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by Michael Cleland
CGAI Fellow
October 2020
Table of Contents
- Introduction
- Energy Security Needs to be Understood in Several Dimensions
- Electricity Security is Different
- So What Have We Learned from 50 Years of Experience?
- About the Author
- Canadian Global Affairs Institute
Introduction
In the topsy-turvy world we inhabit, many concerns that we previously ignored have emerged to sometimes shocking effect. Old concerns that we might have thought were behind us have been making a comeback. Economic security is one of those. Energy security, while not exactly top of mind for most people, may make something of reappearance, but it will take on a completely different character. It will involve multiple dimensions, it will be about energy systems as a whole and it will be more and more about electric power.
Concern about energy security is hardly a new phenomenon. In the 1920s, coal shortages in Ontario due to strikes in Cape Breton and the U.S. led to calls for a national fuel policy. In the current era, security first became very top of mind for much of the populace with the 1973 oil embargo; it carried through to the 1980s and arose again briefly in the early 1990s. Concerns about giving up control of our energy resources was one of the more controversial aspects of the Canada-United States Free Trade Agreement in the late 1980s when negotiators opened cross-border energy markets and limited the possibilities of restricting exports to conserve resources. The idea that we should save Canada’s energy for Canadians was still alive, albeit starting to fade, and then worries about oil supplies made a brief reappearance with the Iraqi invasion of Kuwait in 1990.
After that, concerns about oil supply pretty much disappeared. Natural gas then became the thing in the late 1990s when it appeared that North America was running out of gas, but that faded as new sources emerged. And despite a few recent proposals for securing the supply of Canadian oil for all Canadians, oil (and gas) supply barely registers as a policy issue, much less a public concern. In an ironic twist, over those decades we have gone from concerns about peak oil in terms of supply to now talking about peak oil demand in a world worried about climate change and oversupplied with what seems like limitless supplies of both oil and gas.
However, energy security questions will always be with us because energy literally powers the whole economy and is one of the main things that keep us safe. We just don’t think about it very much.
Energy Security Needs to be Understood in Several Dimensions
The issue is occasionally about security of supply of critical commodities. In the future, though, it will be less likely about hydrocarbons and more likely about things like materials for batteries or rare earth elements that underpin control of energy systems. It is about reliability, which only occasionally arises as a public concern because the systems we have built work with remarkable degrees of reliability. Reliability is not a question of commodities but of systems which rest on capital investment, management and regulatory structures. Security is also about resilience; in other words, the capacity to withstand shocks such as weather events and to recover quickly from those shocks. Finally, it can be argued that security is also a function of affordability at least for individuals and businesses that are most economically vulnerable to energy costs.
Energy security can embody an economic concept – actual failures of the supply system. It can also be a psychological notion – worries about shortages irrespective of any real physical problem. It is important to distinguish among these phenomena in considering appropriate policy.
Security is increasingly going to become a question of electricity. Today in Canada, electricity accounts on average for about one-fifth of energy end use. On the rare occasions when the system fails, worries about security of supply roar into the public consciousness before fading away almost as fast as they emerged. We notice when the lights go out but we also forget soon after they come back on.
In a future where we aspire to (effectively) zero greenhouse gas emissions, most commentators agree that electricity’s share of end-use energy will increase, perhaps dramatically. Urban mobility will depend increasingly on electricity and in some people’s minds so will heating systems, whether for space heat or process heat. In other words, should systems fail, not only would we be freezing in the dark, we might not be going to work or school or be able to count on emergency services.
Electricity Security is Different
Unlike hydrocarbon systems for which security is mainly associated with access to commodities, power systems are vulnerable in a number of other ways.
One – which rose briefly to the fore after the 9/11 attacks – concerns the potential for physical sabotage of critical and vulnerable infrastructure such as power lines. Another concerns failures in system management such as we saw in the Ontario/U.S. northeast system in the 1960s and then again in 2003.
A third potentially arises from the restructuring of electricity systems and markets. Restructuring has caused some bumps in the road in past decades and may lead to increased vulnerability in the future as power systems are further restructured to reflect climate goals, increased electrification of the economy and the growth of distributed systems.
