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The Future of Energy Sovereign Energy Independence Properly Understood and Effectively Achieved in the 21st Century Spencer Abraham & Mark P. Mills Spencer Abraham is Energy, like food, is a foundational requirement for civiliza- Chairman & CEO of tion. The World Economic Forum’s 2012 Energy Vision Update The Abraham Group. He previously served as begins with the observation: “Energy is the lifeblood of the the tenth United States global economy – a crucial input to nearly all of the goods Secretary of Energy and 1 before that as a United and services of the modern world.” We disagree with the States Senator from Forum in one respect. Energy is crucial not to “nearly all” Michigan. but in fact to all goods and services. Mark P. Mills is a Ensuring the availability of an economically sustainable Senior Fellow at the Manhattan Institute and secure energy supply is one of the primary responsi- and CEO of the Digital bilities of sovereign governments. Energy independence, Power Group. properly understood, is a central component in achieving both supply and economic security. The policy options for pursuing “independence” depend on the realities of the day. In this paper we will argue that a clear understanding of the landscape is more important than clever policies, and that, in any case, there are precious few options in regards to the latter. We begin by noting that two central features of the global energy landscape are the same now as they have been for decades, even centuries. These are the underlying character of both geopolitics and geophysics. The animating forces in geopolitics have been the same Winter/Spring 2013 [65] SOVEREIGN ENERGY INDEPENDENCE for as long as there have been nation and social fallout from such a radical states. National goals, political sys- price hike may be muted, if not for- tems, and social objectives vary wide- gotten. Were prices to double today ly, and always have. Differences can the fallout would be almost inconceiv- lead to both unintentional and inten- able. However, such a possibility is far tional conflicts. Conflicts are ulti- from unimaginable and cannot even mately resolved using the same three be termed a “black swan” given how tools since time immemorial: business little progress has been achieved in the arrangements of mutual convenience, underlying issue of Middle East stabil- diplomacy, or war. Put simply, people ity. have not changed. Energy “independence” policies are Similarly, underlying geophysical no less vital today than they were at the realities of the planet remain constant. dawn of the modern era of energy pol- The asymmetric distribution of eas- icy in providing some measure of insu- ily accessible high-grade resources is lation against the possibility of events incontestably a fact that creates oppor- similar to those of 1973 and 1979. tunities for economic or geopolitical In fact, given the current geopolitical advantage, or conflict. environment we would argue “inde- On the other hand, some things pendence” should remain the first pri- today are quite different. Indeed, we ority of sovereign governments when The geopolitical objective of “indepen- dence” is really about preventing one or a few players from being in a position to under- mine or manipulate the marketplace, or from using energy as a political tool. will argue that the energy landscape has forging energy policies, against which undergone tectonic shifts in the para- all other goals should be secondary. digms of supply and demand since the The question for nations on how to dawn of the modern energy era, an era achieve energy independence requires that arguably began in the fall of 1973. first a definition, itself inherently a The modern lexicon of energy policy-centered consideration. For “independence” and policies attending most nations, the concept of indepen- thereto began with the one-two punch dence rarely means seeking closed-bor- of the 1973 OPEC embargo and the der self-sufficiency. For many nations 1979 Iranian revolution. With the first individually and, in particular, col- event, world oil prices roughly doubled lectively through regional or mutual nearly overnight. Prices doubled again alliances, the geopolitical objective of a few short years later.2 With the pas- “independence” is really about pre- sage of time, the political, economic, venting one or a few players (Iran and [66] Georgetown Journal of International Affairs ABRAHAM AND MILLS The Future of Energy Venezuela come to mind for many, consumption an amount equal to the or Russia, or OPEC) from being in a adding of two United States’ worth of position to undermine or manipulate energy demand.5 the marketplace, or from using energy This shift in the epicenter of demand as a political tool. means that policies intended to reduce In order to develop a framework to the use of oil in the United States (e.g., understand