Wall Street Journal: Chamber Attempts to Put Number on Energy Security

May 24, 2010

The U.S. economy will face increasing risks in coming years from higher overall energy prices, bottlenecks in electricity transmission and higher oil costs, according to a new study.

The study, by the U.S. Chamber of Commerce's energy-policy group, is slated to roll out this week with the aim of producing a data-driven definition for the politically hot term "energy security," which has bedeviled energy-policy debate.

The chamber's Institute for 21st Century Energy's "Index of U.S. Energy Security" uses 37 types of data from government and industry sources and certain nongovernmental organizations to create a single chart that maps the rise and fall of energy risks to the economy.

Stephen Eule, who led development of the index, said the collapse in oil prices from record levels in 2008 dropped the current level of energy risk to 85.6 on a scale that sets 1980—a time of high energy anxiety—as 100. But, Mr. Eule added, "as the economy recovers we are showing that energy security gets worse and worse."

Among anxiety-triggering factors: Department of Energy forecasts that household energy costs will rise 3% a year through 2030; worry that electric transmission capacity won't keep pace with demand; and forecasts that crude-oil prices will rise sharply as China, India and other developing markets boost demand.

Policy changes that limit offshore oil drilling in the aftermath of the recent Gulf of Mexico oil spill could also increase risks, as could rising carbon-dioxide emissions, Mr. Eule said.

The index factors in a measure of the political freedom in oil- and gas-producing nations—the less freedom, based on rankings by the watchdog group Freedom House, the higher the risk that political instability could interrupt supplies. Diversifying the ways electricity is generated—for example, by expanding the use of nuclear, solar or wind power or natural gas—would push risks down, Mr. Eule said.

"Energy security" has become a shorthand term for the broad debate among policy makers, academics and independent energy experts about what steps the U.S. should take to reduce its vulnerability to oil-price shocks, geopolitical pressures on energy supplies, climate-change risks and disruptions to domestic electricity supplies.

Many environmental groups say the U.S. is putting its economic future at risk if it fails to reduce oil consumption and boost development of cleaner technology to displace coal in electricity generation. Where Mr. Eule's index scores policies to limit domestic oil drilling as a potential threat to energy security, some environmental groups point to the Gulf oil spill as a sign that offshore drilling carries big economic risks.