With these words at OPEC's meeting last November, Venezuelan president Hugo Chavez gave notice of his intent, together with Iranian president Mahmoud Ahmadinejad, to use OPEC as a political weapon to hold to ransom the Western and developing worlds. In the face of such threats and with the price of oil climbing rapidly, Europe needs to assert itself to engineer a new, low-carbon energy future.

A 2006 Eurostat report found that the EU's energy demand was more than 1.5bn tonnes of oil equivalent per annum and that we depend on imports for 56% of our energy needs, mostly oil and gas. This dangerous dependency poses serious risks for Europe's future whether viewed through the lens of climate change or economic and political security. Nonetheless, Europeans can turn this threat into an historic opportunity, but only if we rapidly create a new energy paradigm.

Utilising lessons learned from the telecommunications revolutions, I believe that we can harness one of Europe's greatest assets – entrepreneurship – to revolutionise the way that we acquire and use energy, break our petroleum dependence and stimulate innovation and job creation. The decision of governments in the 1990s to reinvigorate the telecommunications industry by granting wireless phone licenses to newcomers and bypassing the incumbents opened the marketplace to new and innovative players. Licenses were awarded to those applicants who could credibly commit to the widest coverage, fastest rollout, best services and applications and lowest tariffs. The policy was a roaring success. The incumbents, after years of pretending to innovate, were suddenly forced to catch up.

The Libertas Institute proposes such a new departure in the establishment of a European Energy Innovation Fund which will award licenses and matching funding to a limited number of new, carbon-neutral entrants to the energy market with the best proposals for the production of electricity, transport fuels and heating judged on criteria including technological innovation, cost to consumers and fastest and most efficient rollout. The fund could be endowed with a portion of the proceeds of the European member state auctions of CO₂ emissions allowances, through a supply-side tariff on consumption of oil and gas or a combination of both. For example, in the period between 2005 and 2007, some 6.5 billion tonnes-worth of emissions allowances were allocated by national governments as part of the EU carbon-trading scheme (ETS). At a projected mean price of €30 per tonne between 2008 and 2012, member states could theoretically raise around €200bn from these auctions, creating a fund of about €80bn over the period of the competition.

An independent panel would assess the submissions for funding from new entrants to the energy market, which would attract matching funding from private equity and debt sources. Conditional, time-limited licenses to produce different forms of energy, together with funding, would be awarded to successful entrants. If we are brave and pursue this path, 20 years from now we will have produced a number of major nonpetroleum and gas energy players. The likely spin-offs in job creation and significant political and environmental benefits will be enormous. As a consequence, we will have revolutionised energy, made history and taken major steps towards energy security. In so many respects, the world might breathe a little more freely.

Declan J Ganley is the president of The Libertas Institute, an independent think tank which encourages Europeans to engage with their future