This article was published in our print edition’s Special Issue on the European Union.
Noted energy scholar Vaclav Smil says energy is the only universal currency.1 It is necessary for getting anything done. We usually think of it in very simple terms: whether the lights are working, or the car has fuel. We do not regularly reflect on its critical importance for fertilizer to grow food, for commerce, for heavy industry, for machines to produce consumer goods, for refrigeration and heating, for transport, for the ability to manufacture and service our defence requirements, and for every other aspect of human life. All societies have a profound interest in energy security because they cannot function as societies without energy. A few references to current events make the point:
- Public estimates suggest that 2022 saw European governments put in place over 700 billion euros in citizen subsidies to underwrite energy costs—costs that rose because of shortages, driven in part by Russia’s invasion of Ukraine but also because of a long-term commitment to so-called ‘green energy’ at the expense of conventional energy. The general consensus is that this amount was insufficient to keep energy affordable for citizens, and contributed to political instability in many countries.2
- The lack of access to fertilizer was instrumental in triggering the massive political crisis in Sri Lanka that started in the spring of 2022, and while that was not an energy crisis per se, it was driven by the consequences of the Sri Lankan government’s decision to produce fertilizer organically and stop using conventional fertilizer—because the latter is produced using natural gas and Sri Lanka wanted to show leadership in eliminating the use of hydrocarbons. Farmer protests also occurred throughout the year in many countries, the Netherlands being the most significant in Europe, with the hydrocarbon energy content of fertilizer being core to the dispute (farmers want fertilizer made from hydrocarbons, governments do not want hydrocarbons).3
- In October 2022, chemical and fertilizer producer BASF warned that it might have to downsize ‘permanently’ in Europe because of high energy prices, while energy-intensive industries such as glassmaking have voiced fears that companies could indefinitely move their operations to other countries with lower energy costs.4
- In North America, growing concerns about energy affordability are increasingly dominating the public discourse, dramatically affecting transport costs, but also everything dependent on those costs, including food prices.
‘Energy security, in terms the consumer understands, needs to address three things: reliability, affordability, and acceptability, in that order’
Energy security, in terms the consumer understands, needs to address three things: reliability, affordability, and acceptability, in that order. These terms apply to a nation state’s understanding of energy security, both because a citizenry not achieving these things will rapidly object and because a nation state is quickly made vulnerable by the instability that comes when energy is no longer reliable, affordable, or acceptable.
If you want to undermine energy security—as a malicious global actor on the world stage, as an ideological actor domestically, or even as a particularly aggressive competitor in a market, you could consider undermining any of these legs of the three-legged energy security stool. You can undermine the reliability leg by exposing and taking advantage of an energy system’s vulnerabilities—targeted attacks on supply, transmission, or delivery of energy. Blockading a well site, blowing up a pipeline, knocking down a transmission line, undertaking a cyber attack on energy system operations, protesting the movement of fuel waste, not designing a system to withstand bad weather—all of these are examples of reliability being undermined. You overcome them by ensuring resiliency. This requires the establishment of safeguards, backup plans, alternate energy supplies, and reserves.
You can undermine the affordability leg by undermining the reliability leg, but also by forcing constraints on fuel supply: by banning fuels or technologies and thereby forcing up costs; by imposing onerous regulatory frameworks, or by not making those frameworks—however onerous—timely; by excessive taxation; by dissuading investment in key supplies; or by picking ‘favourite’ technologies or fuels and subsidizing them rather than letting the expertise of the market advance technology. You overcome threats to affordability by ensuring competitive markets, by reducing market interference, by reducing taxes, by eliminating subsidies, by encouraging investment and innovation in supply and transport, or by building in resiliency.
