrupted.

Socar awarded a tender for 300,000 tons, or about 2.1 million barrels, of Azeri Light crude for shipping to Iran by early October, an official with the Baku-based company, who declined to be identified, said by phone today.

Abu Dhabi: Middle East oil demand growth is expected to increase by at least 290,000 barrels per day (bpd) during the third quarter this year on the back of the region's healthy economic performance, the Organisation of Petroleum Exporting Countries (Opec) has said.

Opec, which produces more than 40 per cent of the world's oil output, said the Middle East's oil demand growth was 330,000 barrels a day in April-June second quarter averaging 6.8 million bpd.

"Given the healthy economic performance in the Middle East, oil demand growth should remain strong in both the third and fourth quarters. Transport and industrial fuel demand are on the rise and are expected to remain so for the rest of the year," Opec said.

Latin America's oil demand growth is forecast to grow by 190,000 bpd to average 5.7 million bpd in 2008, Opec said.

Oil demand in developing countries is forecast to reach 800,000 bpd year-on-year to average 25 million bpd," Opec added.

UK wholesale gas prices have soared by more than 14% after a leak on a North Sea pipeline prompted fears about supplies this winter.

Norway's oil and gas producer Statoil Hydro said it discovered the leak on a gas pipeline linking its Kvitebjoern field to an onshore processing plant.

The firm closed the pipeline, which pumps an estimated 5% of Norway's total gas output, and warned it could remain shut until next Spring.

Norway is a significant source of gas supplies to the UK, which now imports around 40% of its gas due to dwindling North Sea stocks.

The announcement sent the forward price of gas for delivery to Britain this winter rocketing to 104p per therm from 90.75p per therm at the start of the day.

This is above the record highs seen in June this year, when wholesale gas prices passed the £1 a therm mark on the back of rising oil prices, and around double the price this time last year.

David Hunter, energy analyst from energy consultancy, McKinnon & Clarke, said the huge jump was a sign of nervousness of the gas and electricity markets to supply problems.

He said: "The impact on the energy market has been significant, as demonstrated by the momentous jump in gas and electricity prices. The amount of gas available to export from Norway to countries, including the UK, will be cut significantly and without adequate storage, the UK will be left to negotiate with Russia and The Far East for supplies or risk running low on energy."

Households in the UK have already seen double gas and electricity bills soar this year due to the rising cost of wholesale gas and electricity.

British Gas announced another 35% rise for gas bills last month, and 9% for electricity, with rival EDF upping bills by up to 22%

Energy firm E.On is to raise gas prices by 26% and electricity prices by 16% on 22 August.

It is the third of the big six energy companies to increase prices for domestic customers during the summer.

It blamed an increase in wholesale costs, which it said had risen by more than 51% since February, for the latest rise - the second in a year.

E.On said dual-fuel customers would see an average annual increase in their bill of £227.

The average annual bill for an E.On customer paying by direct debit would be £1,194 following the latest rise. The average for those paying in other ways would be £1,259, the company said.

Those paying on a pre-payment meter would face an average annual bill of £1,298.

EDF Energy and British Gas raised their prices for domestic customers in July, and others are expected to follow suit.

'Tough time'

Graham Bartlett, managing director of E.On's retail business, said that the company had tried to keep the increases as low as possible to protect customers.

"I'm very aware of the effect that today's announcement will have on our customers and I recognise that this is a very tough time for everyone," he said.

This is E.On's second price rise for domestic customers this year. In February it put up gas bills by 15% and electricity tariffs by 9.7%.

The German-owned company has 5.5 million customers in the UK.

In the latest round of price rises in July, EDF Energy put up gas prices by 22% and electricity prices by 17%. Shortly afterwards, British Gas put up gas bills by a record 35% and electricity tariffs for its customers by 9%.

Adam Scorer, of watchdog Energywatch, said that the price rises were not a surprise owing to the picture across the industry.

"The brakes have come off the market," he told the BBC.

Delays in liquefied natural gas ventures led by Exxon Mobil Corp. and Chevron Corp. may pare global supplies by 100 million metric tons, more than the annual demand of South Korea and Japan, the world's biggest importers.
Projects in Australia, Nigeria, Algeria and the Baltics have been shelved or postponed, prompting the capacity shortfall by 2013, said Ian Angell, vice president of gas and power at Wood Mackenzie Consultants Ltd. The deficit, enough to power 250 million homes, will cause spot LNG prices to trade at parity or at a premium to oil, he said.

Prices of the fuel have increased sevenfold in the last five years to a record $20 per million British thermal units while the rate of project approvals last year missed forecasts, adding to concern supply will be insufficient to meet demand. Global LNG trade rose 7.3 percent last year, outpacing crude oil's 1.2 percent, according to the BP Plc Statistical Review of World Energy June 2008.

"There's an increasingly higher linkage between LNG prices and oil prices given the overall shortage in Asia," Angell, 46, said in an interview with Bloomberg television today. "The reduction in scheduled capacity is really impacting the supply side."

Projects from Australia to Nigeria may have produced about 88 million tons in the first six months of 2008, Andy Flower, an industry consultant and a former executive at BP Plc's LNG business, said on Aug. 18. He expects output to rise by 14 percent or about 25 million tons next year.

Alternative Fuels

Demand for alternative fuels such as LNG and coal will continue to rise amid a slowdown in global economic growth because both are used by power generators with a longer planning horizon, Angell said.

Asian coal prices have more than doubled this year to records on rising consumption and railroad and port bottlenecks in Australia and South Africa, the world's biggest suppliers.

"Power decisions are being made in Asia not by 1-year or 2-year growth projections but long-term projections, which remain robust in China, Vietnam and other countries in Asia," Angell said.

