Scarcity, National Security and Scarcity, National Security and Sustainability: Policy Options and Sustainability: Policy Options and Recommendations for an Integrated Energy Recommendations for an Integrated Energy and Climate Security Strategyand Climate Security Strategy

C. Emdad HaqueC. Emdad HaqueProfessor and DirectorProfessor and DirectorNatural Resources InstituteNatural Resources InstituteUniversity of ManitobaUniversity of ManitobaWinnipeg, ManitobaWinnipeg, ManitobaCanadaCanada

(Prepared for presentation at the NACTS Fulbright Scholars (Prepared for presentation at the NACTS Fulbright Scholars Workshop, Management of North American Resource: Policy Workshop, Management of North American Resource: Policy Recommendations from Rigorous Research, November 17, 2008) Recommendations from Rigorous Research, November 17, 2008)

Key research Key research questionsquestions What are the likelihood global scenarios regarding depletion of non-What are the likelihood global scenarios regarding depletion of non-

renewable resources, particularly oil, and transition through the next renewable resources, particularly oil, and transition through the next 20-22 years, and what are the implications for North America?20-22 years, and what are the implications for North America?

Scoping of ‘energy security’, and how do ‘energy and climate Scoping of ‘energy security’, and how do ‘energy and climate security’ (i.e., greenhouse gas emission) relates to national security security’ (i.e., greenhouse gas emission) relates to national security issues?issues?

What roles are being played by the federal and state governments What roles are being played by the federal and state governments in energy and climate security?in energy and climate security?

What is rationale for an Integrated North American Energy and What is rationale for an Integrated North American Energy and Climate Security Strategy (INAECSS)?Climate Security Strategy (INAECSS)?

What are the policy options to deal with emerging issues and What are the policy options to deal with emerging issues and problems with the fossil-fuel based economy and to develop a problems with the fossil-fuel based economy and to develop a sustainable energy strategy for North America? sustainable energy strategy for North America?

Outline of the Outline of the presentationpresentation Role of oil in energy mix and global supply scenarios: Role of oil in energy mix and global supply scenarios:

the North American energy supply capacities and the North American energy supply capacities and constraints constraints

‘‘Energy Security’, sustainability and climate security as Energy Security’, sustainability and climate security as national policy issue – US vs. Canadian perspectivesnational policy issue – US vs. Canadian perspectives

The role of public institutions in energy supply and The role of public institutions in energy supply and sustainable development sustainable development

The need to formulate an Integrated North American The need to formulate an Integrated North American Energy and Climate Security Strategy (INAECSS) Energy and Climate Security Strategy (INAECSS)

Specific policy options for strengthening energy and Specific policy options for strengthening energy and climate security and long-term sustainabilityclimate security and long-term sustainability

MethodologyMethodology

Review of the literature and Review of the literature and thematic analysisthematic analysis

A Content Analysis – summaries A Content Analysis – summaries by objective analysisby objective analysis

Questionnaire Survey of Questionnaire Survey of key informants (15)key informants (15)

Energy Policy Energy Policy LiteratureLiterature Normative analysis Normative analysis

Positivist approachPositivist approach MacroeconomicsMacroeconomics Simulation Simulation

Modeling Modeling ForecastingForecasting Political science & Political science &

studies policy studies policy analysis analysis

Empirical studies Empirical studies

- Technical reports- Technical reports

- Historical records- Historical records Critical Social Critical Social

Theoretical work Theoretical work nominalnominal

North American energy North American energy consumption relative to consumption relative to global global Significant changes in energy Significant changes in energy

consumption due to globalization consumption due to globalization and worldwide consumerismand worldwide consumerism

Absolute increase in North Absolute increase in North America but decline in relative America but decline in relative shareshare

Change in energy mix Change in energy mix

Type of Energy

Million Barrels per DayOil Equivalent

Market Share (%)

1970 2000 2030 1970 2000 2030

Petroleum 47 75 128 45 39 38

Natural Gas 19 47 100 18 24 29

Coal 32 45 72 31 24 21

Nuclear 0 12 15 0 6 4

Renewables 6 13 24 5 7 7

Total 104 192 338 100 100 100

Sources: BP; International Energy Agency; Sieminski, 2005. ‘World Energy Futures’, p. 25.