Acceptability, the third leg of the school, has historically meant addressing very tangible concerns like NIMBYism,5 air quality, water impacts, waste production, land impacts, and safety issues. You would undermine acceptability by pointing to problems in respect to any of these. Today, though, acceptability has become about the management of greenhouse gases (GHGs) because of concerns around the link between those and climate change. Rare is the energy conversation today that does not quickly become a conversation about GHGs. The result is that energy acceptability has become a conversation about whether energy produces GHGs (which is widely considered unacceptable) or does not (which is widely considered acceptable). In turn, this means the simplest and quickest way to undermine the acceptability of an energy option is to talk about how significant its GHG emissions are, and to constantly remind the listener about any number of possible implications from the production of those emissions—however tenuous the link—such as floods, fires, hurricanes, drought, biodiversity declines, and even political instability. All of these have been blamed on GHG emissions. Even better, if your goal is to undermine acceptability, ramp up the rhetoric. It is worth noting how the language in the popular discussion has moved from discussing climate change to claiming a climate crisis.
Overcoming the challenges to acceptability is arguably the most difficult leg of the stool to handle. It requires reducing the impacts of the various unacceptable behaviours, and then mitigating the risks of the impacts that remain (because there will always be impacts). But it also requires public understanding and education, and indeed reflection. Doing that in respect to GHGs remains an enormous, indeed, overwhelming challenge.
As we approach the end of the first quarter of the twenty-first century, we see human civilization at an extraordinary high point in what it has achieved in ensuring reliable, affordable, acceptable energy. We have massive supply. We are using more coal and oil and natural gas—the three foundational fuel sources for energy at a combined total of approximately three-quarters of our energy needs—than ever before. And the supply picture for all three continues to improve. We have created safe nuclear technology and are advancing innovation in its use, such as Small Modular Reactors, or SMRs. We have long mastered hydroelectric, solar, wind, geothermal, and biomass technologies, and continue to tweak improvements in the management and efficiencies of them. We are doing more and more innovative work on the possibilities of hydrogen and other fuels. In sum, energy supply is not at risk.
On the movement of energy we are rapidly building infrastructure, and improving our transmission and delivery capacity of fuels in individual countries and across the planet. The most recent innovation of note is the rapid expansion of LNG transport, quickly turning what was a series of regional markets into a global market.
On meeting consumer needs, we have dramatically improved end-use technologies and access to them, so that more and more citizens—a larger percentage than at any time in human history—have ready access to heating, cooling, hot water, transportation, electricity, communications, and more, and all of these over multiple pathways: as solid-fuel or liquid-fuel delivery by truck, boat, and train, as gaseous fuel through pipelines, and as electricity over wires.
And yet, despite all this, we are in the midst of an energy crisis. Prices are rising dramatically and show no signs of decline, investment in core conventional fuels is not keeping pace with growth, reliability is threatened, and there is talk of shortages even in the most advanced economies. In addition, public acceptability of virtually any energy fuel, technology, or pathway—at least in those advanced industrial societies—seems incredibly low. Why?
The Malicious Energy Environment
There are malicious actors at work. Mr Putin, a student of energy geopolitics and a master propagandist, is one. Does it surprise anyone that open-source information suggests there is Russian support for activists opposing fracking in Europe over the last decade to ensure Europe’s abundant unconventional gas supplies would not be developed?6 Xi Jinping is another malicious actor. Like all great Communists he is a master at setting illusory targets, and has set many for emission reductions, all while building coal plants by the week to generate cheap power to enable a manufacturing sector undercutting the world, and to subsidize rare earth metal global dominance.7 Iran’s ayatollahs also fall into the category. Iran has long known how to make sure its energy gets to markets despite sanctions, generating revenues to maintain their domestic political power and continue their international agenda to de-stabilize their enemies.8
‘We have to anticipate dramatic increases in energy demand from other parts of the world—demand that will put serious constraint on markets and make it much harder for Europe to find the energy it needs abroad’
There are also ideological domestic actors at fault. Politicians in all Western countries preach the morality of so-called energy transitions for political expediency. Any negative implications of these transitions are likely to occur well beyond the next one or two political mandates and so beyond the political life—and responsibility—of the politicians enacting them. Academics, bureaucrats, and media personalities pontificate about the evil energy system of the West, all the while availing themselves of the luxuries guaranteed by the energy system they condemn—private jet planes to Davos being only one of the more egregious examples of the hypocrisy.9 Activists also enjoy increasing subsidies from guilt-ridden or ill-informed funders, while they demand more and more change to the energy system, and less and less of the industrial development the current energy system enables. And while the activists have public adoration heaped upon them, millions are denied the opportunity of a better life resulting from the postponed—or eclipsed—economic growth.
