NS4054 Fall Term 2015 Fuels Paradise, Chapter 3 Potential Policy Responses to Energy Insecurity

Overview Chapter interested in the various policy responses during periods of heightened concern about energy security Need to have explicit framework for categorizing and measuring these responses With this framework can see clearly which actions each country has taken or not taken and then compare them. For this purpose asks: What are possible policy responses to concerns about energy insecurity? What measures can governments take to increase their energy security? Wants to make a distinction between internal and externally directed policies 2

Responses to Energy Insecurity I Examines state responses along three major dimensions: Depth, Form, and Breath With regard to depth, often distinguish between The objectives and ends of policy on one hand, and The instruments or means of policy on the other A more sophisticated approach might look at Changes in the levels of existing policy instruments Change in the basic instruments or techniques used to achieve policy goals Changes in the goals that guide policy 3

Responses to Energy Insecurity II With regard to functional forms, at least four broad sets of policy instruments, each of which includes a number of more specific tools Economic and fiscal policies – taxes, fees, tax exemptions subsidies and direct grants Credit instruments such a s loans, loan guarantees, and interest rate subsidies Regulation and deregulation including general market regulation, price and volume controls and technical and environmental standards. Direct government action, including state-owned or controlled research, production or transmission, and government services such as information provision, and diplomacy and military activities. 4

Responses to Energy Insecurity III Each of these four sets of policy instruments can be applied to a wide variety of potentially energy policy goals. As for the third dimension – breath or range of issues covered by possible policy responses – need to have a logical framework to organize them A number of possibilities have been developed over the years: Mason Willrich approach (1975) Measures to decrease damage from possible supply interruptions Measures to strengthen guarantees of foreign supply and Measures to increase energy self-sufficiency 5

Responses to Energy Insecurity IV Paul Kemezis and Ernst Wilson (1984) more comprehensive – three broad categories: Securing energy imports Enhancing domestic energy supplies and Managing energy demand Walter Carlsnaes (1988) less comprehensive approach for Sweden included: Maintaining emergency stockpiles Promoting internaonal energy allocation programs among importing countries Reducing energy imports through conservation and substitution 6

Responses to Energy Insecurity V Several clarifications Relationship between state responses to energy insecurity and other policies a state may pursue. No clear boundaries between traditional goals of energy policy: Security Economic efficiency, Competitiveness, and Increasingly environmental sustainability Also may be hard to distinguish between policies about energy security and those that are not Some measures taken to promote energy security may also serve to further other (economic and environmental) goals of energy policy– and vice versa. h7

Responses to Energy Insecurity VI Internal policy responses Potential domestic policy responses to energy insecurity fall into two brad categories: Contingency or emergency measures designed to minimize the short term costs imposed by possible external supply disruptions and Measures intended to reduce the state’s vulnerability to disruptions of foreign energy supplies over the longer term. Emergency Preparations (1) Short term Easiest to devise Mainly rationing and allocating physical supplies during emergency Can mean higher prices on a temporary basis Always constrained somewhat by political factors 8

Responses to Energy Insecurity VII (2) Because of political constraints to many short-term actions, states also often pursue another approach to reducing short term impacts – stockpiles (3) Promote the acquisition of fuel-switching capacity by energy users Tries to ensure energy users have at least short-term alternatives in emergency situations Example switching inputs to electric power when possible May involve requiring private sector to make the necessary investments. 9

Responses to Energy Insecurity VIII Longer-Term Reducing vulnerability to potential disruptions in foreign energy supplies – three basic ways Increasing (where possible domestic production) of the energy resource Reducing directly the consumption of the resource and Substituting on a long-term basis other forms of energy for the resource in question The three not necessarily mutually exclusive Increasing domestic production Number of incentives – taxes subsidies, direct state action 10

Responses to Energy Insecurity IX Reducing consumption Need to reduce overall consumption not just imports – that way impact of a sudden price increase reduced Two basic options Reduce directly the level of domestic consumption Place a cap on consumption or imports and allow market to set the price More commonly governments impose taxes and other incentives to Discourage consumption and purchase of inefficient equipment and Encourage private sector to buy more efficient alternatives Stimulate research and development in alternative energies 11

Responses to Energy Insecurity X External Policy Responses Here policies can be divided into policies that Are directed at actual and potential foreign suppliers and transit routes and Are aimed at other import dependent consumer countries Policies toward Energy Producers and Transit countries Approaches Try to reduce the risk that existing supplies will be disrupted Seek to diversify potential sources of foreign energy supplies 12

Responses to Energy Insecurity XI If there is a threat of embargo good to try fostering closer relationships with other producing countries Political alliance ties Provision of investment opportunities and access to importer’s domestic market Economic and technical assistance Cooperation with other consumer/importer countries Preparing and coordinating of emergency responses to disruptions Developing means of reducing existing levels of energy consumption and imports or Producing alternative energy sources 13

Conclusions Summing up Looked at principal ways in which states can respond to energy insecurity Distinguished between internal and external policy responses Within each area a broad array of options How do states choose among these many ways to promote energy security What are the most important determinants of state responses Next chapter develops some of the more promising explanatory factors. 14