Some Guideposts on the Road to Formulating a Coherent Policy on EU Energy Security of Supply
The authors offer 10 unexciting rules that can help solve the dilemmas of energy security of supply by improving markets rather than making grand policy statements – unexciting, because they are based on economic arguments rather than identifying heroes and villains.
Energy security of supply is an extremely political matter. It involves considerations of international relations, geography, and infrastructure control. Despite these realities, economics has much to offer to improve policymaking in this realm. In fact, economists can say a great deal about markets and policy. Markets, for balancing, storage, reserves, and access to cross-border capacity, and investment, which is guided by market prices, both play a critical role in delivering security of supply, as does public policy (e.g., for energy efficiency, storage obligations, and the fuel mix). Moreover, security of supply can give rise to “free-riding,” a phenomenon familiar to economists. Over the past two years, we have analyzed this topic with other economists, especially in focusing on gas and nuclear power. What follows is a synthesis of our conclusions.