Energy Security and Energy Policy – Where will our energy come from?

Dieter Helm, New College, OxfordWednesday, October 21st 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

2004 2010 2015 203010000

11000

12000

13000

14000

15000

16000

17000

18000

World primary energy demand (Mtoe) Pro-jections

2009 2010 2011 2012 2013 2014-3

-2

-1

0

1

2

3

4

5

Economic growth projections(% yoy)

Sources: 1) IMF World Economic Outlook 2009 2) IEA World Energy Outlook 2006

1 2

Peak Oil – proven reserves

Proved oil reserves end 2008 – thousand million barrels

Source: BP Statistical Review of World Energy 2009

42

71

123

126

142

754

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 crunch2. The technology crunch

The capacity crunch Legacy of the 1970s

GDP3%

Electricity demand

7%

Massive excess supplies in 1980s and 1990sAnd... North Sea oil and gas...Now... we need...30-35GW replacement capacityImporting 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 2020-20-20 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:http://www.dieterhelm.co.uk/publications

FORTHCOMING: October 2009: Helm, D. and Hepburn, C. (eds), The Economics and Politics of Climate Change, Oxford University Press.

Delivering a 21st Century Infrastructure for Britain, with James Wardlaw and Ben Caldecott, Policy Exchange, September 2009.

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 2009. 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