Energy security risks factors transitions and nexus with policy issues

Energy Security Risks Factors: Transitions and Nexus with Policy Issues Zannatul Fardoush Kazi Arif Uz Zaman1 Abstract Energy security, over the years, is becoming a major apprehension for the policymakers in most of the countries Limitation of the key resources and commodities in the increasingly demanded globalized energy market pose greater challenges, especially for the growing economies Comprehensive analyzing and quantifying of the dimensions of energy security risks and their nexus with other policy agendas like the economic growth and governance at the national, regional, and international level would be the key to formulate the strategies in this challenging scenario Using the International Index of Energy Security Risk (IIESR), this paper attempts to analyze the challenges of energy security risk across the largest 75 energy-consuming countries over 1980-2013 Transition paths show that after a sustained period with lower risk throughout 1990s and early 2000s, global energy security risk has been mounting up following the global financial crisis On average, high-income countries have been performing relatively well than others, while emerging middle-income countries are becoming highly exposed to these risks Convergence among countries are more noticeable for price and market volatility risk, energy intensity risk, and electricity sector risk while divergence is explicit in case of environmental risk Estimations depict that per capita GDP, political governance and regulatory quality have positive impact in reducing composite energy security risk JEL classifications: Q40, Q43, Q48, D81 Keywords: Energy security, Energy security risk, Convergence of risk factors, Efficiency in risk management, International Index of Energy Security Risk Corresponding Author at: Financial Stability Department, Bangladesh Bank Head Office, Motijheel, Dhaka-1000, Bangladesh, Email: arif.zaman@anu.edu.au Introduction Energy security, over the years, is becoming a major apprehension for the policymakers in most of the countries A paradigm shift from the traditional development perspective towards the sustainable development perspective has added further significance to address the energy security issues The consumption pattern of energy is, therefore, also varying among the economies However, limitation of the key resources and commodities in the increasingly demanded globalized energy market pose greater challenges, especially for the growing economies (King and Gulledge, 2014) Since there is relatively smaller overlap between the top energy producing and the major energy consuming economies, most of the countries have to depend on international trade to meet respective domestic demands Experiences reveal that such international trade is, however, susceptible to socio-economic commotions, and political intrusions Top of that, it is evident that key energy resources like oil and gas are geo-politically concerted within few regions or countries Several of these countries have been going through some sorts of socio-political turmoil in many occasions Since energy nowadays has turned into an essential global commodity, event in any place can affect the production, supply and price of elsewhere even for the most self-sufficient countries Hence, a deep insight and understanding on energy security and relevant probabilistic risks with degree of impact is so important In fact, comprehensive analyzing and quantifying of the dimensions of energy security risks and their nexus with other policy agendas like the economic growth and governance at the national, regional, and international level would be the key to formulate the strategies in this challenging scenario Major concern about the energy issue is that it is so crucial but a scarce commodity Figure depicts the ever-increasing demand for primary energy throughout the world Global energy consumption has increased by 50% during 1990-2008 Interestingly, the rate of growth in demand has become even greater since the global financial crisis Significant rise in demand in some big emerging economies like China, India and some non-OECD Asian countries are, indeed, influencing the global energy market with greater extent Forecast reveals that the rate of increase in demand would be at least equal to the current rate, if not increase further till 2030 1|Page Figure 1: Trend of Global Primary Energy Consumption Source: EIA (2017) This sustained increase in energy demand would certainly be challenged by the uncertainty over future fossil fuel reserves, and growing reliance on a few geopolitically wobbly regions for the identified stocks of energy (WEC, 2013) Middle East, which is considered as the largest supplier of low-cost oil, has hardly been able to come out of socio-political uproars since the oil shocks in the 1970s Recent tension between Russia and Ukraine has re-exploded concerns regarding global gas security Though a significant exploration of unconventional oil and gas in US and Canada in last few years appears to be a temporary solution to global reserves, but it has been far criticized