NS4960
Spring Term 2017
Burnell and Simon Chapter 2
Introduction to U.S. Energy
Security Policy
Values, Choices and Needs
Outline
• U.S. Energy Policy Pre-WWII
• Evolution of values
• Main policies
• U.S. Energy Policy Post WWII
• Increased vulnerabilities
• Energy security concerns
• Main energy security policies
• Energy and National Security Goals
• Complementary Aspects
• Current Landscape
• Increased concern over climate change
• Needs and Choices
• Tools to achieve goals
2
Overview I
• On the surface U.S. energy policy seems quite haphazard
and in a continual state of flux
• Great number of policies by which U.S. seeks to achieve
energy security
• Large number of actors are involved in nation’s energy
policy
• However a degree of order exists in that a series of
agreements or settlements are continually being
produced and built upon
3
Overview II
• The policy process is a reflection of core elements
• Societal values – which continually evolve
• Energy needs – which continually grow
• Feasible policy choices – offers opportunities and constraints
• Core elements all interact with one another to produce
the system through which the U.S.
• Produces,
• Acquires, and
• Consumes electricity
4
Energy Policy Pre-WWII I
• Evolution of Energy Values and Energy Policy in the US –
pre WWII
• Aiming for, and achieving energy abundance and affordability for
all country’s citizens
• In particular serving those,
• those living in relative poverty,
• distant rural areas, and
• experiencing adverse consequences of energy poverty
• At same time these social equity and economic opportunity goals
pursued without abandoning free market capitalism
5
Energy Policy Pre-WWII II
• Energy policies in early decades of 20th century based on
these multiple sometimes competing goals, particularly
during the Great Depression
• Government in 1930s committed to take responsibility for
the individual welfare of citizens and provide direct relief
to individuals on hard times
• To that end national energy policies such as
• Rural Electrification Act of 1936
• Bonneville Project Act of 1937, and
• Tennessee Valley Authority of 1933
• Sought to extend reach of electric power grid to
communities that had been largely left out of the electric
energy market.
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Energy Policy Pre-WWII III
Other actions:
• Breakup of Standard Oil Corporation in 1911
• Enhanced regulation of the oil industry in the 1930s and 1940s
• Sought to stabilize supplies and prices
• Public Utility Holding Company Act of 1935
• Sought to protect the market by diminishing the reach and power
of key companies in oil and electric power sectors
• Goal for prices and energy resources to be more stable and
produced in an environment of some degree of competition
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Energy Policy Pre-WWII IV
• These policies were based on a supply-focused view
energy security
• Adequate supply was to be measured by more than total
quantity of energy but also by
• Geographical distribution, and
• Affordability
• Policies bridged the gap between the aim of
• Fair access and
• Sole reliance on energy market mechanisms
• To allocate energy resources
8
Energy Policy Pre-WWII V
• Public policy helped expand he conception of energy
security
• Energy became more than strictly a
• “Marketable good” that existed only in the private realm,
• More of a “marketable public good" with elements of public
interest calculations
• Public and social benefits of energy came to be
increasingly incorporated into logic and formation of
public policy
• Energy security itself has come to be understood as a
public good
9
Energy Policy Post-WWII I
• When WWII ended US emerged as energy superpower
• In postwar era up to 1970s US
• Almost energy self-sufficient while
• Being one of the world’s largest producers and exporters of oil
• Energy prices low and rapid growth of energy consumption
• Oil priced at $2-3 per barrel began displacing coal in electricity
production
• What consumers saw was plentiful, affordable energy
fueling remarkable economic growth
10
Energy Policy Post-WWII II
• Appeared as if US had achieved its energy security goals
of abundance and affordability with little effort beyond
discovery of ever more supplies
• What the country valued with respect to energy and these
aims were part of larger objective of maintaining
• American prosperity and
• Nation’s global military and political power
• Energy policy during period reflected belief that supplies
were virtually endless and prices would always stay low
11
Energy Policy Post-WWII III
• A system of federal and state controls on oil suppliers
kept domestic producers and consumers pretty much
satisfied.
• Texas Railroad Commission exercised exercising
effective control over domestic supplies and prices
• Operated with agreement of
• Producers who benefitted from high prices compared to
international markets and
• Consumers who received reliable supplies at affordable prices
12
Energy Policy Post-WWII II
• Reciprocal Trade Act Amendments of 1955 empowered
President to restrict the import of a commodity if imports
harmed national security
• In 1959 President invoked import restriction clause and
limited oil imports
• Other major development in this period was birth of
nuclear power industry
• Congress supported industry which could provide
addional electricity in already flooded market
• Atomic Energy Act of 1954 began development of civilian
nuclear power industry and
• Price Anderson act 1957 provided the indemnification to
nuclear plant owners in event of major disasters from
civilian reactors providing electrical power
13
Energy Policy Post-WWII III
Looking for Reliability
• Conditions soon changed
• Vulnerabilities of American energy system first apparent
in 1965 with massive blackout in Northeast – left 30
million without power
• Prevailing assumption that the electrical grid would
always work was cast into serious doubt
• Vulnerabilities in electric power soon repeated in oil
sector
• Oil embargo or 1973-74 demonstrated how widespread
growing reliance on oil, particularly from Middle East had
created huge liabilities and costs for consumers
• Prices quadrupled, and stagflation set in.
