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European Affairs
Special Report: Transatlantic Approaches to Energy Policy
The Bush Administration Wants International Cooperation on Energy
By Vicky A. Bailey
The devastating attacks of September 11 highlight the need for all Americans to pay critical and continuing attention to the stability and security of our energy infrastructure. But while the attacks have brought such issues to the forefront, the Bush Administration's National Energy Policy (NEP), presented in May 2001, already includes numerous proposals to deal with them.
The Bush Administration believes that the best energy policy is one that is diverse, dependable, technologically advanced, and environmentally sound. Our ever-growing relationship with the European Union is crucial to the development of such a comprehensive long-term energy policy.
The National Energy Policy recognizes that the United States cannot address its energy concerns alone. Our energy security is intricately linked to the international market. President George W. Bush is committed to working with the European Union and the International Energy Agency to strengthen and create energy partnerships, which are now more important than ever before. We must maintain open and smoothly functioning markets as we face the uncertainties of the battle against terrorism.
While the U.S. energy challenge is not getting the same headlines that it did when the California energy crisis was at its peak, some basic facts remain unchanged. U.S. demand for oil is expected to increase by one third over the next two decades, but we produce 39 percent less oil than we did in 1970. This downward trend is certain to continue unless we resolve to change course.
Our demand for electricity will rise by 45 percent, and our demand for natural gas is projected to rise by 62 percent. We will be hard pressed to supply that level of demand for natural gas unless we can manage to locate and develop far greater domestic reserves than are currently available.
The Administration's National Energy Plan strongly promotes energy efficiency. It provides for 60 percent of the projected gap between demand and supply in 2020 to be offset by conservation actions.
We plan to tackle our increasing dependency on foreign energy sources by calling for an increase in domestic production with advanced technologies that can dramatically reduce environmental impacts. We aim to reduce our increasing reliance on a single fuel, natural gas, by establishing a better balance among many energy sources. We shall increase the role of renewable energy, but we also need to maintain the role of traditional sources like hydropower and nuclear energy.
To deal with our antiquated energy infrastructure, we plan to develop new technologies that allow us to send more and more energy over smaller and smaller lines. And we intend to relieve bottlenecks that act as choke points when we attempt to move power from region to region.
The Bush Administration also wants to increase the production of renewable energy, such as biomass, wind, geothermal and solar, as an essential step in reducing dependency on foreign sources of energy.
One of the most exciting components of our plan is its emphasis on developing next-generation technology, including hydrogen and fusion, and educating the public about the benefits of such alternative forms of energy. It focuses research and development efforts on integrating current hydrogen, fuel cell and distributed energy programs. By using technology to increase the efficiency and the role of those sources, we can get more energy and more economic productivity with less impact on our environment and on our communities.
The Bush Administration firmly believes that strong global alliances and international relationships are crucial to enhancing national and international energy security. As such our Plan makes energy security a priority of our trade and foreign policy.
Internationally, a fundamental focus of the NEP is to continue supporting American energy companies competing in markets abroad. The Plan encourages our involvement in multilateral organizations, such as the Asia-Pacific Economic Cooperation forum (APEC), the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) Energy Services Negotiations, the Free Trade Area of the Americas (FTAA), and our bilateral relationships.
We should seek to implement clear, open, and transparent rules and procedures governing foreign investment, to level the playing field for U.S. companies overseas, and to reduce barriers to trade and investment. In addition, the Bush Plan supports a sectoral trade initiative to expand investment and trade in energy-related goods and services that will promote exploration, production, and refining, as well as the development of new technologies.
The NEP favors market-based solutions to environmental concerns; supports the export of U.S. clean energy technologies and encourages their overseas development. We will work bilaterally and multilaterally to promote best practices; explore collaborative international basic research and development in energy alternatives and energy-efficient technologies; and explore innovative programs to support the global adoption of these technologies.
The NEP also supports continued research into global climate change; continued efforts to identify environmentally sound and cost-effective ways to use market mechanisms and incentives; and continued development of new technologies. It encourages U.S. cooperation with allies, including through international processes, to develop technologies, market-based incentives, and other innovative approaches to address the issue of global climate change.
A vital component of the NEP is to increase international cooperation in finding alternatives to oil. The Bush Administration believes it is vital for us to reinvigorate our dialogue with the EU on energy issues. President Bush believes in a coordinated approach to energy security, and has called for an annual meeting of G8 Energy Ministers or their equivalents.
Last May, the United States and Italy co-hosted a meeting in Paris to discuss holding a G8 Energy Ministerial meeting some time before the 2002 G8 Energy Economic Summit in Kananaskis, Alberta, Canada. This meeting resulted in the establishment of a working group of all G8 members, which has started planning for the ministerial meeting.
The Bush Administration reaffirms the crucial role of the IEA in promoting international energy cooperation. In times of crisis, the role of the IEA is absolutely essential. It reassures the public, provides emergency oil measures and helps to ensure effective market-based solutions to a shortage of oil supplies.
The IEA's policy is to react to a physical disruption in world oil supplies that could inflict economic damage on its members. It has two sets of emergency oil procedures. The Emergency Sharing System, dating from the 1970s, is triggered by a physical shortfall of seven percent in IEA oil supplies. This system is antiquated and interventionist. Although it was appropriate to the 1970s, it is now outdated.
The second system is known as the Coordinated Emergency Response Measures, or CERM. The terms for its implementation are very similar to our policy on using the U.S. Strategic Petroleum Reserve (SPR). The CERM is flexible and market-oriented, and emphasizes drawing on stocks as a first response.
The IEA can also anticipate difficulties, such as the Y2K computer problem or cuts in Iraqi oil exports. The United States could ask the IEA to design a CERM-type response, or range of responses, if it feared that the current war against terrorism might lead to a shortage of oil supplies.
If oil supplies were severely disrupted, the United States would rely on market forces to allocate supply, and would normally supplement supply by an early drawdown of the SPR, in large volumes and in coordination with our allies and trading partners. Our view is that the SPR is designed for addressing an imminent or actual disruption in oil supplies, not for managing prices. In an effort to strength our ability to respond to potential oil supply disruptions, the Bush Administration recently authorized the increase of the U.S. SPR to its 700 million barrel capacity.
The Administration intends to work closely with Congress to ensure that our SPR protection is maintained; to work within the IEA to ensure that member states fulfill their stockholding; and to work with producing and consuming countries and the IEA to craft a more comprehensive and timely world oil data reporting system.
We also want to encourage major oil-consuming countries that are not IEA members to consider strategic stocks as an option for addressing possible supply disruptions. In this regard, we should work closely with Asian economies, especially through APEC.
Coordination with our allies and trading partners is absolutely imperative in times of crisis. An internationally coordinated drawdown is important for two reasons: fairness and effectiveness. In a severe oil supply disruption, the United States and its allies and trading partners have common risks and interests. A disruption of oil supplies anywhere affects the price of oil everywhere.
Likewise, a drawdown of strategic reserves by any nation will benefit all consuming countries. Given these commonalities, it is only fair that the burden of responding to a disruption be borne internationally. There should be no "free riders" among the major industrial nations.
In particular, the recent attacks emphasize the need for integration and cooperation between the United States and the EU. The Bush Administration is fully committed to this goal. Our mutual interests and our energy security depend on it.