Fundamentally, the concept of energy security remains unchanged, but the means to achieving it are becoming more complex.
As the world transitions to a low-carbon economy, new ways of energy production offer additional opportunities to countries that seek higher levels of energy independence. The diversification of sources, suppliers or contractual arrangements has always been the linchpin of a strategy to bolster energy security. However, the onset of energy transition has led to the emergence of new risks that governments have to take into account when devising energy security strategies.
Old-school energy security
In the first decade of the 21st century, energy security was mostly about ensuring a stable flow of oil and gas, preferably from multiple suppliers, as relying on a single supplier would pose a major threat. In this context, the definition of energy security by the International Energy Agency (IEA) is the most succinct expression of its essence: the uninterrupted availability of energy sources at an affordable price. The affordability component is most relevant for the importers since exporters are interested in a higher price environment to maximize their revenue. However, the market dynamic would work its magic to match supply and demand and generate an acceptable price level for both sides.
In the meantime, disruptive events such as military conflicts, terrorist attacks on critical energy infrastructure, and embargoes would undermine stable hydrocarbon supplies and trigger price hikes. In addition, large oil and gas producers could leverage the status of a major supplier to reach their geopolitical goals by restricting oil and gas flows to the customers. These macro-level dynamics ultimately translated into troubles at the micro-level affecting individuals via power outages, expensive motor fuel or high energy bills. Given the ubiquitous nature of energy security, its threats are existential to the state and require politicians to act quickly to mitigate or prevent them. Finding an alternative supplier, expanding domestic generation capacity (or encouraging domestic hydrocarbon production if commercial resources are available) and providing short-term subsidies to support consumers – those were natural responses to energy security crises. Although those were challenging tasks, at least they were relatively clear and there was a good understanding of the path to a more robust energy security strategy. However, the growing concerns about GHG emissions and climate change in general shifted the balance towards a more sophisticated energy security system.
In 2010, the World Energy Council (WEC) started tracking the Energy Trilemma Index. According to the WEC, the energy trilemma comprises energy security, energy equity (a country’s ability to provide universal access to reliable, affordable, and abundant energy for domestic and commercial use) and environmental sustainability (the transition of a country’s energy system towards mitigating and avoiding potential environmental harm and climate change impacts). These are competing demands that governments need to balance in order to get high scores from the WEC and, of course, address issues at the nexus of energy, societal development and climate.
The energy trilemma is a useful concept for understanding the scope of challenges the world faces and it also perfectly fits in into the Sustainable Development Goals framework formulated in 2015. And yet, energy security is at the heart of the trilemma: how we source and how we produce energy ultimately affects its affordability and climate impacts. In this context, the challenge is becoming much bigger as the scope of energy security has expanded.
Energy security now
The development of renewables has offered an opportunity for countries with abundant wind and solar energy to build domestic generation capacity and reduce dependence on imports. However, the development of a wind energy sector, for example, will depend on the imports of components to construct a wind farm. Instead of relying on several hydrocarbon exporters, the country becomes dependent on multiple suppliers of component parts scattered across the globe. Supply chain disruptions and cost inflation create additional challenges to energy security. In 2023, high costs prompted the cancellation of wind energy projects in the United States and Norway, while a regular auction of contracts-for-difference in the United Kingdom generated zero applications due to the same reason.
In addition, the decarbonization of the energy system requires governments to re-evaluate their priorities. In Norway, the authorities have to balance the need to electrify offshore oil and gas platforms with the imperative to provide the mainland economy with affordable power. Diverting onshore electricity to the offshore sector could result in a deficit and trigger price increases for main industries and households, which would essentially undermine energy security. Subsidizing electricity consumption could be a short-term solution and maybe even a long-term one in the case of a country with a significant financial war chest, but any government with more limited capabilities will have to prioritize, likely in favor of households.
Finally, energy security now includes the uninterrupted supply of critical minerals to ensure the electrification of the transport sector and the continued expansion of solar photovoltaic (PV) and wind energy. The 2023 World Energy Outlook by the IEA highlights the growing concentration of the production and refining of critical minerals capacity in a handful of countries. What does this mean? Significant global ramifications of a potential disruption and temptation of a host government to leverage its outsized role in the supply chain. It’s the same situation as with oil and gas, but now with different commodities and with a much smaller pool of producers relative to hydrocarbons.
What are the potential solutions to these challenges? Firstly, shifting public spending priorities towards clean-energy investment and providing more incentives for the private sector to improve the cost efficiency of low-carbon and renewable energy. Despite the Paris Agreement commitments and new arrangements at annual COPs, the world is still falling behind in the energy transition needs. According to the Climate Policy Initiative, global climate finance flows in 2021/22 reached $1.2 trillion. Meanwhile, global public expenditure on the military stood at $2.2 trillion in 2022. In addition, explicit and implicit fossil fuel subsidies reached a record high of $7 trillion in 2022, although pledges to phase them out were made over a decade ago.
Secondly, international cooperation is required to address the growing challenges at the intersection of energy and climate. Collective efforts and coordination between governments could provide much-needed certainty and mitigate the risk of supply chain disruptions. It is, of course, tempting for those countries possessing valuable resources to capitalize on their scarcity. However, growing GHG concentrations in the atmosphere will pose risks to everyone regardless of the geographical location and it is the common interest of all states to halt their growth.
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