Energy and Society Jan Osička Development stages • Pre-agricultural era (human power) • Agricultural era (animal power) • Mechanical power era • Fossil fuels • Electricity Foraging society: all energy needs covered by humans What is the average power output of human body? Foraging society: all energy needs covered by humans What is the average power output of human body? How much power deliver the following devices? Foraging society • Human body: sustained power 50-90 W, short-run power 100 W, maximum power 1000 W. • Energy return on investment (EROI) up to 40, usually around 3, often around 1. • Very low population density (0,1 person/sq. km) • Exosomatic sources of power: fire, body extensions (bows) Agricultural society • Greater population density (20-30 persons/sq. km) • First exosomatic sources of power: • Oxes (200-500 W) • Charcoal (29 MJ/kg, no smoke) • Metallurgy: low efficiency, high energy intensity (until 1750) Progress in the Middle Ages: prime movers Organic prime movers still dominant • Increased efficiency in energy transformation (treadwheels, horseshoes, fodder, breeding) Non-organic prime movers • Watermills (England, 11th century) • Wind power: sails (+ compass, heavy cannons, rear stear = colonization) Progress in the Middle Ages: fuel scarcity Early 18th century England • Average furnace • 300 tons of iron per year • 12,000 tons of wood • 20 square km of forest • Total production: 20,000 tons of iron (1,100 km2 of forest) • Total production in early 19th century: 1,000,000 tons of iron Towards modernity: steam engine • Early steam engine (Newcomen): 20 kW, efficiency 5% • Coal – steam – steel positive feedback • Later (19th century): inland transport revolution Towards modernity: industrial revolution • Powered by watermills and later steam • Europe 1800-1950: Five distinct prime movers: humans, animals, watermills/turbines, windmills, steam engines • USA 1870: mechanical power outweighs organic power • North Sea 1900: installed capacity in windmills: 100 MW Towards modernity: 1880-1900 • T. A. Edison: the basics of electricity production and use • G. Westinghouse and N. Tesla: alternating current • Ch. Parsons: steam turbine • W. Stanley: transformer • N. Tesla: electric motor • 20th century: evolution of power industry • USA 1930s: 80% of all mechanical power • Profound change in work and personal life • G. Daimler: spark ignition engine • W. Maybach: carburator • K. Benz: electrical ignition • R. Diesel: compression ignition engine • Three waves of automobile dissemination • Aviation: 1904: the Wright brothers, 1969 Boeing 747, 1969: Apollo 11 Energy-intensive society • Mechanization of agriculture and industry • Last 10,000 years: • Maximum power of the prime movers has increased 15,000,000x • 99% of this change occurred in 20th century Energy-intensive society • Increased quality of life • Increased inequality • 10% consumes 40% of all primary energy • 50% consumes 10% of all primary energy • Anthropocene Conclusions • Development stages reflect the power, efficiency, and flexibility of employed prime movers • Harnessing more energy leads to greater complexity of society Now, about the course.. What will we be doing here? • Study and discuss the development of the World energy system since 1945. • Learn about the roots of the contemporary energy policies. • Identify and analyze the most influential trends in the past and present energy system. • Discuss the future of energy. Who will be guiding you through the course? Jan Osička 2009 Istanbul Bilgi University PhD thesis: Gas flows through the V4 region (linear modeling) • Energy markets • Natural gas in Central Europe • Cross-border effects of Energiewende Filip Černoch PhD thesis: Energy policy of the EU 2016 Deutsche Gesellschaft für Auswärtige Politik 2016 Energy advisor to PM Sobotka • Energy policy in the EU • Energy transitions • The regulation behind Energiewende Masaryk University Center for Energy Studies Multidisciplinary research platform dealing with energy • Social dimension of energy transactions (public participation, local opposition, energy poverty) • Energy geopolitics (Russia, pipelines, power) • Energy transition (renewable energy, decarbonization) Founded by Břetislav Dančák in 2009 Dpt. of International Relations and European Studies: 8 full-time researchers Consolidation after WW2 Jan Osička Changes introduced by/throughout the war What were they? Changes introduced