World energy consumption and market share, World energy consumption and market share, 1970-20301970-2030

Future trendFuture trend

2000-2030: 1.9% growth rate 2000-2030: 1.9% growth rate

338 mmb/d of oil equivalent 338 mmb/d of oil equivalent Regional changesRegional changes

– 1970 Asia 15% of global energy 1970 Asia 15% of global energy consumption; 27% in 2000; 37% in 2030consumption; 27% in 2000; 37% in 2030

– Oil consumption 128 mmb/d in 2030Oil consumption 128 mmb/d in 2030– Natural gas 30% of total energy Natural gas 30% of total energy

consumption in 2030 (combined gas cycle consumption in 2030 (combined gas cycle turbines) turbines)

US consumption of oil US consumption of oil and gasand gas PETROLEUM & PETROLEUM &

PRODUCTS PRODUCTS

- 2005: 21 mmb/d- 2005: 21 mmb/d

-2030: 27.5 mmb/d-2030: 27.5 mmb/d

NATURAL GASNATURAL GAS

- 22 Tcf in 2004- 22 Tcf in 2004

-85-90% from Canada-85-90% from Canada

US dependence on imported US dependence on imported oil, 2001oil, 2001

Global energy model: Global energy model: reserve, peaking and reserve, peaking and

depletiondepletion USGS, IIASA, and Greene et al. USGS, IIASA, and Greene et al.

modelsmodels

Recoverable conventional crude oil 2 Recoverable conventional crude oil 2 trillion barrels of oil (Greene et al.)trillion barrels of oil (Greene et al.)

USGS 2000: mean 3.0 trillion for oil, USGS 2000: mean 3.0 trillion for oil, and 3.3 including natural gas liquidsand 3.3 including natural gas liquids

Oil Natural Gas Liquids

Total Petroleum

Undiscovered 725 214 939

Res. Growth 675 55 730

Proven Res. 884 75 959

Cum. Prod. 710 7 717

Total 2994 351 3345

Estimates of world petroleum resources Estimates of world petroleum resources

(USGS, 2000 study)(USGS, 2000 study) (mean) (in billion barrels)(mean) (in billion barrels)

World Energy Council World Energy Council (2001)(2001) 85% of world total bitumen in 85% of world total bitumen in

Alberta, Canada – 1.7 trillion Alberta, Canada – 1.7 trillion barrels of bitumenbarrels of bitumen

Orinoco Oil Belt, eastern Orinoco Oil Belt, eastern Venezuela – 90% of known extra-Venezuela – 90% of known extra-heavy oilheavy oil

USGS: world shale oil 2.6 trillion USGS: world shale oil 2.6 trillion barrels – 1.5 trillion barrels in the barrels – 1.5 trillion barrels in the Green River formation, USAGreen River formation, USA

Future scenario (WEC Future scenario (WEC model) model) Conventional oil Conventional oil

peak 2022peak 2022 Middle East reaches Middle East reaches

median target R/P median target R/P ratio of 15 in 2041 ratio of 15 in 2041 and output declinesand output declines

Increase in Increase in unconventional oil unconventional oil productionproduction

US conventional flat US conventional flat until 2020, and fall until 2020, and fall off afterwardsoff afterwards

Gaps are filled by Gaps are filled by importsimports

Sources are Sources are unconventional oil – unconventional oil – oil sands in Canada oil sands in Canada (14 mmb/d after (14 mmb/d after 2030 & flat through 2030 & flat through 2050)2050)

Major challenges – water Major challenges – water availability, environmental impact availability, environmental impact – emissions, on site upgrading– emissions, on site upgrading

Additional import – from Additional import – from Venezuela and RussiaVenezuela and Russia

Oil shale production begins Oil shale production begins gradually after 2010 and gradually after 2010 and increases after 2030increases after 2030

Source: Greene, 2003, p. 53Source: Greene, 2003, p. 53

Source: Greene et al. 2003, p. 3Source: Greene et al. 2003, p. 3

US dependency on US dependency on imported oil and gasimported oil and gas 33% increase in oil 33% increase in oil

consumption during consumption during 2001-20202001-2020

Natural gas by over Natural gas by over 50%50%

Demand for Demand for electricity by 45%electricity by 45%

Recent trend: 1991-Recent trend: 1991-200, used 17% more 200, used 17% more energy then in the energy then in the previous decadeprevious decade

Domestic production Domestic production increase 2.3%increase 2.3%

Increasing Increasing dependency on dependency on foreign oil and foreign oil and natural gas (including natural gas (including liquid natural gas) liquid natural gas)