from environmental perspective While stock of coal is abundant with relatively secured supply, environmentalist have put a big question mark against it its future Prospects of large-scale use of nuclear energy is also debatable under the scenario in which public concern for safety measures as well as its geo-political implication seem to dominate (IMF, 2014) Even though the price level of oil and gas remain lower and stable in last few years, there might be a possible turn around in near future Top of that, energy subsidies in many countries have also lead towards economic losses and declining competitiveness In spite of such price incentives, there are still 1.3 billion people live without access to the modern energy services (IEA, 2014) Considering the overall scenarios, World Energy Outlook describes current global 2|Page energy system as ‘falling short of the hopes and expectations’ Therefore, it demands the countries to take measures for strengthening their energy security framework with utmost priority Since each country or region has different sets of challenges in energy security, accurate indulgent and quantifying the dimensions of energy security from the national, regional and global perspective would be so crucial in tackling such challenges Energy Security versus Energy Security Risks Energy security is rather a complex issue to frame In reality, its boundary exceeds beyond the conventional availability and affordability factors Policymakers are also compelled to count the other aspects of this multifaceted issue like socio-economical, environmental, technical, and geopolitical Leaving one aspect would make the assessment incomplete and ineffective At the same time, it is important to measure the probability of undesired scenario along with their probable impact on existing energy security Thus the concept of energy security risk evolves which seems to better capture the issues with wider dimensions and practicality (Labandeira & Manzano, 2012) This paper is an attempt to address these issues with detailed empirical evidences and to accomplish the following objectives: • To analyze the transition paths of the energy security risk related issues • To determine the nexus between the energy security risk components and different policy outlooks such as economic growth, energy endowment and governance factors Following research questions are set to answer: ▪ How the energy security risks have been evolving across countries over time; ▪ Whether the convergence in managing the energy security risks has been happening or not among the countries; and ▪ How the different policy factors (growth, emission, and governance) have been interacting with the elements of energy security risk over time? Rest of the paper is organized as follows: Section provides few literature reviews, Section describes the data and methodology, Section analyses the results and findings while Section ends up with policy measures and concluding remarks 3|Page Literature Review In most of the earlier literatures, energy security is conceptualized as reliable energy supplies at reasonable prices that would support the economy and business (Dorian et al., 2006) Hence, security of oil supply is synonymously used as the energy security (Fried & Trezise, 1993) This unidimensional supply-based perspective focuses mainly on reducing the probable threats and vulnerabilities originated from any ‘energy crises’ Many energy scarce countries in Asia and the West which are mostly import-dependent follow such principle in designing their energy security frame (Stringer, 2008) Yergin (2006) however, states that this conventional concept of energy security is too narrow within the existing globalized energy market scenario Following the complexities arouse from energy transformations and uses among nations, he highlights on incorporating more dimensions with the orthodox energy security concept such as economics, climate change and environmental, international trade, etc Wu & Fesharaki (2007) emphasizes on enhanced cooperation and networking among the nations to tackle these risks in more comprehensive and sustained manner Consequently, there was a significant shift in the traditional energy security concept over the last decade (Victor & Yueh, 2010) Von Hippel et al (2009) argues for four major challenges to include into their new energy security concept that comprises environment, technology, demand-side management and Domestic Socio-cultural and Political Factors Vivoda (2010) extended the list with four more challenges such as human security, international, public relations, and policy Literatures also encompass different methodologies to quantify the energy security and related risks Jansen et al (2004) focuses on supply risk measures along with the diversity of fuel by types and import sources Scheepers et al (2006) constructed the Supply-Demand Index to measure the composition as well as the gap in country's demand and supply of energy APERC (2007) constructed energy security matrix with five indicators: net import dependency, net oil import dependency, variation of import diversity, diversity of primary energy forms and