RICE University

POLI 461 Politics, Risk and Energy

Short Paper 3

Anastazija Ristovska
Rice Class of 2013
9 April 2011

FOREIGN AND SECURITY ENERGY POLICY FRAMEWORK

How to deal with Nations with Energy Resources and
How to maintain a Domestic Energy Policy
A high-energy consuming country from the developed world such as the United
States or any of the European countries that does posses some energy resources but is
still not independent from importing commodities as oil and natural gas, must form a
domestic and foreign energy policy, as well as energy security policy in order to be able
to deal with imminent issues and secure a safe energy future for the nation.
A domestic energy policy deals with resources located on domestic territory,
their exploitation, processing, allocation and export, the infrastructure and plants
needed to process energy resources, encouragement of economical and efficient energy
spending, as well as the transportation means for export. A foreign energy policy mostly
deals with the import of energy resources from foreign countries. For a capitalistic
economy such as the United States the foreign energy policy is intertwined with the
policies of privately owned domestic or international energy companies, as opposed to
countries where the main energy companies are government-owned and most decisions
lie in the hands of the state leadership. A foreign energy policy in its most simplistic
sense deals with import regulations and satisfying the domestic energy demand. For the
United States energy imports focus on oil needed for the transportation sector, whereas
the U.S. is self-reliant for electricity power generation. Most European countries rely on
natural gas and oil imports for both power generation and transportation. Since the
world we live in is less-than-perfect, the foreign and domestic policies need to be
accompanied by an energy security policy that ensures energy resources will be readily
available at all times without supply shortages and sudden disruptions of resource flow.
An energy security policy is concerned with securing no disruptions in domestic power
generation from state-owned or imported resources, mitigating the risk of imminent
threats to energy supply, as well as crafting a plan of gradual increase in independence
from imported energy resources. Independence does not mean zero energy resources
will be imported into the country and the country will be entirely self-reliant as in an
autarky. Rather independence means the imported energy resources will have the
status of any other imported good and will not have the power they currently possess
over the politics of a country, meaning the energy resources will not be used as a
weapon by the exporting region against the importing country. There are several cases
in history when energy resources have been used as a weapon against importing
countries. While it is possible for one state or a group of states to boycott an energy
resource exporting country, a commodity such as oil or natural gas will almost always
find another market to sell at, especially in todays world polarity and power
distribution, however when several countries decide to impose an embargo towards an
importing country the country may have difficulty finding another exporter of this rare
commodity and shifting gears so fast in order to avoid the immediate damage to the
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economy the embargo has the potential to cause. One example of a country being
boycotted is Iran upon which energy sanctions are imposed by the international
community, nevertheless Iran contracts with companies in Far Asia whose countries are
willing to turn a blind eye to international sanctions allowing Iran find placement in
their markets for its oil and natural gas exports. There have been several remarkable
examples that demonstrate the need for a firm energy security policy, such as the 2009
Russian natural gas embargo to Europe through Ukraine, and the 1970s OAPEC oil
embargo, all resulting in severe economic consequences and market crashes.
The attributes of the policy of energy development include legislation,
international treaties, investment incentives, energy conservation guidelines, and
taxation. A developed countrys energy policy will also optimally include energy
technology development, and will also address environmental concerns. This paper will
mostly address the most recommendable policy for the United States in particular, and
may also touch on the energy needs of Western European countries. The main
difference between the USA vs. European and Japanese power generation is that Europe
and Japan rely mostly on imported natural gas, oil and nuclear energy, whereas the US
owns a quarter of worlds proven coal reserves, has untapped natural gas reserves,
operates more than one hundred nuclear reactors, and its dams produce hydroelectric
power that meets five percent of its electricity needs, with only two percent of the
electricity need being met by oil. The US transportation sector however relies almost
entirely on oil. Nuclear energy policy in the US is heavily influenced by the not in my
backyard (NIMB) doctrine prevailing in public opinion that discourages nuclear plants
building and increases reliance on fossil fuels. A way to handle the NIMB concern is
building nuclear reactors in remote locations such as on islands off-shore or in the
Alaskan region. The US official policy though has almost always been supportive of
nuclear plants expansion. The most recent 2011 Japanese nuclear accidents which
raised questions about the safety of nuclear power plants in the U.S., were met by an
announcement of the U.S. Nuclear Regulatory Commission that it will launch a
comprehensive safety review of the 104 nuclear reactors located on U.S. soil. Nuclear
plants building should be encouraged in areas where nuclear energy can supplant
energy obtained from imported resources. This is especially true in the case of Europe
which relies on imported natural gas for power generation. Even though many
European countries have embraced nuclear plants building, the number of nuclear
plants should increase in order to demonstrate independence from Russian and Middle
Eastern natural gas as there exists independence for almost every other commodity.
Even though nuclear plants are expensive to build and maintain the political gains from
independence outweigh the fiscal loses. All nuclear plants should be constantly
supervised by Safety Nuclear Regulatory Commissions.
An effective energy security policy will invest in energy technology development
that includes creating technologies that increase efficiency of power consumption with
minimum energy waste, both in the electricity sector and the transportation sector. A
technology development fund should be developed that directs the automobile industry,
mechanical engineers and petroleum scientists towards inventing more efficient
engines that will generate more power with less fuel, will be able to alternate between
different types of fuel, and that will also be able to store and operate on electricity.
Technology needs to be developed that will make possible the utilization of oil sands
and seabed methane as current entirely untapped resources. The best policy will
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advance new, environmentally friendly technologies to increase energy supplies and