Source: Greene, 2003, p.46Source: Greene, 2003, p.46

US Dependency on US Dependency on foreign oil and gas: foreign oil and gas: ‘Energy Security’ ‘Energy Security’ concernsconcerns ““assurance of the ability to access the assurance of the ability to access the

energy resources required for the energy resources required for the continued development of national continued development of national power. It is the provision of affordable, power. It is the provision of affordable, reliable, diverse, and ample supplies of reliable, diverse, and ample supplies of oil and gas to the [country]..,its allies, oil and gas to the [country]..,its allies, and its partners – and adequate and its partners – and adequate infrastructure to deliver these supplies infrastructure to deliver these supplies to marketto market” (Lalicki & Goldwyn, 2005: 9) ” (Lalicki & Goldwyn, 2005: 9)

Consumer-producer Consumer-producer relationshipsrelationships

Dynamic facets – Dynamic facets – outcome of outcome of continuous processcontinuous process

Security of demand Security of demand and security of and security of supplysupply

OECD’s energy OECD’s energy security perspectivessecurity perspectives

Growing import Growing import dependencedependence

Geopolitics and Geopolitics and terrorismterrorism

Geographical Geographical concentration, concentration, monopoly and monopoly and monopsonymonopsony

Finite, non-Finite, non-renewable renewable resourcesresources

Barriers to Barriers to investmentinvestment

High and volatile High and volatile energy pricesenergy prices

Policy leversPolicy levers

‘‘Energy Security’ Energy Security’ concept and policy concept and policy discoursediscourse National Dependency and Vulnerability National Dependency and Vulnerability

(NDV) notion – energy efficiency, stock (NDV) notion – energy efficiency, stock holding, fuel switching, substitution holding, fuel switching, substitution optionsoptions

Inward looking – fear of price volatility as Inward looking – fear of price volatility as a result of geopolitical uncertainty a result of geopolitical uncertainty

Kalicki and Goldwyn (2005): institutional Kalicki and Goldwyn (2005): institutional and policy failures in the USA and lack of and policy failures in the USA and lack of coordination between energy and foreign coordination between energy and foreign policy policy

Synergic Cooperation (SC) Notion Synergic Cooperation (SC) Notion – interdependencies create – interdependencies create positive international atmosphere positive international atmosphere and long-term cooperation and long-term cooperation

E.g., International Energy Agency E.g., International Energy Agency (IEA) 26 member countries(IEA) 26 member countries

1990-91 Gulf War and IEA’s 1990-91 Gulf War and IEA’s responseresponse

1989 Canada-US Free Trade Agreement (FTA)1989 Canada-US Free Trade Agreement (FTA)– Preventing future use two-price system by CanadaPreventing future use two-price system by Canada– Restraining US from using restrictive measuresRestraining US from using restrictive measures– Access to US market and “proportionality clause”Access to US market and “proportionality clause”

i.e., Canada cannot arbitrarily cut-off contracted i.e., Canada cannot arbitrarily cut-off contracted US buyers of Canadian oil and gas. If declared US buyers of Canadian oil and gas. If declared shortages occurred, Canada could only reduce shortages occurred, Canada could only reduce supply proportionately over an agreed three year-supply proportionately over an agreed three year-based period.based period.

Atmospheric and climate impact of Atmospheric and climate impact of fossil fuel use: policy concerns and fossil fuel use: policy concerns and

issuesissues 1950 emission of 1950 emission of

carbon 1.5 b metric carbon 1.5 b metric tonton

1990: 6 billion metric 1990: 6 billion metric ton – USA 20-25%, ton – USA 20-25%, Canada 2.5% Canada 2.5%

Mid-late 1980s: US Mid-late 1980s: US executive vs executive vs legislative branch legislative branch disputedispute

Bush’s State and Bush’s State and Local Climate Change Local Climate Change Program (1990)Program (1990)

Clean Air Act Clean Air Act Amendments (1990) Amendments (1990) – Emission trading Emission trading

introducedintroduced Intermodal Surface Intermodal Surface

Transportation Transportation Efficiency Act 1991Efficiency Act 1991– Mass transitMass transit

1992 Energy Policy 1992 Energy Policy Act Act

Kyoto Protocol 1997Kyoto Protocol 1997

Opposition to Berlin Opposition to Berlin Mandate by the Mandate by the CongressCongress

EPA and Dept. of State EPA and Dept. of State support vs. Treasury, support vs. Treasury, Energy, Defense and Energy, Defense and Commerce’s opposition Commerce’s opposition

Exxon Mobile’s funding to Exxon Mobile’s funding to the American Enterprise the American Enterprise Inst. & Competitive Inst. & Competitive Enterprise Inst.Enterprise Inst.