variation of fuel-type diversity Chester (2008) examines existing and proposed energy security policies of Australia by using four components such as availability, affordability, adequacy of capacity, and sustainability Nicolas Lefèvre (2010) accounts resource concentration as an indicator for long-term energy security He also incorporates competitiveness and volatility based on fuel diversity to measure price related risks Hughes and Shupe (2011) designs Decision matrices based four criteria of 4|Page a country's energy diversification and alternatives Von Hippel et al (2011) quantify energy security under varying scenarios by using six broader components During this time, several institutions applied more comprehensive methods to construct energy security index, especially for the developed countries (DECC, 2011; METI, 2010) However, all of these measures require proper data reporting system which may be difficult to get for some of the countries Data & Methodology 4.1 Description of Data Four categories of data are used from three different sources to organize the whole dataset for this paper a) Energy Security Risk Index: International Index of Energy Security Risk (IIESR), developed by the Institute for 21st Century Energy- a policy platform of the US Chamber of Commerce, is used for this paper IIESR covers 75 top energy consuming countries (as of 2010) of the world that represents around 80% of the global energy consumption over the period of 1980 to 2016 IIERS considers four key areas of risk related to countries’ energy security: geopolitical, economic, reliability, and environmental This composite index is comprised of following eight broader components derived from a total of 29 indicators (Appendix-A): • Global fuels, • Fuel imports, • Energy expenditures, • Price and market volatility, • Energy use intensity, • Electric power sector, • Transportation sector, and • Environmental metrics Different units are used for different metrics i.e components To make the components meaningful as well as comparable, all the data are normalized by taking respective 1980 average OECD data as benchmark This normalization helps transforming all the metrics into a common unit which is vital to explain the trend as well as the relative measures of each metric across all the countries over the time period Therefore, IIERS seems to be a 5|Page ‘first-of-its-kind’ measure that evaluates various dimensions of energy security risks across countries and country groups, and also allows to elucidate how these risks evolve over time Things to note that, IIESR is a risk index which is conceptually bit different from other conventional security indices IIESR conveys the notion of risk, i.e the probabilistic adverse impact on the indicators measured from existing scenarios is considered rather than the absolute value of the indicator In other words, value of a particular risk index of an indicator may be quite different from the notion of the physical outcome value of that indicator Therefore, a high value in risk index does not necessarily meant to match with a worse outcome value as compared to previous period Similarly, periods of lower risk not necessarily meant to have better outcomes than earlier Primary data sources for constructing this IIERS comprise the International Energy Statistics database of EIA, World Bank, IEA, and OECD To capture the risk factors associated with the energy supply and trade related metrics, the ‘freedom’ and the ‘diversity’ of global fuel supplies are counted Freedom House-a U.S based government funded NGO sources composite indices for political rights and civil liberties in this regard b) Income related data: GDP per capita (constant 2005 US$) is used to determine the income level of the countries over the 1980-2016 period The data are collected from the World Development Indicators, constructed by the World Bank c) Emission related data: Per capita CO2 emission, represents in metric ton, has been extracted from World Development Indicators over the 1980-2016 Emission stemming from the burning of fossil fuels and the manufacture of cement are considered d) Governance indicators: Government effectiveness, Political Stability and absence of Violence, and Control on corruption-these three measures from the World-wide Governance Indicators (WGI) are used to describe the governance scenario of the countries World Bank Development Research Group sources these data over 1995-2016 List of the countries covered in the dataset are indicated in Appendix-B 6|Page 4.2 Methodology For determining the nexus of IIESR and its components with growth, energy endowment and governance, fixed effect estimation method is used in this paper With the panel data, the fixed effect estimation will help to control the country-specific unobserved heterogeneities those remain fixed over time and also may have potential influences over the IIESR and its components Here is the basic estimation equation used in this paper: 𝑘 𝑛 𝑌𝑖,𝑡 = 𝛽0 + ∑ 𝛽𝑘 𝑋𝑘,𝑖𝑡 + ∑ 𝛾𝑛 𝐸𝑛 + 𝑢𝑖,𝑡 𝑘=1 𝑛=2 Where, 𝑌𝑖,𝑡 = Dependent variables with i-th country at time t 𝑋𝑘,𝑖𝑡 = Independent variable(s) k of i-th country at time t 𝐸𝑛 = Dummy