Demand for spot LNG cargoes has climbed in Japan after the shutdown of the world's biggest nuclear-fired power plant last July, Angell said.

Gas now accounts for 26 percent of the nation's power generation fuel mix, compared with 23 percent earlier while nuclear's contribution has declined to 21 percent from 25 percent prior to the closures, Angell said. Demand for oil and gas used in power generation increased by 15 percent last year.

China's industrial heartland is facing crippling power shortages, with more than a dozen provinces already rationing electricity.

The country is suffering from its biggest power crisis since 2004, when a 40-gigawatt shortfall left three quarters of China in the dark.

Since then, demand for electricity has doubled, but the government has fixed the prices of both coal and electricity below the market rate to try to keep a lid on inflation. China relies on coal-fired power stations for more than 80pc of its electricity generation.

Yesterday, the government raised the price paid by the state-run power grid for electricity by 5pc. It was the second time in a month that the government has upped prices to encourage loss-making generators to bring their plant back online. It insisted, however, that consumers would not see electricity price rises.

Last month, China set up a National Energy Administration (NEA) in order to mastermind an electricity strategy, while a high-level task force was set up earlier this week to negotiate the tricky path between securing energy supplies and avoiding faster inflation.

Zhang Guobao, head of the NEA, said the task force would concentrate on ways of getting more coal to generators and to encourage energy conservation. "The demand for power is growing more quickly than the supply of coal. There is a lack of coal," he said.

The government has forecast a shortfall of 2pc and was only able to guarantee constant electricity for Shanghai and Beijing. Ting Lu, an economist at Merrill Lynch, predicted that more price rises would have to come for both electricity and petrol before the year is out. Fuel prices were raised by 18pc two months ago.

In the northern province of Shanxi, the population of almost 34m people is having to contend with regular blackouts and the local administration has forecast a five gigawatt shortage this summer and put its industry on strict rations.

Shanxi produces nearly one tenth of China's aluminium and a fifth of its steel, but power-hungry smelters have had to curb production.

The Olympic Games have also exacerbated problems with electricity supply. To make sure the lights in Beijing stay on, the government has moved stockpiles of coal from the neighbouring Shandong province.

The amount of power available to businesses in Shandong has fallen by around a third in August, leading some factories to run assembly lines at night or to shut parts of their plants.

As the Olympic Games opened, Yiantai, a Spandex maker in Shandong, was forced to declare a three-month shutdown to the market and a 110m renminbi (£8.6m) hit to sales.

Some of the biggest problems have occurred in Guangdong, the centre of China's manufacturing belt, where rail lines have not been able to transport enough coal to fire generators. Guangdong is forecasting a 6.5 gigawatt shortfall, nearly 10pc of its capacity.

Meanwhile, producers are upset that the government has fixed the price of coal for the rest of the year.

The government has had to crack down with a high export tariff on miners that tried to sell their coal overseas. But even inside China, the mines prefer to sell to richer chemical and fertilizer companies, which can illicitly pay more than the stricken power generators.

The Communist Party was forced to issue a strong rebuke to the mines, insisting that they stick to the fixed rates.

Venture capitalists’ growing appetite for companies working on technologies to improve large power grids was underlined on Wednesday after investors put $40m into Trilliant, a Silicon Valley so-called smart grid company.

The investment by MissionPoint Capital Partners of the US and Zouk Ventures, a London venture capital group, marks one of the biggest in a string of funding deals for smart grid groups.

At least half a dozen other smart grid funding deals have been struck this year in a boom in government support for technologies that improve power grid monitoring and management.

Smart grid technologies aim to use IT tools to improve the efficiency and reliability of traditional power grids, whose technological underpinnings date back to the 19th century.

The technology can also help smooth the integration of alternative supplies of energy, such as wind or solar power, into existing power infrastructure.

Smart grid technologies could allow utility groups to better manage the loads on networks by raising prices at times of peak demand. That would encourage customers to perform non-essential tasks at times of lower demand, to save money.

US energy regulators have suggested that a 5 per cent improvement in energy efficiency of US power grids would save energy equivalent to 42 large coal-fired power plants. Bill Vogel, Trilliant’s chief executive, said the funding would “significantly accelerate” the company’s push to become a leading smart grid company.

Trilliant, founded in 1985, makes networking and information technologies that allow power utilities to get a better picture of the power demands on their networks and better manage the provision of energy across them.

Its customers include Duke Energy, the US oil and gas group, and Hydro One, a Canadian power utility.

Trilliant said it would use the money to accelerate growth and expand overseas.

Other funding deals are a $23m investment in BPL Global, a smart grid rival, led by Morgan Stanley, and a $17.4m investment in Silver Spring Networks, a networking company focused on power grids.

It's often remarked that new buildings in the Gulf appear to pop up at the speed of light.

Unfortunately, it now seems that Gulf development has overtaken even that pace - and as a result the region faces a dark immediate future. The runaway growth of the Gulf economies means that we are on the verge of a power supply crisis.

A recent report by analysts at Global Insight warns that while power consumption is expected to rise 50 percent over the next five years, power generation will only increase by 30 percent over the same period.

While the Gulf holds around 30 percent of global oil reserves and 8 percent of its gas reserves, it seems that we are no longer capable of keeping home fires burning. In the middle of a long, hot summer, we simply don't have the means to meet the peak demands for power in the Gulf.

A combination of high population growth, rapid industrial expansion and a rampant construction sector has meant that the Gulf's astonishing growth may actually hinder its chances of future prosperity. In the race to build the biggest and best, the GCC is about to pull up with a painful stitch.

Industrial projects are being scrapped, hospital wards are blacking out, and otherwise completed residential units are lying empty without the means to power lifts or even light bulbs. This in a region where insufficient supply of residential units is driving rental prices through the roof.

