NS4960 Spring Term 2017 Bernell and Simon Chapter 1 Panama Key issues 2016 Inclusive Growth in Panama

Outline Energy Security as a Concept Conceptualizing Energy Security Approaches taken Major assumptions Trade-offs with other goals Time horizon – long vs. short Conceptualizing Energy Security Narrow vs broad definition Energy independence Government vs. Markets

Overview I Bernell and Simon, The Energy Security Dilemma, Chapter 1 Main orientation of volume Analyzes the energy security of the U.S. – its ability to obtain reliable, affordable and sufficient supplies of energy while meeting goals of achieving Environmental sustainability and National security

Overview II Main premises Economic and national security of the U.S. is largely dependent on fossil fuels, especially oil Without significant changes to current practices and patterns of energy production and use, the domestic and global impacts – security, economic and environmental – are expected to become worse over the coming decades. Growing US and global energy demands need to be met and anticipated impacts of climate change must be avoided all at an affordable price while avoiding conflict with other nations that have similar goals

Overview III Approach taken Examine the current and prospective landscape of American energy policy from: Tax incentives and mandates at the federal and state level to promote alternative energies Foreign policies designed to ensure that markets and cooperative agreements control the supply and price of energy resources

Overview IV Look at variety of energy related challenges facing U.S. and argue that public policies designed to enhance energy security have at the same time produced greater insecurity in terms of Fostering rising (and potentially unmet) energy needs National security threats Economic vulnerability and Environmental dangers

Energy Security as a Concept I Energy security can be defined in a variety of ways: Narrow definition Relative abundance and ready access for a nation Broad definition Range of concerns comprising Energy type and quality, Affordability, Cleanliness vis-a-vie environmental degradation Diversity of sources and reliability of the supply chain and infrastructure

Energy Security as a Concept II Authors chose broad definition Energy security refers to the ability to obtain Abundant, Reliable, Affordable Diversified supplies of energy (in terms of both fuel types and their geographic sources While also meeting goals of Achieving environmental sustainability and Enhancing energy independence

Energy Security as a Concept III Energy independence – controversial term meaning different things to different people Usually something in between total energy self-sufficiency and the diminished role of foreign-supplied oil At present economic and national security of US is largely dependent upon fossil fuels, especially oil Global demand for and completion over these resources is growing Central argument Effort to achieve energy security contains its own contradictions and obstacles – the energy security dilemma.

Energy Security as a Concept IV Energy security dilemma – circumstance in which the pursuit of such security involves goals and tradeoffs that can be Inherently contradictory as well as Costly and inconvenient. Rather than focusing primarily on geopolitics aim of volume is examine this dynamic as it plays out in the U.S. That is the way in which energy markets operate, but which is also both a response and contributor to this dilemma

Energy Security as a Concept V The market plays a critical role in both driving and responding to the diverse elements of energy security Market for energy however high complex global construct characterized by many competing interests and values As society demands an abundant supply of reliable, modestly price energy that does as little environmental damage as possible we turn Not only to the market and technology to meet these demands but also Governments that will through public policy shape conditions under which global and national markets operate – especially when expectations are not being met by market-based incentives in play

Energy Security as a Concept VI Government policy can distort markets in unfavorable and unproductive ways However government intervention has been successful in addressing problems of: Market failure Inequity and Adverse social impacts In democracies governments tend to represent values of their citizens. Government policy becomes a principal method of recognizing and reinforcing those preferred outcomes that are most important to citizens

Energy Security as a Concept VII Example – oil shocks of the 1970s Greatly affected consumer perspectives on energy as a policy priority, and Had a major impact on public policy formation When petroleum supplies tight and price spikes occurred, US Imposed price controls and Developed the Strategic Petroleum Reserve (SPR) and At various times US presidents have released petroleum reserves from SPR to affect oil availability at refineries and prices at the pump

Energy Security as a Concept VIII Sometimes energy markets themselves have proven to be a threat to energy supply, prompting public policy intervention Case of the deregulation of the California electricity market in the late 1990s Enron was one of the major energy traders in the California market and active in energy markets nationwide Enron’s market manipulation and fraudulent accounting practices led to the failure of the energy market with rolling blackouts and the need for state government intervention to stabilize energy supply through purchase of highly inflated energy contracts

Conceptualizing Energy Security I Absolute energy security not an achievable state However a continuum of a range of state or conditions between energy security (desired) and energy insecurity (not desired) Each point along the continuum poses its own benefits, costs and risks of failure Every state or condition poses some form of risk to energy availability and price as well as their associated political, economic and environmental impacts. Various authors use this framework as the starting point in their definition of energy security.

Conceptualizing Energy Security II Daniel Yergin – broad and inclusive definition Objective of energy security to assure adequate, reliable supplies of energy at reasonable prices, and in ways that do not jeopardize major national values or objectives Focus of energy security concerns is on the shocks or interruptions in supply that can lead to sudden sharp decreases in supply and impose heavy economic and political costs This definition of energy security demands a great deal for absolute satisfaction

Conceptualizing Energy Security III Does the definition ask too much? Possible that energy supplies will reflect the cost not only of current supplies, but also of ensuring future supplies That objective could be accomplished through regular exploration for new energy resources or through intensive efforts to protect supply chains If these costs rise, likely they will be passed on to consumer in form of higher prices Is a possibly elevated per unit price for energy something that is “reasonable”? From position of free market energy trader the price would be very reasonable Consumers might hold a different view.

Conceptualizing Energy Security IV Yergin’s broad definition also points to the role of “values” A unit of energy is fully fungible in any market and holds no single national identity Once the energy source enters the free market, energy simply a commodity to be bought, sold, or traded and used by the final purchaser in the chain running from original source to final buyer The energy source might be reasonably priced and represent an excellent source of regular and reliable energy supply Yet the energy provider – the leaders of the energy exporting nation might be human rights violators Would bother some consumers if they knew the situation

Conceptualizing Energy Security V After assessing several other approaches to energy security authors go on to develop their own definition that centers on several components: Abundance of energy supplies Reliability of energy sources Affordability of energy sources Diminishing the human and environmental impacts of energy production and use Diversification of energy sources