WATCHING THE WORLD INDUSTRY'S BIGGEST CHALLENGE

John Collins, the next chairman and chief executive of Shell U.K. Ltd., one of the Royal Dutch/Shell Group's biggest subsidiaries, had no doubts when he named global warming as the biggest challenge facing the energy industry.

Collins said if the question were posed to any oilman or manager in the energy business the same answer would be forthcoming. He would certainly be right if the questioning were restricted to Europeans.

At a conference in Scotland, attended mainly by people outside the oil business, Collins said the global climate is threatened by buildup of man made emissions of carbon dioxide, partly from burning fossil fuels.

INTERNATIONAL ACTION

While Collins conceded that the understanding of the long term climatic effects is subject to many uncertainties, Collins said the consequences of man made global warming are so worrying that concerted international action is clearly called for.

At the moment, the world economy and sustenance of the growing billions dependent on it require increasing supply of fossil fuels. But the world has to think strategically and plan in terms of decades, he said.

Collins used the U.S. government estimate that, having taken the easy measures, reducing emissions of "greenhouse" gases by 20% during the next 15 years will cost $100-200 billion/year.

This estimate illustrates the danger of hasty, ill considered action that leads to waste and misallocation. With such large resource costs at stake and such complex tradeoffs, efforts must be directed on the basis of rational analysis and careful priority setting, he said.

Above all, expenditure must be targeted to where it yields the most benefit, regardless of national boundaries. Any analysis must be comprehensive, covering the entire cycle of energy production and consumption, as well as ensuring energy savings.

Collins said the electric car might be a popular idea in environmentally sensitive California, but the entire cycle should be considered, including generation of electricity and supply of fuel for power stations.

Collins emphasized the value of upfront spending for information gathering and analysis.

There invariably is a big payoff from defining problems more precisely and assessing more accurately the means to solve them.

WHAT'S POSSIBLE

Looking at the scope for immediate action in the U.K., he said energy demand could be reduced by at least 20% by use of existing technology under conventional economic criteria. Advancing technology carries the prospect of efficiency improvements of about 30% during 20 years beginning in the mid-1980s.

It is the competitive market that has the potential to release innovation, investment, and economic efficiency, Collins said.

"Regulation still has its place, but it should be seen as a complement to the market system," he said. "The challenge lies in finding, for each need, the right mix of regulation and economic incentives."