variable for country n 𝑢𝑖,𝑡 = Error term Three independent variable blocks i.e GDP per Capita, per capita CO2 emission and Governance Indicators (comprises of Government effectiveness, Political Stability, and Control on corruption) are tested Model also incorporates Control (dummy) variable to denote the impact of Global Financial Crisis (GFC) by using Difference-in-difference approach Logarithm values of all variables are used Results & Findings 5.1 Transition patterns of the Energy Security Risk Table depicts the transition of IIESR for all the groups over 1980 to 2016 After the oil crisis in late 70s, the energy risk mounted very high in 1980 However, there was some reasonably better period to contend energy-related risks throughout 1990s till 2000 Events such as 9/11 and subsequent global financial crisis seem to have profound impact on resurging the energy security risks in 2010 Risk levels, however, are going down since then High-income countries, as expected, perform better than the others throughout 1980-2016 Middle-income countries experienced moderate level of risks while the low-income countries’ 7|Page risk level surpassed the other groups as these low-income countries get easily exposed towards any regional or sub-regional crises in form of energy, political or financial turmoil It reveals significant performance gap between the top-10 and bottom-10 countries The deviation, which reached extremely high in the year 2000, has been declining since then There is a sign of little convergence among the different groups’ risk management performances in last few years This convergence issue will be discussed in detailed in next section Performances of high-income countries was found the best in 2000 while it was in the year 1990 when the middle and low-income countries’ performances were at their respective picks Table 1: Composite Risk Index Groups 1980 1990 2000 2010 2016 Average 1244 1072 1134 1391 1243 Top-10 870 768 742 944 779 Bottom-10 1984 1610 2060 2295 2043 High-income average 1165 1007 973 1284 1190 Middle-income average 1235 1083 1199 1498 1291 Low-income average 1424 1204 1511 1596 1365 Standard Deviation 410 289 460 438 393 Source: Authors’ calculation based on Institute for 21st Century Energy (2019) Table shows the list of top-10 countries which performed the best to manage the energy security risk down over the years Mexico, Columbia, New Zealand, Norway and UK are consistently placed in the list throughout 1980-2016 Australia was in the list till 2000, but lost its place thereafter Energy abundant countries like USA and Canada also got into the list in recent times Table shows the list of Bottom-10 countries which performed the worst in dealing with the energy security risk over the years It is evident that Bottom-10 countries always comprise resource scarce Singapore Besides, it often comprises few conflict-affected countries such as Syria, Libya and Iraq Interestingly, some of the Commonwealth of Independent States (CIS) namely Turkmenistan, Uzbekistan, Ukraine, and Belarus remain in this list since 2000 Establishing good governance, political reforms and stability, and resolving intraregional conflicts seem to be some of the challenging factors for these countries Risk level of Turkmenistan got worsen since 2000 which ranked the country as the worst in 2016 8|Page Table 2: List of Top-10 performing countries Sl 1980 1990 2000 2010 2016 Mexico Mexico Columbia Columbia Norway Nigeria Columbia UK Norway Columbia Oman UK Mexico Mexico United States New Zealand Australia Denmark Nigeria UK Australia New Zealand New Zealand Denmark Mexico UK Peru Norway UK Denmark Turkey Venezuela Australia Columbia Norway Canada New Zealand Romania Canada New Zealand Norway Vietnam Germany Romania Canada 10 Saudi Arabia Indonesia Vietnam Switzerland Norway Note: sl remains the best performer Source: Authors’ calculation based on Institute for 21st Century Energy (2019) Table 3: List of Bottom-10 performing countries Sl 1980 1990 2000 2010 2016 Bulgaria Syria Uzbekistan Uzbekistan Turkmenistan Iraq Bulgaria Azerbaijan Singapore Slovak Rep Qatar Iraq Ukraine Turkmenistan Singapore Singapore Singapore Belarus China Bahrain Turkmenistan T&T Syria Libya Egypt Singapore Iran T&T Syria Qatar Paraguay Iraq Belarus Egypt Iran Bulgaria Syria Ukraine South Korea UAE Syria Belarus Uzbekistan 10 Finland Iraq Egypt Oman Paraguay Ukraine Libya Note: sl remains the worst performer Source: Authors’ calculation based on Institute for 21st Century Energy (2019) 9|Page Figure 4: Convergence of Fuel Import Risk across countries Fuel Import Risk Fuel Import Risk 400 350 350 300 250 250 Risk index Risk index 300 200 150 200 150 100 100 50 50 1980 1990 Top 10 2000 2010 Average 1980 2020 Bottom 10 1990 High income 2000 Mid-income 2010 2020 Low-income Source: Authors’ calculation based on Institute for 21st Century Energy (2019) b Risk on Energy Expenditure No trend of convergence is found between the top-10 and bottom-10 countries in case of Energy expenditure risks as depicted in Figure Rather, the gap has been increasing since 1990 However, for the three income groups, there is a little indication of convergence