While Gulf governments scramble to cover the shortfall, the truth is that peak-demand power cuts are inevitable over the coming months and years. We can't turn back the clock, and it's too late for investment in infrastructure that should have been made five or 10 years ago.

To follow South Africa's lead - that is, scheduled blackouts agreed between utility providers and big consumers such as industrial clients, hotels, universities or residential blocks - may be the only option in the short term, as proposed nuclear and even coal-fired plants will take years to build and come online.

Part of the solution no doubt lies in the $1.6bn multilateral GCC power grid, a project that will supply electricity to Qatar, Saudi Arabia, Kuwait, Bahrain, the UAE and Oman.

The importing of gas should ease the burden too, and the $7bn Dolphin Gas project will prove an invaluable lifeline between Qatar and the UAE. Nevertheless, not all Gulf countries have yet accepted that importing gas may be the only way to meet soaring demand.

At the same time there will be a move towards alternative energy and substitute gas sources such as sour gas and tight gas - but again, it will be a few years before your air conditioning unit is running on wind power alone.

In the meantime, the Gulf's candle makers can look forward to a busy few years.

The amount of solar photovoltaics harnessing electricity from sunshine in the U.S. will more than double by 2013, thanks to plans to build 800 megawatts (MW) worth in California. The two vast solar farms—covering more than 12 square miles—will be among the largest ever built in the world and dwarf the current U.S. record holder: Nellis Air Force Base in Nevada with 14 MW. In fact, the total amount of solar photovoltaics connected to the grid in the entire U.S. is just 473 MW at present.

"These landmark agreements signal the arrival of utility-scale PV solar power that may be cost-competitive with solar thermal and wind energy," said Jack Keenan, chief operating officer and senior vice president for utility PG&E, which made the deal, in an announcement yesterday.

Once fully operational in 2013, the two farms would provide 1.65 billion kilowatt-hours of electricity per year—peaking in the afternoon on the sunniest days just when electricity demand is at its highest—enough to power 239,000 California homes or 800 Wal-Marts. Optisolar will employ 550 MW of its amorphous silicon thin-film solar panels at its Topaz Solar Farm project in San Luis Obispo while SunPower will install mechanical tracking for its more expensive 250 MW of crystalline silicon photovoltaics at High Plans Ranch II in a bid to boost their efficiency by 30 percent by following the sun across the sky.

Scientists at the U.S. National Renewable Energy Laboratory recently boosted the efficiency record of such photovoltaics to a full 40.8 percent, by using three layers of special photovoltaic material and the equivalent of the amount of light put out by 326 suns.

These plants won't have that luxury, though SunPower boasts the highest commercial efficiency at more than 22 percent. And although the two massive solar farms will help utility PG&E meet the California mandate of sourcing 20 percent of public utilities power from renewable resources, they may suffer financially if the federal government does not extend an investment tax credit program that rewards the development of such projects.

As Rhone Resch, president of the Solar Energy Industry Association told me earlier this year: "If the investment tax credit is not renewed, it will disrupt this high-growth sector, impact tens of thousands of U.S. jobs and undermine advances in clean energy production."

Waste-disposal units designed to turn leftover food into electricity and fertiliser could be built around every town and city as part of a scheme being considered by ministers.

The new generation of anaerobic digesters has been developed in a government-sponsored trial designed to find ways of solving the shortage of landfill sites.

They will be ideally located in suburbs because, unlike previous models, the new units are not reliant on farm slurry to provide moisture for the recycling process. Without the smelly transportation of animal waste, the prospect of plants in urban areas, will, the Government hopes, be a lot easier for residents to digest.

The ability to process waste on a commercial scale without using slurry was developed as part of a £30million trial in Ludlow, Shropshire, by Greenfinch, an engineering firm working with government backing, in partnership with South Shropshire District Council. It was prompted by the need to reduce the 16-18 million tonnes of waste food that is buried as landfill each year.

The merits of putting them near small villages have become the hot debate in the Radio 4 soap The Archers, where the community of Ambridge is at loggerheads over the proposed installation of a farm-scale unit.

Most waste food in Britain, including 6.7million tonnes from households, is disposed of in landfill sites where it decomposes and contributes to greenhouse gas emissions. The average person throws away four times their own body weight in food each year.

Pressure on space means that the country is running out of suitable sites for landfill and, with punitive landfill taxes introduced to encourage alternatives, digesters are increasingly being seen as an environmentally friendly solution.

Joan Ruddock, the Environment Minister, described Ludlow as “the way forward” after being given a tour of the unit this week.

She said: “Anaerobic digestion is extremely attractive. Why would we go on throwing food waste into holes in the ground when we could generate our own electricity and end up with a product that can be returned to the soil? It seems to me that a plant on this scale would fit into any industrial estate anywhere in the country. While the decision has to be taken locally - and in consultation with residents - I am sure this is the way forward.”

She added that she has taken to listening to the anaerobic digester saga on The Archers: “I try to listen to it when I can to see how they are getting on, but all I seem to have heard about lately is the Grundys' love life.”

David Woolgar, of Greenfinch, said: “The advantage of the new system demonstrated in Ludlow is the likelihood such plants can move into built-up areas.” He is confident that the plants offer a money-making option for councils and businesses.

Philip Dunne, Conservative MP for Ludlow, is an enthusiastic supporter of the digester and believes the technology will simultaneously help to solve the landfill problem and make a profit.

“It holds out the prospect of a commercially viable waste energy system which on its own should reduce local authority waste collection and disposal costs,” he said. At its maximum production level, the Ludlow digester should be able to generate 1,400 megawatt hours of electricity each year, and engineers expect to be able soon to harness the heat generated by the plant.