encourage cleaner, more efficient energy use. The economic, environmental and energy
policies must be fully integrated. Such a policy must meet the goals of modernizing
conservation, modernizing energy infrastructure, increasing energy supplies,
accelerating protection of environment, and increasing nations energy security, at the
same time seeking to raise the living standard of the entire population through a longterm all-encompassing strategy. In order to increase energy conservation and efficiency
is to apply new technology towards clipping costs, raising productivity, minimizing
energy waste, addressing environmental concerns, etc. Automobiles should be built that
use a small percentage of the amount of oil they are using today, because a big percent
of the energy available for use in engines is wasted away as unnecessary heat. Making
engines operate more efficiently by for example mimicking the efficiency of energy
consumption in the cells of living organisms is a scientific challenge that should be
encouraged by scientific funding resources. Solar technology development should also
be encouraged in both the power generation and transportation sector. Current solar
technology holds a great promise for even better utilization of photonic energy by again,
mimicking the way of the plants and the efficiency with which they store solar energy in
biofuel. White goods and other domestic appliances should be made more economical
and energy saving, something that has already been achieved to a degree by
refrigerators that currently use thirty percent of the electricity they did a few decades
ago. This and many other scientific explorations should be even more encouraged with
governmental funding. State agencies, schools, retail buildings, health care facilities, and
homes should also be directed to responsibly conserve energy use, and an income tax
credit should be created for the purchase of fuel-efficient vehicles. Programs such as the
U.S. Intelligent Transportation Systems and Clean Buses, Combined Heat and Power
Technology development, and the establishment of standards such as the
transportation Corporate Average Fuel Economy (CAF), should all be part of the policy.
The Policy should also incorporate a plan for a modernized network of generating
facilities, pipelines, and refineries. To deliver energy to industry and consumers in a
better, safer manner a comprehensive, an average aging energy infrastructure
composed of physical network of pipes for oil and natural gas and electricity
transmission lines, along with marine transportation, truck lines and rail, should be
improved by a comprehensive solution plan. Refining capacities must be increased and
modernized to reduce the import of refined products, and the natural gas pipelines
system should be expanded to meet demand; in general all infrastructures used to move
energy where it is needed should be improved to better be able to move energy where it
is needed, all with the purpose to decrease the reliance on imported fossil fuels. At the
same time, better transportation mechanisms should be created to connect the
importing country to multiple oil and natural gas exporting locations to allow for
diversification and a better resource circulation system that will eventually benefit
many countries worldwide. Just as a city as New York has an extensive intertwined
metro rail transportation system that provides easy transport of individuals to their
desired locations, so does the global community need a more complex, intertwined
system of energy resource transportation mechanisms, whether these are marine
transportation lines or a system of ground and seabed pipelines, including
diversification of the energy storage mechanisms as liquefying natural gas as opposed
to transporting it in its gaseous form.

