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'The Return of the Energy Weapon' · Columbia Energy Exchange

• 0:00
  Meghan O'Sullivan: The United States is a big producer of oil and gas, and certainly some people in the administration and elsewhere have aspirations to produce even more. But that is not going to insulate us from the volatility of global markets that is likely to come with greater energy weaponization.
• 0:01
  Jason Bordoff: You heard many in the clean energy community or the environmental community say, look, if we just move to electrification and clean energy, everything would be fine, and we wouldn't have to worry about energy security risks. And there is some truth to that, but with a very, very large asterisk, which is how do we think about supply chain risk, which is different from molecule and electron risk of dependence on China? So we do need to have a more nuanced conversation about this than just make everything at home.
• 0:02
  Bill Loveless: Energy has long been used as a weapon. The United Kingdom blocked oil exports to Germany during World War I. Hitler's fall was due in part to losing access to oil fields in the Caucasus. And the most recent example, the 1973 Arab oil embargo, which shocked the global economy. During the following fifty years, the energy weapon largely receded from the geopolitical stage, and in many countries, energy security started to feel like a given. But things have started to change. In the 2020s, Russia's weaponization of natural gas against Europe, China's restrictions on critical minerals, growing trade tensions globally—they've all brought back energy to the center of great power competition. So is this a new age of energy weaponization? What would that mean for global energy security? What new vulnerabilities are emerging as the clean energy transition accelerates and electricity demand surges? And how can countries protect themselves in this new age of fragmentation and rivalry?
• 0:03
  This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I'm Bill Loveless. Today on the show I'm interviewing our own Columbia Energy Exchange cohost Jason Bordoff, along with Meghan O'Sullivan. Jason is the founding director of the Center on Global Energy Policy at Columbia University School of International and Public Affairs, where he is a professor of professional practice. He is also on the faculty of the Columbia Climate School, where he is cofounding dean emeritus. He previously served as a special assistant to President Barack Obama and senior director for energy and climate change on the staff of the National Security Council. Meghan is the Jeane Kirkpatrick Professor of the Practice of International Affairs, director of the Geopolitics of Energy Project, and director of the Belfer Center for Science and International Affairs at Harvard University's Kennedy School. She has served in multiple senior policymaking roles and has advised national security officials in both Republican and Democratic administrations.
• 0:04
  Jason and Meghan joined me to talk about the return of the energy weapon, a Foreign Affairs essay coming out today that they coauthored. We discussed how after a fifty-year period of relative stability, the use of energy as a coercive tool of statecraft is making a comeback. This resurgence, they tell us, is driven by two primary forces: a new era of great power competition and economic fragmentation and fundamental shifts within the energy sector itself, including both fossil fuels and the clean energy transition. Jason and Meghan argue that this creates new complex vulnerabilities that require a fundamental rethinking of energy security. Here's our conversation. Meghan O'Sullivan, welcome back to Columbia Energy Exchange. And Jason, it's always a pleasure to relieve you of your hosting obligations on this show and let you delve into the complex and timely energy issues that we're facing today.
• 0:05
  Jason Bordoff: It's much more intimidating to be on this side of the table, but great to be with you, Bill, and see my colleague and friend, Meghan.
• 0:06
  Meghan O'Sullivan: It's great to be with you, Bill and Jason. I am an avid consumer of your podcast, so it's fun to be on it as well.
• 0:07
  Bill Loveless: Well, your essay opens with a powerful declaration: the energy weapon is back. For decades, we've been living in an era of relatively stable energy markets, but things have changed and we aren't prepared for the shock. So Meghan, could you briefly walk us through this era of complacency that you and Jason describe? What key factors from the 1970s until recently put the energy weapon on the shelf?
• 0:08
  Meghan O'Sullivan: Great. It's a perfect starting point for this conversation. So if we go back quite a distance and we look at the twentieth century as a whole, which I won't do in any detail, but at that time, energy, and particularly the energy weapon—the use of energy as a foreign policy tool—it was just an essential component of national security and military strategy. Energy was used as a means to achieve goals, and energy was also an end, an objective, for countries that didn't have sufficient supplies of their own. But as you mentioned, we actually see this use of energy as a tool of foreign policy not disappear, but diminish in the last fifty years. And really Jason and I look at 1973 and the Arab members of OPEC's embargo as kind of the high watermark of energy weaponization. And from that point onward, you really see a decline in the use, particularly of producers using energy as a foreign policy tool.