Anaerobic digester technology has been available for decades and more than 4,000 have been built in Germany. But besides Ludlow, only four other commercial-scale digesters, which in essence mimic the workings of a cow's stomach, have been built in Britain - two in England and two in Scotland - and there are fewer than a dozen farm-scale units.

The Government is so confident that anaerobic digesters offer a realistic means of dealing with food waste that earlier this year it offered £10million in grants to encourage the construction of further demonstrator plants. Plans for at least 60 are under way in Britain.

A variety of technologies for treating food waste are being investigated, but confidence in anaerobic digestion is high and Liz Goodwin of the Waste Resources Action Programme (Wrap), a government-funded body, said the number of plants built in Britain was about to rise exponentially.

Businesses are also showing increasing interest in sending their food waste to digesters rather than landfill and the supermarket Waitrose has just signed up to a trial involving five branches that will send food beyond its sell-by date to a biogas plant run by Biogen in Bedfordshire.

The commercial food recycling scheme is operated by Cawleys, which collects leftovers from organisations including the Treasury, city lawyers and Raymond Blanc's Brasserie in Milton Keynes.

Extract all the wave power you can from the Atlantic coast of Scotland and it would add up to the equivalent of about four nuclear power stations, says David MacKay, professor of natural philosophy in the physics department at Cambridge University. “It’s a very large amount. A ballpark estimate of what is required to get Scotland off fossil fuels is either 10 nuclear reactors, or 10,000 wind turbines.”

In terms of raw power, MacKay estimates that waves approaching Scotland’s coastline represent 30 gigawatts (GW). The tides beneath the surface have even more power — 60GW says MacKay. He calculates that 12.5GW of electrical power could be extracted from tide and wave — almost half of Scotland’s total energy consumption of 26GW.

With the UK government setting a target of 15% for clean energy by 2020 — and the Scottish Nationalist government an ambitious 50% target — the sea can no longer be considered as too challenging in which to work.

So why are we not forging ahead with this technology? The world’s first commercial wave farm has been developed and built by an Edinburgh firm, Pelamis Wave Power. Three of their football-pitch-sized turbines are bobbing about in the Atlantic — but off Portugal, not Scotland.

The government in Lisbon offers enough subsidy to make it commercially viable. The UK government — energy matters are reserved to London — is less encouraging, according to leading scientists.

This is despite the fact that the European Marine Energy Centre, a testing site for wave and tidal power, is based in Orkney. Its presence here, along with the work of our universities, makes Scotland a world leader in research into this vital alternative power source. But we need government help to transform our scientific and technical expertise into a commercial industry.

The UK government set up the Marine Renewables Deployment Fund, with a budget of £42m, to help firms develop projects, but no scheme has yet qualified for a grant. The Scottish government has been more supportive, with all of its £13.5m funding allocated.

Jim Mather, the energy minister, has described marine power as “the heart of our ambitions to develop a vibrant renewables sector”. John Griffiths, a non-executive director of the Orkney centre, is clear where blame lies. “In 1999 everybody was saying that come 2005 we should be moving towards a range of commercial tidal and wave devices. That time has gone and among the things that have held up progress has been a huge emphasis on wind. Some of the inertia has been evident from Westminster compared to the Scottish government. There is a dearth of funding in wave and tidal power.”

Turbines at sea are less controversial than windmills, whose presence has upset many communities. Islanders on Lewis who successfully opposed a giant windfarm have backed a recent application for a wave power station operated by Wavegen, an Inverness-based technology company, and Npower Renewables.

Orkney is to test a number of projects, such as Ocean Power Technology’s PowerBuoy system. Another, OpenHydro’s tidal turbine, was connected to the national grid last May, generating electricity to power up to 100 homes. But progress is slow when financial support is muted.

“The sea is a harsh environment,” says Peter Fraenkel, technical director of Marine Current Turbines, which installed a device in Northern Ireland’s Strangford Lough. Looking like an upside down windmill, the structure has the potential to generate electricity to power 1,140 homes. “The sheer force of fast moving water is horrendous,” says Fraenkel. “It takes modern engineering capabilities to come up with solutions. Marine power subsidies are not as generous as they should be.”

Some say Britain is making the same mistakes as in the early years of wind power. “We don’t have a wind industry because in the early days of wind turbine development it wasn’t taken seriously by government,” says Fraenkel. We did not invest in the technology, allowing Danish and German firms to develop it. Now they are making money across the globe.

Tide and wave power will need government help to become commercially viable. Otherwise they too could be developed abroad, and we will miss the chance of a lucrative industry offering highly skilled engineering and manufacturing jobs.

A man particularly aware of Britain’s neglect of renewables is Professor Stephen Salter, generally regarded as the pioneer of wave power. He invented a device in the 1970s called Salter’s Edinburgh Duck, which could extract 90% of energy from waves. But the UK government withdrew funding from wave power in 1982, many believe because of the influence of the nuclear industry.

“We’ve got a good resource and there was a lot of good engineering in the early days,” says Salter, professor of engineering design at Edinburgh University. “We can make ships, so we should be able to make these.”

Salter wrote an energy review document for the SNP two years ago that suggested previous calculations of the energy potential of the Pentland Firth, the deep body of water that separates the Orkney Islands from Caithness and is renowned for the strength of its tides, were underestimated.

He believes that if turbines can be designed to work on the bottom of the sea bed, 70m down, and be placed close together, up to 20GW of energy could be extracted from the firth.

Yet having spent 35 years in the field, he, too, is dismayed by the lack of drive from Westminster. “Marine power should be getting a different flavour of subsidies because the wind people are now building in such quantity they are getting their price reduction,” he says. “If we just go on the way we are, nobody will do anything except wind. I think there are still people around who don’t want it to work and who want to go to nuclear.”