by/throughout the war Regimes, institutions and economy • War economy – nationalization of resources and supply chains (US/UK) • US turns net energy importer – further pressure on relations with producing countries • Emergence of „operations research“ Technological advancement • ICT – radar, remote control, guiding systems, electrical computation, network communication • Transportation – ICS-based mobility, jet engine-based aviation • Rocket science – space program • Chemical engineering – plastics (substitutes for rubber and glass) • Piping/welding – oil and gas transfers • Nuclear energy Consolidating energy industries (region-specific) Established industries • Coal, oil, electricity Emerging industries • Nuclear energy, natural gas Consolidating energy industries Centralized approach • Vertically integrated national monopolies • Stable, secure, affordable supply of energy to the national economy Market-based approach • Market competition (or fragmentation) • Energy supply as a by-product of a profit-seeking behavior Lecture outline Case studies illustrating the two approaches: • Nuclear industry in the U. S. (mixed approach) • Regulated utilities – costs recovered in bills paid by customers • Deregulated utilities – costs paid directly by the utilities • Natural gas industry in Europe (centralized approach) Consolidating the power industry: the business model Year Rated power (MW) Thermal efficiency (%) Price (USD1992/kWh) 1892 2.5 4.00 1907 12 1.56 1927 110 20 0.55 1947 0.19 1967 1,000 40 0.09 The “Grow and build“ strategy (technological progress + cost/price decline) • Promote electricity usage • Build bigger and more efficient plants • Bring down the costs and sell more electricity • Promote further electricity usage • … The consolidation of nuclear industry in the U. S. “The energy produced by breaking down the atom is a very poor kind of thing. Anyone who expects a source of power from the transformations of these atoms is talking moonshine.” Lord Ernest Rutherford, 1933. “It is not too much to expect that our children will enjoy in their homes [nuclear generated] electrical energy too cheap to meter.” Lewis Strauss, Chairman, US Atomic Energy Commission, 1954. „The failure of the U.S. nuclear power program ranks as the largest managerial disaster in business history, a disaster on a monumental scale … only the blind, or the biased, can now think that the money has been well spent. It is a defeat for the U.S. consumer and for the competitiveness of U.S. industry, for the utilities that undertook the program and for the private enterprise system that made it possible.“ Forbes cover story “Nuclear Follies“, February 11, 1985 The origins The Manhattan project (1942-1946) The experimental breeder reactor (1951) Atoms for Peace (1953) Atomic Energy Act of 1954 • Regulatory oversight over nuclear energy assigned to the Atomic Energy Commission (AEC) Commercialization of nuclear energy • AEC‘s role: „To ensure public health and safety from the hazards of nuclear power without imposing excessive requirements that would inhibit the growth of the industry“ (NRC 2017) • Insufficiently rigorous regulations in several important areas, including radiation protection standards, reactor safety, plant siting, and environmental protection Commercialization of nuclear energy • Rapid increase in power output • 1953-1962: below 300 MW • 1965: average 660 MW • 1970: average above 1,000 MW • Upscaling perhaps too fast to facilitate learning • Multiple manufacturers (Westinghouse, Argonne National Laboratory, General Electrics, BWXT,…) => multiple reactor designs and sub-designs (each unit a prototype) => Economy of scale has not been achieved 1970s: industry in crisis • Electricity demand increases with a slower pace • Costs of nuclear power increase • Political and local opposition towards nuclear Shoreham NPP (Long Island, USA) • Announced in 1965 by Long Island Light Company • Expected to come on line by 1973 at $65 - $75 million • 1968 LILCO decides to increase the unit‘s size from 540 to 820 MW • Cost overrun • Construction delay => more time for anti-nuclear movement to spread across Long Island • 1979 Public opposition intensifies after the Three Mile Island accident => 1983 the county legislature does not approve the plant‘s evacuation plans • Costs reach $2 bn (low productivity and design changes ordered by federal regulators) • 1984 The plant is completed, but does not