Now even the International Energy Agency is worried about medium-term energy supply. The IEA, created by the wealthy countries in the Organization for Economic Cooperation and Development in the wake of the 1973-74 oil price increases, has for years projected uninterrupted growth in oil consumption, without clearly explaining where the new oil would come from in an increasingly tapped-out world. Last month, ahead of the G8 energy ministers' summit in Italy, the IEA had a different message: investment in energy production of all types is too low, and we face shortages when the economy rebounds.

The Vermont Energy Act of 2009 begins to heed this message, by spurring more investment in renewable energy and efficiency.

The IEA warning was in their background paper, "The Impact of the Financial and Economic Crisis on Global Energy Investment." As demand for oil and gas have dropped as a result of the global economic crisis, investment in the sector has also dropped. Tight credit markets have also restricted investment. The IEA estimates that exploration and development budgets for oil and gas in 2009 have already been cut 21 percent compared to last year, a drop of nearly $100 billion. In the seven months beginning last October, over 20 projects with over 2 million barrels per day of oil production capacity and 1 billion cubic feet per day of natural gas capacity were cancelled or put off indefinitely. An additional 35 projects, representing about twice that production capacity, were put on hold for 18 months or more.

For electricity, the IEA foresees a global consumption drop of as much as 3.5 percent this year, the first time electricity use has dropped since World War II. All things being equal, a drop in demand makes utilities reluctant to invest in more supply, whatever the source. A potential game-changer would be credible public commitments to phase out power generated with fossil fuels, like the Regional Greenhouse Gas Initiative that Vermont is part of. Agreements like RGGI could spur more investment in renewables, despite the drop in electricity demand.

Good policy is key for maintaining investment in renewables, says the IEA. Apart from stimulus spending directed at renewables, they estimate that investment could fall by nearly 40 percent in 2009.

The implications of the drop in energy investment are that any economic recovery will run right into the same energy scarcity that caused the 2003-2008 run-up in oil prices. Paradoxically, according to the IEA, "The faster the recovery, the more likely that such a scenario will happen." In turn, high energy prices are likely to plunge the economy back into contraction.

The IEA notes that about 5 percent of stimulus funding is directed towards efficiency and renewables, but says that it's too little. They recommend that governments quadruple their spending on efficiency, renewables, and other ways of reducing dependence on fossil fuels – and maintain that level next year and "every year for decades to come."

Vermont upped its investment in efficiency and clean energy this year with the new energy bill passed by the Legislature. Gov. James Douglas didn't like the bill, but apparently it was too popular for him to risk a veto override; he let it become law without his signature.

One part of the Vermont Energy Act of 2009 directs that federal stimulus funding for the state energy program will go to the Clean Energy Investment Fund, and that all monies received by the fund will be used to invest in renewable energy and efficiency, rather than lowering electrical rates in the short term. The Act widens the focus of the Fund to include heating projects, not just electrical efficiency.

Another section of the Act makes Vermont the first state in the nation to guarantee long-term, profitable contracts to developers of small-scale renewable electricity generation, such as wind, hydro, and solar. One third of the electricity on the New England grid is generated with natural gas. If the IEA is right that decreasing investments in gas production will lead to medium-term price spikes, it's an opportune time to invest in renewable electricity sources, whose fuel is free.

The Act also ensures that Vermont's residential and commercial codes are up to date with the latest national standards. Though building designers tell me that a lot of cost-effective efficiency measures are not in the standards, keeping Vermont's codes up to date at least raises the floor on building energy efficiency.

Another national first in the Act is statewide authorization for cities and towns to create "clean energy assessment districts." The districts can borrow money, at the low interest rates and long payback terms available to municipalities, to lend to property owners who want to use renewable energy or increase their building's efficiency. The long-term loans would make it affordable to invest in significant improvements with a payback time of 10 years or more; the savings each month would be greater than the amount due back on the loan. And the loans follow the property, so the owner has a financial incentive to invest even if the property might be sold in a few years.

The International Monetary Fund agreed last month with the IEA's background paper to the G8 energy ministers, that energy "supply constraints could re-emerge" in the medium term, because of lack of energy investment. Many experts go further and say that 2008 was the peak year for oil production, as geological constraints will prevent future supply increases no matter how large investments the oil industry makes. In any case, all the analyses converge on one conclusion: it's prudent and cost-effective to invest heavily in renewable energy, now and "every year for decades to come."

The Vermont Energy Act of 2009 starts to make some of those investments. They will plug some of the leaks of money out of the state; in 2008, for heating alone, Vermonters spent $1.4 billion, most of which left the state. I think many people will be surprised at how cost-effective these investments are.

Carl Etnier, director of Peak Oil Awareness, blogs at vtcommons.org/blog and hosts radio shows on WGDR, 91.1 FM Plainfield and WDEV 96.1 FM/550 AM, Waterbury. He can be reached at EnergyMattersVermont@yahoo.com.