Britain boasts almost half of Europe’s tidal stream sites — where the underwater currents can be used to drive turbines — and 47% of Eu-rope’s wave resource. Des Browne, secretary of state for Scotland, is robust in his defence of the UK government’s input, arguing that Britain has the “most comprehensive package of support measures for marine energy anywhere in the world.” He says Westminster is determined to commercialise the technology and has committed more than £100m since 2000. This includes the renewables fund that has still to allocate grants to marine projects and the new Energy Technologies Institute, based at Loughborough University.

“Wave and tidal power . . . could be key for sustainable UK electricity generation in the long term, and provide huge commercial opportunities. We want to lead the way, and that’s why we are undertaking a feasibility study on whether to support a barrage or another project to exploit the tidal power of the Severn estuary,” he said.

Griffiths is less convinced. “The government put into research and development for nuclear something like half a billion a year, for about 17 years,” he says. “If they had put 10% of that [into wave and tidal power] every year since 1999, the marine power situation would look different.”

Stretches of Britain's coastline are doomed and plans will soon have to be drawn up to evacuate people from the most threatened areas, the new head of the Environment Agency warns today.

In his first interview since taking office, Lord Smith of Finsbury says Britain faces hard choices over which areas of our coast to defend and which to allow the sea to reclaim. He said detailed work was already far advanced on identifying areas of the east and south coasts which were most vulnerable to erosion, and called on ministers to give emergency help to families whose homes will be lost.

In a wide-ranging interview, Lord Smith, a former cabinet minister, also warns that the Government is not taking the environment seriously in a series of key projects. He says:

*Building a third runaway at Heathrow Airport would be a "mistake" because of pollution and aircraft noise;

*Plans for a new generation of coal-fired electric power stations should be abandoned until the Government is certain they will not pump out harmful gases;

*The proposed Severn barrage will destroy fish stocks and wreck bird habitats.

Lord Smith disclosed that the agency was drawing up projections of where sea erosion will do most damage over the next five, 25, 50 and 100 years. It is also factoring in the additional problem of the threat to low-lying areas from rising sea levels. "This is the most difficult issue we are going to face as an agency," he said. "We know the sea is eating away at the coast in quite a number of places, primarily – but not totally exclusively – on the east and south coasts. It's a particularly huge issue in East Anglia, but in quite a number of other areas as well."

Lord Smith, a former culture secretary, promised to do his "level best to try to defend communities where there are significant numbers of properties under threat and where it's possible to find engineering solutions".

But he said the agency, working with ministers, would have to identify "priority areas" and warned: "We are almost certainly not going to be able to defend absolutely every bit of coast – it would simply be an impossible task both in financial terms and engineering terms." Suggesting that parts of north-east Norfolk and Suffolk faced the most immediate danger, Lord Smith promised to work closely with the communities involved to achieve as much "consensus" as possible over which coastal stretches to protect.

He said: "We will publish next year details of the work that's been done, where we think the particular threats are, where we think there is current defence in place. We will begin to talk with communities where we think defence is not a viable option."

He also said ministers could no longer rely on insurance companies to cover families who lost their homes, suggesting they would have to be rehoused at taxpayers' expense. He said: "We need to start having a serious discussion with government about what options can be put in place."

Lord Smith put himself on a collision course with his former colleagues over a number of important infrastructure projects championed in Whitehall. He dismissed the Department of Transport's insistence that building a new runway at Heathrow could be environmentally sustainable.

"The increases in volume of air traffic and the consequent increases in congestion on the ground are, from the analysis that we've done, pretty unavoidable," he said. "I think the Government is making a mistake and I will carry on telling them that I think they are making a mistake."

He opposed building a new coal-fired power station at Kingsnorth in north Kent – with others to follow – because he is not satisfied the promised technology to "capture and store" carbon would have been developed in time for its planned opening in the next decade. "My view would be that we should not go ahead with the development of a new coal-fired generation unless those [clean coal] technologies are in place and we can clean up the emissions."

Although he supported using the river Severn's huge tidal power to generate electricity, he said he was alarmed at the Government's support for a fixed barrier. "Effectively you would be destroying the fish populations of everything up the river system from the barrier. That is a major environmental downside."

Kazakhstan is considering pumping its oil through Russia as an alternative to the Baku-Tbilisi-Ceyhan (BTC) pipeline due to increased security concerns over the clashes in the Caucasus, a Turkish daily reported on Thursday.

A high level Kazakh official told Turkish business daily Referans that question marks now hang over the security of the BTC pipeline. "We could reconsider our decisions on sending Kazak oil to the world market. Changing the (export) route is in our agenda now," the official was quoted as saying by Referans.

The export of Kazakh oil through BTC had started in May and efforts are underway to supply the line from the larger Kashagan fields. Kazakh oil is seen as the key in plans to expand the BTC.

An official with the Turkish Energy Ministry said the expansion of the BTC line would only be possible with the supply of Kazakh oil. "There is some 50 million tons of oil there and it is unknown how this will be transported to world markets," the official told Referans.

When it reaches peak production in around 2019, Kashagan will produce up to 1.5 million barrels per day, enabling Kazakhstan to roughly double oil export volume to 120 million tons annually.

The BTC, led by BP, opened in 2006 and can pump up to one million barrels a day of Azeri crude to the Turkish Mediterranean port of Ceyhan, and is the first pipeline to carry large volumes of Caspian oil by-passing Russia.

A new 730-kilometer pipeline running from Kazakhstan's Eskene region to Kuruk is planned to be constructed, and oil will be transported from the Kuruk port to Baku via tanker. Once Kashagan oil is pumped into the BTC through Baku, the amount of oil arriving in Ceyhan is expected to rise to 75 million tons a year, up 50 percent from the current 50 million.