receive operation license due to the unapproved evacuation plans • 1994: The plant is fully decommissioned, the total costs reach $6 billion (covered by the LI consumers) The consolidation of gas industry in Europe The consolidation of gas industry in Europe • 1920s – 1930s: first experiments with natural gas as a substitute for manufactured gas in Europe • WW II: scarce oil, coal locally unavailable (Romania, Austria, N. Italy, SW. France, E. Poland) • 1960s: before Dutch, Algerian, Ukrainian, Siberian, Central Asian discoveries the markets were scattered and localized. • 1970s: rapid growth in gas use and network development • 1965: EU consumption of 39 bcm • 1975: EU consumption of 216 bcm • wider portfolio of customers (fuel, feedstock) The formative years of transnational links • 1966: Groningen – Germany, • 1967: Groningen – Belgium, Ukraine – Czechoslovakia • Gas interaction between policaly similar countries • Netherlands ,W. Germany, Belgium, France (NATO, ECSC, EURATOM) • SU, Czechoslovakia, Poland (COMECON) The formative years of transnational links Late 1960s: gas emerges as an „European issue“ • Competition between Dutch, Libyan and Algerian gas • Two pan-European pipelines planned • Algeria – Spain – France – Britain • Algeria – Italy • First LNG projects on stream (Britain, France, Italy, Yugoslavia, Spain) • The Soviet Union steps in… Soviet gas in Western Europe • Initiator: Austria • No coal • A forerunner of European gas industry • ÖMV struggling to meet demand • The Brotherhood ppl passing just 16 km away from Austrian network • Established cooperation with CS over joint development of bordersituated large gas field • The SU lacks spare export capacity Soviet gas in Western Europe • 1965: Italian ENI starts negotiations over development of recently discovered W. Siberian fields • Italy/ENI • Best relations with the SU among the W. European companies • Oil importer and exporter of oil industry equipment to the communist block • Strong Italian CP seeking stronger relations with the SU • Trans-European Pipeline project (SU-Hungary-Yugoslavia-Italy) Soviet gas in Western Europe Austrian reaction: new series of negotiation with the SU. • Austrian steel company VÖEST will provide the SU with largediameter steel pipes in exchange for re-routing the pipeline • Germany (the supplier of the pipes) decided not to back up the plan, despite strong Bavarian support • The Soviets finally agree after Austria getting closer to EEC. Soviet gas in Western Europe The results • 1968: Soviet supplies to Austria come on stream • 1970: agreements with Italy and Germany (Ost Politik) • 1973: First Soviet deliveries to Germany, GDR also linked to the system • 1974: First Soviet deliveries to France • All through the same pipeline Summary • The post-war growth of energy demand facilitated source diversification and triggered development of new technologies. • The case of nuclear power development in the U.S. highlights the importance of regulation. • The formative years of the European gas market show the importance of both domestic and international political setting. • New path-dependencies • Heterogeneous reactor design prevents the nuclear industry from achieving economy of scale • Natural gas relations in Europe are strongly (geo)politically laden 1960s-1970s: Energy geopolitics Jan Osička Lecture outline • The oil shocks of the 1970s: the context, impact mechanism and crossboder cashflow • The effects on developing and developed countries • The long-term consequences • The energy weapon - discussion International context • 1960: Declaration on the Granting of Independence to Colonial Countries and Peoples • 1960s: The first „Decade of Development“ (UN) • Development program as a containment policy • The rise of the structuralist thinking (R. Prebisch, ECLA) • 1961: The Non-Alignment Movement • 1964: The Geneva Conference (UNCTAD) • G77: Diverse countries, common interest – a radical reform of GATT The road to the crisis (1949-1972) • World‘s energy consumption tripples • World‘s demand for oil increases 5.5 times • U.S. demand for oil increases 3 times • Western Europe‘s demand for oil increases 15 times • Japan‘s demand for oil increases 137 times • 2/3 of the new demand covered by the MENA producers • 1967-1972: U.S. domestic production peaks and import dependence increases from 19% to 36% • 1970-1973: World‘s spare production capacity decreases from 3 mbd to 0.5 mbd (less than 1% of total consumption) 000 020 040 060 080 100 120 1861 1866 1871 1876 1881 1886 1891 1896 1901 1906 1911 1916 1921 1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 Nominal (USD/b) The oil embargo of 1973 • October 1973: 3 USD/b • March 1974: 12 USD/b 000 020 040 060 080 100 120 140 1861 1866 1871 1876 1881 1886 1891 1896 1901 1906 1911 1916 1921 1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 Nominal (USD/b) Real (USD2013/b) The oil embargo of 1973 • October 1973: 3 USD/b • March 1974: 12 USD/b The to-do lists and cashflow of the 1970s oil shocks Developing countries • Cheer for OPEC‘s demonstration of power • Pay more for energy • Borrow money from the Western banks • Find yourself unable to pay the debt OPEC • Increase oil prices • Collect additional revenues • Send them to the Western banks Developed countries • Pay more for energy • Collect OPEC deposits • Lend them to domestic subjects (rebuilding) • Lend them to developing countries The 1970s crisis in numbers Saudi Arabia‘s current account surplus: • 1973: 2.5 bn USD • 1974: 23 bn USD Additional costs associated with higher oil prices between 1970 and 1980: 260 bn USD Increase in foreign debt (bn USD): Argentina Brazil Mexico Developing world 1970 5.8 5.7 7.0 72.7 1980 27.2 71.5 57.4 586.7 1984 48.9 103.9 94.8 921.8 Mexico oil production and exports Macroeconomic consequences: developing countries Developing countries (mainly Latin America) hit particularly hard during the 1970s: Internal factors: the „import substitution industrialization“ development strategy • Effective isolation of the national economy from the international markets • Subsidies to selected sectors/industries • Requires imports of goods and capital, compromises exports External factors: oil shocks • Countries unable to reduce demand for oil, decrease imports or increase exports • Non-existent financial reserves to cover the higher energy costs => Massive borrowing from the U. S. and European banks • The investments did not produce anything of economic value sufficient to enable the borrowers to repay their loans • By 1988: the debt costs higher than incoming loans => the „Debt crisis“ The Debt crisis • Inability to pay back the loans + no new loans coming • Risk of another global recession caused by multiple state defaults • The governments turn to the international economic institutions (WB, IMF) for assistance • Until 1985: macroeconomic stabilization • Reduction of government budget deficits: reduction of domestic consumption => reduction of imports, reduction of domestic consumption => unemployment => reduced wages => exports => current account surpluses • After 1985: Structural adjustment • Debts reduced or written-off in exchange for lowering tarrifs, privatizing industries, reducing subsidies and general opening up of the economy. The Debt crisis Developed countries • USA does not alter its support for Israel • The U.S. obsession with the Middle East/foreign oil begins • The Carter‘s doctrine • YouTube: „American presidents promise security through energy independence“ • Energy is typically tackled as a „crisis issue“ ever since • The establishment of the International Energy Agency • Structural changes in Western economies (Japan moving from energyintensive industries to electronics; car industry boom) Developed countries: Energy conservation/diversification Developed countries: Energy conservation/diversification Developed countries: Energy conservation/diversification Energyconservation/diversification Energyconservation/diversification Oil shocks consequences "The oil crisis set off an upheaval in global politics and the world economy. It also challenged America's position in the world, polarized its politics at home and shook the country's confidence“ Daniel Yergin, 2013 • The debt issue placed at the center of North-South relations • U.S. obsession with the Middle East/foreign oil/energy independence begins • Energy conservation and diversification measures take off • Long-term weakening of OPEC begins • The International Political Economy scientific discipline is born Discussion: the energy weapon • What other cases of its use do you know? Discussion: the energy weapon • What other cases of its use do you know? • Under which circumstances it can be effective? Coping with oil revenues Jan Osička 1980s: financialization of energy • Globalization of the oil market • Oil market‘s exposure to financial