Environmental, Social, and Governmental Distortions of the Energy Market
There are also aggressive market players at fault.10 Corporations moralizing about how they really will achieve target X or Y, and how this is critically important to their public service agendas of one kind or another—stakeholder capitalism in all its shades—can usually be found to be living hypocrisies of their own. Invariably these targets are dependent on significant public subsidies of some kind or another. These subsidies are paid with tax dollars from the broader citizenry—meaning these tax dollars are no longer available for other public goods.
But I would argue that while all these are contributing factors, the greater cause is the prevailing mindset of so many in the industrialized world. Industrialized countries seem determined to look at the success of our energy system and call it failure; to look at the extraordinary quality of life achieved for millions and call it unjust; to look at the remarkable reduction in lives lost from extreme weather events thanks to the benefits of a higher overall standard of living over the last century and still say the sky is falling.11 Having orchestrated the successful energy reality of the present moment, the industrialized world is now undermining it by a host of actions that are bringing and will continue to bring extraordinary hardship for millions, and enormous consequent potential for serious instability.
It is notable that many countries outside of what is traditionally called the West seem determined to take a different view. India is clear in its intention to continue to burn coal to bring the several hundred million of its citizens still in relative poverty up to an acceptable standard of living.12 Middle Eastern countries are clear in their intention to continue to produce oil for the foreseeable future to drive their ongoing economic well-being. African nations are clear that they see natural gas development and use as fundamental to improving the economic condition of Africans well into the future. But those actions are not changing the Western discourse. So where does this leave us on energy security?
Concerted action by European countries over much of 2022 helped ensure that the 2022–23 winter did not spell the nightmare many had feared. A combination of efficiency programmes, energy storage, and frankly, economic decline and a mild winter, meant that the energy system was able to hold fast and that hardships, while present, were not extreme. But what about the future? With the global economy coming out of lockdowns and actually beginning to show signs of economic growth we have to anticipate dramatic increases in energy demand from other parts of the world—demand that will put serious constraint on markets and make it much harder for Europe to find the energy it needs abroad.
‘What we need is more competitive energy markets and more private sector innovation—not less of these’
Overall, global energy prices are likely to rise dramatically as investment in the development of the aforementioned foundational fuels—oil, gas and coal—continues to be stymied by the policies of more developed countries and the many international companies based in them. The development of critical resources like rare earth minerals necessary for new technologies will be harmed by this. The extraction of these resources requires enormous energy. Consequently, as energy costs rise, so too do the costs of accessing those resources. That means the price of, for instance, electric cars will rise.
The economic pressure will increase demands of angry citizens for relief—as their prices rise, as food shortages expand, as the cost of other goods and services increase—which will push governments, right and left, to engage in yet more subsidization of energy costs, the nationalization of assets, and the protectionist bells and whistles all that entails. In other words, things do not look good.
Some Realistic Responses
What is required is a good dose of courageous realism in the public discussion about how energy systems work and how energy markets work. Public leaders need to defend these systems on their merits. Consider the following suggestions:
When there are cries for the elimination of fossil fuels these need to be called out as irresponsible. The mastery of fossil fuels remains one of the most significant advances in human development, enabling ready access to massive supplies of energy and energy services and with them massive opportunity for human civilization. Hundreds of millions have yet to achieve this opportunity and fully intend to pursue it—this is objectively good and should be encouraged. Hundreds of millions who have the opportunity now are at risk of losing it if the use of these fuels is threatened. The continued development of these resources, and improvements in their use, is the right path, not their elimination.
When concerns are expressed about climate change as a crisis of apocalyptic proportions these too need to be called out as irresponsible. Emissions are rising and these have climate implications, but the suggestion that these are leading to an unmanageable crisis is at the very best debatable, and arguably dubious and even dangerous. It fuels irresponsible policy and a culture of fear. Economic growth and the attendant innovation it has consistently delivered will again, left unrestrained by overbearing states, deliver enormous opportunity and innovation. The evidentiary record of improvements in quality of life and human ability to manage through crises speaks for itself and should give us confidence in what can yet be achieved. We should speak up on these points clearly. Rivers do not catch on fire the way they used to, overall air quality has improved on many measures, and green cover is growing massively: there are many, many indicators that things are getting better, not worse, and we need to state that.