Among all the dramatic and doom-laden suggestions this week of how to deal with Russia after Georgia, one of the most naive must be the suggestion that we can somehow separate the politics from the commerce, playing hardball with the one and softball with the other. Tell that to BP. Tell that indeed to the Ukrainians, the East Europeans or the Baltic states in their price negotiations for Russian gas.

You can't separate politics from business, not in Africa, Asia and most of all not in the countries of the former Soviet Union. In the fall of the Berlin Wall it might have been possible to see Europe's future simply in terms of the spread of democracy and the autonomy of new states. The growing shortages of of raw materials, and particularly oil and gas, have changed all that.

In the first place, it has altered the bargaining power of Russia itself, as a major oil exporter in its own right. When the Russian state was in disarray and its assets in the hands of the oligarchs, the West as customers could play the game by their rules.Once energy went into short supply and the Russian state acted to retrieve its control of raw materials, the bargaining power moved across the table.

If that were all, that would be hard enough. But the part of the story that is only now developing – and the part that being so harshly illuminated by the Georgian crisis – is Russia's role as the distribution centre for the oil and gas discovered in the former Soviet republics along its southern border. Georgia is already the pipeline route for oil and gas from Azerbaijan. It was specifically developed by the West as a route that would bypass Russia on the route to Turkey and hence Europe.

The difficulty for Europe is that Georgia remains, for the moment, the only alternative route to Russia for supplies from Kazakhastan and Kyrgistan as well as additional supplies from Azerbaijan. The obvious non-Russian route would be by Iran, which has been nullified by the present policy of confrontation with Tehran. For the producers of the Caspian the choice is either Turkey via Georgia or Europe by way of Russia.

Not for nothing have Russian troops been firmly and visibly in possession of Gori, the Georgian town at which the Baku-Tblisi-Ceyhan pipeline hinges from Azerbaijan to the east to Turkey in the south. Nor is it for nothing that the Russians are so determined to send out a clear message as to who is in charge in their nether regions and how little the West can be relied on.

Presidents Bush and Sarkozy may see the Russian message of Georgia as directed against the West. In reality it has far more resonance, and is likely to have the greatest effect, on the other states of the Caucasus and Caspian. The Ukraine is irrelevant to what matters most. So are Poland and the Baltic states. Look to where the oil and gas are and there you will find the real interests of Moscow.

So should we be confronting Moscow in a battle for "spheres of influence", as Nato leaders argued this week? No, absolutely not. The very worst thing to do is what we did in Georgia and load a specific local situation with all the panoply of East-Westconfrontation. It is not in the interests of the countries concerned to play this. Many of them, such as Kazakhstan and Georgia (if the enclaves are included), have sizable Russian minorities and long-established relations with Moscow. They cannot afford to choose sides against their bigger neighbour, however much they may resent it.

But most also have commercial as well as political interests in encouraging alternative sources of investment and influence. If we were to regard Russia less as a rampant bear to be contained and more as a commercial competitor to be competed with, we would get a lot further. We have the money and the skills to offer and we present a countervailing influence, cultural as much as political, to Russia.

The trouble is that, even in straight commercial terms, we have let so much slip through our fingers. We have been terribly slow to commit ourselves to new pipeline plans, including the proposed Nabucco gas line. EU engagement through trade and aid is slight and diffuse, and attention is now being diverted by President Sarkozy's mad schemes for a Mediterranean Union. Europe still hasn't got a proper common energy policy. EU policy towards Iran is both futile and self-defeating.

This is far more a European responsibility than an American one, if only we'd pick it up and handle it effectively. Condi Rice, David Miliband and Nicolas Sarkozy got it precisely wrong this week. What we need in dealing with Russia and the former Soviet Republics is to play softball on the politics and hardball on the commerce.

The United States and Poland signed a deal in Warsaw on Wednesday to station elements of a US missile defence shield on Polish soil, in a move accelerated by Moscow’s intervention in Georgia but billed as not targeting Russia.

The site in Poland hosting 10 interceptor rockets, and a giant radar in the neighbouring Czech Republic, will form the European part of a global system that Washington says it is assembling to shoot down ballistic missiles it fears could be launched by ”rogue” states such as Iran or terrorist groups.

Moscow reacted angrily to Wednesday’s move. Although Washington maintains that the interceptors would have no impact on the Russian nuclear deterrent, the Kremlin has long campaigned against the Polish base and the accompanying Czech facility.

Russia’s foreign ministry said that Moscow would “have to react” to the agreement “and not only through diplomatic protests”, according to Reuters news agency.

Some Russian politicians and generals have said Poland must be prepared for a preventive attack on the site in the future. Washington has dismissed such threats as empty rhetoric, while Poland called on the US to provide it with Patriot missiles to help counteract such a threat.

The Bush administration agreed after the outbreak of the Russian-Georgian conflict to station a Patriot missile battery in Poland full-time.

According to Wednesday’s declaration on Polish-US strategic co-operation, signed by Condoleezza Rice, US secretary of state, and Radoslaw Sikorski, Poland’s foreign minister, a garrison to support the Patriot missiles will be set up by 2012.

Ms Rice said of the missile-shield deal with Poland: ”This is an agreement that will establish a missile defence site here in Poland that will help us to deal with the new threats of the 21st century, of long-range missiles . . . from countries like Iran or North Korea.”

Russia sees the prospect of placing the shield in parts of central Europe that it used to control as a threat to its security. Moscow says the deal’s additional provision for US co-operation in the event of an attack on Poland by third states, and its conclusion after the intervention in Georgia, shows it is aimed at Russia.

The missile-shield deal will now need to be approved by the Polish parliament, which is seen as a formality because the government and main opposition party support it.

Nick Clegg will today unveil plans to make Britain an exporter of green energy by 2050, as he called for a programme "on the scale of the Apollo moon landings" to transform Britain's dependence on foreign oil, gas and coal supplies.

