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Energy Security and Climate Change:
The Loop that Binds the World
Conference on Climate Change and Security
By RSIS and the Embassy of Switzerland in Singapore
Youngho Chang
S. Rajaratnam School of International Studies,
Nanyang Technological University
11-12 October 2007
Traders Hotel, Singapore
Agenda
• Introduction
• Energy Security
– Definition
– Determinants of Energy Supply
– Ways of Ensuring Energy Security
• Technology and Energy Diversification Measures
• Economy, Energy, and Environment
• Technology, Energy Security and Climate
Change
• Concluding Remarks
2
Introduction
• Energy security and climate change are a global
phenomenon
• Inherent asymmetry of cost bearing in ensuring
efforts for energy security and mitigation efforts
for climate change is a stumbling block for
implementing an efficient, effective and equitable
policy in a global scale to tackle both
phenomena
• Is renewable energy (or technology) a way of
ensuring energy security and of mitigating or
halting climate change due to anthropogenic
causes of atmospheric build-up of greenhouse
gases?
3
What is Energy Security?
• Adequate and reliable supply of energy at
a reasonable price
– Adequacy is associated with production and
generation capacity
– Reliability is associated with transportation
and transmission capability
– A reasonable price is related with the cost of
supplying energy and affordability
• This definition could be extended to
examine the status of energy security by
computable measures
4
Energy Security Measures:
Application to Electricity Market
Adequacy
Reliability
Price
Present
(Normal)
Reserve
Margin
SAIDI and
SAIFI
Lerner
Index
Present
(Emergency)
SMA
Feature
Checklist
RSI
Future
% Growth
Investment
% Growth
Investment
Policy
Checklist
5
Factors of Determining Energy Supply
• Availability of resource
– The stock of a resource must exist
• Applicability of technology
– A technology that enables the supply of the
stock must exist
• Acceptability by society
– The resource must be accepted by a society
• Environmental, social or political
• These factors could be applied to examine
the perspectives on fossil fuels
6
Measures of Availability
• AV – 1 : Proved reserves replacement
ratio (RRR) of each firm
• AV – 2 : Proved hydrocarbon reserves
owned by each firm
• AV – 3 : Capital expenditure on exploration
and production incurred by each firm
7
Measures of Applicability
• AP – 1 : Expenditure on research and
development (R&D) invested by each firm
• AP – 2 : Number of alternative energy
technologies employed in each of the firms’
production
• AP – 3 : Projected market share of renewables
(excluding nuclear power) in the energy supply
mix within the scenario horizon made by each
firm
8
Measures of Acceptability
• AC – 1 : Expenditure on social development
incurred by each firm
• AC – 2 : Amount of greenhouse gas (GHG)
emissions per unit of hydrocarbons production of
each firm
• AC – 3 : Percentage of major operations of
each firm certified ISO 14001 (an internationally
recognized environmental management
standard)
9
The 3-A Triangle Grid
FIGURE 3.3. THE 3- A TRIANGLE GRID
Availability of resources
Isoline for Availability
of resources
Isoline for Applicability
of technology
Isoline for Acceptability
by society
Applicability of
technology
Acceptability by
society
10
Application of the 3-A Triangle Grid
ExxonMobil
BP
Shell
Total
AV-1
5
2
2
5
AV-2
5
4
3
3
AV-3
2
5
2
3
AVG
4
3.7
2.3
3.7
AP-1
2
2
3
5
AP-2
1
4
4
5
AP-3
3
5
5
5
AVG
2
3.7
4
5
AC-1
2
3
3
4
AC-2
1
5
1
3
AC-3
1
5
3
3
AVG
1.3
4.3
2.3
3.3
11
