Valuation of Energy Security for the United States Report to Congress January 2017 United States Department of Energy Washington, DC 20585 Contents Acknowledgments ......................................................................................................................................... 1 Executive Summary: The New Energy Security Paradigm ............................................................................ 2 I. Redefining U.S. Energy Security ................................................................................................................. 7 II. Energy Security Valuation Framework ...................................................................................................... 8 III. Policies Addressing Energy Security in the United States ...................................................................... 11 A. Consumers and the economy............................................................................................................. 11 B. Energy supply diversity and resiliency................................................................................................ 12 C. Well-functioning and competitive markets ........................................................................................ 13 D. National security objectives ............................................................................................................... 14 E. Environmental considerations ............................................................................................................ 15 IV. Policies Addressing Energy Security for U.S. Allies and Partners .......................................................... 16 V. Energy Security Applications in Federal Rulemaking .............................................................................. 18 VI. Valuation of Energy Security Benefits ................................................................................................... 19 A. General Quantification Opportunities ............................................................................................... 20 B. Quantification of Benefits for Consumers and the Economy ............................................................. 21 C. Quantification of Benefits for Energy Supply Diversity and Resiliency .............................................. 21 D. Quantification of Benefits for Well-Functioning and Competitive Markets ...................................... 22 E. Quantification of Benefits for National Security ................................................................................ 22 F. Quantification of Benefits for Environmental Considerations ........................................................... 23 Prologue: Valuing Energy Security in the United States ............................................................................. 25 Chapter 1: Energy Security Policy in the Oil and Natural Gas Sectors ........................................................ 29 I. Introduction ............................................................................................................................................. 29 II. Defining and Assessing Oil and Gas Energy Security in the United States.............................................. 31 A. Consumers and the Economy ............................................................................................................. 31 i. Managing Effects of Price Volatility by Managing Oil Intensity ....................................................................... 34 ii. Managing Effects on Consumers’ Finances .................................................................................................... 42 B. Oil and Natural Gas Supply Diversity and Resiliency .......................................................................... 43 i. Enhancing Supply Diversification .................................................................................................................... 46 ii. Enhancing Supply Resiliency ........................................................................................................................... 54 C. Well-Functioning and Competitive Energy Markets .......................................................................... 56 i. Ensuring Open Markets ................................................................................................................................... 57 ii. Providing Transparency in Data about Market Fundamentals ....................................................................... 59 iii. Improving Transparency and Efficiency in Infrastructure Permitting............................................................ 60 iv. Allowing Third-Party Access to Infrastructure ............................................................................................... 63 D. U.S. Trade Balance ............................................................................................................................. 63 E. National Security Objectives ............................................................................................................... 66 i. Maintaining Emergency Response Mechanisms ............................................................................................. 67 ii. Energy Diplomacy ........................................................................................................................................... 70 iii. Imposing Sanctions on Major Oil Producers .................................................................................................. 71 F. Environmental Considerations ........................................................................................................... 72 i. Reducing Demand for High-GHG Fuels ............................................................................................................ 72 ii. Improving Environmental Performance of the Energy Sector ....................................................................... 73 III. Assessing Energy Security for U.S. Allies and Partners .......................................................................... 75 A. North America .................................................................................................................................... 75 i. Canada ............................................................................................................................................................. 75 ii. Mexico ............................................................................................................................................................ 79 ii B. Europe ................................................................................................................................................ 82 C. Asia ..................................................................................................................................................... 87 i. Australia and New Zealand .............................................................................................................................. 88 ii. Korea and Japan ............................................................................................................................................. 91 D. Additional U.S. National Security Objectives in the Context of Allies and Partners .......................... 94 i. Maintaining Strategic Reserves ....................................................................................................................... 94 ii. Fostering Cooperation through Multilateral Organizations ........................................................................... 95 iii. Helping Emerging Producers Link to Global Markets .................................................................................... 95 Chapter 2: Energy Security Policy in the Electric Power Sector .................................................................. 97 I. Introduction: Electricity as National Security Asset ................................................................................. 97 II. Defining and Assessing Electricity Security in the United States .......................................................... 100 A. Energy Supply Diversity and Resiliency ............................................................................................ 100 i. Energy Security Challenges for Different Fuel Types ..................................................................................... 103 ii. Policies That Affect Fuel Diversity ................................................................................................................ 106 B. National Security Objectives ............................................................................................................ 106 i. Reliability: Future Trends and Policies .......................................................................................................... 107 ii. Policies That Affect Reliability ...................................................................................................................... 110 iii. Resilience: Future Trends and Policies ........................................................................................................ 115 iv. Policies That Affect Resilience and Cybersecurity ....................................................................................... 120 C. Well-Functioning and Competitive Electricity Markets ...................................................................