In an interview with The Independent, the Liberal Democrat leader demanded the scrapping of new nuclear and coal-fired power stations, instead proposing the establishment of a renewables delivery authority to oversee a massive expansion of wind, solar and wave energy, funded by guaranteed premium prices for green energy.

He said: "Renewable energy is no longer a pipe dream. It is realistic and achievable. All it requires is the leadership and vision that has been lacking under years of tired Labour thinking.

"That's why I will set out Liberal Democrat proposals to become energy independent by 2050. This will require the kind of ambition and political will that succeeded in putting man on the Moon."

During a visit to a wind farm in the North Sea Mr Clegg will lay out theoretical plans for all new homes to be built to world-leading standards of insulation, and for energy companies to be forced to spend £500m a year insulating the existing housing stock and installing energy-saving smart meters that measure how much power individual appliances use.

He will also outline the proposals for new green and wealth taxes to fund a 4p cut in the basic rate of income tax. It is the start of an autumn offensive to lay out the Liberal Democrats' tax-cutting credentials. Mr Clegg said he would outline in the coming weeks the first of a series of savings aimed at cutting £20bn from government spending, aimed at fulfilling his ambition of reducing the tax burden still further.

"I hardly drive a car any more," said Mr Clegg. "I bought an electric moped which I think is the technology of the future. I got rid of the leader's car shortly after I got in."

Mr Clegg repeated his pledge to double the party's current 63 seats in two general elections, dismissing Labour under Gordon Brown as having "run out of road" and attacking the "arrogance" of David Cameron.

Mr Clegg insisted his party was the true home for progressive voters and said that Labour's decline made him hopeful of major urban gains at the next general election. He insisted that the party's average poll rating of 18 per cent was a better springboard than at the same point in the previous two electoral cycles.

"Something very big is going on, particularly in urban Britain," he said. "Out of the 30 British cities, we now lead 12. That has been going on for years. That is where the great battlegrounds will be between ourselves and Labour at the next general election. There are a lot of seats up for grabs in those areas."

Mr Clegg dismissed suggestions that the Conservative resurgence could cut his number of MPs down to 35. He said he would target a "handful" of Conservative seats and said he was "working extremely hard" to hold seats where the Tories are challengers.

"[The Conservatives] think they deserve the keys to No 10 without having the decency to tell the voters what they would do if they got there," he said. "They have started to talk down to [Britain], telling voters the vote's in the bag.

"Millions of voters will start asking hard-headed questions about where's the substance, where's the beef, where's the consistency behind all the photo opportunities." He added: "On every single major issue facing us we have called it right, called it earlier than the other two parties and been on the side of the British people."

View policy doc - ODAC Editor

New York City will likely benefit more from energy efficiency and conservation than mounting wind turbines on city skyscrapers and bridges.

Mayor Michael Bloomberg this week asked renewable energy developers to propose ideas for generating wind energy and other pollution-free power sources within the city's five boroughs. Along with offshore wind farms, other ideas included tidal and solar power and geothermal energy. Responses are due Sept. 19.

"Most of what New York can do is on the conservation side," Bloomberg said at a New York press conference yesterday. Reports in the New York Times and New York Post suggested wind turbines might be built on top of bridges and skyscrapers. "Windmills are no panacea for our problems," Bloomberg said. "They can help, just like biofuels can help, just like tides can help. In the end, it is conservation that is the main thing you and I can do."

U.S. cities consume 75 percent of all electricity and contribute about the same amount of greenhouse gasses. The much smaller German city of Aachen, with a population of 246,000, began a similar effort back in 1993 and it helped spur a development program that made Germany the world's biggest producer of solar and wind power.

"We've got to count on mayors to lead in renewable power because they've got the clout to get permits approved and utilities on board," said Paul Fenn, chief executive officer of San Francisco-based Local Power Inc., which advises cities on developing renewable energy.

San Francisco's Plan

San Francisco, with a population of 744,000, has the largest plan in the U.S. to bring renewable energy development to its city limits, with a goal of reaching 51 percent of its power production from solar, wind and other renewable energy sources by 2015. New York, with more than 10 times the population of San Francisco and the largest in the U.S., could surpass the renewable output of the West Coast city.

"We're not saying: 'Not in our backyard,"' Bloomberg said yesterday at the news conference. "We're saying: 'We'll do it.' There's enough sun here to make a major difference."

At a press conference in Las Vegas on Aug. 19, the mayor introduced a plan to reduce energy use in city buildings 30 percent by 2017, and conserve 220 megawatts during the hottest days of the summer.

A state law passed this month in New York forces utilities to pay homeowners and businesses for the solar, wind, and other renewable power they generate. That's similar to what Aachen's mayor enacted, a so-called "feed-in tariff" that Germany later adopted nationally.

Competing Sources

In the U.S, few cities have developed wind turbines because tall buildings occupy most of the land and disrupt breezes, making it difficult for the energy source to compete with natural gas and other fossil fuels.

"Turbulence makes urban wind development difficult," said Christine Real de Azua, spokeswoman for the American Wind Energy Association. "New York is more likely to get offshore wind parks than on top of buildings or the Brooklyn Bridge."

Areas with large abandoned factories could be ripe for development, Real de Azua said. Lackawanna, New York, a city south of Buffalo, installed eight turbines on the site of a decaying Bethlehem Steel plant. And Hull, Massachusetts, gets all of its electricity from wind generators built on its peninsula in Boston Harbor.

To be sure, New Yorkers are more likely to see solar panels and green gardens on rooftops than wind turbines. Even offshore wind farms have run into opposition because of surging costs.

Long Island Leadership

"I want Long Island to be a leader in renewable energy but the cost of the proposed offshore park was just too great," said Long Island Power Authority Chairman Kevin Law, who last year killed a project to build 140 offshore wind turbines after the cost quadrupled to more than $800 million.