FIGURE 4.1. ILLUSTRATION OF
EXONMOBIL’S PERSPECTIVES
USING THE 3-A TRIANGLE
AV
FIGURE 4.2. ILLUSTRATION OF
BP’S PERSPECTIVES USING
THE 3-A TRIANGLE
Isoline for Availability of
resources (AV)
AV
Isoline for Applicability of
technology (AP)
Isoline for Acceptability
by society (AC)
AP
AC
AP
FIGURE 4.3. ILLUSTRATION OF
SHELL’S PERSPECTIVES USING
THE 3-A TRIANGLE
FIGURE 4.4. ILLUSTRATION OF
TOTAL’S PERSPECTIVES USING
THE 3-A TRIANGLE
AV
AV
AP
AC
AC
AP
AC 12
Ways of Ensuring Energy Security
• Supply side
– Increase potential supply or economic resources
• Demand side
– Improve energy efficiency
– Encourage energy conservation
• Integration of energy market (in a regional scale)
• Backstop technology
– An ultimate and abundant resource
• Must be economically and technologically viable
– Act as a price ceiling on the resources currently in
use
– Renewable energy resources fit into this definition
13
Price Components
• Conventional fuels
– Extraction, transportation and conversion cost
• Resources need to be extracted, transported and processed
(or converted) to meet end-use criteria as a fuel or energy
• Is supposed to be constant for the simplicity of analysis
– Scarcity rent (the implicit value reflecting the depletion
of a resource)
• Is supposed to increase at an interest rate
• Backstop technology
– No scarcity rent, but conversion cost
– Is supposed to be constant
14
Effects of A Backstop Technology
on Resource Switch
Price
Supply Price
Path for fossil
fuel
Original Backstop Price
Technological
advancement
New Backstop Price
Time
Acceleration of Resource Switch
15
Effects of A Sustained Hike in Fossil Fuel
Prices on Resource Switch
Price
New Supply Price
Path for fossil fuel
Original Supply Price
Path for fossil fuel
Backstop Price
Sustained hike
in price
Time
Acceleration of Resource Switch
16
Backstop Technology and
Renewable Energy
• Is renewable energy a backstop
technology?
– It would have not been used unless it had met
the 3-A criteria
• Candidates for a backstop technology
– Fission power, Wind power, Solar power
– Fuel cell or hydrogen, Fusion power
• Is the usage of renewable energy a
measure of energy security?
17
Ensuring Energy Security:
Energy Diversification Measures
• EDM1
– (TES – TFFS)/TES = 1 – (TFFS/TES)
– Represents the degree of fossil fuel independence
• EDM2
– (TES – TFFS – TNES)/TES = 1- (TFFS + TNES)/TES
– Close to reality
• EDM3
– (TES – TFFS – TNES – THPS)/TES
– 1 – (TFFS + TNES + THPS)/TES
– Most stringent, but a true measure?
18
Energy Diversification Measures
• An Illustration
– Out of total primary energy supply in 2006 (BP
Statistical Review of World Energy), the share
of nuclear energy is 0.058 and hydro-power
0.063
• Total primary energy supply: 10,878.5 million toe
• Nuclear energy: 635.5; Hydro-power: 688.1
– This statistics shows EDM1 can be calculated
as about 0.12
– How can this statistics be interpreted?
19
An Analytical Framework
• An Economy, Energy and Environment
(E3) model incorporates
– An economic growth model,
– An aggregate representation of the carbon
dynamics and
– Endogenous substitution of energy use in an
economy
• E3 combines top-down economic
approach and bottom-up engineering
approach
20
A Backstop Technology in the E3 Model
• Different rates of advancement or diffusion
in a backstop technology have startling but
distinguishable influences on the paths of
atmospheric concentration of greenhouse
gases vis-à-vis of temperature change
• Solar energy is chosen as a backstop
technology and all end-usage are
eventually met (but different time scales)
by electricity harnessed from solar energy.