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Energy Policy Post-WWII IV
• Oil embargo and rapid price increase led to an equally
rapid change in the political climate in the US
• New York Times characterized the embargo as “political
and economic warfare.”
• Developments prompted change – an expansion in
American energy security goals
• Not just abundance and affordability but now
• Reliability and
• Diversification
• Reliability involved assurance energy supplies would be
available when called upon
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Energy Policy Post-WWII V
• Diversification involved dual elements of reducing
America’s reliance on foreign energy sources
• Shift away from heavy reliance on Middle East and
• Diminishing the role of oil for civil and commercial transportation
and electricity generation.
• Systematic rethinking of energy policy resulted in
• Series of new energy-related public policies to address
deficiencies
• Creation of a federal Department of Energy to develop and
coordinate a comprehensive national energy strategy and policy
16
Energy Policy Post-WWII VI
• Congress passed legislation such as
• Energy Policy and Conservation Act of 1975 (EPCA) and
• National Energy Act of 1978
• Both included measures to
• Increase energy supplies and
• Promote energy efficiency
• EPCA established
• a mandate by which cars and trucks sold in US had to meet fuel
efficiency tests
• Strategic Petroleum Reserve (SPR) in 1975
• Designed to mitigate temporary supply disruptions through
holding large stocks of oil in salt domes
• Now holds about 137 days of oil imports
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Energy Policy Post-WWII VII
• To help offset use of oil, ethanol was promoted
• Energy Tax Act of 1978 provided subsidies to ethanol
producers
• Before subsidy eliminated in 2011 producers of ethanol
received 40 to 60 cents a gallon
• Subsidy for production of advanced biofuels such as
cellulosic ethanol was not phased out in 2011
• Congress also protected domestic market with a tariff of
$.54 gallon on ethanol imports – mainly sugarcane
derived ethanol from Brazil
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Energy Policy Post-WWII VIII
• Electric power sector – goals of reliability and
diversification also part of new legislation
• Power Plant and Industrial Fuel Use Act
• Mandated utilities move away from using oil as a source
of their fuel – started movement towards domestic coal
• Natural Gas Policy Act – diminish regulatory controls on
both price and transport of natural gas
• Public Utilities Regulatory Policy Act (PURPA) allowed
qualifying electrical generation facilities not owned by
utilities to sell power to the utilities – and forced utilities
to purchase the power.
• Allowed for new market actors
• Encouraged renewables
19
Energy Policy Post-WWII IX
• Environmentalism and Concern for Sustainability
• About time goals reliability and diversity came in 60s and
70s so did energy security goals of
• Cleanliness and
• Sustainability
• Harm that had already been done to air and water quality
brought on legislation to reverse and limit future damage
• National Environmental Policy Act (NEPA) of 1969
• Environmental Protection Agency in 1970
• Clean Air act of 1970
• Clean Water act of 1972
• All redefined the meaning of energy security in the U.S.
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Energy Policy Post-WWII X
• In recent years focus now includes concern for the
climate and limiting the release of greenhouse gases
• U.S. generally supportive of global movements with
regard to climate change and renewable energy
development
• May change with Trump administration
21
Energy and National Security I
• Energy and National Security
• Pursuit of energy security should not conflict to greatly
with other major values such as national security
• Since 1973 oil embargo been concern about national
security implications of America’s patterns of energy use
• Especially oil supplies from the Middle East
• Growing energy demands of China
• Global competition for energy resources
• Potential impacts of global climate change on conflict beween
and within states and
• Uncertain impacts of America’s growing oil and natural gas
production – instability in oil producing countries, declining
currency values
22
Energy and National Security II
• Impacts of U.S. energy needs on its domestic and foreign
policies are numerous
• Massive military presence in the Middle East since 1990
• Iraq and Afghanistan have cost hundreds of billions of
dollars and death or harm to thousands of servicemen
• While energy needs not responsible directly role of
energy central in both conflicts
• Iraq’s invasion of Kuwait prompted American response to
ensure Iraq would not control ever larger share of exports
23
Energy and National Security III
• No accident that major energy legislation passed either in wake
of or in midst US military actions in Middle East
• Energy Policy Act of 1992
• Energy Policy Act of 2005 and
• Energy Independence and Security Act of 2007
• American Recovery and Reinvestment Act of 2009 (energy
provisions section)
• All in part responses to growing realization that oil dependence
had adversely (and increasingly) impacted security in the US.
• All have sought to encourage expanded production and use of
alternative energy and fossil fuels (clean coal, unconventional
oil and gas)
• Also addressed efficiency and reliability of the electric power
grid
24
Energy and National Security IV
• Resulted in numerous actions
• Maintaining production and use of bio fuels with a goal of
producing 36 billion by 2022
• Appropriating billions of dollars for the development of carbon
capture – clean coal
• Offering loan guarantees for the development of nuclear power
plants – though after Japan accident, unlikely to be a major
resurgence of nuclear in the short term
• Extending tax credits for renewable energy technologies leading
to widespread small scale installation of solar and wind power in
US.