until 2010 which marked some diversion since then Figure-5: Convergence of Energy Expenditure Risk across countries 450 400 350 300 250 200 150 100 50 1980 Top 10 Energy Expenditure Risk 250 200 Risk index Risk index Energy Expenditure Risk 150 100 50 1990 2000 Average 2010 2020 Bottom 10 1980 1990 High income 2000 Mid-income 2010 2020 Low-income Source: Authors’ calculation based on Institute for 21st Century Energy (2019) 13 | P a g e c Risk on Price and Market Volatility As shown in Figure 6, divergence in risk on Price and market volatility has increased untill 2010 After that, convergence is observed between the top-10 and bottom-10 countries and also among the different income groups As mentioned earlier, the sustained drop in oil price after the GFC seems to play catalyst’s role in this regard Figure 6: Convergence of Price and Market Volatility Risk across countries Price Volatility Risk 800 700 600 500 400 300 200 100 1980 600 500 Risk index Risk index Price Volatility Risk 400 300 200 100 1990 Top 10 2000 Average 2010 1980 2020 Bottom 10 1990 High income 2000 2010 Mid-income 2020 Low-income Source: Authors’ calculation based on Institute for 21st Century Energy (2019) d Risk on Energy Intensity For Energy intensity risk, there is significant sequential divergence and convergence revealed in both the cases of top-10 and bottom-10 performers as well as the different income groups Figure shows a divergence during 1980-2000, and a convergence in later part Figure 7: Convergence of Energy Intensity Risk across countries Energy Intensity Risk Energy Intensity Risk 700 500 400 500 Risk index Risk index 600 400 300 200 300 200 100 100 1980 Top 10 1990 2000 Average 2010 2020 Bottom 10 1980 1990 High income 2000 Mid-income 2010 2020 Low-income Source: Authors’ calculation based on Institute for 21st Century Energy (2019) 14 | P a g e e Risk on Electricity Sector Interestingly, the gap of performances in managing the Electricity sector related risks between the top-10 and bottom-10 countries continually increased since 1980 According to the Figure 8, the scenario is bit different in case of different income groups The risks converged till 2000, and then it continued to diverge among three groups till 2010 and got converged again in 2016 Figure 8: Convergence of Electricity Sector related Risk across countries Electricty Sector Risk 120 100 100 80 Risk index Risk index Electricty Sector Risk 80 60 40 60 40 20 20 1980 1990 Top 10 2000 Average 2010 1980 2020 Bottom 10 1990 High income 2000 Mid-income 2010 2020 Low-income Source: Authors’ calculation based on Institute for 21st Century Energy (2019) f Risk on Transportation Sector The gap between top-10 and bottom-10 performing countries in terms of the risks of Transportation sector’s energy use has been found in converging trend since 1990 From Figure 9, it is revealed that in case of the three income groups, the risks converged till 2010, and then it continued to diverge among the groups Figure 9: Convergence of Transportation Sector related Risk across countries Transportation Sector Risk Transportation Sector Risk 150 Risk index Risk index 200 100 50 1980 Top 10 1990 2000 Average 2010 2020 Bottom 10 160 140 120 100 80 60 40 20 1980 1990 High income 2000 Mid-income 2010 2020 Low-income Source: Authors’ calculation based on Institute for 21st Century Energy (2019) 15 | P a g e g Risk on Environmental Sector The divergence of risks related to the Environmental factors has been enduring over the period between top-10 and bottom-10 performing countries as shown in Figure 10 However, there was a hint of convergence among different income groups till 1990, then got diverged till 2000, and again converged thereafter Figure 10: Convergence of Environmental related Risk across countries Environmental Risk Environmental Risk 250 Risk index Risk index 200 150 100 50 1980 Top 10 1990 2000 Average 2010 2020 Bottom 10 180 160 140 120 100 80 60 40 20 1980 1990 High income 2000 Mid-income 2010 2020 Low-income Source: Authors’ calculation based on Institute for 21st Century Energy (2019) 5.5 Estimation Results Estimation results presented in Table refer that on average, more GDP per capita, Governance effectiveness, Political stability, and Control of corruption would help mitigating energy security risk of a country, ceteris paribus It reveals that percent increase in per capita GDP would result into 0.27 percent decline in composite risk level on average, ceteris paribus 10 percent increase in the ranking of Governance effectiveness, Political stability, and Control of corruption would lead to 0.62, 0.34, and 0.36 percent decline in IIESR level It is also evident that increase in per capita CO2 emission would also increase the IIESR risk level percent increase in per capita CO2 emission, ceteris paribus, would result in 0.25 percent increase in IIESR risk index DID method implies that the event of GFC has adversely affect the overall IIESR and increase the level by 0.18 percent, on average 16 | P a g e Table 5: Estimation Results for Composite Risk Index Explanatory variables Composite index (IIESR) GDP per Capita -0.267*** (0.026) per capita CO2 