Energy Security

Securing Oil Independence through Electric Cars at Scale: Lessons from Israel

With gasoline prices edging northward of $4 dollars in many states and some analysts predicting $5 per gallon gas by Memorial Day, gasoline prices are on everyone's mind.  Whether due to political unrest now roiling the Middle East, the revival of demand in the global economy or speculation about supply disruptions, 2011 is promising to be a rough one for consumers.  Yet paradoxically, it is shaping up to be another bonanza for oil exporters.  It may be OPEC's first trillion dollar year. 

Unfortunately, an oil bonanza is no more likely to bring stability to the Middle East this time than in years past due to the corrosive influence that oil revenues have had on democracy.  And for consuming nations like the US, it will come at a high cost.  While the answer is clearly to shake the oil addiction, acheiving oil independence has been an unrealized dream since President Nixon first proposed it decades ago.

Now, however, for the first time, there are signs that oil independence and true energy security may be achievable.  One nation Israel, is taking steps now that may enable it to shake the oil addiction.  A company playing the leading role in the transition is Better Place, a Palo Alto-based startup launched by Shai Agassi.  Tomorrow, NDN will host a breakfast in New York City with Michael Granoff, head of oil independence policies for Better Place who has been deeply involved in the company from the outset who will discuss Better Place's role in Israel's historic effort to end oil dependence.

If you have ever driven an electric car--and that includes a hybrid or even a golf cart---you have probably noticed electric drive is quieter than gas, has higher torque, meaning you accelerate faster. And it is clean: mechanics who work on electric engines do not need to wear gloves.  Add to that the fact that electricity is far cheaper than gas and better for the environment.  The disadvantages have traditionally been range compared to a gasoline car, time to charge and up front cost.  The newest batteries, however, have solved the range problem. 

That leaves charge time and up front price and Better Place has developed a unique business model, analagous to that for cell phones, that addresses these challenges.  In turn, the Israeli government has enacted important policies to speed the transition to emission free cars.  All told, Better Place's is an intriguing business model and story with the potential to revolutiionize transportation not only in Israel, Denmark and Australia where trials will soon begin, but throughout the world.

I hope you can join us for this special event with Michael Granoff, a leader in electric transportation and energy security, the second in our series of New York Clean Energy forums. 

"Securing Oil Independence through Electric Cars at Scale: Lessons from Israel" with Michael Granoff, head of oil independence policies for Better Place.

The event will be on Tuesday, April 12, at 8:30am at the Harvard Club, 35 W 44th Street in the
Mahogany Room.  RSVP here.

The Price of Energy Security

The Front Page of yesterday’s Wall Street Journal features an excellent article by Guy Chazan entitled “Russia Outflanks EU’s Pipeline Bid.” The article describes Russia’s efforts to dominate European natural gas supply and politics by outmaneuvering American backed European attempts to build a pipeline to make them less reliant on Russian natural gas. The potential for heavy-handed petropolitics, exemplified by Russia’s 2006 shut-off of gas to Ukraine, has American policy makers concerned once more about Russia’s political influence in Europe.

During the Cold War, the balance of power was measured in nuclear warheads. Now a new kind of contest is playing out. The battlefield is Europe's energy market. The objective is pipeline proliferation. And Russia is winning.

Europe is witnessing a race between two mammoth pipeline projects that would bring natural gas to the Continent from the Caspian and beyond. One of the plans -- hatched in Europe, championed by Washington and named for a Verdi opera -- has been hobbled by bureaucracy. The other, backed by the Kremlin, is rolling ahead with a speed and success that has surprised and frustrated the West. The outcome could shape energy supplies, and political influence, in Europe for decades to come.

Europe is not the only place this dynamic is playing out. Chinese influence in oil-rich African nations has been much maligned due to a policy emphasis energy security, even at the expense of human rights. (Sudan is only one, albeit the most publicized, example of Chinese influence on the region.) This political turmoil, as well as high prices domestically, means that energy security has emerged as a hot topic in American media.

