RFF President Richard Newell on “Energy Independence”

Ed. note: RFF is posting Richard Newell’s remarks on energy independence from earlier this year in light of this week’s Executive Order signed by President Trump on Promoting Energy Independence and Economic Growth. Newell gave the remarks at the Department of Energy (DOE) in January at an event honoring Charles B. Curtis

Thank you. It’s a real pleasure to be here for this event honoring Charlie Curti's contributions and his distinguished service to his country. I’ve been asked to address the topic of energy security in the context of the climate change problem. The way forward on these topics is going to require smart policy based on the kinds of cogent insights that Charlie has provided throughout his career.

It probably makes sense to start off by offering my perspective on the definition of "energy security." It’s no surprise that I believe it is a much more nuanced concept than "energy independence"—a term that, however potent on the campaign trail, doesn’t provide much in the way of sensible guidance for policy. We live in a globalized economy and the notion we can somehow turn back from that—in the energy sector or any other major economic sector for that matter—is profoundly mistaken.

So if it’s not a simplistic goal of energy independence, how should we think about energy security? And how does this relate to climate change? It seems to me a reasonable definition is an energy system that is resilient in the face of disruptive events. It is an energy system that can withstand or recover quickly from difficult conditions.

At the same time, it means not having our foreign policy overly influenced by energy concerns. Improving energy security is therefore ultimately about risk management. Thinking about it in this way clarifies how energy security intersects with climate change, which itself is also fundamentally a risk management problem.

The leadership of the Department of Energy and across the G7 countries clearly understand this reality, as these themes are reflected throughout the G7 statements on energy security over the past few years. The energy system is exposed to a number of risks, including supply disruptions, those related to infrastructure and grid security, the safety and security of nuclear material, weather, and the threat of climate change.

The energy system is both a source of emissions that lead to global warming and it can also be directly affected by climate change: through changes in our energy consumption patterns, potential shutdowns of offshore oil and gas production, changing ice and snow conditions in the oil production regions of Alaska, changing sea ice conditions in the Arctic Ocean and the implications for shipping routes, and impacts of sea-level rise on coasts, where so much of our energy facility infrastructure is located. 

So how to manage these risks? The best way to manage risk is by first reducing your exposure to the risk, second by diversifying, and third by buying insurance. The analogy to managing our own personal financial assets is clear, but in the present case it’s about managing our nation’s energy assets and our global climate assets. When we apply these principles to energy security, we can see that in many cases the steps we would want to take to increase our security can make addressing the climate challenge easier—and vice versa. But this alignment is not guaranteed: it requires thoughtful strategy, policy, and market incentives.

On the principle that an ounce of prevention is worth a pound of cure, reducing risk exposure should take the front seat. For energy in general and oil specifically, US energy security is enhanced if we temper energy consumption growth and increase energy efficiency. And in fact, we have seen a substantial decline since the 1970s in the oil intensity of the economy—or the amount of oil we consume per unit of GDP.

This lowers our overall exposure to oil price shocks and the potential ripple effects on inflation and the macro-economy, while at the same time providing climate benefits. It also simply lowers the importance of oil as a strategic commodity, although of course it remains very important strategically. We have also seen the same downward trend in reducing the overall energy intensity of the economy, but we need to accelerate the trend in reducing the carbon intensity of our economy, to reduce our exposure to the risks of climate change.

Looking forward, moderation of energy demand growth in developing countries will be increasingly important, as this is where the vast majority of growth in consumption and greenhouse gas emissions will occur—but with global implications. Energy prices are a key force in encouraging energy efficiency, but can be too low if they are subsidized or if they do not reflect environmental impacts, such as climate damages.

Addressing energy security risks also means having options, flexibility, and diversifying. Ideally, it means having a variety of different fuel and technology options for meeting an energy need, be it for transport, buildings, or industry. Options provide a ready substitute, an extra cushion in the event of a disruption of alternatives, as well as a good source of competition, with its beneficial incentives for cost reduction and innovation.

Taking advantage of options in turn requires a robust network connecting energy sources to energy needs, be it pipelines, a reliable and responsive electricity distribution system, waterways, or means for alternative fuel distribution. We recognize the extent to which the natural gas revolution and increased flexibility of the electricity sector eased the task of meeting short and medium climate targets, at the same time providing price stability for industry, business, and households.

Energy security also means having a variety of different supplier options, both domestic and foreign. Yes, foreign. The availability of petroleum imports has been critical on numerous occasions, including after Hurricane Katrina ravaged the Gulf Coast, taking large amounts of our domestic system off line. Think about the transformative role that Chinese solar panel production has played in the global solar market. It’s not all wine and roses, but on net we are better off for this connection to the global marketplace.

And while the United States may be flush with natural gas now, just a few years back the option of importing liquefied natural gas was an essential balancing force in the natural gas outlook. Now the tides have turned and the United States is headed toward being a net exporter of natural gas.

But until the recent shale gas boom, the isolation of the North American gas market looked to be a source of vulnerability, not safety, when faced with cold snaps and hurricanes. This highlights the importance of constructive relations with our international partners, something that is also essential to any attempt to meaningfully address climate change.

Finally, energy security means having some insurance, which can take the form of reserve margins in electricity, strategic reserves for petroleum, and ample natural gas storage. In the context of climate change it again means having options—options that pay off if the worst scenarios arise.

My colleagues at Resources for the Future are assessing the implications of this “new energy security paradigm,” which encompasses this new world of abundant hydrocarbons; the growing share of renewables in the electricity mix; the threat to physical infrastructure from age, climate impacts, and physical terrorism; and the emerging threat of cyberterrorism.

Successfully working our way through this new landscape is going to require smart policy. Nuclear non-proliferation and grid security—topics that Charlie has worked extensively on—are front and center in this effort.

Since we also want to address climate risks, we need to expand our set of options so that they are climate-friendly as well as cost-competitive and secure. In addition to energy efficiency and renewable energy, this means finding ways to reduce the emissions from fossil fuels, like switching from coal to natural gas, as well as carbon capture and storage.

It also means enhancing nuclear safety and security. At the same time, the cost of these options needs to come down. This implies a clear nexus between energy security, the climate change challenge, and the energy innovation agenda. We absolutely must expand our set of options for dealing with the threat of climate change, not narrow them by taking options off the table.

But while essential, R&D alone will not do it. We need well-functioning, transparent, and competitive energy markets to enable smooth and rapid responses to changing economic and technological realities. Well-functioning markets are going to be essential to assuring our energy security and increasing our chances of successfully meeting the climate challenge. Charlie’s formative contributions to FERC [the Federal Energy Regulatory Commission] helped put the country in a position of strength in this area.

In my view, a predictable, broad-based price on carbon that takes into account climate impacts in an appropriate way fits the bill for getting markets to function appropriately and sends the right signals to producers, consumers, and innovators. If there’s one thing we’ve learned from the last four decades of energy policy is that it’s a mistake to bet against market realities. You’ll lose.

Energy security and a stable climate are two goals that the United States should pursue in tandem. Energy security initiatives should be cognizant of climate impacts and the steps we take on climate need to recognize the implications for US energy security. Fortunately, if we think of these challenges in the correct way, there are a lot of opportunities for win-win scenarios.

Securing our infrastructure, seeding innovation, and promoting well-functioning energy markets—to me that’s a compelling agenda for DOE. As a proud DOE alum, I know the agency has the institutional expertise and commitment from its people to deliver on this agenda. It’s an agenda that, if successful, can provide security for the United States and the kind of world that we hope to see for our children, grandchildren, and beyond. I want to again thank Charlie Curtis for his role in establishing a firm foundation for this agenda. Thank you.