It is often assumed that the move towards a low-carbon energy system, especially one involving a significant deployment of renewable sources of energy, would undermine the energy security of some of the world’s major economies. Instead, some argue that remaining in the status quo, that is an energy system predominantly based on the use of fossil fuels such as coal, gas and oil provides us with more predictable and reliable energy supplies.
While an assessment of energy security will depend to an extent on a particular region’s energy resources and fuel mix, this viewpoint has three important limitations: it often under-estimates the impacts of fossil fuel price variations on a country’s economy, it over-estimates the challenge of keeping the lights on in a renewables-based system and critically, it takes a very narrow view of the concept of “security”.
Research by Oxford Economics for the UK’s Department of Energy and Climate Change indicated that climate change policies were the ones that would most effectively reduce the UK economy’s sensitivity to international price shocks in the long-term. Yet, even at times when an increase in fossil fuel prices creates concerns around energy security and rising energy bills, as it has been the case of late in the UK, a majority of politicians tends to argue for a greater rather than smaller dependence on fossil fuels.
The shale gas debate in the UK is a case in point. The hopes linked to future UK shale gas exploitation have led some parts of government to suggest that gas should continue to have a major role in the UK’s energy mix over the long-term, with one government scenario envisaging up to 37 gigawatts (GW) of new gas plants being built out to 2030.
Yet, while there might be some economically recoverable reserves of shale gas in the UK, evidence to date from Bloomberg, Ernst & Young, Deutsche Bank and the International Energy Agency suggest that it is very unlikely that these reserves can be extracted fast and cheaply enough and in enough volume to offset the UK’s dependence on rising gas imports and to make any material difference to UK energy bills. Using the shale gas hype to encourage the construction of a significant new fleet of gas infrastructure thus risks locking the UK’s energy system into long-term imports of gas at sustained high prices.
By contrast, a move towards an efficient and renewables-based energy system is not only doable but can also be done in a way that is secure. In a country like the UK, there is strong evidence that if deployed at a steady rate over the next twenty years, renewables could provide over 60% of UK electricity demand in 2030 and could in the long-term make the UK a net exporter of electricity. Long-term policy stability holds the key to delivering such levels of deployment and ensuring these technologies continue to rapidly go down in cost.
A transition towards a renewables-based power system isn’t without challenges. In particular, the need to provide secure power supplies at times of low renewable energy output is often highlighted as a key problem undermining the security of a renewable energy system. However, economic and technical analysis prepared for the UK’s Committee on Climate Change among others found that the costs of keeping the lights on at all times in a high renewables system were manageable, as there are a wide range of options available to address the challenge. These include managing our demand for electricity more flexibly, deploying electricity storage solutions, making an efficient use of back-up gas plants and increasing interconnection with other European power grids to share resources more effectively at a regional level.
In the wake of the latest report from the Intergovernmental Panel on Climate Change, which concluded that there was a 95% certainty that human activity was changing our climate, world leaders would also do well to consider the significant impacts that unmitigated climate change will have, as early as this century, on the world economy, the security of food supplies, water availability and the risk of increased population migration. Impacts will be particularly acute for service-based economies such as the UK’s that invest in and insure infrastructure globally, thereby making them vulnerable to the economic consequences of a changing climate far beyond their own borders.
A sound risk management approach to security issues would conclude that early efforts to ‘decarbonise’ the world economy is a worthwhile investment to make to avoid the significant risks entailed by runaway climate change. Delaying action would be a dangerous gamble to make with our long-term security and the world economy.
This post is part of a series managed by the Economist Intelligence Unit for the HSBC Global Connections website.
