Middle East Economic Survey
VOL. L
No 52
24-Decem
What Is Energy Security? (4/5)
By A F Alhajji
The following article was written for MEES by Dr Alhajji, president of the Ohio-based Energy Security Analysts, LLC. He can be reached via e-mail a@aalhajji.com. The article draws on a chapter entitled “India’s Energy Security: Concepts and Measures” in “West Asia in Turmoil,” published by the Institute for Defense Studies Analysis, New Delhi, India, 2007. Part 3 of Dr Alhajji’s five-part article on energy security was published in MEES, 5 November 2007.
The first three installments of this article have established some parameters that lead to a better understanding of the concept of energy security. In this article I identify six competing dimensions of energy security for both energy-consuming and energy-producing countries in order to reach a comprehensive and clear definition of the term. These dimensions are economic, environmental, social, foreign policy, technical, and security. They reflect the integration of energy policy into other policies and vice versa.
Balancing these dimensions within an energy policy is a very difficult task. While these dimensions are general and universal, the weight of each differs by place and time. The level of interaction among them also differs from country to country and from time to time. Therefore, the concept of energy security is an amoebaean concept at its best. It changes shape and dimensions continuously. Nevertheless, careful policy makers can maximize energy security, especially in the long run.
1. The Economic Dimension
Focusing on the economic dimension of energy security ensures that scarcity of energy resources does not stall economic growth, increase inflation, raise unemployment, weaken the balance of payments, or reduce the value of the county’s currency. The impact of scarcity of energy resources on these key macro variables depends on the strength of the relationship between energy consumption and GDP.
Ironically, the solution in this case does not lie in the energy sector of the economy or in the hands of policy makers in ministries of energy and petroleum. One of the major solutions requires the use of fiscal and monetary policies. Therefore, fiscal and monetary polices should be integrated into any energy policy and vice versa. In fact, among the main reasons why high oil prices have not affected economic growth in recent years are the expansionary fiscal and monetary policies in various consuming countries, especially the US, China, and India.
One of the most important policies to improve the economic dimension of energy security, especially in emerging economies, is to sever, or at least limit, the relationship between GDP growth and energy consumption by increasing efficiency, reducing energy intensity in the industrial sector, and shifting economic activities toward a service-oriented economy.
2. The Environmental Dimension
Since the environmental impact of producing, transporting, and burning fossil fuels has health and economic consequences, several countries have incorporated environmental objectives into their energy polices. The problem that faces most countries, especially emerging economies, is how to raise income levels while improving living standards, which includes improving air and water quality. It is obvious that a reduction in energy use will decrease pollution, but this will come at the expense of the economic dimension of energy security. Only improvements in the efficiency of cars, equipment, and machines can reduce pollution and insure economic growth. Therefore, the environmental dimension of energy security is not related to energy resources per se, but to the technologies that use these resources. To ensure energy security, governments should integrate their industrial and technology policies into their energy policies. Such policies will improve efficiency, but they will also affect fuel choice, which may result in contradictions with other dimensions of their energy policies.
Low energy prices may benefit the economic dimension of energy security, but they worsen the environmental dimension. Higher oil prices may not contribute positively to the environmental dimension as some people think. Some environmentalists contend that higher energy prices will reduce energy consumption and consequently reduce pollution. They advocate a substantial tax increase on fossil fuels to reduce CO2 emissions. This approach not only contradicts the economic dimension of energy security, but it also contradicts the environmental dimension itself. Low-income families, who constitute the largest segment in the most populated regions of the world, will not be able to buy the heavily-taxed fuel. Instead they will burn wood, hard coal, and animal dung, which will lead inevitably to deforestation and increased pollution. Therefore, taxation and higher energy prices do not enhance energy security in the most populated countries in the world, namely India and China.
3. Social Dimension
Unfortunately, the energy security debate focuses on external factors that are related to security of supplies and political unrest in the oil producing countries. The only internal issue that has gained some attention in recent years is the environmental impact of burning fossil fuel. Energy policies have historically ignored domestic political problems that may arise when the gap between the “energy rich” and “energy poor” increases.
Countries strive to reduce social tension through various policies that include the reduction of income and energy inequalities. Scholars view any factors that increase income and energy inequalities as a threat to society. Higher energy prices might at times increase both. The social dimension of energy security does not directly relate to the availability of energy resources, but rather to the ability of the poor to get these resources, which might explain price controls and subsidies in most countries. The larger the energy gap, the more insecure the country becomes. The larger the proportion of the poor who are not able to get at energy resources, the more energy insecurity the country experiences.