21
Degree of Solar Energy Utilization
and Temperature Change
• Assumptions
– Two sectors in a global economy
• Capital goods and consumption goods producing sector
– Three production factors: capital, labor and energy
– Four energy sources
• Three fossil fuels (finite) and solar energy (infinite)
• A representative technology is employed for calculating the
cost of using energy in each sector
• The costs of using these energy sources are different by
sector (2x4 matrix, i.e., 8 different cost parameters)
– The cost of generating electricity from solar energy is
decreasing at 5%, 10%, 30% and 50% per decade
22
Resource Switching Time by Sector
1965
BAU
BAU
5%
5%
10%
10%
30%
30%
50%
50%
Cap
Con
Cap
Con
Cap
Con
Cap
Con
Cap
Con
oil
gas
oil
gas
oil
gas
oil
gas
oil
gas
1995
gas/oil
gas/oil
gas/oil
gas/oil
gas/oil
2015
oil/coal
oil/coal
oil/coal
oil/coal
solar
2025
coal
coal
coal
coal
coal
coal
2055
solar
solar
solar
2125
solar
2175
solar
2255
solar
2265
solar
2345
2355
coal
coal
coal
solar
solar
solar
solar
solar
coal
solar
solar
coal
solar
solar
coal
23
23
45
23
25
23
05
22
85
22
65
22
45
22
25
22
05
21
85
21
65
21
45
21
25
21
05
20
85
20
65
20
45
20
25
20
05
19
85
19
65
Billion ton of Carbon
Greenhouse Gas Emissions Paths
Emissions (CO2 equivalent)
45
40
35
30
25
20
Baseline
5%
10%
30%
50%
15
10
5
0
YEAR
24
Temperature Change Paths by Different
Harnessing Cost
Global Mean Temperature Change
7
6
Baseline
5%
10%
30%
50%
Stabilization
4
3
2
1
23
45
23
25
23
05
22
85
22
65
22
45
22
25
22
05
21
85
21
65
21
45
21
25
21
05
20
85
20
65
20
45
20
25
20
05
19
85
0
19
65
C Degrees
5
YEAR
25
Concluding Remarks I
• Energy (i.e., energy use) is in the loop of energy
security and climate change that binds the world
– Efforts for ensuring energy security through exploring
more conventional energy sources or technological
developments in harnessing various alternative
energy sources affect climate change by altering
mainly the extent of greenhouse gas contributions
– Movements for mitigating or halting climate change
chiefly by limiting energy use or altering energy use
behavior also influence the availability of energy, the
applicability of relevant technology and the societal
acceptability towards the energy
26
Concluding Remarks II
• Unless the concentrations of greenhouse gases
in the atmosphere are stabilized within or at a
threshold level, a vicious cycle of using more
energy and putting more damage onto the world
keeps going and a breakdown of the harmless
or benign natural cycle would occur
• In addition, severing the loop is not possible as
this goes against natural laws
• However, the loop or cycle can be less vicious if
the world switches to a backstop technology, an
ultimate, clean and abundant energy source
27
Concluding Remarks III
• To make such a switch happen
– We need to be clear about the definition of energy
security and how energy supply is determined
– We need to identify ways of ensuring energy security
and mitigating climate change through supply and
demand side instruments and implement them
– We need to develop a backstop technology and make
a smooth transition to such a stage in which all or as
much as energy sources are harnessed from an
ultimate, clean and abundant energy source
28
Concluding Remarks IV
• Renewable energy could fit into a backstop
technology
• Energy Diversification Measure (i.e., how much
energy is harnessed from renewable sources)
can show the degree of energy security
• A simulation study shows that successful
developments of such a backstop technology
could stabilize the atmospheric concentrations of
greenhouse gases and prevent a drastic
situation in climate change
29
Bibliography
•
Bielecki, J. (2002) “Energy Security: Is the Wolf at the Door?,” The
Quarterly Review of Economics and Finance, 42:235-250.
•
Bohi, D. R. and M. A. Toman (1996). The Economics Of Energy
Security, Kluwer Academic Publishers, Boston.
•
Chakravorty, U., J. A. Roumasset, and K.-P. Tse (1997).
“Endogenous Substitution among Energy Resources and Global
Warming,” Journal of Political Economy. 105(6): 1201-1234.
•
Chang, Y. H. and W. Toh. (2007). “Efficiency of generation
companies in the deregulated electricity market of Singapore:
Parametric and non-parametric approaches,” International Journal
of Electronic Business Management (to be published).
30
Bibliography
• Chang, Y. H. and J. Yong (2007). “Differing perspectives of major oil
firms on future energy developments: An illustrative framework,”
Energy Policy 35 (11): 5466-5480 (2007).
• Harris, D. P. (1993). “Mineral Resource Stocks and Information,” in
Handbook of Natural Resource and Energy Economics by A.
Kneese and J. L. Sweeney (eds.), North-Holland.
• Nordhaus, W. D. (1979), The Efficient Use of Energy Resources.
Yale University Press.
• Nordhaus, W. D. (1994). Managing the Global Commons.
Cambridge, MA: MIT Press.
• Nordhaus, W. D., and J. Boyer (2000). Warming the World:
Economic Models of Global Warming. Cambridge, MA: MIT Press.
31
Thank You!
Comments or suggestions, please
contact me at
[email protected]