"Bloomberg is on the right track but offshore wind has to be cheaper before we'll invest in it," Law said in an interview yesterday.

John Moore, chief executive officer of Acorn Energy Inc., said if anyone can make renewable energy work in New York, Bloomberg will do it.

"Congress can't seem to pass a renewable energy bill so it's up to cities to lead," Moore said. "Bloomberg is well- known for upending entrenched organizations."

Alternative energy is part of PlaNYC, the city's outline for improving the local environment and conserving energy by 2030. In June, the city received approval from the Legislature to grant tax breaks to the owners of private buildings switching to solar energy.

Bloomberg is the founder and majority owner of Bloomberg News parent Bloomberg LP.

Awful August, the weather forecasters call this unseasonably cold, wet month, as holiday-makers huddle against intermittent monsoon downpours, reminded that global warming doesn't necessarily mean a Mediterranean Britain.

Every month, reports from climatologists deliver worse predictions of the speed and tipping points for irreversible climate change. A 4C temperature rise is the latest warning: it would bring unimaginable horror in its wake. The time to act gets shorter, but the political will to act lags ever further behind the science that tells politicians they must do so. Latest figures, including air travel, shipping and energy used in our goods manufactured abroad, show no cut in Britain but an 18% growth in emissions.

If the market is the answer, soaring energy prices should drive down emissions. Road traffic figures showed a 2% drop in car use, with demand for petrol briefly 20% down - but already it is rising again as the price falls. On household energy - responsible for 27% of emissions - it's too early to know the effect of 30% price increases. But as one hour of an old-fashioned lightbulb still only costs 0.8p, energy prices may not be noticed by those who already consume most. Those who will make serious cuts are the poorest and debt-averse pensioners. Official fuel poverty figures are expected to rise to 5 million people this winter: more deaths are expected among the old and cold. Back in Labour's optimistic can-do days in 2000, the Warm Homes and Energy Conservation Act created a legal obligation to eliminate fuel poverty among the vulnerable by 2010, a target missed by so many light years that Friends of the Earth is seeking a judicial review to get the act enforced. Gordon Brown's plan to buy off the problem with £100 vouchers for the poor is no answer.

What does the public think the answer should be? The Institute for Public Policy Research has just conducted the most extensive consultation so far, with focus groups in Newcastle, Camden, Southwark, Bristol and rural Suffolk across all social groups, as well as a nationwide opinion poll and interviews with energy companies, climate change NGOs and consumer organisations. The results pointed in one clear direction.

Seventy-four per cent said they are "very concerned" or "fairly concerned" about climate change - so politicians can ignore the shrinking, unconcerned minority. Seventy-one per cent thought action was necessary to curb people's energy use. But there was pessimism about the public changing its behaviour: only one in 10 thought people would drive less or take fewer flights. Naturally, favourite choices were the painless ones - the cheaper, environmentally friendly options. Least popular was any system that taxed energy use.

They were offered three possible government actions. First, a carbon tax could be added to all energy not generated from renewables. Second, a cap on the amount of carbon that companies could emit in selling their energy to consumers would force them to generate more from renewables: they would pass on the extra cost to consumers. But both of these were regarded as too unfair, with the impact felt least by the wealthy who burn most energy.

Personal carbon trading was the most popular option: it was the fairest and it wasn't seen as a new tax. Here's how it works: each year everyone gets equal carbon credits to spend on petrol, home heating or air travel. People exceeding their quota can buy more credits. People who use less can sell credits. It encourages home insulation, energy saving and less driving or flying. Since low earners use less - 20% have no car, 50% don't fly - they can profit by selling to those with big houses, foreign holidays and gas-guzzling cars. It would be a powerful but voluntary agent for redistribution.

Failure to pursue personal carbon trading (or any other method) joined the long list of good causes killed by Labour cowardice. At Defra, David Miliband took it up with enthusiasm and commissioned a feasibility study, but after he made a strong speech advocating it, Gordon Brown at the Treasury banned any further mention. Miliband was moved away and what was called a "pre-feasibility study", limped out with the judgment that this idea was "ahead of its time". They guessed it would cost £2bn a year to run, threw up sundry obstacles, and the report disappeared.

Odd that a government with computers thinks it can't introduce a simple credit system, when a Nectar or Oyster card shows how easily home and car fuel bills and airline tickets could be deducted. Historian Mark Roodhouse of York University draws comparisons with his work on wartime rationing. Back then the state provided ration books for all, covering not just fuel but coupons valuing virtually every individual item in the shops from clothes to food.

Have we become more administratively incompetent since then? Roodhouse records the wartime internal debates about whether to cut national consumption by raising prices. "They concluded rationing was the only way to achieve dramatic cuts without feeding inflation or causing social unrest," he reports. They, too, considered making ration coupons tradable but decided equality of sacrifice was essential. But Roodhouse considers tradable carbon rations "would improve on the system, preventing black markets in unused coupons". The trading element makes carbon rationing feel more voluntary and less oppressive.

In distribution of wealth, Britain is now back to 1937 levels of inequality, regressing backwards every year: that's what makes any kind of carbon tax or reliance on high prices impossible, the burden falling too unfairly. Doling out ad hoc energy vouchers to the poor at the taxpayers' expense is the wrong answer, and it only adds to the poverty trap by making the step up harder to climb. Will Brown at least pay for it with a windfall tax on profiteering energy companies? But if personal carbon trading is "ahead of its time", that is exactly where we need to be. Cowardly political leaders dare not tell voters the plain truth that we need to cut energy use. If Miliband makes his run for the leadership, plain speaking about the climate will be one of his pitches - and bravery on personal carbon trading will be a test of candidates' seriousness about both climate and social justice.