markets • Oil glut of 1985 • Falling prices reveal macroeconomic importance of oil 000 020 040 060 080 100 120 140 1861 1870 1879 1888 1897 1906 1915 1924 1933 1942 1951 1960 1969 1978 1987 1996 2005 2014 Nominal (USD/b) Real (USD2013/b) Lecture outline • Developing countries, oil and state-building • Developed countries, oil and changes in economy Developing countries: the resource extractive state concept • Hossein Mahdavy (1970): The Pattern and Problems of Economic Development in Rentier States: The Case of Iran. • Presumption: Tax extraction and redistribution is the core of the Government – people relationship. The backbone of modern state building… Government Accountability Taxes People …altered by oil-revenues Royalties Government IOC License Pacification Nothing People Export structure, the case of Angola "Tree map export 2009 Angola" by R Haussmann, Cesar Hidalgo, et. al. - Electronic Complexity Observatory, MIT Media Lab and the Center for International Development at Harvard University. Oil and gas exports as a share of government income • South Sudan 98% • Iraq 97% • Eastern Timor 94% • Bahrain 91% • Libya 91% • Alaska 90% • Saudi Arabia 90% • Kuwait 83% • Angola 79% • Azerbaijan 74% • Algeria 70% • Nigeria 70% • Gabon 64% • Qatar 53% • Iran 50% • Trinidad & Tobago 44% • Kazakhstan 39% • Mexico 33% • Russia 28% • Camerun 25% • Egypt 10% www.resourcegovernance.org Pacification: the „stick“ and „carrot“ way Royalties Government IOC License Pacification Nothing People The „stick“ pacification • Government policies centered around its physical survival • The legitimacy is derived from arms expenses (defence against internal and external enemies) • Revaluated currency • Oil revenue distributed within the governing strata only (cronyism) • Domestic problems ignored or delegated to the international community • Benefits for the population practically non-existent External enemy, the case of Chad • 4/75 president Tombalbaye (1960-1975) calls for national disobedience, fearing a coup • 4/75 president Tombalbaye is killed in a coup supported by France (in reaction to the U.S. oil companies finding oil in the country) • President Habré (1982-1990) supports the U.S. companies in exchange for protection from the U.S. • President Déby (since 1990) – former close collaborator of president Habré, supported by France he removes Habré from the office and awards oil exploration/production licenses to French companies. Domestic problems and benefits for the population Angola • Oil production 2000-2004: 0.75 mbd => 1.2 mbd • Approx. 1 billion USD/year diverted from the government budget (according to Global Witness) • Humanitarian crisis 2000-2004 at the end of the civil war (1975-2002): millions of people survived only due to the international aid (World Food Program) Nigeria • Oil revenues 1984-2009: 300 mld. USD • Average income in 2009: 1 USD/day • In real terms: average income in 2003 was lower than in 1960 The „carrot“ pacification • Typical for consolidated regimes • Main threat stemming from cross-generation cohesion (the young need to accept the regime) • Maximum benefits for the population Benefits for the population • Free • Education • Healthcare • Accommodation • Heavily subsidized • Energy • Gasoline • Retirement • 80% of salary after 20 years in public sector • Taxes • Non-existent Division of labor according to citizenship: • UAE • 0% of foreigners in the public administration • 0.04% of the UAE citizens in the private sector • Average sallary in Bahrain 2008: • Citizens: 15,000 USD/y • Foreigners: 5,000 USD/y Developed countries: Dutch disease Developed countries: Dutch disease The Netherlands after vast natural gas exploitation in the 1960s. Key point: resource development can actually hinder economic growth/development GDP Time Oil exports commence Growth without oil Growth with oil Dutch disease The Netherlands after vast natural gas exploitation in the 1960s. Key point: resource development can actually hinder economic growth/development Dutch disease Nontradable Tradable Dutch disease Nontradable (services) Tradable 1 (industry) Dutch disease Nontradable (services) Tradable 1 (industry) Tradable 2 (energy) New expanding tradable sector emerges Dutch disease Nontradable (services) Tradable 1 (industry) workforce Tradable 2 (energy) Direct deindustrialization: workforce movement Dutch disease (3) wages (2) money (1) wages Nontradable (services) (4) workforce