Some Economic Aspects of Energy Security

By Labandeira, Xavier; Manzano, Baltasar | European Research Studies, January 15, 2012 | Go to article overview

Some Economic Aspects of Energy Security


Labandeira, Xavier, Manzano, Baltasar, European Research Studies


1. Introduction

Energy security is an increasingly popular concept: policy makers, entrepreneurs and academics usually claim to pursue it when proposing or implementing changes in the energy domain. Yet, this is an elusive issue as it is often not clear what the precise meaning of energy security is, especially when approaching it from an economic perspective. Although elusiveness may actually foster its growing use, as few would oppose actions against reducing energy insecurity in countries or regions, we feel that an excessive generalization may turn it into an empty and rather useless notion.

In this short and descriptive paper we intend to clarify both the meaning and economic importance of energy security and also, to discuss the strategies or alternatives to foster it. To do so, we first illustrate the importance of energy in contemporary economies and highlight how some of the particular characteristics of this area actually explain the increasing interest in this issue. After suggesting a specific definition of energy security, we provide some indications of the economic measurement and economic effects of energy security. The paper concludes with a description and discussion on the alternatives and public policies to control energy security.

2. The Evolving Role of Energy in the Economic System

Energy has always been crucial for the economic development of human societies, although its importance has expanded considerably after the industrial revolution, largely based on an intensive use of fossil fuels. Actually, the laws of thermodynamics imply that energy is necessary, at least, in a minimum quantity (even if ambitious and effective energy-efficiency strategies are carried out), for the material transformations that are related to most productive processes. Energy goods are also important both as intermediate inputs for production and transport and as final outputs that are often necessary for basic human welfare. Indeed, energy-related issues are highly relevant across the economic system through investment in durables (associated to different types and levels of energy consumption) and capital that usually reduces the capacity of agents to react in this area (see below). Thus, the first and basic fact behind this article is clear: a minimum supply of energy is essential for the functioning of economies (and societies).

In this sense, Figure 1 depicts the strategic importance of energy in contemporary societies. World energy consumption has seen an important growth during the last decades, which is largely explained by the emergence of developing countries, particularly China, since the late 1990s. Indeed, developed economies such as the United States (US) or the European Union (EU) have stabilized or even decreased their consumption in the last few years, whereas China has more than doubled its primary energy consumption in this decade, overcoming the EU and US and thereby becoming the biggest energy consumer in the world.

[FIGURE 1 OMITTED]

Although the preceding figure shows the continuous increase in energy consumption during the last thirty years, this is not the case with energy intensity (energy consumption per unit of GDP). Figure 2 depicts the evolution of energy intensity in the most important economies, reflecting that developed countries have been able to reduce significantly their ratios of energy consumption/GDP since the early 1970s. This is explained by the subsequent oil crises, which revealed the vulnerability of importing countries and by the increasing environmental concerns that, overall, led to decreases of energy intensities in the range of 50-60% in the US and the EU. China, however, is well above the energy intensity of developed countries, which is obviously worrying, given its current and future relevance in the overall energy consumption. Actually, China has shown an inconsistent evolution in the first decade of this century, with significant increases after a continuous decrease since the 1980s, which may help to understand its prevalence as a global energy consumer. …

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