• 0:09
  And there's a whole range of reasons for this that we go into. I mean, one, there's the reality that this tool did not work so well for those countries that orchestrated the 1973 embargo. They were not able to achieve their political goal, which was to end Western support for Israel at the time of the third Israel-Arab war. But there were also a whole range of other factors that essentially 1973 and the use of the energy weapon at that time ushered in a very difficult period for the global economy that was true not just for advanced economies that had stagflation—slow growth, high inflation—for quite some period of time, but a crippling debt crisis because of energy prices in the developing world. All of these things actually did not work in favor of energy, or rather oil exporters, who saw this lull in economic growth and this move away from consumption of oil as not being in their interest.
• 0:10
  But what we really highlight in the article is the fact that we see a number of things happen after 1973, which I'll put in a couple of baskets quickly. First is that consumers stop being victims and they start saying, we have power as well as consumers of energy and of oil in particular. And they start to work together and to devise new methods and mechanisms of cooperation. We also see that that launches a period of increasing integration of global energy markets. And this, of course, is helpful for countries that try to manage disruptions, because the more energy markets are integrated, the easier it is to direct supplies when supplies are disrupted. And then there are a number of geopolitical things that further integrate global energy markets. We have the collapse of the Soviet Union, the end of the Cold War, and you see what had been a bifurcated energy globe kind of be further integrated.
• 0:11
  You get Western investment into Russia's energy sector; you get increased export. So again, a real boost to the integration of a global oil market. And then of course in 2001, you get China's accession to the WTO, and in that period—or that launches a period—in which China's demand for oil quadruples over a relatively short period of time, leading China to depend heavily on global markets to meet their needs. So all of this comes together: you have growing integration of energy markets, and then you get this new wave of energy abundance in which you have the shale revolution sparked off in the United States, and then the addition of new forms of energy—renewables and other alternative forms of energy. All of this comes together over the course of these decades to allow many policymakers and countries across the world to feel quite confident that they can meet their energy security needs by relying on the market, that they don't have to invest in a lot of state intervention and a lot of political side deals in order to ensure they can get the energy they need.
• 0:12
  Instead, they rely on the market, and that creates complacency. It sounds so negative, and we do refer to it as complacency, but it just goes off the radar. There are spikes and minicrises, but they're handled quite rapidly. If you think about the 2003 Iraq War, the Libya war, even the Ukrainian disruption in 2006 and 2009 of natural gas, these crises are sharp, but they're handled quite quickly due to the integration of global markets. And our thesis here is that when we look at the trends—not talking about what's happening at this moment today, but looking at a few years, we see that there are a lot of the conditions that are conducive to the return of the energy weapon. And our intention is to highlight that to policymakers, businesspeople, and others alike.
• 0:13
  Bill Loveless: It's an interesting thought and one that I think really has been overlooked by policymakers and others who look closely at these issues. Jason, you argue that renewed great power competition and economic fragmentation are key drivers, right? Can you elaborate on how the shift away from globalization has made energy a more attractive tool for coercion?
• 0:14
  Jason Bordoff: Yeah, it's hard to follow that comprehensive overview from Meghan. People can see how wonderful it is to collaborate with her.
• 0:15
  Bill Loveless: Sure.
• 0:16
  Jason Bordoff: And how she has captured all of that so well. As you said, it's overlooked in one sense, but in the other sense, I think there's a broad recognition now that we're in a moment of reset. Words like pragmatism and realism are the order of the day, and conversations about energy policy and energy security and affordability and reliability are much higher on the agenda. And Meghan and I wrote together in the New York Times, I think four years ago, that if security of supply, affordability, or reliability, in reality or perception, suffer in the course of pursuing a faster energy transition, support for climate action is the first thing that will evaporate. And I do think that explains a little bit about this moment that we're in. Over the last decade or so, the conversation about energy policy, particularly in advanced economies but globally, has focused very heavily—sometimes exclusively—on the threat of climate change.
• 0:17
  There is a good reason for that. The threat of climate change is severe and a very significant problem to address, so it needs more, not less, attention. But I think that focus was enabled a bit by the fact that, as Meghan said, people became a bit complacent with traditional energy security risks—took energy security for granted. And the history of energy policy is about energy security: World War I, World War II, the Suez Canal crisis, the Arab oil embargo. To the extent government intervenes in the energy sector and there's a role for government policy, it historically has been about securing supplies that nations need, particularly in times of conflict or, as we write about in the article, using energy sometimes as a coercive tool of statecraft—that the control of energy supplies has been a source of economic and at times military strength. And that kind of came to a head in a very prominent way with the energy crises of the 1970s.
