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How energy became a foreign policy power play

In Australia we have become accustomed to thinking of energy in terms of the trilemma: affordability, reliability and sustainability.

To reduce the emissions intensity of our energy use, particularly electricity, we have been required to pay higher prices and deal with the potential problems of having a high proportion of intermittent energy sources.

On the face of it, Australia has dealt with this trilemma better than many other countries, notwithstanding several hiccups. (Who can forget the statewide blackout in South Australia in 2016?) Our natural advantages in respect of solar power have assisted in this process and led to high rates of penetration of rooftop solar panels.

To be sure, the boasts about a state – often SA – being powered for days on renewable energy alone still appear in the media. Absent is information about the days when renewable energy, particularly wind, generates virtually no power and a combination of gas and coal generation (including interstate connectors working overtime) makes up the shortfall.

A high degree of redundancy is required to keep the grid stable and there are costs attached to this. Adding expensive transmission infrastructure can assist the deployment of far-flung renewable energy installations but ultimately it is paid for by consumers.

The development of a capacity market can secure reliability – at a cost – by giving incentives to some providers to be on standby. We have seen the importance of this process in Britain, where coal-fired power plants have been brought into operation to make up for the shortfall of wind power.

While the trilemma is a useful way to think about energy policy, it is also worthwhile extending the analysis to include the link between energy and foreign policy. Note here that energy extends beyond electricity and includes the direct use of natural gas and the petroleum products required to power vehicles and aircraft.

Anyone with a passing interest in history knows energy and warfare often have been connected, with competition for resources a main source of conflict. Without an adequate supply of various sources of energy, countries will struggle to secure victory over adversaries.It is one reason it is always prudent for countries to hold reserve supplies of petroleum products. Australia recently acted to bolster its reserve supplies, although there is the issue of whether these are appropriately located. (Australia is relatively self-sufficient in energy save for crude oil.) The decision to subsidise ongoing operation of some oil refineries was also taken, in part, for foreign policy reasons.

The link between energy and foreign policy is being powerfully illustrated by recent events in Europe and the potential incursion of Ukraine by Russia. Most parts of Europe and Britain have recently been experiencing an energy crisis characterised by short supplies of natural gas. Power prices are spiking for households and energy-intensive industries. The case of Germany is the starkest where it has exposed itself to a growing reliance on natural gas sourced from Russia – about 40 per cent – to power its grid. The construction of the Nord Stream 2 pipeline has created further complications by potentially creating a direct link from Russia to Germany and thereby bypassing Ukraine via older pipelines.

The delay in approving the pipeline – its approval is vehemently opposed by parts of the German Coalition government – is a significant factor in the standoff between Europe and Russia.

The fact the German government decided to phase out its nuclear power installations – some are relatively new – has left it with a grid that is far too dependent on Russian gas as well as coal-fired power because its intermittent renewable energy sources are simply not up to the job.

Were it not for the interconnectors with other European countries, including Poland with its largely coal-fired electricity, the electricity grid in Germany could not be fully operational 24/7. None of this has stopped German political leaders from continuing to commit to ambitious emissions reduction targets.

This disconnect between climate aspirations and the reality of providing affordable and reliable electricity is apparent in several other countries. The common arrangement of having separate climate and energy ministers compounds the problem, with climate ministers too often unaware of the practical difficulties of imposing top-down targets.

In Britain there is a legislated target to reduce emissions by 78 per cent by 2035 from the 1990 level. But to achieve this, thesimple-minded solution was vastly to increase the penetration of offshore wind power, notwithstanding the potential for extended wind droughts such as the one experienced last year. Until recently, there was little thought given to reviving its lagging nuclear power industry and an effective ban has been placed on onshore extraction of natural gas. Even the granting of new gas drilling permits in the North Sea has been a painfully slow process.

As result, British electricity prices increasingly are set by European gas prices, which in turn are heavily influenced by Russian gas prices. It is anticipated that the electricity price cap in Britain will be raised by close to 50 per cent in April, placing a considerable financial strain on households and some industries.

The point here is that neither Britain nor any European country wants to see gas prices rise any further. The resolution of the political stalemate with Russia will be partly conditioned by this understandable reluctance to risk any interruptions to the flow of gas from Russia. To be sure, such an interruption also would harm Russian finances, but there is clearly a game of cat and mouse going on that highlights the importance of energy in foreign policy plays.

We have become accustomed to recognising the benefits that China has secured from the pursuit by developed economies to meet climate targets. Not only has China been allowed to play by different rules – it is only required to reduce emissions from 2030 – but its dominance of the manufacturing of turbines and solar panels have provided a very useful economic boost for the country.

But China is not the only country using the climate ambitions of developed economies to secure foreign policy advantages. With its abundant supplies of gas (and oil), Russia is also flexing its muscles to gain more influence internationally and potentially more territory.

Source: The Australian