0.250*** (0.025) Government Effectiveness -0.062*** (0.020) Political Stability -0.034*** (0.011) Control of corruption -0.036*** (0.018) Control for GFC 0.185*** (0.012) Observation 747 Table shows the estimation of the coefficients for each of the IIESR component It is evident from the Table that Global fuel risk would decline with increased income as the higher income leads to better use of technology that would ensure reliability and diversity of global reserves and supplies of oil, natural gas, and coal On average, percent increase in per capita GDP would result in 0.017 percent decrease in Global fuel risk, ceteris paribus This risk component, however, has been affected by the GFC as, on average, the risk has been increased by 0.097 percent after GFC as compared to pre-GFC period Estimation reveals that Fuel Import risk increases as the income per capita increases Higher income usually leads the country towards more energy consumption and imports; hence, the risk level goes up This may be particularly true for the emerging and developing economies with faster growth rate On average, percent increase in per capita GDP would result in 0.227 percent increase in Fuel import risk, ceteris paribus Besides, better governance effectiveness, and political stability can also help to reduce the adverse impact of Fuel Import risk, on average GFC does not found to have any statistically significant impact on this risk component 17 | P a g e Table 6: Estimation of coefficients for each risk components Global Fuel risk Fuel import risk Energy Expenditure risk Energy intensity risk Electricity Sector risk -0.139*** (0.046) Price & market volatility risk -0.474*** (0.073) GDP per Capita -0.017*** (0.007) 0.227** (0.104) per capita CO2 0.004 (0.006) Government Effectiveness Transportation Environmental sector risk risk -0.539*** (0.031) -0.185*** (0.025) -0.188*** (0.051) -0.260*** (0.043) 0.146 (0.100) 0.341*** (0.045) 0.222*** (0.070) 0.426*** (0.030) 0.151*** (0.029) 0.370*** (0.049) 0.641*** (0.042) -0.002 (0.005) -0.139* (0.080) -0.082** (0.035) -0.119** (0.056) 0.016 (0.024) 0.009 (0.024) -0.069* (0.039) -0.042 (0.033) Political Stability -0.003 (0.003) -0.103** (0.043) 0.005 (0.019) -0.037 (0.030) -0.022* (0.013) -0.031* (0.013) -0.023 (0.021) -0.040** (0.018) Control of corruption 0.003 (0.004) 0.071 (0.071) -0.026 (0.031) -0.021 (0.050) -0.094*** (0.021) -0.008 (0.021) -0.032 (0.035) -0.033 (0.030) Control for GFC 0.097*** (0.003) 0.050 (0.046) 0.458*** (0.021) 0.403*** (0.032) -0.048*** (0.014) -0.110*** (0.013) 0.036* (0.022) 0.091*** (0.019) Observation 747 747 747 747 747 747 747 747 18 | P a g e Energy Expenditure risk, the magnitude of energy costs to national economies, is more susceptible for the lower GDP per capita economies as expected On average, percent increase in per capita GDP would result in 0.139 percent decrease in Energy Expenditure risk, ceteris paribus percent increase in per capita CO2 emission, ceteris paribus, would result in 0.341 percent increase in Energy Expenditure risk Better governance effectiveness is also found consistent as well as significant in reducing the risk to some extent It, however, has been highly affected by the GFC as, on average, the risk has been increased by 0.458 percent after GFC as compared to pre-GFC period Estimation result shows that, Price and Market Volatility risks are more exposed with level of income On average, percent increase in per capita GDP would result in 0.474 percent decrease in this risk component, ceteris paribus percent increase in per capita CO2 emission, ceteris paribus, would result in 0.222 percent increase in this risk component Besides, better governance effectiveness can also help to reduce the adverse impact of it However, GFC has increased the Price and Market Volatility risks by 0.403 percent, on average Estimations implies that higher per capita income has the most positive impact on reducing the Energy Intensity risk as compared to the other risk components On average, percent increase in per capita GDP would result in 0.539 percent decrease in it, ceteris paribus Higher emission per capita is exposed to this risk component as percent increase in per capita CO2 emission, ceteris paribus, would result in 0.426 percent increase in Energy Intensity risk Better political stability and control on corruption can also help to reduce the adverse impact of Energy Intensity related risks, on average GFC, however, is found to influence the countries to reduce the Energy Intensity risks Higher per capita income has the positive significant impact on reducing the Electricity Sector related risks On average, percent increase in per capita GDP would result in 0.185 percent decrease in it, ceteris paribus Higher emission per capita is susceptible to this risk component as percent increase in per capita CO2 emission, ceteris paribus, would result in 0.151 percent increase in Electricity Sector related risk Better political stability can also help to reduce the adverse impact of this risk component, on average GFC, however, is found to influence the countries to reduce the Energy Intensity risks by 0.110 percent Estimation result