Alternative Energy And Energy Security: Evolving Producer-Consumer Relationship

By Dr. Mary K. Cline, Non-Resident Scholar, INEGMA

Climate change concerns have created well-funded momentum in the development and use of alternative energies – potentially changing the nature of demand for traditional fossil fuels. Energy producers, led by Abu Dhabi, are beginning to address this potential threat to their energy security in more constructive ways — as an important diversification strategy and a hedge against any decline in demand. Consuming countries would be wise to meet them half-way and at the very least tone down the rhetoric on “energy independence” and recognize the interdependence of both consumers and producers as the world attempts to shift to a new mix of energy resources. Recent U.S. energy policy initiatives declarations suggest some progress—though modest– away from the rhetoric of fear used in the past more towards the call of action by the Emirati federal capital.

Producers and the Security of Demand

Energy security has long gained notoriety as a consuming country’s issue: The need to secure access to the supply of energy at reasonable prices. But, energy security is increasingly becoming a producer’s issue too. Energy producers are worried about the security of demand. Traditionally, energy producers have been most concerned with price volatility, transport accessibility, or depletion of supplies—the nature of demand itself did not seem at stake. While the energy programs of consuming states, particularly the United States long called for “energy-independence,” programs to promote it were ubiquitous when oil prices rose, but lacked staying power when the price of oil declined. In a world of few other options, demand for fossil fuels seemed relatively secure.

The game changer, of course, is climate change. Governments, international institutions, and the private sector are responding on a scale never seen before. While world-wide commitments are difficult to achieve, to which the recent disappointments in Copenhagen attest – the momentum is discernable and the scale of investment significant:

* As part of the American Recovery and Reinvestment Act of 2009, U.S. President Barack Obama has committed $80bln for clean energy projects.

* The Obama Administration has called for an investment of $150bln over the next 10 years in energy research and development to transition to a clean energy economy.

* While the fate of the U.S. cap and trade climate bill is still up in the air (passage in the Senate is looking unlikely), a compromise would likely lead to additional funding of renewable initiatives.

* The 2011 U.S. budget submitted to Congress by President Obama ends all subsidies for fossil fuels and allocates an additional $2.3 bln for energy efficiency and renewable energy projects.

* China has been even more ambitious and is reportedly planning to invest over $400 bln over the next decade in clean energy.

* The IMF announced at the World Economic Forum in Davos (January 2010) a “Green Fund” to help developing countries adopt green, renewable projects and address climate change. The specifics are yet to be announced, but the funding is estimated to be up to $100bln a year.

* IRENA, the new International Renewable Energy Agency has $50 mln—a contribution by the Abu Dhabi Fund for Development—to disburse to renewable projects.

Clearly, the world’s largest consumers of energy are creating the largest government sponsored programs to reduce carbon emissions and reduce dependence on traditional fossil fuels—and this is just a slice of the investment happening all around the world to address climate change. Together, this level of investment is designed to have a direct, and negative, impact on the demand for fossil fuels.

Energy Producers Respond

Increasingly, energy producing governments are looking for ways to manage this paradigm shift rather than fight it. Nowhere in the Gulf is the engagement strategy more evident than in Abu Dhabi, the capital of the UAE. Their entrance as a major player on the renewable energy market, showcased at the January 2010 Future Energy Summit held in Abu Dhabi, is well-established by now. In 2006, Abu Dhabi announced $220 bln investment in the construction of Masdar – its flag-ship carbon neutral city. The city is hosting a residential area, a “clean-tech business cluster,” the Masdar Institute for Science and Technology (MIST) and the International Renewable Energy Agency (IRENA). Masdar is expected to be an open-air laboratory for renewable technologies as the city is studied, constructed, and inhabited. Moreover, Masdar’s CleanTech Fund—an well-endowed investment arm of Masdar– will be investing in medium-size alternative-energy startups round the globe, extending Masdar’s influence far beyond Abu Dhabi.

Abu Dhabi’s initiatives have been highly publicized and celebrated—perhaps even creating a demonstration effect for their Gulf neighbor Saudi Arabia. Saudi Arabia recently announced they would be joining IRENA and turn attention to the development of solar energy. Even Russia, who has shown very little enthusiasm for the renewable energy movement, recently announced that it would draw 4.5 percent of its electricity from renewable sources by the year 2020. This trend is likely to spread further as Abu Dhabi’s experiment possibly bears fruit.