how best to pursue energy improving fuel efficiency of light vehi- independence, we start with the fea- cles) that would once have had a major tures that have in fact changed, the facts impact on global oil demand, no longer relating to how the two most important do so and increasingly have de minimis forces – technology and demographics impact on the geopolitics of oil. Argu- -- have altered the equation of sup- ments can still be made for efficiency ply and demand. As we earlier not- on the basis of domestic economic ed, human behavior (geopolitics) and benefits, but geopolitics motivated gov- nature (geophysics) remain unchanged. ernment intervention in this case of But human ingenuity (technology) and energy demand and security (and many populations (demographics) have sig- others similar). The modern and now nificantly changed since President Nix- firmly embedded Corporate Average on first used the phrase “energy inde- Fuel Economy (CAFÉ) standards were pendence” in the epoch-setting speech enacted in 1975 in direct response to of 7 November, 1973.3 the 1973 embargo.6 But today, even radical reductions in total U.S. light Supply and Demand in a New vehicle fuel use – whether from the Era. Throughout the 20th century, recently enacted expansions in CAFE the United States in particular and standards or a political goal of a mil- the West in general were the globe’s lion electric cars – would moot only a largest users and fastest growing major small percentage of future global oil consumers of energy. In the 21st cen- demand. The United States in particu- tury demographics, combined with the lar, and the West in general, no longer maturation of emerging economies, have a political foot on the accelerator have permanently shifted the center of or brake that determines the growth in gravity. energy demand. Western nation poli- The Asia-Pacific and emerging cies rooted in the 1970s demand para- regions, with the Asia-Pacific domi- digm are, if no longer valid, certainly nating, are now responsible for not emasculated in impact. only the fastest growth in large-energy Just as we see a shift in the 21st centu- demand, but also essentially all net ry metrics on the demand side of energy growth in demand. Within a few years, driven by demographics, so too has there the emerging economies will have com- been a shift on the supply side metrics, pleted their transitions and will con- in this case driven by technology. The sume in aggregate more total energy world is not in imminent danger of than the entire “West.”4 Indeed, over running out of hydrocarbons broadly, the coming two decades, the growth in nor oil in particular. The central issues emerging economies will add to global for the future will continue to be the Winter/Spring 2013 [67] SOVEREIGN ENERGY INDEPENDENCE same as those in the past, largely ones of progressive recognition of the underly- costs and access—the former is mainly ing engineering and economic reali- determined by technology and the latter ties rather than aspirational policies. by government policies which control They represent a consensus recognition or own about 80 percent of land where (some would say, capitulation) of the oil resources reside.7 And, in the face of practical nature of energy resources and today’s North American glut of natural technologies. gas, many have forgotten the passage in Dozens of nations, including for 1978 of the Powerplant and Industrial example the United States, Germany, Fuel Use Act (finally repealed in 1986), Spain, Britain, and China have over inspired by a fear of imminent limits the past several decades invested enor- to gas resources. The North American mous financial and policy resources in glut has already impacted world mar- attempting to create significant, eco- kets, and the technologies that created nomically viable capabilities to replace the glut are expected to spread around conventional fuels.10 While many influ- the world as well.8 ential policymakers believed otherwise Nonetheless, there continues today in recent decades, there is now a wide- an ‘industry’ if not an intellectual spread recognition that there is no framework that flowered in the post- realistic prospect of seeing technologies embargo era, anchored in the the- emerge in useful time-frames, and at sis of limits, epitomized by the iconic costs that are acceptable, that can fun- and politically prescient 1972 Club of damentally displace the central role Rome’s “Limits to Growth,” and fol- of hydrocarbons—coal, oil and natu- lowed in more recent years by the thesis ral gas—particularly in the context of of “peak oil.” For policy makers, the the magnitudes of projected demand existential debate about long-term geo- growth. physical resources limits or population Some would argue that the failure expansions are not, or should not, be to see an even larger non-hydrocar- relevant.

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