An issue which is probably growing in importance is the effects of climate events and the resilience of systems that must withstand wind storms, ice storms or wildfires. These vulnerabilities could potentially be exacerbated by poorly conceived climate policy responses.
However, the biggest issue probably rests on questions of cyber-security and the potential for remote interventions by unfriendly actors who could suddenly take down whole interconnected systems. Our potential vulnerability to cyber-attacks no doubt preoccupies power system planners, operators and regulators. It may never be realized, but in a strange echo from history, it is every bit as much a matter of geopolitics as the Arab oil embargo of 1973 was.
So What Have We Learned from 50 Years of Experience?
Three lessons are worth reflecting on.
Energy security is about the system, not the commodities or any particular facility. After 1973, petroleum systems adapted. In the short term, there were disruptions (albeit partly self-induced – more on that follows). Refiners sought out new sources, adapted their plants, developed new technologies, rearranged transportation capabilities and made the system more robust in fact and in public perception. At the demand end, power systems shifted back to coal and big gains were made in improved energy efficiency. With still more time and the prices to make it work, people all over the world went out to discover whole new sources in unexplored harsh environments. They turned to developing the vast deposits of heavy crude such as in Venezuela’s Orinoco Basin and Canada’s bituminous sands.
The whole system matters, and in an increasingly electrified world that system will be more complex and vulnerable, albeit in different ways than it was in the past.
The good news is that lessons from past blackouts have been well learned; system managers rely on diverse sources of supply, they use robust methods to ensure reliability and they maintain plans to assure resilience. All of it is overseen by competent public authorities often co-operating across jurisdictional, including international, boundaries. Whether or not those system managers and their regulators are accounting fully for the risks to the system and ensuring appropriate investment is not clear, but it seems those investments will continue to be vital even if the costs find their way into consumer consciousness, as they must and should.
The bad news is that the many political authorities seized by the need to act on climate change want to rapidly transform energy systems – setting aside existing petroleum and natural gas delivery infrastructure, vastly increasing intermittent sources of power supplies, making it all greenhouse gas-free and incorporating new models of distributed generation. Those things are all possible and some are desirable. However, energy systems are based on very long-lived assets and long-established and inherently conservative business and regulatory models. They are also complex and fundamentally based on the laws of physics. Rapid, ill-considered change can have untoward, if not exactly unforeseeable, consequences such as we saw in the cost effects of Ontario’s coal phase-out in the early 2000s.
Big systems do adapt, but the fable of the tortoise and the hare may be germane. Slow but steady will often win the race.
Energy security is about markets. During the 1973 embargo, governments panicked, intervening in markets to control prices, ration supplies and force-feed alternative fuels into the system. Consumers, taking their cues from governments, panicked as well and we found ourselves with lineups at gas stations and occasional self-induced shortages.
By the time Iraq’s invasion of Kuwait in 1990 created a mini oil crisis, those lessons had also been well learned. Western governments monitored the way the system was reacting and co-operated with each other through the International Energy Agency (IEA) to share data and assure the market of extra supply through the agency’s oil-sharing mechanism, while assuring the public that there was no call for panic. Despite the removal of a significant share of world crude supplies, market calm was quickly restored. After a short two-month-long run-up, oil prices settled back down long before the impugned supplies from Iraq and Kuwait became available again after the brief war in early 1991.
What matters here is that markets do adapt with remarkable facility provided they are allowed to do so. Electricity markets are probably stickier than hydrocarbon markets – more subject to complex regulation, often dominated by government-owned entities and regional in nature. They can adapt but the processes of adaptation will be highly politically salient, making it difficult for governments to simply allow those processes to take place.
Despite governments’ fear of angry consumers faced with higher electricity bills, in a world where electricity increasingly dominates energy end use, it is especially important for consumers to see the real costs and value of that power (including all the back-up systems) reflected in prices. Those prices – including the cost of carbon – can underpin needed investment and induce myriad changes throughout the system. But if real costs are masked to prevent consumers from seeing those inconvenient realities, markets will be much slower to adapt.