• 0:18
  And as Meghan said, a response to that was increasingly a sense that security came from more economic integration and more interconnection in energy markets. The idea of an embargo is harder to imagine when you don't have oil sold in long-term contracts between country A and country B, but you have a very, very—it's the most globally traded commodity out there. And so if a country were to withhold exports or impose an embargo, even when we saw, say, Europe refuse to buy oil from Russia, flows shifted around and the flows went somewhere else. Instead, when Russia cut off gas to Europe, Europe was in a better position because the global gas market was a bit more—not quite as integrated as oil, but more flexible thanks to the rise of LNG—and Europe was able to pull in supplies and cargoes from elsewhere. So security came from interconnection, but that coincided with this multidecade period of global economic integration, globalization, a belief in free markets, free trade.
• 0:19
  When I started working in policy as a sort of young kid for people like Bob Rubin and Larry Summers in the Clinton administration, there was a moment where we were in a period of bringing China into the fold, into the WTO, as we write about in the article. All of that is being thrown into reverse today. The era of closer cooperation between great powers, unfettered trade, faith in markets is sort of coming to an end as countries increasingly look at escalating geopolitical threats, great power rivalry, higher energy bills, and more competition globally. And so that is leading countries to take steps in response—often a stronger role for the state in energy markets. And you see support for that on both sides of the aisle. This rise in state capitalism and industrial policy as a response to that. So I think there's more hesitancy to rely on that faith in interconnection and integration in this new era of rivalry, economic fragmentation, geopolitical competition that we are in.
• 0:20
  Bill Loveless: Let's talk about the resources that people traditionally think of when they hear "energy weapon": oil and gas. You suggest that even here, new vulnerabilities are emerging. Meghan, your essay points to a potential tightening of the oil market and a renewed concentration of supply, with OPEC's market share rising and US shale production declining. What specific risks does this concentration create that echo the vulnerabilities seen during the 1973 oil embargo?
• 0:21
  Meghan O'Sullivan: Great. Thanks for setting that up, Bill, and thank you for that great exposition there, Jason, on the changing fragmentation and how it affects what we're talking about on the question of weaponization. What we argue is that when we look at key drivers of weaponization back in the eras when it was more popular, there are two things that really stand out. The first condition is the tightening of energy markets, and the second condition is really the concentration of supply. And so that was quite clear, again, looking at the peak weaponization run-up to the 1973 embargo. You had OPEC that was responsible for more than 50 percent of global oil supply at the time. Then you had this period that we're talking about where that concentration really goes down. OPEC in 1985, just a little bit more than a decade after the embargo, was only responsible for 27 percent.
• 0:22
  So almost a halving of the global market. And now what we're looking at—again, these are projections, but we're looking at the potential that that dominance will go back up again. The IEA says that it could go back up to about 40 percent by 2050. And so the tightening of the market and the concentration of supplies back in the Middle East is something that could be a precursor to weaponization. It doesn't mean it necessarily will be, but it certainly could be. And so we see that for oil. And you could ask, like, well, what's leading to the tightening of markets? If you've been reading the headlines of recent days, you see that actually the price of oil has gone down and that this is a period where we've had a lot of volatility in the Middle East, but the price of oil has been very low.
• 0:23
  And what we're doing is looking out not just in this particular moment but looking at a few years, toward the end of the decade and beyond. And there are a number of things that could all come into play that would make oil markets much tighter. And to just put a name on a few of those trends, one is: What is going to be the fate of the US shale revolution? This has been such an important factor in fueling the energy abundance, not only in the United States but globally. It's still a strong factor in American oil and gas production, making America the largest producer of oil and gas today and having America at peak production. But there are a variety of signs and a number of executives working in this space who see that this could be not declining, but somewhat plateauing. So not seeing that kind of growth that has been seen over the last decade or longer in American supply.
• 0:24
  There's also the question about demand. I think the expectation has been for some time that demand globally was going to peak. We've had a lot of talk about peak demand, and there are a lot of different views about when it might peak, but it seems that all of those views are shifting to a later timeframe. The sense is that we still see a lot of demand, new demand coming onto markets, and that's in the oil space. And so you're going to see robust demand for longer and potentially slower supply growth. And when you put those things together, they generally can result in tighter markets, which again is one of the conditions for weaponization. The concentration of supply sort of addressed that a little bit, but that would be another factor. So that's all related to oil markets and kind of traditional energy markets. But as we'll get into, and I won't go into in great depth right now, is that we see that the conditions for clean energy market supply chains already have those two characterizations: that tight markets and that concentration of supplies. So when we think about those critical minerals and rare earths that are needed for new energies—that, as again we'll talk about, I'm sure in a few minutes—there's an expectation of very high demand growth, relatively slower supply growth, and a very, very sharp concentration of supply.
• 0:25
  Bill Loveless: And I do want to get into these aspects of the challenges and opportunities regarding cleaner energy options. But I also want to look, Jason, at more recent developments that you both write about in the essay. Russia's decision to slash natural gas supplies to Europe in 2022—it's a central example in your essay. What did this event reveal about the lingering power of the traditional energy weapon, and what were the most critical lessons for European and global energy security?