Bush (Jr.)’s new domestic Bush (Jr.)’s new domestic plan – emphasis on plan – emphasis on carbon intensity – not carbon intensity – not overall emission – 18% overall emission – 18% GGI through 2012GGI through 2012

Since 2001 – 29 billion Since 2001 – 29 billion dollar fund dollar fund

GHG emission reduction GHG emission reduction policy initiatives of the policy initiatives of the States States New Jersey, New New Jersey, New

Hampshire, New Hampshire, New England states, England states, Wisconsin and Wisconsin and Oregon Oregon

New Jersey adopted New Jersey adopted in 1998 3.5% in 1998 3.5% reduction below reduction below 1990 levels by 20121990 levels by 2012

Programs included Programs included conservation, conservation, creating and using creating and using new technologies, new technologies, waste management, waste management, recycling and recycling and education education

New Jersey’s New Jersey’s agreement with the agreement with the NetherlandsNetherlands

California case study: renewable California case study: renewable energy policy & electricity energy policy & electricity restructuringrestructuring(Ryan Wiser et al. 1998)(Ryan Wiser et al. 1998)

Clean energy Clean energy technologiestechnologies- the renewables - the renewables portfolio standardsportfolio standards- electricity - electricity distribution distribution surchargesurcharge- voluntary - voluntary renewable renewable purchasepurchase

Key questions:Key questions:- Sustained support - Sustained support

to renewablesto renewables- Cost containment - Cost containment

& competitive & competitive neutralityneutrality

- Combination of - Combination of policies than policies than single renewables single renewables policy policy

Canadian approach to Canadian approach to sustainable energy and climate sustainable energy and climate change issueschange issues

1970-1990s – 1970-1990s – improving energy improving energy efficiency efficiency

Change Change behaviour and behaviour and life stylelife style

Home insulation Home insulation programprogram

1980s – focus on 1980s – focus on R&D, market-R&D, market-based research based research and demo and demo projectsprojects

1993 Energy 1993 Energy Efficiency Act Efficiency Act NRCan regulate NRCan regulate 20 products that 20 products that use energyuse energy

Strategic objective of Strategic objective of renewable energyrenewable energy Tax deduction – Tax deduction –

wind farm , fixed-wind farm , fixed-location fuel cells location fuel cells and ancillary fuel and ancillary fuel reformationreformation

Electricity Electricity purchase by purchase by NRCan from NRCan from renewable renewable sourcessources

Sustainable energy strategies – Sustainable energy strategies – efficiency and efficiency and renewable energy technologiesrenewable energy technologies Energy efficiency:Energy efficiency:

– Assessment/Assessment/monitoringmonitoring

– AuditingAuditing– Fiscal/tariffsFiscal/tariffs– Information/educationInformation/education– LabellingLabelling– Mandates/standardsMandates/standards– Institutional frameworkInstitutional framework– R&D/technology R&D/technology

procurementprocurement– Third party financingThird party financing– Voluntary agreementsVoluntary agreements

Strategy measures Strategy measures of renewable energyof renewable energy- regulatory - regulatory strategiesstrategies- economic - economic incentivesincentives- R&D support- R&D support- Market - Market developmentdevelopment

Why an Integrated North Why an Integrated North American Energy and Climate American Energy and Climate Security Strategy?Security Strategy? US proved US proved

reserve 21.4 reserve 21.4 billion barrels billion barrels conventional oil conventional oil

Mexico 14.8 b bMexico 14.8 b b Canada 4.3 bb Canada 4.3 bb

conventional oil conventional oil + 178 bb + 178 bb nonconventional nonconventional oil oil

2004 – 24.2% of 2004 – 24.2% of total US net total US net energy imports energy imports from Canada and from Canada and 8.4% from Mexico8.4% from Mexico

USA met 14% of USA met 14% of gas consumption gas consumption by imported gas; by imported gas; Canada provided Canada provided 94%94%

Table 1Value of North America energy commodity trade (in million current US dollars)

Year Canada-USA Canada-Mexico USA-Mexico

Imports Exports Imports Exports Imports Exports

1990 2,104 10,990 49 4 5,288 827

1991 1,261 11,710 85 16 4,672 868

1992 1,293 12,529 156 32 4,737 1,239

1993 1,162 13,536 173 16 4,875 1,038

1994 1,212 13,955 111 19 5,112 1,013

1995 1,348 15,097 81 38 6,251 1,277

1996 1,766 18,791 142 16 8,114 1,506

1997 2,220 19,585 193 19 8,443 1,992

1998 2,546 15,929 139 10 5,290 1,772

1999 2,151 18,873 180 12 7,284 2,258

2000 2,657 35,457 267 11 12,779 4,279

2001 3,512 35,810 278 17 10,213 3,255

Secured supply for consumers and Secured supply for consumers and secure market for producerssecure market for producers

