NS4054 Fall Term 2015 Climate Change and Energy Security

Overview I Peter Hartley, Climate Change and Energy Security Policies: Are They Two Sides of the Same Coin Tony Blair Quote “We must treat energy security and climate security as two sides of the same coin” His point: Industrialized world would not be so concerned with Middle East politics if it were not so dependent on Middle East oil supplies For ensuring energy security reducing oil consumption is a substitute for a military presence and military action in the Middle East At same time fossil fuel combustion adds carbon dioxide to the atmosphere Hence reducing fossil fuel consumption should increase energy security while also slowing climate change The two policy goals should be treated as one 2

Overview II Paper asks: should the two alternative policy goals be treated as once since one policy instrument can simultaneously further both goals. To answer question need to Be more specific on what we mean by energy security and climate policy Also need to investigate the range of policies that could address the two policy goals Only then can we assess whether: Both goals are best addressed by the same policies or Policies that are best to further one goal might compromise the attainment of another goal. 3

Energy Security I Possible meanings of energy security Above argument identifies energy security with national security Can associate increased energy security with a reduced need to maintain influence in countries such as those of the Middle East – substantial energy resources, but politically unstable or hostile to the West Another connection between energy security and national security is fact that modern military forces require substantial refined oil products Notion of energy security also has economic dimensions Sudden large increases in energy prices have preceded most of the post World War II recessions 4

Economic Security Large energy price increases are thought to retard economic growth via a number of mechanisms. The need to spend more on energy commodities constrains household consumption of non-energy goods and services Similarly to save on non-energy related costs, firms reduce employment and investments in non-energy related capital Productivity also declines as resources are reallocated in response to the energy price changes. Energy price variability also Increases uncertainty about future energy prices which in turn Deters investments in competing types of energy or competing high cost locations such as the deep water in the Gulf of Mexico 5

Hard Trilemma Such investments typically are large and long-lived and thus made much more uncertain Insofar as volatile energy prices reduce investments in domestic alternatives they exacerbate the initial instabilities by concentration in less stable region Before share could argue a hard trilemma with reduced fossil fuels use increasing energy security and improving the climate. Most cost effective strategy might have been to focus on R&D in lowering the costs of alternative fuels 6

Soft Trilemma Being less dependent on ME over time should reduce oil price volatility since it is that region that has generated most of the oil price shocks With shale oil and gas the trilemma softens and reducing oil use at least improves energy security and the climate Shale oil is lighter with less CO2 component Domestic production lessens imports Cheap gas shifts reduces CO2 in power generation The increased use of natural gas at the expense of coal will be a slowing in the growth of CO2 emission in a way That does not raise energy costs and Therefore is consistent with continued growth in economic prosperity 7

Energy/Climate Transition Shale based natural gas will provide a period of transition for the development of alternative fuels When gas is less abundant the shift to these technologies and alternative fuels can occur without economic dislocation. 8