• 0:26
  Jason Bordoff: Well, of course, it's a critical example and case study to look at. It was the worst energy crisis probably since the 1970s. And it was something that for many years—and Meghan and I participated year after year in conversations about Europe's dependence on Russian gas, the Nord Stream 2 pipeline, at conferences like the Munich Security Conference. And I think most Europeans were quite complacent and skeptical that Russia would ever weaponize its dominant position. I mean, you often heard that all through the Cold War, Russia largely acted like a commercial player when it came to sending energy supplies to Europe. So I think this was something that caught many people—not everyone, but caught many people—by surprise. The lessons from it I think are interesting because it's a little counterintuitive. We just talked a moment ago about how in a world of more competition, fragmentation, rivalry, risk of conflict, policymakers will seek to be less connected and integrated into global markets.
• 0:27
  Part of what helped Europe was the fact that it was more interconnected into a more flexible and integrated global gas market, which back when I worked in the Obama White House and the question of whether to allow the export of natural gas first presented itself, there were important environmental considerations, economic considerations, but the geopolitical considerations were very much: Could a significant increase in US LNG indexed to a hub price without restrictions on where the gas could be sold help to facilitate a more globally connected, more flexible, deeper, more liquid gas market that would provide allies with security? And that was one of the arguments we made at the time in those discussions, and I think that played out quite well for Europe. I think when you look forward, as Meghan said, you're looking at the potential, broadly speaking, for tighter markets. Markets of course go up and down.
• 0:28
  There are boom-bust cycles. But we talked a moment ago about how, at least in oil, the broad narrative and perception may be shifting now from one of peak demand to one of peak shale supply. And the question is, where's the next Guyana going to come from if you're going to meet that rising demand? And does that set you up for tighter market conditions? And then we talked about concentration of supply, and the IEA and others have written about how you're going to see more concentration of LNG supply going through key choke points like the Strait of Hormuz. You're going to have more going out of the Gulf of Mexico. So players like Australia, the US, Qatar are becoming more dominant in the global gas market. And we write in the article both descriptively and prescriptively—and I guess part of it is, as a descriptive matter, in a world of worsening geopolitical conflict and risk, I think it's fair to assume that even though I do believe integrated global markets in oil and to some extent in gas still provide a lot of benefit and security, you're going to see countries, particularly import-dependent ones, try to reduce trade in energy—on nearly all of which is fossil fuels—and exposure to volatile global markets.
• 0:29
  That seems like a direction we already see policymakers going in, particularly as you see more and more signals that the threat of dominant positions in energy markets could increasingly be used as offensive weapons. Obviously Russia did that with its gas position in Europe. We saw China do that with rare earths, and I'm sure we'll come to clean energy technologies in a moment. But if you're sitting in Europe right now and you're looking at an administration that has threatened tariffs unless you buy more US LNG and sought other coercive tools to extract concessions from other players—like tariffs against India unless they buy less Russian oil—it's not crazy to be concerned about growing dependence on even US LNG and the idea that maybe because of climate change on the left or for other reasons on the right, people could threaten to restrict those exports for political ends. If you're renegotiating the US–North America–Mexico-Canada trade agreement right now and Mexico's dependent on pipeline gas exports from the US, it wouldn't be a crazy concern for Mexican officials to be worried that those exports could be used as a coercive tool to extract some concessions. And I think that's just a broad shift that we're seeing across the board around the world now, where countries are increasingly worried about import dependence and interconnection.
• 0:30
  Bill Loveless: Let's turn to the clean energy transition. This feels like the core of your argument: that the clean energy transition, which many see as a path away from energy geopolitics, is actually creating a new battlefield. It's a critical and perhaps counterintuitive point. In recent weeks we've seen tensions flare up with China increasing export controls on some critical minerals and the US threatening retaliatory tariffs. Meghan, how does the threat of a dominant supplier of minerals and technology differ from the threat of a dominant supplier of a fuel like natural gas?
• 0:31
  Meghan O'Sullivan: Several years ago, Jason and I wrote about how the energy transition brings new geopolitical opportunities, but it also brings new geopolitical vulnerabilities. And we highlighted the supply chain risk and particularly the concentration of some of these critical mineral supply chains in China in particular, because China is the top producer of nineteen of the twenty critical minerals assessed by the IEA. But we highlighted that as one of many things to be concerned about, and now it has really risen to the top of policymakers' set of concerns. And so the idea—and what is now a reality—was based on China's dominance of these critical mineral supply chains and the fear that they would be weaponized or used for political purposes. And so a couple of points that maybe many of your listeners are familiar with, so I'll make them quick, but this is something that didn't appear overnight, that China has been working to create a real strength and a real dominance of these supply chains for quite some time, that this is a product of concerted investment, a willingness to endure some of the unpleasant byproducts of being not just a mining place—which it does less frequently—but a processor of critical minerals, which brings with it a lot of environmental hazards, and a willingness to supply the world with these critical minerals and rare earths at a very low price.