• Providing permits and royalty payment relief for deepwater
drilling in Gulf of Mexico
25
Energy and National Security V
• (actions contd.)
• Deregulating markets in natural gas and electricity to increase
supplies and make energy markets more efficient and
responsive
• Exempting oil and gas production from certain provisions of
• Safe Drinking Water Act
• The Clean Water Act and the
• Clean Air Act
• To allow for the speedy development of fracking and horizontal
drilling
• Investing billions of dollars in “smart grid” demonstration projects
to modernize and better secure the nation’s electric power grid
and
• Create an Advanced Research Projects Agency for Energy to
support development of new innovative energy technologies
26
Current Landscape I
• Evolution of US energy policy has been characterized by
ongoing redefinition of the concept of energy security
• All federal legislation along with numerous other
executive agency actions has promoted objective of
diminishing vulnerabilities
• Result – substantial convergence of values in which
concerns about
• National security
• Economic prosperity
• Environmental protection and
• Long-term sustainability
• All point to specific energy policy choices
27
Current Landscape II
• Achieving energy security is seen as a key element in
achieving a variety of objectives with regard to
• National security
• Economic and
• Environmental
• Net result for American political process is that
• Defense and foreign policy
• Environmental policy
• Economic policy and
• Energy policy
• All found considerable common ground in the idea of the
advancement of energy security.
28
Current Landscape III
• Still longstanding values that characterized past
• Abundance and
• Availability
• Continue to receive important support in public policy
along with recently established elements of energy
security
• Strong element of “path dependency”
• Established patterns and practices of energy production, delivery
and consumption cannot be easily or quickly altered in country of
300 million people
• Decisions made in past regarding energy policy now place limits
on range of policy options available or timeframe in which they
can be achieved.
29
Current Landscape IV
• Politics of energy in US still heavily reflects strength of
oil and gas industries
• Policies to promote production and use of coal, oil and
natural gas in spite of their detrimental environmental
impact remain essential parts of US energy policy
• Currently the most glaring example of apparent
disconnect in energy policy is gap between goals of
environmental protection and sustainability and actual
energy use.
• While level of renewable energy usage greater than in
past it remains small proportion of total amount of energy
being used in US and worldwide
• Solar and wind power combined for less than 5% of US
electricity generation in 2014.
30
Needs and Choices I
• Currently the most glaring example of apparent
disconnect in energy policy is gap between goals of
environmental protection and sustainability and actual
energy use.
• While level of renewable energy usage greater than in
past it remains small proportion of total amount of energy
being used in US and worldwide
• Solar and wind power combined for less than 5% of US
electricity generation in 2014.
31
Needs and Choices III
• For the future energy policy will continue to come in
three different forms:
• Supply expansion
• Seeks to determine the extent to which policy measures
affect the expansion of different forms of energy supply
• Assumes energy needs are growing and that this demand
for energy needs to be met
• Problem not energy shortages – a wide variety of energy
resources available –
• Difficulty is converting these resources into usable
energy
32
Needs and Choices IV
• Focus of this framework is on barriers of conversion
• Technical (statutory or regulatory)
• Economic
• Environmental
• Geographical or
• Political
• How to overcome them through policy solutions
• Financing
• Tax incentives
• Direct appropriations
• Demonstration projects
• Statutory or regulatory mandates
33
Needs and Choices V
• Demand Management and Reduction
• Focuses on policy measures to reduce the use of energy
through energy efficiency and conservation
• Assumes
• Energy needs are growing and
• New supplies are necessary
• But new supplies are likely not to be sufficient.
• Because so much energy is wasted through
overconsumption and inefficiency policy focus on
reducing demand and enhancing efficiency
34
Needs and Choices VI
• Measures include
• Incentives (tax credits and rebates for energy efficient
equipment)
• Consumer education (energy rating information on appliances)
• Technological development (smart grid demand management
software and hardware)
• Mandates (building code standards) and
• Reducing barriers to lifestyle changes that would result in
reduced energy usage (city planning that would encourage
walking and biking over driving
35
Needs and Choices VII
• Cost Analysis
• Approach based on analysis of costs and reflects
understanding that best energy resources are those that
minimize the costs associated with their production and
use.
• Costs can be defined
• Narrowly in terms of financial cost to consumers (gallon of
gasoline) and taxpayers (government appropriations and tax
expenditures) or
• More broadly – environmental, national security and social costs
• Such an approach seeks to capture not only the expected
costs but also the unintended costs of energy resources
and the government policies involving them.
36
Needs and Choices VIII
• Textbook largely pursues a combination of the first and
third approach
• As government seeks to enact energy policy support for
various legislation and regulations meant to achieve
desired set of aims
• As implementation proceeds both the expected and
unexpected costs of pursuing a certain initiative become
apparent
• Demonstrate the delimma that is inherent in a pursuit of
energy security
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