Welcome back. This week, we discuss energy security. Energy security is a major concern and a major objective of the energy policy of all countries. We have been speaking in previous weeks about the trilemma that has been put forward, proposed by the World Energy Council. The trilemma is the idea that we are not pursuing just one objective with our energy policy. We have environmental sustainability as one major objective but simultaneously, we also have the objective of energy affordability, availability, thus an economic and social objective and we have the objective of energy security. These three objectives need to be achieved simultaneously. What is important is to understand that frequently, these objectives are not converging in the sense that a policy will be helpful to satisfy one objective, but may be damaging for the others. Ideally, we would like to be able to kill three birds with one stone, but it is in fact extremely difficult to kill three birds with one stone. So we need to consider energy security as an important objective per se, and see how it relates and interrelates with the other objectives. So what is energy security? The problem here is that an academic debate has been under way for a long time about the content of energy security. What is the exact definition of energy security? There are multiple definitions proposed, and this creates a confusion that in some cases, justifies policies that are very diverse and even contradictory between themselves. So governments frequently refer to energy security as something that justifies their policies even if it is not always entirely clear that this is the case. The International Energy Agency as we have seen already in the previous weeks, defines energy security as the uninterrupted availability of energy sources at an affordable price. So there are two dimensions in this definition, the uninterrupted availability of energy sources and the affordable price. These two dimensions must be kept separate, distinguished from each other. The uninterrupted availability is an obvious necessity for all modern economic system. If there is no energy available, economic life stops and in some cases, even the survival of the population is jeopardized. So governments view potential interruptions as a security threat, something that necessitates their active intervention in order to be prevented. The other aspect, the economic and social impact of excessively high prices also is viewed as a threat to security, primarily because the public doesn't like to be exposed to fluctuating prices. The public, the consumer likes to know that something has a price which is stable over time. But the fact that fluctuating prices are a source of insecurity or a manifestation of insecurity is in fact quite debatable as we shall see. Other definitions have tended to even further widen the concept of security. So you have some authors that include environmental sustainability as a component of energy security on the basis of the argument that a non-sustainable energy system cannot be secure. In a sense, this is certainly so because if system is not sustainable, it will have to be abandoned sooner or later. But if you do that and if you further include affordability and price and stable prices and availability to all and so on and so forth, one ends up inflating this concept of security in such a way that it loses usefulness. It's no longer useful as a guiding principle for policy-making. Because in fact, it becomes all encompassing and so it will justify one thing and the opposite of it. To give an example, we can consider the case of prices which is rather clear. The link between security and affordability is problematic because it tends to deny the role of markets to providers of security. What this means is that if you have a threat to sources of supply of energy, then you will see the price of that energy from that source increasing. So for example, if you have a threat to oil supplies for whatever reason, the price of oil will tend to increase. Now, this increase in the price is itself something that encourages security. It encourages a response from the market which translates into greater security of supply. It does so by limiting demand. There will always be some component of demand which is not justified by basic needs and so it can be forgotten for at least a short period of time. Higher prices will encourage the development of alternative sources or alternative supplies and finally, higher prices will encourage the accumulation and maintenance of commercial stocks. Because companies will know that if there is a threat to supplies, the price will go up and they can make money out of accumulating stocks when the supply is abundant and then releasing stocks if and when the supply becomes scarce. So these are all ways in which higher prices will generate, encourage behavior which is then resulting in greater security. So if governments intervene and artificially limit price spikes, they end up actually increasing insecurity rather than the opposite. They may create a feeling of security because the public is not exposed to those high prices, but this perception is in fact a delusion because down below in reality What we have is an increase in insecurity of supply in increasing behavior that may result in supply interruption. Energy security is also often equated to self-sufficiency. That is reliance on domestic rather than imported energy sources. So it is frequent to read or hear that country A is more energy secure than country B because it doesn't need to rely