• 0:32
  So over time, this allowed China to really become dominant because, again, we were in this very different geopolitical moment for the last at least thirty years where the world was quite content to let China be the producer of these inputs and supply them quite cheaply to the rest of the world. Now of course, being in a very different geopolitical moment that we're in now, it's of great concern that China has such dominance. And up until recently when we would ask the question, will China use this dominance for political purposes or geopolitical moments? There was always a debate about it, even though we could point back to 2010 and the dispute between China and Japan around islands in the East China Sea, and that China did in fact curtail the export of rare earths in that case. And we could say China has shown a propensity to do this in the past.
• 0:33
  They're likely to do it again in the future, but it wasn't enough to spark the imagination of policymakers to take very tough action. So it's only really in 2024, and again in 2025, when the trade war between the United States and China has heated up and has gotten to a very inflamed point that we do see China putting in new licensing regimes not only for the export of these critical minerals or rare earths and heavy magnets to the United States but also to the rest of the world. So I would say that we've gotten to kind of peak concern about this, or what I hope is peak concern. But then to get at the heart of your answer, is this the same thing as being dependent on oil and oil flowing from the Middle East, say, in 1973? And Jason and I really try to tackle this in the article because we think this is something that has not been given enough attention, that often you'll hear policymakers say, well, why should we switch to clean energy?
• 0:34
  Because we're just swapping one dependency on a foreign supply chain—oil—for another dependency—critical minerals. And while we can understand the sentiment behind that, it's not accurate to look at these two things as being exactly equal. They're very different kinds of vulnerabilities. The first, on oil, is—or was, now that America is a net exporter—was a vulnerability that had acute impacts on the American economy in very short timeframes. So sudden termination of oil exports from a certain part of the world had the ability to throw the American economy into disarray. We see that in the seventies. Some of that has to do with a poor American response, but that's because oil was a direct input into sectors across the economy. When we look at critical minerals, we're talking about a different kind of vulnerability. It's still acute. We saw how shortages of these heavy magnets and rare earths created problems for, say, the Ford Motor Company just this past year.
• 0:35
  But it's different. It's an input into a larger process. And these markets are much smaller than the global oil market. We're talking quite small quantities of these inputs. So it's a real vulnerability, but it's likely to slow down—a slowdown—the development or the manufacture of certain products rather than create a big dampening of the economy as a whole. One point we also make in our article is that if these critical minerals are withheld from America or other places, it creates a real problem in the short term. But because it doesn't require necessarily these supply chains to be addressed by generating their own critical minerals in response, it is easier to address supply chain challenges.
• 0:36
  Bill Loveless: Jason, the essay specifically mentions these China restrictions on graphite and rare earths in late 2024 and early 2025. Has the US response been effective?
• 0:37
  Jason Bordoff: No, just because it's almost impossible to imagine an effective response. And I think that's important to keep in mind when people talk about things we need to do. And now I think there's a growing recognition of the risks, although as Meghan said, they are different. The risks of such significant dependence—and we should remember whether you're talking about solar panels, critical minerals, batteries, EVs, you're talking 70, 80, 90 percent dominant positions in the global market compared to 10 or 20 percent for, say, oil. So there is much more concentration there. And this has been a multidecade strategy of intense state intervention in the economy, relentless competition among Chinese firms, quite a bit of innovation—not just intellectual property theft or human rights abuses, although that has been true as well. And the scale, the magnitude of the dominant position, the efficiency of Chinese manufacturing is very, very, very difficult to catch up with.
• 0:38
  And I think it's important for people to sort of be clear-eyed about that. So you start to see steps, whether it was in the Biden administration to invest in semiconductor capacity in the US—the Trump administration has talked about the Development Finance Corporation playing a more active role, working with the private sector to de-risk investment in critical mineral supplies in places like Africa and Latin America. We will see how that plays out, but we probably need things like that. I think the point about Chinese dominance that we tried to really address in the article in a hopefully nuanced and thoughtful way—because we think these are really important and they're hard—I think the current conversation hasn't fully grappled with the tensions that really exist. So we talk in the article about how in a world of competition, fragmentation, rivalry, countries will probably, particularly if you're an import-dependent region like Europe, you will seek to hopefully use less in the first place, like efficiency.