shows that, Transportation Sector related risks are more exposed with level of income On average, percent increase in per capita GDP would result in 0.188 percent decrease in this risk component, ceteris paribus percent increase in per capita CO2 emission, 19 | P a g e ceteris paribus, would result in 0.370 percent increase in this risk component Besides, better governance effectiveness can also help to reduce the adverse impact of it However, GFC has increased the Transportation Sector related risks by 0.036 percent, on average Higher per capita income has the positive significant impact on reducing the Environment related risks On average, percent increase in per capita GDP would result in 0.260 percent decrease in it, ceteris paribus Higher emission per capita is most susceptible to this risk component as percent increase in per capita CO2 emission, ceteris paribus, would result in 0.641 percent increase in Environment related risk Better political stability can also help to reduce the adverse impact of this risk component, on average GFC, however, increased the Environment related risks by 0.091 percent, on average Policy Implications and Concluding Remarks Global energy demand mapping is being changed vividly Forecast shows that in early 2030s, energy consumption in Europe, North America, Japan and Korea will almost flatten, whereas a sharp rising consumption will come from rest of Asia led by China Along with that the Middle East and sub-Saharan Africa are also expected to pose remarkable energy demand pressure (WEO, 2014) Therefore, it is so vital to develop regional integration strategies to face the challenges Global supply chain outlook in the nearest short term looks passable However, in the longer run several hurdles need to overcome Such as to manage the complexity in Brazilian deep water fields; to sustain and replicate the US-Canadian growth in oil sand output; Russian smooth access and acceptance in global energy market; and security challenges in middle-east WEO estimates around $900 billion per year of global investment in primary energy sector is required to meet the increasing demand in 2030 Potential of Liquefied Natural Gas (LNG) looks promising However, concerted effort and investment is needed to develop adequate infrastructures in this sector Nuclear energy is often considered as reliable source which can also help diversifying in power generation In spite of having different opinions within a population, this nuclear energy definitely could be an important contributory factor to ensure secured energy supply Global scientists should try to incorporate adequate safety features and operational affluence to make this option popular Energy efficiency is an important means to reduce the demand-supply gap, and at the same time, to increase the competitive edge in mitigating the impact of price differences among 20 | P a g e regions Most of the developed countries have already introduced energy efficiency benchmark to regulate the electricity as well as transportation sector Rest of the countries should also follow the steps Pro-market price signal for energy is important Reform programs in lifting energy subsidies are utmost crucial, though not easily implementable due to its political implication However, recent examples of Indonesia, Egypt and Nigeria can be learnt for other countries in this regard Proper design, timing, in-depth consultation and more importantly, good communication with the people are found some of the key issues to handle these situations Emerging economies have been exposed more to the energy security risk Proper designing of energy demand and supply strategies is so crucial for these countries Adopting better energyefficient technologies that could help reducing energy intensities should be an important aspect for these emerging countries in tackling the rising risks Natural energy scarcity seems to be a major cause for the countries to perform poorly in managing respective energy security risks Hence, countries with limited resources should thrive for changing their energy mixes according to potential domestic as well as regional comparative advantages In several cases, human-made socio-political conflicts create manufactured energy crisis Situation in middle-east is such a disappointing example in this regard Regional and global institutional bodies should come out with effective strategies to resolve such disputes for the welfare of entire globe Dependency on fuel import is a key challenge for the high-income countries Hence, these countries are also susceptible to energy expenditure risk This is because, to sustain with a highlevel of life-style, it is harder to substitute energy with other inputs in a high-income economy Sources of domestic renewable and nuclear energy to meet internal demand could be a remedy in this regard To deal with price and market volatility, low-income countries should strategize pro-market policies like reducing energy related subsidies, regulating energy taxes, developing ‘effective’ information management system, and facilitating institutions in strengthening as well as diversifying the market Since, better