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Energy Security and Decarbonization

Governments are struggling to address two difficult challenges in managing the supply and use of energy. One is the challenge of making energy systems more secure and reliable. The other is the daunting task of cutting emissions of carbon dioxide and other global warming pollutants. While a few governments have made some progress on each, in nearly every country there remain serious worries about energy security. Troubles in the world oil market and rising concerns about inadequacy of the electric power grid to keep up with demand and remain invulnerable to attack are heightening concern about security faster than governments and key firms can act to address these worries.

The patterns in cutting carbon dioxide emissions – so-called “decarbonization” – are even more worrisome. For many years governments have claimed that they must decarbonize fast enough to stop global warming at 2° Celsius above the pre-industrial level. Yet the real pattern of emissions looks a lot worse – almost certainly the 2° Celsius goal will be missed, and scientists are now looking at a future with a lot more warming and much nastier effects of climate change.

Addressing issues of decarbonization and energy security require systemic solutions at global level that at the same time respect regional specificities. Moreover, cross-industry and multistakeholder engagement is a precondition to develop effective and inclusive solutions. As a result, during 2011-2012, the Global Agenda Council on Energy Security has explored whether it might be easier to make progress on both these fronts if governments combined the two goals. In our view, energy security and decarbonization go hand in hand. By marrying the goals governments can take two difficult, pressing problems and make both of them economically and politically easier to manage.

The Global Agenda Council on Energy Security has pursued this mission with in-person and telephone conversations among its Members, leading to a White Paper that advances the following five arguments.

Comprehensive Policy Strategies Are Needed

Success in addressing climate change and energy security requires policy strategies that emphasize “all of the above” sources of energy and choices of technology. There are no silver bullets in either domain. Instead, efforts must push on many fronts – energy efficiency, natural gas, advanced nuclear, renewables and others. This point is hardly controversial and widely made, but in reality its implications are rarely grappled with. An “all of the above” approach requires policies that encourage market competition and select technologies based on real performance.

“Smart Globalization” is Essential

What the Council calls “smart globalization” is essential. In energy supply, security comes from diversity. Since all major fuels are now traded in global markets, all major users have a strong stake in making those markets work reliably. In addition, all major energy technologies – especially the most advanced technologies that are needed for deep cuts in emissions – are also globalized. Thus, any kind of serious programme for linking energy security and decarbonization must start with the huge opportunities afforded by globalization. Today these opportunities are already apparent in fuels and technology. In the future there are also large gains to be made through globalization in the engineering and construction of large systems. Nearly all the promising technologies for deep cuts in carbon require large-scale engineering – such as advanced nuclear reactors or integrated renewable power systems. Globalizing the engineering and perhaps the construction of these systems offers huge potential for lowering cost and raising performance.

Scale and Speed Are Important

The importance of scale and speed must be stressed. In politics there are strong premiums to promise that changes will appear much faster than reality can produce. This helps explain the long string of bold promised visions such as “energy independence” or halting global warming at 2° Celsius that have little bearing on how energy markets actually function. While our White Paper does not present new modeling of energy systems, what the Council will discuss is consistent with the vision of achieving a much more secure energy supply and much lower emissions of warming gases over the coming three to five decades.

Historically, massive changes in energy systems have never occurred at scale at a faster pace, and promises of swifter action would be irresponsible. The long time horizon for change means that policy-makers must also get serious about the policies that will be needed to cope with the transition. These policies include many topics outside the scope of this report, such as better mechanisms for large oil consumers to coordinate their stockpiles, which is essential for oil security, as well as important transitional issues at the intersection of climate change and energy security. Chief of these is the inevitability of large changes in climate, which will require adaptation – including in the energy system. There are many ways that a changing climate will affect energy security, but one of the most important changes relates to water.

Innovation Must Open the Way for Radical New Technologies

Innovation is essential. It is difficult to address the twin challenges of energy security and climate change without radical new technologies. It is popular to claim that all the technologies needed to address these challenges are already “on the shelf” and what is needed is deployment. The Council disagrees. A serious programme on energy security and climate change requires that new energy sources be affordable and highly reliable – something that is not achievable without radical innovation. Yet real investment in innovation has lagged. A sharp rise in public spending on energy R&D is needed, along with policies that spend those new resources wisely.

