Energy Security Index from Chamber of Commerce

By Editors

The Chamber of Commerce has developed an “Energy Security Index,” based on four factors: geopolitical factors, economic factors, environmental factors and the reliability of resources and the electric grid.

Geopolitical: The original Arab Oil Boycott and the Iranian Revolution of 1980 marked the high points of historical disruptions. The Fall of Communism in 1989-1991ushered in an era of relative stability but this was disrupted on a smaller scale by the attack of September 11th. Surprisingly, the chamber rates the oil price run-up of 2008 as the high point of instability over the last three decades, although there was no particular geopolitical event associated with it. The crisis dissipated quickly with the financial meltdown but now remains at a relatively high level.

Economic: The Chamber’s economic index is based almost exclusively on oil prices. The price run-up that came with the Iranian Revolution of 1979-1980 was for nearly three decades the highest oil prices had ever reached, while the 1990s were a period in which prices descended to pre-Arab-Oil-Embargo levels. But the run-up of 2007-2008 broke the previous record – although no one has ever figured out quite what caused it. The Chamber suggests that growing increasing demand from developing nations played a part.

Environmental: The fluctuations in environmental security have not been as severe. Concern hit a high point in 1974 when the Energy Crisis made people aware of just how much energy they were using and wasting. Improvements in energy intensity sent the indicator falling in the 1980s and those improvements have continued ever since. However growing awareness of the problem of carbon emissions sent it up again in the late 1990s. Improvements in energy use per dollar of GNP are expected to continue improving in the future.

Reliability:This indicator measures both the reliability of foreign oil sources and the reliability of the electric grid. Concerns rose around the two oil interruptions of 1973 and 1980 but since 2000 the standard is more dominated by concerns for infrastructure. Hurricane Katrina caused significant short-term damage to oil refining and the effort to close coal plants is now testing generating capacity.

In each case the Chamber tries to project outward to 2035, but it chooses a flat line that conforms to the average of the previous years. What this says, in a nutshell, is that you can’t predict the future.

For more on The Chamber of Commerce's Institute for 21st Century Energy, visit here.

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