East and West in the Energy Squeeze

The notes which follow cannot claim to be more than a selection based on the rich material contained in the papers presented to the workshop, and elaborated in the free and friendly discussions.

As one of the “background” papers of the Workshop, this paper:

Generally the existence of a close connexion between economic growth and energy consumption is not disputed. In analysing and predicting the development of energy consumption, an attempt is therefore made to take this connexion into account (except for rough estimates using empirically determined or extrapolated growth rates for pro­duction and consumption). Appropriate forecasts and planning techniques have been developed and are regularly used for national calculations, as well as for economic groupings (regions) and the international economy as a whole. The techniques for analysis and prediction of the relationship between economic growth and energy con­sumption used internationally (and frequently applied in combination) fall into the following groups:

Energy relations between the countries of Western Europe are deeply influenced by the structures and the past of these countries, which must be re-examined in their inter­national context. It thus seems necessary, before describing these relations (Section 2), to summarize the political and economic situation of these countries: this will be covered in Section 1. These considerations will explain better why and how, after so many years of independent or even opposed behaviour, a European spirit, leading to concepts that go beyond the narrow limits of these states, is developing progressively, especially in the field of energy: this aspect will be developed in Section 3.

In the present paper, we are concerned only with the European CMEA (i.e. excluding Cuba, Mongolia, and Vietnam), and the term CMEA as used here means the European CMEA unless otherwise stated. The term “minor CMEA countries” as used here means the European CMEA other than the USSR. Yugoslavia, a country with permanent observer status in CMEA, is not included unless expressly stated.

Let me say at the outset that Europe’s energy situation cannot be divorced from the general energy and economic conditions in the rest of the world. Indeed, the role of Europe in the world energy supply and demand picture is a very important aspect of the work of the International Energy Agency.

The development of the CMEA countries’ fuel and power complex enables them to meet the bulk of their requirements in power resources and creates the necessary basis for rapid economic growth. The adverse effects of the uneven distribution of natural fuel resources among these countries are being overcome through international division of labour within the CMEA. Import of power resources, especially oil, from the develop­ing countries as yet plays a modest role in the CMEA countries’ power balance, but in the long term its importance can increase.

Given the menacing scarcity of primary energy resources, Western interest in the energy supply and demand position in Eastern Europe is growing. Two main questions arise and projections of CMEA primary energy production and consumption are intended to facilitate answers.

The United States and the Soviet Union are the two major producers of energy in the world that are also major consumers. In production they rank second and first; in consumption, first and second, respectively. To an extent the policies of the two nations have been parallel, in part divergent:

It is to be expected that if the general price level of energy rises, relative to other prices, this will tend to reduce energy consumption; and that if the price of one fuel rises rela­tive to other fuels this will tend to reduce demand for that fuel and its share in the energy market. It is of interest to investigate the extent to which the development of the relative prices of energy, and of the various types of fuel, has already influenced their consumption since 1973, the year of the massive price increase for crude oil which by then had become the most important source of energy.

In recent years there has been a growing concern for more efficient use of energy in view of its increasing world consumption and the realization that fossil fuel resources, particularly the premium fuels — oil and gas — are being depleted rapidly. This concern appears quite justified if one looks at the growth of world consumption of energy over the last one hundred years (Figure 1). With the exception of some crisis periods, the consumption of primary energy in the world has been increasing exponentially at an average growth rate of about 5 % per year. Most of the growth so far may be attributed to the increasing energy demand by the present developed regions in the process of their industrialization and relatively fast economic growth. In 1975 world consumption of primary energy was about 8 Tirawatts (TW or 10¹² Watts) of which the share of the developing regions (comprising about 70 % of the world population) was only about 16 %. Now as the developing regions undergo a process of industrialization they too will require a rapid increase in their energy consumption, much faster than the rate of their population growth, while the industrialized regions will also need more energy just to sustain their economic growth or even to avoid stagnation and depression. Will such a growth continue in the foreseeable future or can it be arrested through techno­logical developments and conservation measures at a level not much higher than the current level without serious repercussions on economic development and human welfare? To answer these questions one needs to understand the nature of energy demand, the potential of technological developments for improving the efficiency of energy use and the possible impact of conservation measures in different regions of the world.

At the present time, the U.S. Government is supporting extensive research, develop­ment and demonstration (RD & D) programmes in solar and geothermal energy. Major activities are also underway to encourage commercialization of those technologies that are approaching a competitive status in the market place. These programmes are being supported in the private sector as well as in government institutions and, in many cases, wholly funded private sector activities have been undertaken in addition to those jointly funded with the government. Research, development and demonstration of technologies that would produce or utilize hydrogen as a major energy source are underway at a realtively low level.