These are some of the domestic measures that can be undertaken to decrease
dependence on foreign energy imports. In the meanwhile the current situation requires
securing energy resource ready availability in critical areas that are dominant exporters
to the country of concern. One way the U.S. manages securing such ready availability
from critical areas as the Middle East and North Africa (MENA) is via military presence,
exercising political influence and using diplomatic ties. However such approach
intended to protect U.S. critical domestic interests has been misunderstood by MENA
nations as being imperialistic, and has sparkled antagonism and according to some
political scientists has been one of the reasons for the terrorist outrage against the U.S.
While this last theory may not be entirely correct and the terrorist outrage against
many Western countries cannot be blamed on energy-security motivated military
presence, the need to establish and maintain friendly relations to the best of ones moral
capability is certainly a fact. Toward this approach, energy security should be made a
priority of trade and foreign policy. Secondly, initiatives should be supported in MENA
countries to open up areas of their energy sectors to foreign investment, as was the
recent case of Norway encouraging and investing in Pakistans energy sector. Dialogue
between exporting and importing nations should be encouraged at international
institutions, domestic energy firms should be supported in the completion for markets
abroad, a system of open and transparent rules and procedures governing foreign
investment should be multilaterally accepted and ratified, and barriers to trade and
investment should be reduced. At the same time all domestic policies and legislation
should promote the reforms needed to make state regulations compatible for crossboundary trade. The energy policy will involve the countrys laws, treaties and agency
directives. Some of the measures implemented may include: an official statement on
energy planning, generation, transportation, and usage, legislation on commercial
energy usage, legislation on efficiency and emission standards, instruction for state
owned energy organizations, coordination and incentives for fossil fuel exploration and
energy-related research and development, energy products-related fiscal services such
as taxation and subsidies, international energy sector treaties alliances, trade
agreements, military presence, etc. Any major oil-consuming country must consider
strategic oil stocks and reserves to counterbalance any potential supply disruptions.
The minister of energy of the country should work with the International Energy
Agency and ally countries on both the producer and consumer side to create a more
comprehensive and timely world oil data reporting system. Oil spills readiness should
be increased and all tankers must be compartmentalized and embedded with a buffer to
reduce the shock of an iceberg impact.
As already mentioned, the primary goal of the policy should be adding supply
from diverse sources, such as domestic oil, gas, and coal, hydropower, nuclear power,
and alternative renewable sources. Increasing the range of energy options is as
important as the increase of energy independence from foreign oil. Whereas natural gas
may be readily available commodity for many countries, failure to diversify the power
generation would leave the nation vulnerable to price strikes and supply disruptions.
Advances in technology such as more accurate drilling, more sophisticated and fewer
rigs, clean coal technologies, are needed to make oil, natural gas and coal exploitation
and production even more efficient and environmental-friendly. Legislation should be
enacted to expand existing tax incentives for alternative fuel exploitation, as in landfills
that capture methane gas emissions for electricity generation. Maybe the most
important policy that can be undertaken in terms of foreign energy security policy is
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one that strengthens global alliances and enhances energy security and international
relationships. This should be particularly encouraged in the efforts to increase
international cooperation on finding alternatives for oil in the transportation sector, and
promoting a coordinated energy security approach by the major energy consuming
countries such as implementation by each nation of a Strategic Petroleum Reserve
policy. Such a policy would serve to buffer any energy shortage and would therefore
save the countrys economy and prevent any potential adverse effects from the clash of
the economy of the country experiencing the shortage, to have a domino effect in a
possible market crash in other dependent countries.
A national oil company (NOC) is an oil company owned by a national government
fully or to some degree. NOCs account for half of global oil production and control 88%
of proven oil reserves. National Oil Companies are increasingly investing on foreign
territory. Some major national oil companies are Abu Dhabi Oil Company, China
National Offshore Oil Company, China National Petroleum, Iraq National Oil Company,
National Iranian Oil Company (NIOC), Kuwait Petroleum Corporation, Empresa
Colombiana Petroleum Corporation (Ecopetrol), Egyptian National Oil Company (EGPC),
Saudi Arabian Oil Company, etc. An International Oil Company (IOC), also called a
supermajor, is one of the six largest, private-owned energy companies, BP p.l.c. (UK),
Chevron Coproration (CVX), Total ConocoPhillips Company (COP, the USA), ExxonMobil
Corporation (XOM, USA), Royal Dutch Shell plc (RDS) Netherlands and the United
Kingdom. The supermajors came into being in the 1990s when large petroleum
companies began to merge in an effort to improve economies of scale and mitigate the
effects of oil price volatility. Supermajors control six percent and state-owned
companies control 88% of global oil and gas reserves.
A good energy policy framework encourages domestic companies in their
dialogue on the investment and trade climate in major energy exporting countries,
encourages reform of regulations, tax provisions, and general improvement of the
overall investment climate. Concurrently energy resource market data transparency
and energy market stocks stability should be achieved through multilateral engagement
that will promote best practices and collaborative research and development of energyefficient technologies. Vulnerability of the nation to energy price volatility and supply
uncertainty should be reduced by, as already mentioned, reducing dependence on
foreign sources of energy, and securing that percentage of resources that are bound to
come from overseas. The nations credibility with overseas suppliers must be firmly
established and strong relationships should be built with energy-producing nations, at
the same time preparing the country for supply emergencies and assisting the lowincome segments of the population who are most vulnerable in times of supply
disruption and price spikes.
Sudden disruptions of energy supply as the 1973 Arab oil embargo in which the
Organization of Oil Producing and Exporting Countries (OPEC) declared an oil exports
embargo to those countries supporting Israel in the Yom Kippur War should be met
with beforehand prepared response of an extensive set of laws and regulations and a
plan of imported oil independence set to be fulfilled before a certain date, all with the
aim of encouraging domestic production, becoming independent of foreign production,
and avoiding subsidizing imports in case of oil shortage. Involvement with the
International Energy Agency and creation of similar institutions is necessary that will
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promote oil production and alternative energy sources development is necessary.