Most energy policies do not focus on the social dimension. However, the social dimension becomes part of the energy debate any time a country, including the US, experiences an energy crisis. When energy prices are high, the gap between the rich and the poor becomes more obvious. The rich can afford to heat their homes and drive their cars, while the poor will suffer from the cold and will be forced to walk or use public transportation. While schools in rich areas are open during frigid seasons, those in poor areas have to shut down. The result of such an “energy gap” could well be political unrest, which will reduce economic growth.
Low energy prices for all segments of society may not enhance the social dimension of energy security. Low prices of petroleum products might end up helping the rich who own several cars and several homes, while the poor will not benefit as much. The government can enhance the social dimension by adopting fiscal policies that reduce the energy gap between the poor and the rich by increasing economic growth, training poor people so they get better jobs, and eliminating all energy subsidies, especially to the rich.
4. Foreign Policy Dimension
Oil and politics are intertwined with one another in an unending dance. The evidence of this connection abounds. As the significance of natural gas and LNG in international trade increases, gas and politics will develop a similar relationship. Most countries, especially emerging economies, need both oil and gas, which puts them at a disadvantage when they negotiate with oil and gas producing countries. Fear of oil and gas shortages may force some importing countries to cooperate with producing countries with which it would not otherwise cooperate. The need for oil or gas might force some countries to make foreign policy decisions that would compromise them on other important issues or principles. Accordingly, several countries have linked oil security to strategic and defense considerations, an indication that they realize the foreign policy dimension of their country’s energy security. This dimension thus focuses on diplomatic and trade relations, not threats and wars.
Oil-producing countries might not play the oil card when they negotiate political issues, but their politicians understand that the other side sees all the cards, including oil. Explicitly or implicitly, even powerful countries such as the US and UK have oil on their minds when they negotiate political issues with the oil producing countries. The need for oil might affect these countries’ foreign policy and international decisions as well, even without pressure from oil producers. In addition, the need for oil and gas might force some countries to limit their foreign policy options. It is up to the politicians on how to view this matter.
From an oil-consuming countries’ point of view, the ultimate solution is to diversify energy sources and energy imports. Experts can build an energy portfolio for each country that maximizes this dimension of energy security.
5. Technical Dimension
Energy has another eternal partner beside politics: technology. When it comes to energy security, policy makers must be aware of this relationship to balance the various energy dimensions of energy security. A government’s push to improve energy security by supporting technologies that facilitate the production of renewable energy resources may actually lead to energy insecurity if the country becomes a hostage to spare parts that come from other countries. For example, fuel cell technology requires the use of palladium, which only two countries in the world, Russia and South Africa, export.
In some cases, supporting certain technologies might inadvertently switch demand from domestic to foreign energy resources. New energy technology may require imports of the energy sources that the new technology is intended to replace if this imported source is necessary to operate the new technology. For example, the development of clean coal technology would require the importation of additional quantities of oil and gas. Supporting a new technology may also increase energy prices, which in turn will affect the economic and social dimension of energy security. A country adopting a new technology that improves energy security may end up with energy insecurity if it has to import the skilled labor force to operate this technology.
On the other side, adopting new technologies might improve energy security. The use of biomass energy in electricity generation and heating has proven to be very successful, especially in this high oil price environment. Since low oil prices could choke these power plants and heating boilers, low oil prices would not benefit consuming countries. In this case, the quest for low energy prices would kill certain technologies.
6. Security Dimension
While the foreign policy dimension focuses on diplomatic and trade relations, the security dimension deals with two issues: the physical security of energy installations and the energy needs of a nation’s military and police to protect the country or quell domestic uprisings, terrorist attacks, or any other violent threats to energy production. Threats to physical security of energy installations include terrorist attacks, human error, natural disasters, and technical malfunctions.
It is outside the scope of this paper to discuss ways to protect energy installations. However, measures of the security dimension include the degree of concentration of domestic energy resources and installations. They also include the geographic location of energy resources and installations relative to: (1) the location of the market, (2) the locations of various religious, ethnic, and political groups in the nation, (3) the location relative to natural disaster prone areas. In addition, these measures include frequency of attacks, and their timing relative to the daily rhythms of energy usage and seasonality in energy consumption. Energy security measures are also related to energy consumption by the military and the police force, the security of supply lines to them, and the speed of delivery of energy sources.