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By Jules Kortenhorst
CEO of Rocky Mountain Institute

Forty years ago, the United States and much of Europe learned difficult lessons about their dangerous addiction to fossil fuels. Following Israel's victory in the Yom Kippur War, the Arab members of the Organization of the Petroleum Exporting Countries (OPEC) announced an oil embargo on Israel's supporters. Developed countries, faced with the sudden cutoff of a key energy source and a major spike in world oil prices, felt powerless.

But, as it turned out, developed countries did have options for reducing their dependence on Arab oil. They just had not recognized - or had not cared to recognize - the need for action until OPEC had them over a barrel.

While consumers waited in long lines - and even fought - to fill their gas tanks, governments attempted to encourage innovative solutions by, for example, raising efficiency requirements for automobiles and certain appliances, like refrigerators. In 1977, the US created the Department of Energy (DOE); a year later, it enacted the National Energy Act, which employed tools like industrial regulation and tax incentives to promote fuel efficiency and renewable energy.

These efforts led to major improvements in energy efficiency. From 1973 to 1985, US energy consumption per dollar of GDP declined by 28% - five times faster than during the previous quarter-century, according to the DOE.

But the corresponding decline in demand caused the price of oil to plummet in 1986, ushering in a new era of cheap energy. This facilitated a two-decade-long economic boom, while reducing pressure on governments to sustain the momentum of progress toward greater energy efficiency.

But oil prices do not reflect the true costs of fossil-fuel consumption. Beyond the economic and human costs of wars fought to maintain reliable oil supplies are the tremendous costs - which are set to rise substantially in the coming years - associated with human-induced climate change.

The recently released Fifth Assessment Report of the United Nations Intergovernmental Panel on Climate Change (IPCC) provides further evidence that human-induced climate change is happening. Continued greenhouse-gas emissions on the massive scale of today would have devastating consequences, including more frequent and more intense weather events.

Reversing this trend demands urgent action. As was true in the 1970's, innovation is the key to effective solutions. But, unlike 40 years ago, governments cannot be expected to drive progress.

In recent years, governments have clearly demonstrated their lack of willingness to pursue the kind of bold policies and regulatory action that are needed to curb climate change. Indeed, since world leaders failed to achieve a climate-change agreement at the COP15 conference in Copenhagen in 2009, the issue has remained on the back burner, with policymakers focusing instead on containing the fallout of the global economic crisis. The recent budget gridlock in the US will only reinforce this approach. While many would welcome top-down solutions like those that emerged in the 1970's, such outcomes are unlikely in the foreseeable future.

Fortunately, there is another way. Business-led innovation and market-based solutions can drive a decisive global shift from crippling fossil-fuel dependency to more efficient renewable-energy systems.

Rocky Mountain Institute's Reinventing Fire analysis shows that such a future is possible, offering market-driven strategies for powering a US economy that is 158% larger in 2050 - without reliance on oil, coal, or nuclear energy. Swift and determined action to make buildings more energy-efficient, design automobiles that require little or no fossil fuels, and increase the share of renewable energy in the electricity supply could ensure that the substantially hotter and less pleasant world of 2050 that the IPCC warns against does not materialize.

Our livelihoods, not to mention those of future generations, should not be held hostage by our ongoing addiction to fossil fuels. Four decades ago, countries not only endured the immediate economic impact of the OPEC embargo; they leveraged the potential of the resulting oil shortages to spur innovation. Today, the world needs the same kind of bold action - but this time, it is up to the market to provide it.

Copyright: Project Syndicate