political governance helps reducing energy security risks, countries should pay special focus to link energy policies with sustained political commitments Such political efforts are also the key to encourage adoption of advanced technologies and efficiency 21 | P a g e measures Top of that, countries should also provide substantial incentives in their fiscal and monetary regulations to encourage better strengthening of energy security Each country and region has its own dimensions of energy security risks Several policy issues often get priority over others With 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Fuel Import Metrics 17 Security of Petroleum Imports oil imports, freedom & diversity-weighted Security of Natural Gas Imports gas imports, freedom & diversity-weighted Security of Coal Imports Coal imports, freedom & diversity-weighted 10 Total Energy Import Expenditures billions of 2010$ percent 11 Fossil Fuel Import Expenditures per GDP Energy Expenditure Metrics 20 12 Energy Expenditures per GDP $ per $1,000 GDP (2010$) 13 Energy Expenditures per Capita 2010$/Household 14 Retail Electricity Prices cents/kWh (2010$) 15 Crude Oil Price 2010$/bbl Price & Market Volatility Metrics 15 16 Crude Oil Price Volatility $ change in year-to-year price (2010$) 17 Energy Expenditure Volatility 18 World Oil Refinery Utilization average yearly price change/$1,000 GDP (2010$) percent utilization 19 GDP per capita (2010$) Energy Use Intensity Metrics 14 20 Energy Consumption per Capita million Btu/Person 21 Energy Intensity million Btu/$1,000 GDP (2010$) 22 Petroleum Intensity million Btu/real $1000 GDP (2010$) Electric Power Sector Metrics 23 Electricity Capacity Diversity HHI Index 24 Non-CO2 share in Electricity Percentage of Electricity Capacity 25 | P a g e Transportation Sector Metrics 25 Transportation Energy per capita vehicle miles traveled 26 Transportation Intensity vehicle miles traveled/$1,000 GDP (2010$) Environmental Metrics 27 Energy-Related CO2 Emissions million metric tons CO2 28 Energy-Related CO2 Emissions per Capita Energy-Related CO2 Emissions Intensity metric tons CO2/Person metric tons CO2/$1,000 GDP 29 Appendix-B List of the countries: 10 11 12 13 14 15 Algeria Argentina Australia Austria Azerbaijan Bahrain Bangladesh Belarus Belgium Brazil Bulgaria Canada Chile China Columbia 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Croatia Czech Denmark Ecuador Egypt Finland France Germany Greece Hungary India Indonesia Iran Iraq Ireland 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 Israel Italy Japan Kazakhstan Kuwait Libya Malaysia Mexico Morocco Netherland New Zealand Nigeria Norway Oman Pakistan 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 Paraguay Peru Philippines Poland Portugal Qatar Romania Russia Saudi Serbia Singapore Slovakia South Africa South Korea Spain 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 Sweden Switzerland Syria T&T Taiwan Thailand Turkmenistan Turkey UAE UK Ukraine USA Uzbekistan Venezuela Vietnam 26 | P a g e Table: Definition of the Energy Security Risk components Global Fuels Measure the reliability and diversity of global reserves and supplies of oil, natural gas, and coal Higher reliability and diversity mean a lower risk to energy security Fuel Imports Measure the exposure of the national economies to unreliable and concentrated supplies of oil and natural gas, and coal Higher supply reliability and diversity and lower import levels mean a lower risk to energy security Energy Expenditures Measure the magnitude of energy costs to national economies and the exposure of consumers to price shocks Lower costs and exposure mean a lower risk to energy security Price & Market Volatility Measure the susceptibility of national economies to large swings in energy prices Lower volatility means a lower risk to energy security Energy Use Intensity Measure energy use in relation to population and economic output Lower use of energy by industry to produce goods and services means a lower risk to energy security Electric Power Sector Measure indirectly the reliability of electricity generating capacity Higher diversity means a lower risk to energy security Transportation Sector Measure efficiency of energy use in the transport sector per unit of GDP and population Greater efficiency means a lower risk to energy security Environmental Measure the exposure of national economies to national and international greenhouse gas emission reduction mandates Lower emissions of carbon dioxide from energy mean a lower risk to energy security 27 | P a g e ... insight and understanding on energy security and relevant probabilistic risks with degree of impact is so important In fact, comprehensive analyzing and quantifying of the dimensions of energy security. .. of the energy security risk related issues • To determine the nexus between the energy security risk components and different policy outlooks such as economic growth, energy endowment and governance... security from the national, regional and global perspective would be so crucial in tackling such challenges Energy Security versus Energy Security Risks Energy security is rather a complex issue