Energy security is also about consumers’ cognitive dissonance. Most Canadians will tell public opinion researchers that Canada should be investing in low-carbon energy systems and doing it quickly. Those same Canadians will tell the same researchers that they have no appetite for price increases. Most of them will fully approve of new power infrastructure – provided it is built somewhere else. None of them will have much at all to say about security – even though it is by far the most important attribute of energy systems – because security so rarely finds its way into public consciousness, unlike increases in gasoline prices or utility bills.
The actions of consumers and citizens will be a key factor in a good way as they adapt their behaviour and invest in more efficient and lower emission capital. However, their actions will also be key in bad ways as they resist cost realities and occasionally trigger counter-productive reactions by governments. Governments will want and need to minimize the pressure to react in such ways, but if they wish to do so they will need to balance real consumer and citizen priorities, starting with costs and the fact that most people react badly to disruptions of all sorts in their communities. Energy security in the 21st century will be mostly about prudent change and investment in infrastructure and management systems that often produce no immediately visible benefit.
Energy security is far from public consciousness and it can be kept that way if crises are avoided or mitigated through appropriate investment. That will need at least tacit public support. But above all, security needs to stay in the consciousness of governments and energy providers and they must act accordingly.
About the Author
Michael Cleland is a private consultant with extensive experience in energy and environment policy. He is an Executive in Residence at the University of Ottawa and a member of uOttawa’s Positive Energy research team, Past Chair of the Board of Directors at the Canadian Energy Research Institute, Chair of the Board of Directors of QUEST (Quality Urban Energy Systems of Tomorrow) and Fellow at the Canadian Global Affairs Institute. In 2015, Mr. Cleland was named Canadian Energy Person of the Year by the Energy Council of Canada. He is formerly President and CEO of the Canadian Gas Association, Senior Vice President, Government Affairs for the Canadian Electricity Association, Assistant Deputy Minister, Energy Sector at Natural Resources Canada, and Director General of the Energy Policy Branch at NRCan. From 1987 to January 1990, he was Assistant Director, Resource Policy Division in the Department of Finance. Before joining the federal government, Mr. Cleland was a private consultant who also lectured in business – government relations at Dalhousie University. Prior to that he worked in various capacities with the Nova Scotia Departments of Development and Municipal Affairs. Mr. Cleland was educated at the University of British Columbia (BA in political science 1972) and Queens (MPL urban and regional planning 1974).
Canadian Global Affairs Institute
The Canadian Global Affairs Institute focuses on the entire range of Canada’s international relations in all its forms including (in partnership with the University of Calgary’s School of Public Policy), trade investment and international capacity building. Successor to the Canadian Defence and Foreign Affairs Institute (CDFAI, which was established in 2001), the Institute works to inform Canadians about the importance of having a respected and influential voice in those parts of the globe where Canada has significant interests due to trade and investment, origins of Canada’s population, geographic security (and especially security of North America in conjunction with the United States), social development, or the peace and freedom of allied nations. The Institute aims to demonstrate to Canadians the importance of comprehensive foreign, defence and trade policies which both express our values and represent our interests.
The Institute was created to bridge the gap between what Canadians need to know about Canadian international activities and what they do know. Historically Canadians have tended to look abroad out of a search for markets because Canada depends heavily on foreign trade. In the modern post-Cold War world, however, global security and stability have become the bedrocks of global commerce and the free movement of people, goods and ideas across international boundaries. Canada has striven to open the world since the 1930s and was a driving factor behind the adoption of the main structures which underpin globalization such as the International Monetary Fund, the World Bank, the World Trade Organization and emerging free trade networks connecting dozens of international economies. The Canadian Global Affairs Institute recognizes Canada’s contribution to a globalized world and aims to inform Canadians about Canada’s role in that process and the connection between globalization and security.
In all its activities the Institute is a charitable, non-partisan, non-advocacy organization that provides a platform for a variety of viewpoints. It is supported financially by the contributions of individuals, foundations, and corporations. Conclusions or opinions expressed in Institute publications and programs are those of the author(s) and do not necessarily reflect the views of Institute staff, fellows, directors, advisors or any individuals or organizations that provide financial support to, or collaborate with, the Institute.
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