When there are cries for the complete restructuring of energy systems—such as the suggestion that we should ban the use of natural gas delivery, or make the internal combustion engine extinct, or that we can and should electrify everything—these need to be called out as being disconnected from reality. On the electricity example for instance, this technology delivers roughly 20 per cent of energy use on the planet and most of that is already dependent on power generation from the fossil fuels that electrification advocates seek to eliminate. Electrifying the energy system would in many instances (like heavy industry) be effectively impossible, and would fundamentally undermine reliability. This is the kind of thing that needs to be said and explained. Energy systems are diverse and varied and this is a strength—we need to build that strength, not undermine it. Electricity is a vital part of the picture but not an answer to everything.
When there are cries for more state intervention in the form of subsidies and taxes and the government control of energy assets—these need to be called out as never, ever working well. The end result is invariably the further stifling of advances in our energy systems, hurting economic wellbeing of the mass of humanity. With it comes a host of other difficulties. What we need is more competitive energy markets and more private sector innovation—not less of these.
Advancing on all of these is not the subject of a left–right political discourse today, at least not in conventional political terms: politicians on all sides seem afraid to show leadership. The problem is with those who should know better forgetting or being lazy about some fundamentals and losing courage. When the fundamentals are emphasized, when people stand up and defend them, good things can follow.
Europe, and indeed other parts of the world, suffer from an energy crisis. They should not. It is going to create several years of real hardship because of mistakes made, but that could get even worse if responsible decision-makers do not stand up now. Affordability, reliability, and acceptability need to be built back into the energy policy framework in countries around the world, in order to get on a path of helping people everywhere live responsible lives as free citizens with the opportunity to pursue prosperity.
NOTES
1 Vaclav Smil, How the World Really Works (London: Penguin, 2022).
2 European Commission, ‘Funding Possibilities in the Energy Sector’, 2022, https://energy.ec.europa.eu/topics/funding-and-financing/eu-funding-possibilities-energy-sector_en.
3 ‘A Rush to Farm Organically Has Plunged Sri Lanka into Crisis’, The Economist (16 October 2021), www.economist.com/asia/2021/10/16/a-rush-to-farm-organically-has-plunged-sri-lankas-economy-into-crisis.
4 ‘BASF to Cut 2,600 Jobs in Europe’, CNBC (24 February 2023), www.cnbc.com/2023/02/24/basf-to-cut-2600-jobs-on-high-costs-in-europe.html.
5 ‘NIMBY, abbreviation for not in my back yard: a person who does not want something unpleasant to be built or done near where they live.’ See: Cambridge Dictionary, https://dictionary.cambridge.org/dictionary/english/nimby.
6 Fiona Harvey, ‘Putin Secretly Working with Environmentalists to Oppose Fracking’, The Guardian (19 June 2014), www.theguardian.com/environment/2014/jun/19/russia-secretly-working-with-environmentalists-to-oppose-fracking.
7 ‘China’s Green Energy Targets Take a Back Seat’, Climate Home News (24 March 2022), www.climatechangenews.com/2022/03/24/after-blackouts-chinas-green-goals-take-back-seat-to-energy-security/.
8 Steven Schwartz, ‘Black Market Gas Shelters Iran’, The Wall Street Journal, (June 2010), www.wsj.com/articles/SB10001424 052748704198004575310982786011098.
9 ‘Global Elites Slammed for Distasteful Hypocrisy’, News.com.au (17 January 2023), www.news.com.au/finance/economy/global-elites-slammed-for-distasteful-hypocrisy-at-davos-world-economic-forum/news-story/b794f771764f4f43173b937f9ab0172e.
10 ‘Ethical Investing’, AJ Bell, https://www.ajbell.co.uk/learn/esg-investing, accessed 23 May 2023.
11 See for instance Just Stop Oil, https://juststopoil.org/.
12 ‘Why Is India Clinging to Coal?’, The Economist (16 November 2021), https://www.economist.com/the-economist-explains/2021/11/16/why-is-india-clinging-to-coal.
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