Cost competitive Cost competitive Scope for R&D cooperationScope for R&D cooperation Collective response in crisisCollective response in crisis Broader trade and economic Broader trade and economic

cooperation cooperation Adjustment to market (integrated Adjustment to market (integrated

economy) and institutional failureseconomy) and institutional failures

Common Goal: Transition from Common Goal: Transition from non-renewables to renewablesnon-renewables to renewables

Electric sector (40% Electric sector (40% GHG): cost GHG): cost competitive wind, competitive wind, geothermal, hydrogeothermal, hydro

Renewable portfolio Renewable portfolio standards (20% by standards (20% by 2025 (Locky, 2007) 2025 (Locky, 2007)

Energy efficiency Energy efficiency standards in standards in industrial, industrial, residential and residential and commercial sectors commercial sectors

Transportation Transportation sectorsector- plug-in hybrid - plug-in hybrid - electric vehicles - electric vehicles

market-based cap-market-based cap-and trade systemand trade system

Institutional effortsInstitutional efforts

US national energy US national energy independence – independence –

a myth?a myth? Security and Security and

Prosperity Initiative Prosperity Initiative (SPP) 2005(SPP) 2005

US Energy US Energy Independence and Independence and Security Act (EISA) Security Act (EISA) 20072007

ChallengesChallenges

- Executive and - Executive and legislative branch legislative branch quibbling quibbling

- Influence of interest Influence of interest groupsgroups

- Geopolitical Geopolitical uncertainty uncertainty

- Role of subsidies and Role of subsidies and economic incentives economic incentives to renewables to renewables

Canadian Challenges Canadian Challenges

Water and carbon emission in the Water and carbon emission in the production of noncoventional oil production of noncoventional oil

Federal and provincial Federal and provincial jurisdictional disputes – offshore jurisdictional disputes – offshore oil exploration oil exploration

Volatility of oil priceVolatility of oil price Protectionist measure in USAProtectionist measure in USA

Recommendations for Recommendations for researchresearch Public institutions role in energy marketPublic institutions role in energy market Diversification and facilitation of energy Diversification and facilitation of energy

transition transition Impact of subsidies and incentives at the Impact of subsidies and incentives at the

local and state levellocal and state level Opportunities and barriers in cap-and Opportunities and barriers in cap-and

tradetrade Electoral Cycle and resource allocation Electoral Cycle and resource allocation

to long term policy goalsto long term policy goals

Change in consumer behaviour Change in consumer behaviour and life styleand life style

Local and public participation in Local and public participation in energy and climate change policyenergy and climate change policy

Conservation and demand Conservation and demand management – economic management – economic disincentivedisincentive

Economic tools for improving Economic tools for improving energy efficiency energy efficiency

Dissemination of Best Practices in the Dissemination of Best Practices in the reduction of emission (European and reduction of emission (European and North American local & state experience)North American local & state experience)

Integration of energy policy with climate Integration of energy policy with climate change and foreign policychange and foreign policy

North American energy and climate North American energy and climate change policy approach – institutional change policy approach – institutional requirements for energy security and requirements for energy security and sustainabilitysustainabilitye.g., trilateral public-private organizatione.g., trilateral public-private organization

Promotion of cross-cultural Promotion of cross-cultural research by continental team – research by continental team – transdisciplinarytransdisciplinary

Issues of social justice and equity Issues of social justice and equity in energy development and use in energy development and use

Cross border energy trade – Cross border energy trade – security and ownership issues security and ownership issues (e.g., Pemex in Mexico)(e.g., Pemex in Mexico)

The EndThe End

Concluding RemarksConcluding Remarks

Obama’s New Energy PlanObama’s New Energy Plan

– Confront UD dependency on foreign Confront UD dependency on foreign oiloil

– Address the moral, economic & Address the moral, economic & environmental challenge of global environmental challenge of global climate changeclimate change

– Build a clear energy futureBuild a clear energy future

Short-termShort-term– Provide energy Provide energy

rebaterebate– Close loopholes in Close loopholes in

Commodity Futures Commodity Futures Trading Commission Trading Commission regulationsregulations

- Swap light and heavy Swap light and heavy crude crude

- Release from Release from Strategic Petroleum Strategic Petroleum ReserveReserve

Mid & Long TermMid & Long Term

- Cap-and-trade to - Cap-and-trade to reduce GHG 80% reduce GHG 80% below 1990 levels by below 1990 levels by 2050; 2050;

- 100% auction on all - 100% auction on all pollution credit; pollution credit;

- invest in clean - invest in clean energy economy energy economy $150 b over 10 years$150 b over 10 years