Energy Security and Energy Policy – Where will our energy come from? Dieter Helm, New College, Oxford Wednesday, October 21 st 2009

The Questions  What’s the problem?  What’s the threat?  What are we doing?  What are the solutions?

What’s the problem? Security of supply is a public good  Security is relative risk, price and storage  Security is multidimensional price, quantity and time profiles  Security is multinational European, global And it has to be solved whilst decarbonising...

What’s the threat?  Peak oil and demand  Russia and gas supplies  The investment challenge  The climate change challenge

Threat no. 1: Peak Oil  Too much, not too little  Price not necessarily up  Arctic, Antarctic, Brazil, Mexico, Africa, Iraq etc etc  Lots of coal  Lots of unconventional gas

Peak Oil: demand ever up Global population 6bn→ 9bn by 2050 Economic growth projections (% yoy) Sources: 1) IMF World Economic Outlook ) IEA World Energy Outlook

Peak Oil – proven reserves Proved oil reserves end 2008 – thousand million barrels Source: BP Statistical Review of World Energy

Threat no. 2: Russia, Gazprom and the Ukraine  Russia as an oil and gas economy  Putin’s regime and Gazprom  Russia’s borders and Russia outside its borders  The Caspian problem  Crimea, Ukraine and “unfinished business”

Source: US Energy Information Administration, 2007 Russian Pipelines

The European pipelines  The special relationship Germany-Russia and Nord Stream  Ukraine, storage and instability  Nabucco – the Caspian gas can go north or west

Threat no. 3: The investment challenge 1. The capacity crunch 2. The technology crunch

The capacity crunch  Legacy of the 1970s GDP 3% Electricity demand 7%   Massive excess supplies in 1980s and 1990s And... North Sea oil and gas... Now... we need GW replacement capacity Importing gas (and oil)

The technology crunch  Decarbonisation  Existing technologies  New technologies  Application of IT to grids  Smart meters  Electrification of transport

So what are we doing?  Building windmills  Energy efficiency  EU package  UK = 5% - 35% wind by 2020 gas gas gas  gas imports  security

What should we do?  Very large investment programme needed  Design the market for investment  Capacity markets  Long term contracts

 And.....  Decarbonise  Large scale supplies  New technologies

Nuclear, CCS and Renewables  The economics of nuclear  Making CCS work – to deal with coal  Renewables and technical change

In a couple of decades....  Electrification of transport  Batteries  Smart meters and smart grids  And lots of technical surprises.....

So what do we do?  A coherent charging policy  Clear targets for government  Clear delivery institutions  Clear instruments – a price of carbon, a price of security, capacity markets, R&D policy etc etc...

What will happen?  An energy crisis – unless the recession continues  Price spikes and volatility  And much economic cost...  CO2  as climate change continues

Further information:  FORTHCOMING: October 2009: Helm, D. and Hepburn, C. (eds), The Economics and Politics of Climate Change, Oxford University Press.  Delivering a 21 st Century Infrastructure for Britain, with James Wardlaw and Ben Caldecott, Policy Exchange, September  EU climate-change policy—a critique, Smith School Working Paper Series, September 2009  Environmental challenges in a warming world: consumption, costs and responsibilities, 2009, Tanner Lecture, February 21st.  Georgia, Ukraine and Energy Security, CER Bulletin, February  Credible Energy Policy, Meeting the challenges of security of supply and climate change, 2008, Policy Exchange  Climate-change Policy—why has so little been achieved, 2008 Oxford Review of Economic Policy, 24:2, 211–238  Caps and Floors for the EU ETS: a practical carbon price, October 13th 2008  Meeting the Infrastructure Challenge, May 2008