Now that a new political year has started, it may be useful to ask what exactly are the most important parameters that should go into any energy policy mix. I have identified seven – which I have dubbed the Seven Steps to Energy Policy Heaven. The nice thing about my “energy policy model” is that it may come in handy – even if you totally disagree with my ideas.
Photo: Heaven visited me by Kevin Dooley
Energy, as we all know, is different from other business sectors in that economic factors are just one of the parameters that go into the decision-making process. That of course is what makes energy such fun to begin with.
But what are these parameters exactly? I have come up with seven “considerations” that I think should go into any energy policy mix. If you take all these into account, then at least you can say you have covered the bases and produced a comprehensive policy. That doesn’t necessarily make it a good policy – unfortunately, right and wrong can’t be caught in a model.
So here are my seven Energy Policy Parameters.
1 Climate change
At this moment, the paramount consideration of energy policy is no doubt the impact the production and use of energy has on the climate.
As a policymaker (or analyst) you immediately seem to find yourself at a fork in the road here: either you follow the path that says greenhouse gases, produced by human activities, are causing catastrophic global warming or you take the path that says global warming is bunk.
In fact, however, this picture is far too black-and-white. Other, more nuanced views are possible. To start with, there certainly is scientific agreement on the fact that there exists a natural greenhouse effect and that the extra CO2 (and other greenhouse gases) mankind is emitting is enhancing this effect. The disagreement really is by how much. In other words, the climate change debate really is about the sensitivity of the climate to a rise in greenhouse gas concentrations.
The prevailing idea is that a greenhouse gas concentration of 450 ppm is likely to lead to an average worldwide temperature rise of 2 degrees Celsius (an assumption that, among others, the International Energy Agency uses in its policy analyses). But this idea is not indisputable. Some argue that this actually underestimates the climate’s sensitivity to CO2, but I think the evidence rather seems to suggest the reverse. Greenhouse gas concentrations have already passed the 400 ppm mark, and what we are seeing is that global warming has stalled since 1998. Even the IPCC, the official UN climate change body, has acknowledged that the world has not gotten any warmer in the last 15 years (as reported, for instance, by Reuters and – even if indirectly – the Guardian).
Now this global warming “pause” does not disprove the global warming theory (recently an explanation was offered, though it does not necessarily support the IPCC line), but it does show that there are other factors at work that influence the climate and that have not been heeded sufficiently so far. In other words, the 450 ppm mark is arbitrary and may not trigger the temperature rise that many assume will take place.
There are two additional points to be noted. First, a modest rise in global temperatures has by and large more positive than negative effects. It is not a disaster. (A steep rise would be a disaster, to be sure.)
Second, all the talk about “extreme weather events” is misleading. Whenever there is a heat wave, a cold wave, a drought, a flood, a hurricane, a tornado, a tsunami, a forest fire, or what have you, it immediately gets linked to global warming nowadays, but this has nothing do with science. To illustrate: this blog post recalls a year when 254 people died in tornadoes in the US, 91 people died of a heat wave in New York City and temperatures reached 53 degrees Celsius in Parker, Arizona. The year was 1905.
So there is a third road in energy and climate policy and that is: don’t panic, but work steadily to reduce greenhouse gas emissions over the long term. At the same time, take measures to adapt to climate change and “extreme weather events”, which will happen in any case, whether caused by humans or not. (And of course: stay open to new scientific insights, whichever way they point.)
Based on just this one parameter, then, energy policy should be primarily aimed at the long-term reduction of fossil fuel use – coal first of all, followed by oil, then by gas – and at stimulating any form of energy that does not lead to the emission of greenhouse gases (notably, renewables and nuclear power). (A possible alternative – again, based only on this criterion – would be to combine fossil fuel use with carbon capture and storage.)
One – in my view – practical way in which such a climate policy could be cast is in the form of a carbon tax that gets higher as the temperature rises (http://energypost.eu/index.php/finally-a-brilliant-plan-for-a-climate-policy-that-should-please-everyone/). CO2 emission trading is of course another possibility.
Climate change and pollution are often confused in the public mind, but they are two very different things. CO2 is not a pollutant (as this very misleading text by National Geographic suggests) – on the contrary. Nor is the problem of pollutants that they contribute to global warming. The problem is that they harm human health or damage the environment.
I don’t need to explain what the most important pollutants are – sulfur dioxides, nitrogen oxides, carbon monoxide, toxic metals, radioactive waste, particulate matter (fine particles), volatile organic compounds, toxic metals – or combinations that lead to smog or ozone. Fortunately for the energy policymaker there is legislation in place in most countries to deal with pollution, although there may still be scope to further reduce it, and new knowledge may lead to the identification of new dangers.
On the whole the worst forms of pollution are (as with climate change) associated with fossil fuels, in particular coal and oil. Think of air pollution but also for example of oil spills. Pollution thus provides an additional reason to reduce fossil fuel use.