Utilities and the industry should be guided to switch from oil to the domestically
available natural gas and coal. Measures such a oil import tariffs can only imperfectly
address the problems raise by disruption risks, and even though a tariff can make the
economy more ready to face an oil disruption, potential serious costs many ensue, that
is, the benefit of reducing wealth transfers abroad may be offset by the dislocations
generated throughout the domestic economy. Another instrument to reduce disruption
costs is a strategic petroleum reserve which, in case of a disruption, can reduce both
wealth transfers and dislocation costs, but nevertheless will produce undesired
consumption restrictions. Preference should be given to market-based approaches with
less governmental direction. The nation as a whole should be made able to support a
strong national energy policy at all times and not just in those instances of threatened
shortage or war, and programs that promise energy independence such as the strategic
reserves and strategic forces policy should be encouraged at all times. The importance
of energy in meeting development goals of many other nations and not just ones own
should be understood, along with realizing the countrys dependence on cooperation
with other nations in the field of energy policy, which also requires strong national
leadership.

Resources:
http://www.santafenewmexican.com/Opinion/My-View--Donald-M--Fine-Energy-policywill-change-under-GOP-Hou
http://www.enerdata.net/enerdatauk/knowledge/eshop/market-report-by-category.php
http://www.iea.org/papers/security/uk_2010.pdf
http://www.iea.org/publications/index.asp#pubs
http://www.iea.org/Textbase/nptoc/WEO2009TOC.pdf
http://www.iea.org/publications/free_new_Desc.asp?PUBS_ID=2160