Tradable 2 (energy) Tradable 1 (industry) Indirect deindustrialization 1: workforce movement Dutch disease Prices (set locally) Nontradable (services) Prices (set regionally/globally) Tradable 2 (energy) Tradable 1 (industry) Indirect deindustrialization 2: price difference induces currency appreciation that hinders tradable goods exports Dutch disease: summary Dutch disease: some statistics Gylfason, T. (2001): 162 countries, 1965-1998: + 3% of export in the expanding sector => - 1% of total export + 5% workforce in the expanding sector => - 1% of foreign direct investment Dutch disease: some statistics Mehrara, M (2008): 13 oil exporters, 1965-2005: Growth in oil revenues: • smaller than 18% per year: + 10% in oil revenues => + 1,3% other GDP • larger than 18% per year: + 10% in oil revenues => - 2.1 % other GDP Growth in „other“ export, 1980-2000 East Asia and Pacific 212% Botswana 139% Chile 99% Iran 46% Norway 15% Camerun 0% Venezuela -8% Algeria -17% Nigeria -24% Kongo -52% Stevens, Dietsch (2008): Resource curse: An analysis of causes, experiences and possible ways forward. Findings In developing countries, oil revenues can amplify existing conflicts, destabilize societes and prevent state-building and institutions-building from taking place. Alternatively, it can conserve societies in economically underdeveloped, yet welfare abundant state of being. In developed (industrialized) countries, oil revenues can compromise the added value-producing industries and alter the economic development of a country. Oil is good, when: • Strong institutions exist before it is developed • Oil revenues come gradually • Oil revenues are managed thoughtfully Energy poverty Jan Osička Lecture outline • Energy, development, inequality • Energy poverty in energy-unintensive countries • Energy poverty in energy-intensive countries Energy poverty and fuel poverty: the meaning • Energy poverty = lack of (physical) access to modern energy services • Fuel poverty = inability to adequately heat (or provide necessary energy services in) one‘s home at affordable cost • Often in literature however: energy poverty = fuel poverty • No agreement on how to measure energy/fuel poverty => What policies shall be drafted to address the issue? Energy poverty in energy-unintensive countries/regions Energy poverty in energy-unintensive countries/regions Reliance on biomass • Indoor air pollution • Time and effort in collecting biomass • Unsustainable harvesting practices Premature annual deaths from household air pollution and other diseases Fuel reliance Energy poverty in energy-unintensive countries/regions Energy poverty alleviation pathway: breaking the missing return on investment problem • Scattered and small demand for energy • Low purchasing power => Centralized solutions do not work => Micro-solutions need to be developed Energy poverty in energy-intensive countries • Recognized and reflected only recently (UK as a frontrunner – effects of market liberalization?) • EU gathers data and discusses appropriate policies (defining vulnerable consumers) (see for example https://ec.europa.eu/energy/sites/ener/files/documents/INSIGHT_E_Energy%20Poverty%20-%20Main%20Report_FINAL.pdf) • The issue of redistribution • The social sustainability – environmental sustainability nexus Equity and redistribution • Should energy be subsidized? • If yes, what and how? Subsidized energy prices • Alleviate (energy) poverty • Foster purchasing power and consumer demand • Burden state treasury • Encourage overconsumption • Challenge competitiveness of energy suppliers • Leak to unintended groups Natural gas wholesale market in Poland • Goal: to decrease natural gas price for the end customers • Tool: mixing cheap domestic production (30%) with expensive imports (70%) to reduce the wholesale price • Result: even more expensive imports Natural gas retail market in the Ukraine • Goal: affordable heat for households • Tool: regulated retail gas price (subsidies equaled to 5.6% of GDP) • Result: overconsumption which contributed to the political and national security crisis of 2014 Natural gas retail market in the Ukraine Natural gas retail market in the Ukraine The social sustainability – environmental sustainability nexus Should the following measures/technologies be subsidized? • Thermal efficiency of buildings • Large scale renewable energy production sites • Decentralized renewable energy sources • Electrical mobility