There are other forms of pollution, however, that should be taken into consideration, in particular those associated with land use, e.g. the destruction of forests or other precious natural landscapes, as well as “visual pollution”. With regard to land use biomass and biofuels score low marks, if and when they require precious land to be diverted to growing energy crops. The energy density of fossil fuels is a big point in their favour here: they are the equivalent of “intensive farming” in agriculture. As Matt Ridley writes in his book The Rational Optimist, if the world turns to energy from food crops in a big way, it’s “goodbye rainforests”.
With regard to visual pollution, most people would probably agree that wind turbines can be pretty intrusive. The limited energy density of wind power makes it necessary to pack the countryside with turbines if you want to achieve significant production. You really don’t have to be a wind power hater to get upset by once quiet natural landscapes that are now dotted with huge rotating machines.
Solar power is different: although it too uses a lot of space, solar panels can be very well integrated into the urban environment, so they have virtually no impact on land use and cause very little visual pollution.
The third energy policy consideration in my Quick Guide is safety. When we think of safety in energy, the mind of course leaps to nuclear power. But is this justified? Chernobyl was a terrible accident, Fukushima was/is serious enough. Still, they were accidents and accidents happen. Hundreds of thousands of men have died in coal mining accidents, many more than ever died from nuclear power. Gas explosions have taken countless lives, as have accidents in the oil industry.
What about renewables? Hydropower seems an innocent form of renewable energy, yet tens of thousands of people have died in accidents with dams. In one accident at the Banqio Reservoir Dam in China in 1975, 26,000 people died from flooding and another 145,000 died during subsequent epidemics and famine. In addition, almost 6 million buildings collapsed.
There are even fatal accidents with wind turbines. According to this news report from The Daily Telegraph, in the UK 1500 accidents with wind turbines took place between 2006 and 2010, including 4 fatal accidents. According to the Caithness Wind Farm Information Forum, which campaigns against wind power in Scotland, over 100 people have died in wind turbine accidents worldwide, including 17 bus passengers in a single incident in Brazil. As to rooftop solar power, this seems slightly more dangerous than wind power, as a result of people falling off roofs during installation.
Without going into much detail (there are many statistics available), I think that we can say that overall solar, wind power and nuclear power are the safest forms of energy production. However, what counts against nuclear power, is that a) there is always a risk of a really big, nasty accident; b) there is a problem with the safe long-term storage of nuclear waste; and c) there is a problem with nuclear proliferation.
My fourth step in the energy policy ladder is availability. At this moment peak oil theory is not very popular anymore. Experts agree that the fossil fuel reserves harboured by mother earth are still very large. Potentially, if for example methane hydrates can be exploited successfully, they might even be much larger than what is assumed now.
Yet to give the peak oilers their due, it is true that supplies of “conventional” oil (and, to a lesser extent, gas) are dwindling rapidly. As energy author Michael Klare puts it: “According to the International Energy Agency, the major fields that currently provide the lion’s share of global petroleum will lose two-thirds of their production over the next 25 years, with their net output plunging from 68 million barrels per day in 2009 to a mere 26 million barrels in 2035. The IEA assures us that new oil will be found to replace those lost supplies, but most of this will be of an unconventional nature.” (For another interesting “contrary” view on peak oil, see this piece by energy analyst Chris Nelder.)
For gas the story is essentially the same, although note that the real availability of shale gas (and shale oil) in the world is still a controversial matter. Is there perhaps less shale than we have been led to believe by shale gas advocates? The jury is still out on that one.
But you might ask, what’s the problem? We turn from conventional to unconventional, what’s in a name? Still, Klare has a point when he notes that the production of unconventionals – tar sands, deep-sea, shale gas, Arctic oil and gas – tends to be riskier, costlier and dirtier than conventional production methods.
It should also be noted that even though there may be no peak oil or peak gas in sight, it is nevertheless true that the amounts of new resources that have to be found and brought into production to keep up with consumption are incredibly large. Many people don’t quite realise just how big the oil and gas industry really is. There was an item in the news the other day that the North Sea still contained $400 billion worth of oil that could be exploited – i.e. 4 billion barrels. To the layman that sounds impressive, but it’s less than two months of world oil consumption.
Or consider the fact that global oil prices have not gone down despite years of economic recession. That should tell us that “availability” may not be a geological problem, it sure as hell is an economic problem, one moreover that is likely to get worse over the next few decades, as billions of people in emerging markets are poised to gain better access to energy. As Roger Pielke, Jr., puts it in this revealing analysis: “The magnitude of the challenge of providing energy for all is at least as large as the challenge implied by accumulating carbon dioxide in the atmosphere, and perhaps many times larger.”
The policy conclusion Pielke draws from this is that “Independent of the climate issue, there are good justifications why diversifying the global energy mix beyond fossil fuels makes sense, for security, environmental, health and economic reasons.”
As to renewables, they are by definition of course infinitely available – that is what makes them renewable. But they are always not there when you need them. This problem can be solved with the help of various storage solutions – hydropower, power-to-gas, improved batteries, and so on – making solving the problem of energy storage the current widely talked about “Holy Grail” of the “energy transition”. As a policymaker you could do worse than to make sure that research into energy storage (and energy diversification in general) steams ahead. It will do a lot for “availability”.