• 0:39
  That's sort of always been one of the best things you can do, but also produce more energy at home. And for many places that's going to mean more electricity. A growing share of the energy mix will be electricity. That's happening already in all the IEA scenarios, not just the low-carbon ones. And then you want to produce more of that electricity from domestic sources: solar, wind, nuclear, geothermal. For some parts of the world that will be coal. And I think we should grapple with that too from how you think about climate change. But this was a theme you heard consistently after Russia invaded Ukraine, cut off gas supplies to Europe. You heard the IEA; you heard many in the clean energy community or the environmental community say, look, if we just move to electrification and clean energy, everything would be fine and we wouldn't have to worry about energy security risks.
• 0:40
  And there is some truth to that, but with a very, very large asterisk, which is how do we think about supply chain risk, which is different from molecule and electron risk—of dependence on China for the products and the technologies that you use to produce energy, electricity, or store it? And as we try to go into that in the article, because there are real risks, but as Meghan said, they're different. We need a nuanced discussion about what they are. We need to recognize that the risks are probably different for different parts of the energy sector. The risks of heavy rare earths with sensitive applications from magnets used in military equipment is probably different than for solar panels. And again, like electrons and molecules are sort of different than supply chains. And then we need to think about how to address those risks. One is to, as it always has been, including in oil, diversify supplies, produce more at home, maybe produce more in countries you are less concerned about, but that will not be sufficient because it will take so long to try to replicate the dominant position China has.
• 0:41
  So there are other policy tools to de-risk dependence: strategic stockpiles, for example. And I think it's important to really take a broad look at all the things that policymakers should be doing right now to de-risk dependence on China. One of those is going to be, as we talked about, significant state intervention in the private enterprise, more of a government role to encourage manufacturing either domestically or in allied countries. All of that requires an enormous amount of capital, huge infrastructure investments, in a time of a higher cost of capital, a time when advanced economies are in debt crises they haven't seen since World War II. Europe is trying to increase defense spending. So where is the money going to come to do this? And then as we just saw in the new BP outlook that came out, the idea that you want to manufacture everything at home is really expensive and it does become inflationary for clean energy and risks slowing down the transition. So we do need to have a more nuanced conversation about this than just make everything at home.
• 0:42
  Bill Loveless: You touched on electrification, and you note in the essay the vulnerability of power grids to cyberattacks. How does our increasing reliance on electricity for everything from transport to AI create new targets, Meghan?
• 0:43
  Meghan O'Sullivan: Sure. Let me answer that. I just want to quickly say that I think Jason took you through the argument very accurately in saying, well, if you've got concerns about energy security, what's a way to address them? And of course, policymakers want to insulate their citizens from the volatility of energy markets that come from energy weaponization, so they should import less. And that leads us to the electricity argument that we're getting to. I would say in some countries—in the United States is one of these countries—some will say, well, why don't we just produce more oil and gas? And to some extent, that does make a certain amount of sense, but we also want to highlight to people that, like everything in the article or everything that's addressed in the article, there are real caveats here. So the United States is a big producer of oil and gas, and certainly some people in the administration and elsewhere have aspirations to produce even more, but that is not going to insulate us from the volatility of global markets that is likely to come with greater energy weaponization. And that is because America is deeply integrated into the markets we're talking about. And when there are disruptions or fluctuations either in the global market or even in a regional market—if we do kind of become more and more fragmented at the global level—we're still going to be subject to the volatility that comes from that. So I think it's an important thing to note just as we look at the potential of prescriptions that could come when we think about reducing exposure to volatile energy markets that will result from more weaponization.
• 0:44
  Jason Bordoff: And just if I could, just to add to what Meghan said, I think it's just an important point for people to internalize and think about. For all of the intense focus and concern about Trump's pulling back environmental regulations and climate regulations, pulling back tax credits and subsidies for clean energy by rolling back significant parts of the Inflation Reduction Act, revoking permits for clean energy, it may well be the case that the greatest threat we face in the energy transition right now—to a faster energy transition—is how people come to perceive, understand, and deal with the risk of dependence on China for clean energy supply chains. And this is a risk on both sides of the aisle. It's not just on one side. It's almost impossible to imagine dramatically accelerating a clean energy transition without some significant part of the clean energy mix of products and technologies being those that have some point in the supply chain at which China plays a significant role. It's just an incredibly expensive and very long process to change that reality. And so we really need to come back to this point about how to think about those risks in a more nuanced way, how to think about the policy steps that would de-risk that dependence on China, because it is a major barrier right now to moving faster on the clean energy transition and trying to cope with it has the risk of making clean energy much more expensive.