Responding to Chazan’s article on the Wall Street Journal’s "Environmental Capital" blog, Keith Johnson argues that:

You can have energy security, you can give consumers a break, or you can do something for the environment. But aiming for all three at once—that is, what passes for energy policy in the U.S. and Europe—appears next to impossible.

Take the U.S. High oil prices have given legs to Big Oil’s demand for more access to federal lands and coastal areas—a bid for energy security–even while many in Congress are still opposed. But environmentalists figure high oil prices will spur alternative energy and help fight climate change. The Liberman-Warner climate bill foundered thanks in part to high energy prices right now. Meanwhile, the consumer gets whacked regardless—with higher gas prices, or higher electricity bills, or both.

As the scramble for energy heats up, it’s useful to remember that the rules of the game aren’t changing—the game itself is. Energy policy isn’t a cardigan moment or a Rose Garden speech—it’s become the currency of international influence. And the countries that ruthlessly focus on one pillar, rather than trying to juggle all three, are more likely to come out ahead.

Johnson is incorrect to argue that this is a new dynamic, however. Energy security has been the backbone of American politics in the Middle East since the Presidency of Franklin Roosevelt, and what has been called a “New Great Game” in Central Asia has been an ongoing chess match over oil and natural gas for decades. Johnson is correct that a ruthless pursuit of energy security is more likely to work than other approaches, but the solution to this energy security issue has little to do with climate or economic security. Rather, Europe needs to employ stronger policies and act in a more hard-nosed fashion against Russian advances, and doing so does not mean subverting goals of handling climate change. This is more a matter of having leadership that knows when the trade-off of playing hardball in favor of political security is well worth it.

Securing Energy and the Economy: Avoiding short-term policy traps

The fundamentally new elements of the energy paradigm are that these resources are no longer available on the cheap in the Western world, in large part due to the rise of the developing world, especially Asia, and the concern about climate change. Johnson seems to argue that pursuing energy and climate security while trying to keep energy costs low is impossible. In the short term, he is probably correct. In the longer term, he couldn’t be more wrong. And, in the short term, there are better ways to protect consumers.

The link between energy and economic security is easy to see. If countries do not pursue energy security, they become unable to feed their economies and maintain economic security – talk about a hit to consumers. In the short term though, pursuing lower energy prices can come at the expensive of both energy and climate security and results in silly ides, like a gas tax holiday or opening up off shore drilling.

Thomas Friedman
, in yesterday’s New York Times, weighed in on the dire policy consequences of Egypt’s attempts to keep energy prices low:

From Shubra we drive into the desert toward Alexandria. The highway is full of cars. How can all these Egyptians afford to be driving, I wonder? Answer: The government will spend almost $11 billion this year to subsidize gasoline and cooking fuel; gas here is only about $1.30 a gallon. Sounds like a good deal for the poor — only the poor have no cars, and the fuel subsidies mean less money for mass transit.

Think about these numbers: This year Egypt will spend $6 billion on education and $3 billion on health care, far less than the subsidies for fuel. This is a terrible trap. The subsidies should have been phased out when food and fuel prices were lower. Now that they have soared, the pain of removing the subsidies would be politically suicidal. So education and health care get killed instead.

America is not currently in the trap Friedman describes, but with the wrong policies, could find itself moving in that direction. Incentives must be designed to stimulate infant technologies and decrease in amount over time as those technologies commercialize and scale, not the other way around.

Securing Energy and Climate: Building the 21st Century Economy

Climate and energy security are also not mutually exclusive. If all the West cared about was energy security, America could just build all the coal plants it wanted. We are, after all, the Saudi Arabia of coal. But that is fundamentally not in our climate or economic security interests.

What America needs is a policy that is focused on energy and climate security, indeed such a policy must see the two as interrelated, and must encourage the scaling of technologies capable of taking the place of fossil fuels. Building a 21st century post-carbon economy will not be simple and will not happen tomorrow, by this November, or by November of 2012, but failing to get on that path will ultimately prove the most difficult available option, as failure means economic surrender. Conventional sources of energy will remain important into the future, but the faster America is able to transition away from a hydrocarbon economy, the better our economic, energy, and climate security will be.

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