5 Security of supply
Even if there may be plenty of reserves of a certain fuel, that does not mean it is located in a safe and convenient place nearby. Many countries need to import oil, gas, coal, uranium, or even biomass, sometimes from countries that they regard as “unstable” or even hostile. Europe is particularly import-dependent in primary energy sources.
The problem of “import-dependence” should not be exaggerated, however. Commodity markets are global in nature. “Boycotts” by producers of specific consumers (or vice versa) are bound to be ineffective. And exporters are almost always keen to sell what they have. The Soviet Union for example faithfully continued to export oil and gas to Europe throughout the Cold War.
The fact that some countries export energy and others import it is not so much a question of “dependence” but a result of comparative advantages, i.e. global specialisation and trade. An example is the case of rare earth metals, which Western countries were content to leave to China to produce, but of which there are plenty available throughout the world. Another example is the fact that Europe imports coal from countries like Colombia, not because it does not have domestic coal, but because it is cheaper to do so.
To forego those advantages in pursuit of “energy independence” is an extremely costly form of policy. Protectionism inevitably hurts domestic industries. The pursuit of “energy nationalism” may also make the world a more dangerous place. If countries are tied to each other through their energy trade, they will presumably feel less inclined to make war upon each other.
Needless to say there may be exceptions. Once you are at war with a country, you don’t want to “depend” on that country for oil imports. In addition, since many countries regard energy resources as strategic assets, there is always the possibility of harmful government interventions in energy markets that one should be prepared to deal with. In this regard the best weapon remains “diversification of supply”, probably with some measure of domestic energy production thrown in, just to be on the safe side.
Even if security of supply may not be such a paramount consideration anymore in our globalised world, isn’t it better at least for domestic employment to produce one’s own energy rather than to have to import it?
That seems logical, but things are not quite that simple. I am often shocked by the baseless “jobs” claims that are bandied about whenever some new (renewable) energy project is being considered. Even the European Commission is guilty of this. Rarely are these claims backed by any kind of decent economic analysis.
Anyone can create jobs. Just give thousand people a spade and let them dig holes and you have created a thousand jobs. What matters is not “jobs” but employment that is the result of genuine economic growth. If you spend money on inefficient and unnecessarily expensive energy projects, it means the price of energy will be relatively higher, which will destroy jobs in other sectors. Besides, the same money could have been spent on other activities that may have generated more jobs.
Note also that in our globalised economy economic activities are often interconnected in wondrous ways. There tend to be many different players along the “value chain” of any product, and they tend to be located in different places. Thus, for example, as John Matthews pointed out with regard to the US-China trade conflict over solar panels last year, what many observers in the US failed to note was that the US actually ran a trade surplus with China on solar systems, with the deficit in finished solar cells more than balanced by the surplus in polysilicon and production equipment. This is just one example to show that a narrow focus on domestic “jobs” is not a very good basis for sound energy policy.
Having said all that, I have to confess that I do find it disturbing that Europe through its large imports of oil and gas is enriching a tiny group of plutocrats in some very corrupt countries. This has more to do with the political structure in those countries than with any purely economic factors, yet as long as those political structures exist, we cannot close our eyes to them. In that sense it may be better to spend a little more on domestic renewable energy than to subsidise foreign energy tyrannies – but that is my personal view.
When it comes to economic factors, these usually don’t fall under the purview of policymakers of course. They are decided by market players. Yet policymakers do have a crucial task in this respect, namely to “create” well-functioning markets.
I put “create” between quotation marks here because I do believe that in their noble pursuit of competitive markets, policymakers run a serious risk of overrreaching themselves. They face a strong temptation to endlessly regulate and intervene in the market in order to achieve some kind of “perfect competition” which does not exist in the real world. Or to get a certain outcome that they would like to see rather than one that the market yields. In Brussels they are especially good at this, as European energy companies know all too well.
Still, since the EU is moving from fragmented, state-controlled markets to an integrated competitive internal market, it is necessary for EU policymakers to remove a lot of old inequities before the legendary “level playing field” is reached. In this context, it makes sense to me for example to “unbundle” traditional utilities and split off the networks into separate companies, as the EU has to some extent done in the Third Package. But it does not necessarily mean that this market structure will have to stay that way forever. It may also make sense for private actors to acquire networks at a certain point.
Another important task of policymakers in this context is to make sure that centralised producers or monopoly distributors do not hinder the development of decentralised energy production and use. If consumers or businesses decide they want to be “energy independent”, they should not be hindered by arrangements left over from the past.
So to sum up here are my Seven Steps into Energy Policy Heaven:
- Climate change – put a price on carbon
- Pollution – set strict rules
- Safety – same thing
- Availability – promote R&D and diversification
- Security of supply – keep tabs and be prepared
- Jobs – ignore
- Economics – ensure well-functioning markets
So maybe the job of the energy policy makers isn’t too hard after all? They can just follow my to-do list.
Naturally if you don’t agree with my views, you will come out with different prescriptions, that might be much more difficult to fulfill. But in any case we will have covered the issues together.