• 0:45
  Meghan O'Sullivan: I would say, again, highlighting something that could really benefit from more scrutiny is just, how do we de-risk these supply chains? There's been a lot of talk now for years about friendshoring, but a lot less happening than needs to happen if the United States and other countries are going to diminish their dependence on China for clean energy supply chain products, because this is something we can definitely produce more at home. And some of the administration's policies I think are a helpful step in that direction. But realistically speaking, particularly given time constraints and given demand curves—especially, we haven't even mentioned AI, but when we're talking about AI and the need for critical minerals and the need for electrification—all of this is putting real time pressures on the United States for not just economic reasons but also national security considerations, that we're going to have to look more to our partners to help us meet these demands without relying continuously on China. And so that is really going to require aggressive engagement with a very wide number of partners and actors. And so we really want to emphasize that, which should be a big part of our foreign policy right now.
• 0:46
  Jason Bordoff: You asked a moment ago, Bill, about cybersecurity. So just to touch on the point, because we note in the article that a shift toward more electrification, reduced trade in energy—nearly all of which is fossil fuels today—brings energy, can bring energy security benefits; it can create new risks as well. And an energy system that is much more electrified presents some of those. The IEA has written about this: as you have a greater share of the energy system coming from electricity and more of that electricity coming from renewable and clean energy sources—that's a trend forecasted in every scenario, not just the net-zero or climate scenarios—the need for flexibility in the grid goes up dramatically. The grid is vulnerable to severe weather events, which are going to get worse with climate change; there are more exposure and more risks of potential cybersecurity attacks. So grid resilience is something that I think we need to double down the focus on.
• 0:47
  Bill Loveless: Well, Jason, let's talk more about solutions. So the threats are clear, both old and new. You lay out a path toward—or a path forward—that involves a more active role for the state and a rethinking of what energy security truly means. What would be your top recommendation?
• 0:48
  Jason Bordoff: There's a sense in which some of the top recommendations end up not being all of that innovative in the first place. And so Winston Churchill famously said, security and oil lies in variety and variety alone, and diversification is still a pretty good strategy to try to increase your resilience and security, whether it's in PPE that you need in a pandemic or energy supplies or anything else. And so thinking about how to diversify supplies globally in clean energy products as well as traditional energy, oil and gas, I think remains true. Reducing how much energy you use in the first place, the energy intensity of your economy, and increasing energy efficiency, which is sort of often the forgotten fuel, but it actually can do a lot. As Meghan said, the US is the largest oil and gas producer in the world and a net exporter. And so you might say, why would we want to shift to dependence on China for all of these products?
• 0:49
  We produce a lot of oil. It's still the case in a global market that President Trump was quite concerned this past summer, for example, about whether Iran would do something to disrupt oil supplies in the Strait of Hormuz, because oil's of course set—the prices set—in the global market. So the best thing we could do to protect ourselves is not just produce more oil but reduce how much we're using in the first place. All of those remain important. I think resilience comes in the form of—we can think, and they're more complicated for critical minerals, certainly, than they are for oil—but when we think about strategic stockpiles and reserves, and there were different ways to approach those, not just for a global market to try to affect the global price of copper, but for strategic uses, say, for the military. I think all of those are things that remain true today.
• 0:50
  But as we talked about, you're not going to really address these risks with market forces alone. That we're already seeing that, again, on both sides of the aisle, there is support for more government intervention. We wrote about this a few years ago in Foreign Affairs as well and sort of foresaw that we were moving to an era where, in the name of energy security, government was going to play a more active role in energy markets and in the private sector. And there are risks with that, to be sure. We would not want government to be trying to influence the decisions of private actors for political reasons. And the political swing of the pendulum is getting worse, not better, in this country. But the idea that government is going to need to de-risk investments—basically, the idea that you're going to—it's insurance. Energy security is a premium that society has to be willing to pay, and it can take different forms, but if you're willing to pay that premium to build more infrastructure at home, to invest in some redundant infrastructure on standby just in case you need it in an emergency, to diversify supply chains, it's probably—most of that is more expensive than what the market would otherwise do on its own.
• 0:51
  Otherwise it would have done that. And so you're going to need government to play a more active role through subsidies or maybe through mandates or government stockpiles, or we're even seeing government taking equity stakes in companies moving in that direction. And there's the potential for some of that to be beneficial. There are risks with it too. We need to be careful.
• 0:52
  Bill Loveless: Well, Meghan, speaking of equity stakes, I mean the Trump administration has taken ownership stakes in strategic sectors, including several critical mineral companies. I'm thinking MP Materials, Lithium Americas, Trilogy Metals. Is the rise of state capitalism in the US a good strategy to compete with China? What are the risks for attracting investment in private capital?