“Energy Mix”: The New Middle Ground?

What energy-producing countries increasingly want is a middle ground. They recognize the need to address climate change and sustainability but have a clear, vested interest in the fate of traditional fossil fuels. They seem to be graduating beyond an obstructionist approach and want to be part of any transformation– rather than left behind. At the recent World Future Energy Summit in Abu Dhabi, Qatari energy minister, Abdulla Al-Attiyah, argued that resource-rich economies are tired of being made the scapegoat in climate change discussions– issuing a kind of plea for a recognition of the high stakes energy producers have in this game. In the best case scenario, they want the rest of the world to accept a slower, gradual transition away from fossil fuels where the sources of energy are complementary, rather than in competition. Though they have argued they would like to be compensated for the loss of oil revenues (as the Saudi oil minister proposed last fall)—they have likely recognized that this outcome is unlikely.

The present reality of energy demand and the cost and technological limitations of alternative sources of energy, suggests that the approach they are proposing dovetails with the current reality of supply and demand for energy. According to the International Energy Agency’s own estimates, world oil demand, while potentially leveling off in developed countries will be offset by the increase in demand from developing countries such as China. At the discussions at the 2010 World Economic Forum in Davos, Tony Hayward, CEO of British Petroleum, argued that demand estimates suggest that countries should not be worried about decreased demand for oil, but rather how all potential energy sources will address the projected gap between increased demand and the available supply. Every source of energy will be needed going forward as globalization quickens amid economic shifts. Robin Millis, a Dubai-based oil economist argued this is an “all the above” approach.

Politically, this means that energy-consuming governments should drop calls for “energy-independence” and address producing nations request to acknowledge “new energy mix” or “energy interdependence.” Accepting “energy-interdependence” would promote the idea that the use of alternative energies is not designed to destroy the economies of Middle Eastern governments. While instability and oil have had a long history, the U.S. should recognize that advocating the end of Middle East imports (something technologically infeasible at the moment) is not only bad politics, it will not make the United States, these countries, or the world more stable.

There may be some progress on this front: “Eliminating imports from the Middle East and Venezuela” and “energy independence” was part of the Obama-Biden energy policy. But, Obama’s State of the Union address (January 2010) made no mention of these goals. Instead, he relied on the threat of climate change. And for doubters of climate change he called on American competitiveness on the world market. He argued that the nation that leads the development of renewable energies will be the nation to lead the world—and that nation should be America. While he is still appealing to fear– this time the fear of the Chinese out-producing and out-smarting American companies– he did not employ the overused fear of the Middle East and the rhetoric of energy independence to garner support for renewable energy initiatives.

Economically, accepting an “energy-mix” also means increased funding and attention to the technology of cleaning up fossil fuels, such as Carbon Capture and Sequestration (CCS). CCS technology– yet unproven– attempts to capture CO2 from emitters and store it underground—making the use of traditional fossil fuels less threatening to the environment. Abu Dhabi and Saudi Arabia are pushing forward on large scale projects that would involve capturing CO2 and pumping it into existing oil fields (i.e. Saudi’s Ghawar field).

The United States has made a move in this direction. Obama announced on February 3, 2010 the creation of an “Interagency TaskForce on Carbon Capture and Storage,” co-chaired by the Department of Energy (DOE) and the Environmental Protection Agency (EPA). The new task force has 180 days to come up with a plan to overcome the barriers to the deployment of CCS within the next decade and aims to have 5-10 commercial projects up and running by 2016. But, UN discussions on climate change have been hesitant to include CCS projects in their program for giving funding/credits for keeping CO2 out of the environment. Environmentalists argue that it would divert needed funding from renewable energy initiatives. Abu Dhabi’s ambitious plan, coupled with the actions of other Gulf states and the United States, are breaking into undiscovered territory that has immense strategic implications not only for climate security but also for energy politics.

Source: This article was produced by INEGMA, the Institute for Near East and Gulf Military Analysis based in Dubai  and reprinted with permission.