Let us assume — without accepting it as a fact — that the world’s oil and natural gas reserves will be very nearly exhausted in fifty years’ time, around the year 2025. What would be the energy situation in a country like the United Kingdom?

This paper is based on case studies of the energy policy of seven Western European market-economy countries (Great Britain, Austria, Switzerland, FRG, France, Nether­lands, Sweden) and five Eastern European CMEA countries (Poland, GDR, Czechoslo­vakia, Romania, Bulgaria).

The Council for Mutual Economic Assistance (CMEA) marks its 30th anniversary in 1979. Thus it seems appropriate to point to the successes achieved by this organization in cooperation on fuel and energy problems, problems which are of such great impor­tance for the countries’ economic development.

Three reasons led the Swiss Government to establish the Federal Energy Committee in 1974: the high dependence on imported oil, environmental concerns and the debate on nuclear energy.

In Sweden, as in most other countries, energy policy implied energy supply policy until the early 1970s. The 1973 - 74 energy price increases and oil supply disturbances brought about a substantial change in the conditions for energy policy.

For the Federal Republic of Germany the importance of East-West economic relations goes far beyond the 6 per cent share in its foreign trade. Like, for example, Austria, the Federal Republic regards this trade as a product of its historical ties with East European countries, justified and favoured by its geographical location between West and East Europe. In 1932 German-Soviet trade, for example, reached one third of the Soviet Union’s trade volume (1). Close relations also prevailed in the field of cooperation. In the second half of the 1920s, the Soviet Union concluded 40 per cent of its agreements on technical aid and 32 per cent of its licensing agreements with Germany (2). Trade relations between other East European countries and Germany were of similar orders of magnitude. World War I l and its aftermath led to the development in Europe of two integration areas with different economic systems and relatively minor economic interrelations. That affected, in particular, trade between Germany and the East Euro­pean countries. The development of economic relations in the 1960s, however, was instrumental in suppressing the antagonistic elements in East-West relations just as, in the reverse sense, the détente policy of the early 1970s favoured the dynamic develop­ment of economic relations. Today the Federal Republic of Germany is the most important Western trading partner of all CMEA member states. Likewise, for the Federal Republic, East-West relations are a vital economic and political factor, which it tries to incorporate into the network of its economic and political foreign relations.

Energy is the cornerstone of our technological civilization. In the field of energy, as indeed in many others, security depends on the ability to adapt. Few countries enjoy full economic stability today but the fact that some do, and that others hope to achieve it in the foreseeable future, is due in no small measure to a series of changes in energy technology. The switches from wood to coal and from coal to oil and natural gas, as well as the growth in use of electricity, provided the necessary conditions for revolu­tionary changes in industry, transport and communications. Strength and efficiency in these sectors are viewed as essential to economic stability.

Cooperation in the field of energy exchange with neighbouring countries, which has a long tradition for Austria, was reestablished soon after the Second World War. This co­operation is based on the very favourable geographical position of Austria between East and West, and especially, as regards electric energy, on the rich and abundant water power potential of her rivers and alpine regions. It is the main aim of this paper to illu­minate the possible future development of cooperation with the CMEA countries against the background of the structure of electricity production and demand, the past ex­perience of power exchanges, and their future development in Austria, as well as against the role of Austria as a member of the Central European interconnected grid.

Economic forecasting is always a chancy business. There are too many factors or va­riables. They interact, and they tend to be deflected by outside influences. In no field of economics have the practitioners of this black magic been held up for ridicule more than in the field of energy. The golden days are over when they could, or thought they could, make some reasonable-sounding assumptions about the likely rate of increase of the world economy (or country) and still further hypothecate that this measure of progress would be in a stable (or even better stable downward shifting) relationship with energy requirements. In fact oil demand grew by 7.0 % p.a. between 1965 - 1975 and has only slightly declined after an initial sharper drop. On the supply side reserves have dropped from 80 to 28 times yearly consumption. All these figures are very sensitive to changes in these assumptions. Oil has indubitably assumed the role of marginal supply of energy.

The present situation of the world energy economy and its long-term prospects indicate the need to look in a peaceful and objective way at the role which coal can play in meeting the growing needs for energy.

The problems of East-West trade — like any other complex world economic problems —can be approached in a number of ways. I mention the possibility of alternatives inorder to fix my own starting-point and endeavours in the context of other possibilities.

That the Soviet Union controls very large reserves of crude oil is generally known. That it has been the world’s largest producer of oil since 1974 is probably known by the experts but not by the general public in the West. With its production of 572 million tons in 1978 the USSR controlled about one-fifth of the total world supply.