• 0:53
  Meghan O'Sullivan: I think our assessment has been that because we're in this era of greater fragmentation and because we have the time pressures that we've talked about, that markets in many of the cases that you just mentioned—markets themselves—would not be sufficient to lead us to the outcomes that are necessary in the timeframe that we need them. So some level of state intervention is required, and these equity stakes are one way. In which the conversation has changed dramatically in ten years. Ten years ago, can't even imagine a Republican or Democratic government making such policies. But now there's wide, kind of, apparently bipartisan support for this. And it's not just equity stakes; it's also things like guaranteeing a price floor, kind of a minimum price for production, which seems very extreme. But the reality is that the blocks or the interventions in the markets and the smallness of these markets and their lack of transparency in these markets have been huge impediments to investment.
• 0:54
  And as a result, trying to eliminate some of those impediments with government policy is going to be what's required to get over the hump. Now, as you suggest, Bill, there are real risks that come with this kind of approach, and it can be easily overdone, right? Something that is a strategic intervention to address a critical market failure can very quickly bleed into a protectionism that expands well beyond the specific case for which the intervention was originally crafted. And I think there's a real risk of that, and not just on the US side but globally speaking, that of course there's a cycle or a spiral—that you have one government do an intervention, other governments reply with their own interventions, and we start to see not just that markets are no longer integrated in the same way that they have been in the past, or that the impetus pushing for integration is no longer there, but we see more and more intervention and protectionism that in itself creates new vulnerabilities, because the markets are not going to be well positioned to, one, allocate capital well and, two, to respond to disruptions that we know will occur.
• 0:55
  We don't know exactly what they're going to look like, but we know they'll occur over the coming decades.
• 0:56
  Bill Loveless: The essay's most compelling conclusion is that the push for energy security could create common cause between a Trump-style energy dominance agenda and clean energy advocacy. And in the time we have remaining here, could you unpack that for us, Jason?
• 0:57
  Jason Bordoff: Yeah. I think that is something we both believe is true, that in an era of rising risks of energy weaponization where the need to respond to that—to put energy security higher on the agenda—plays a more dominant role in energy policy, that is going to lead many countries to take steps that insulate themselves from the volatility of a global market, produce more energy at home. And we don't want to be Pollyannaish about this. Again, we noted coal earlier in the conversation. If you're in South Asia like Indonesia, you get a lot of coal, and you might think of that as energy security. We shouldn't lose sight of that. But broadly speaking, many of the steps that countries would take to enhance their energy security can well take them in a direction of a more electrified and cleaner energy system with more electricity produced domestically.
• 0:58
  And we think that's important because we have both seen as people who have one foot in the energy and climate world and one in the foreign policy and national security world that national security is just a much more powerful driver of policy action than the risk of climate change. I wish that were not true, and I wish people viewed the threat of climate with more urgency and a sense of concern than they do today. But when national security issues are at risk, that's when policymakers really jump through hoops. And so this could give a powerful new piece of momentum, source of momentum, to the push for many parts of the clean energy transition. I come back to what I said before, which is the biggest concern, the biggest risk about that view of the world is how policymakers—and it's on both sides of the aisle in this country—come to understand the threat of dependence on China and supply chains and what actions they take to address them.
• 0:59
  Bill Loveless: Meghan, final word?
• 1:00
  Meghan O'Sullivan: No, I think that Jason summed it up quite well, and that we do see that there's an opportunity to bring together two groups that have often viewed themselves as having very divergent objectives, so national security hawks focused on energy security and advocates focused on clean energy, that there are good reasons that both of them could work together on many of the issues that Jason and I addressed in this article.
• 1:01
  Bill Loveless: Well, again, the piece in Foreign Affairs journal is "The Return of the Energy Weapon: An Old Tool Creating New Dangers." Meghan O'Sullivan and Jason, thanks for taking the time to discuss this important issue together with us today.
• 1:02
  Meghan O'Sullivan: Thank you, Bill.
• 1:03
  Jason Bordoff: Thanks so much, Bill.
• 1:04
  Bill Loveless: That's it for this week's episode of Columbia Energy Exchange. Thank you again, Jason and Meghan, and thank you for listening.
• 1:05
  The show is brought to you by the Center on Global Energy Policy at Columbia University School of International and Public Affairs. The show was hosted by Jason Bordoff and me, Bill Loveless. Mary Catherine O'Connor produced the show. Greg Vilfranc engineered the show. Additional support from Caroline Pitman and Kyu Lee. For more information about the show or the Center on Global Energy Policy, visit us online at energypolicy.columbia.edu or follow us on social media @ColumbiaUEnergy. If you like this episode, give us a rating on Spotify or Apple Podcasts. You can also share it with a friend or colleague to help us reach more listeners. Either way, we appreciate your support. Thanks again for listening. See you next week.