Historically, energy innovation, like almost every area of government innovation policy, has been managed at the national level. Given the changes in energy technology markets and the global nature of the firms that do much of the innovation and deployment of new technology, a more global approach to innovation policy is needed.

Focus on What’s Achievable

Perspective about what is achievable is needed. Much of the interest in linking energy security and climate change has come from the political expedience. People who care about climate change want more attention and action on their issue, and they rightly are looking at ways that topic is linked to other matters that command more public attention. The Council aims to show how the topics are – and could be – linked more fundamentally. But it is equally important to focus on areas where the linkages point in opposite directions. We focus on two. One is the future for high carbon fuels, notably coal and heavy oil. The other is reliability, notably for the electric power sector. Many of the technologies envisioned for decarbonization of the electricity supply imply big shifts in the entire electricity infrastructure and systems for pricing. This is particularly notable in the possibility of electric grids that depend much more heavily on natural gas and on renewables. Such technologies may have a central role to play in decarbonizing the electric system, but only if their widespread deployment is done at a pace consistent with also assuring reliable electric power.

Outreach and Extensions

In spring 2012, the Council has been discussing and circulating its White Paper, and by late second quarter it has made it more widely available. Activities have included:

  • In-depth discussion of these issues in Abu Dhabi in October 2011 at the Summit on the Global Agenda
  • Follow-up discussion in Davos in January at the World Economic Forum Annual Meeting 2012
  • A preview of some of the arguments in the White Paper at a panel at CERAWeek, the leading event of the energy industry, in March 2012.

Both topics – energy security and decarbonization – are large and complicated. Thus, the our work in this area has also suggested many extensions, some of which the Council is now discussing as major themes for future work of the Global Agenda Council on Energy Security. The Council and its Members have worked on at least five such themes.

  1. We are addressing the interests of the large economies that are the main users of energy and also the largest sources of global warming pollutants.
  2. The Middle East, the centre of oil production, has undergone profound changes in the wake of the Arab Spring. Close attention is needed to how the Arab Spring might be sustained and its practical implications. Some members of the Council on Energy Security are working with the Global Agenda Council on the Arab World to elaborate on these implications.
  3. Natural gas can play a central role in addressing both energy security and climate change. The revolution in shale gas supply along with the huge quantities of conventional gas available in Russia and the Persian Gulf, among other locales, herald a new “gas era”. But it is dangerous to draw bold conclusions about an era when such a revolution is just unfolding. Future work of the Council might look closely at how gas production and use could be scaled and its practical implications for global climate change and other environmental challenges.
  4. The challenge of nuclear power. While there are many ways to provide useful energy with low emissions, nuclear has a potentially special role in providing bulk electricity in massive quantities at possibly very low cost. However, the nuclear industry is at a crossroads. Across the countries that have been the traditional centres of the industry, reactors are ageing and, at best, a few new reactors will be built. Meanwhile, rapid expansion of the industry is underway, particularly in China, as well as Korea, India and some other countries. Close attention is needed to how this industry can scale, how practical issues of the “fuel cycle” (the supply and disposition of fuel) will be handled, likely costs, and other important topics such as safety. The Council on Energy Security looked closely at the nuclear fuel cycle in 2010-2011, and in future it might focus on the scaling of commercial nuclear power in the emerging markets. In China, alone, there are several dozen reactors in planning and construction –more than anywhere else in the world.
  5. Potential benefits from marrying energy security and decarbonization – this year’s theme in the Council on Energy Security – is a reminder that serious progress requires strategies that are sensitive to real world politics. In tandem, Members of the Council have also explored other ways to address “bite sized” parts of these problems through politically savvy strategies. Those efforts include decarbonization by focusing not just on CO2 but also on other pollutants linked to the energy sector that scientists now know are major causes of climate change – for example, soot and methane. A vision for how this could be done and how it could build the credibility needed to help governments tackle the harder challenges in controlling CO2 was published in Foreign Affairs magazine in May 2012.1

Disclaimer

The opinions expressed here are those of the individual members of the Council and not of the World Economic Forum or any institutions to which they are affiliated.