on imports of energy and country B instead is dependent on imports. But in fact, domestic energy sources are likely to be limited. Limited in diversity, limited in size. Therefore, self-sufficiency normally means less diversification, less redundancy, and that may in turn become a source of insecurity or fragility. Reliance on limited array of energy sources is a source of vulnerability. It is much better to have a wider, more diversified set of sources that will enhance security. In many ways, domestic monopolies are not a better guarantee of security than having access to international competitive liquid global markets. Especially in the perspective of increasing reliance on renewable sources, self-sufficiency may greatly increase insecurity. In fact, if we are dealing with non-dispatchable energy sources such as wind or solar, the increased utilization of these sources encourages increasing interconnection with neighbors because sometimes one source may not be available in my country but it may be available in the neighboring countries. So if I have the possibility of import or it may be available in excess in my country and I may be able to export some of it to the benefit of everybody. So increasing reliance on renewable energy sources has in fact encouraged the development of interconnections with neighboring countries and transmissions even over longer distances. Notwithstanding this, the preference for domestic sources is very common in almost universal, given the choice, governments will always prefer a domestic source. This is a key reason why it is so difficult to move away from coal in particular. In a coal producing country, economic, employment, and security considerations combine and have the result of pushing in the back the preoccupations about the environment. This is the case even in advanced countries such as the United States or Germany. Germany is highly environmentally conscious, public opinion in Germany cares a lot about the environment and yet they are experiencing extreme difficulty in reducing the role of coal in power generation. The same is true for other European countries, notably Poland or Bulgaria or other countries in which there are important coal resources. Not to speak of course of China, India, and so on and so forth. So security considerations may contradict environmental preoccupations. Security considerations are also frequently cited in countries that are opting or developing their civilian nuclear energy capability because nuclear energy is considered to be safe, because even if you have to import the fuel, it is easy to stock and it will last for a long time. So it does not expose the country utilizing nuclear energy to the threat of interruption in supplies. A stricter approach to energy security, a narrower definition would focus on the vulnerability of energy installations to threats that may originate either from domestic or foreign sources, either from governmental or non-governmental sources, terrorists or whatever. The approach would then focus on the resilience of energy infrastructure and would aim at increasing this resiliency, increasing the strength, so to speak of energy infrastructure. Generally this will result in higher investment costs. A very clear case is that of nuclear power plants after the terrorist attack to the World Trade Center in the United States on 9,11, 2001 which was carried out by hijacking and hitting the towers with flying aircraft. Ever since then, it has been routine to impose on new nuclear power plants that they should be built in such a way that they can resist the impact of an aircraft which is deliberately driven into them. Now in fact, no one has ever tried to hit a nuclear power plant with a flying aircraft, but this has become the standard and it has resulted in a significant increase in the cost of new nuclear power plants. In recent times, with the multiplication of cyber attacks that have been attributed to foreign powers, in a variety of domains not necessarily in energy, preoccupation for the cyber vulnerability of electricity networks has greatly increased. This is supported by the fact that in parallel we have a trend to rely more on smart grids which is needed for the integration of renewable energy sources and also a tendency to have smart appliances in the homes and the perspective or digital homes that would be electronically controlled through computers even in remote. This is a perspective that is very much with us. So what does this mean? It means that rogue actors may be able to hack transmission control systems or distributed digital appliances and cause a collapse in the networks and in this way, inflict severe economic or political damage to a specific target country. This target country may not even be aware from where this attack comes. So although we do not have a clear and unanimously accepted definition of energy security, preoccupations for energy security is likely to continue conditioning energy policy choices and must be kept into account. In many cases, this preoccupation for energy security will conflict with the other goals. It will conflict with the goal of addressing energy poverty because security necessitates an increase in the cost of energy. Security can be achieved, can be improved but it has a cost. It contradicts the goal of limiting global warming because security consideration will support diversification and some continuing reliance on fossil fuels and domestic sources, even if these are well known to be damaging to the environment, and this is in particular the case of coal.