• Democratic Institutions and Politics
• International Relations, Science and Security
• Markets and Methods
• Management and Leadership
• Social Policy

William Hogan on Energy Policy

The threats posed by both international terrorism and global climate change are compounding the 21st century challenges of meeting the world's energy needs in a timely, efficient, environmentally responsible and sustainable manner. With energy demands rising - led by rapidly developing nations like China and India - the pressure is growing to find new and innovative energy sources for the decades ahead. William Hogan is Raymond Plank Professor of Global Energy Policy at the Kennedy School, Director of the Repsol YPF-Harvard Kennedy School Fellows Program in Energy Policy, and Research Director of the Harvard Electricity Policy Group.

Q: What are the greatest challenges now facing global energy markets?

Hogan: The description of the problems of terrorism and global climate change sets the stage for the largest challenges. I would focus first on the short-run issues related to oil from the Persian Gulf and other unstable regions. This is a serious problem for the world. But it is not new. It has been a serious problem for more than 30 years, for the United States and the other consuming countries.

It would be satisfying if there were some way that energy policy alone could make that problem go away. Unfortunately, there is not - there just is not the scope within the near term to effect a material change on the world's dependence on oil from the Persian Gulf. We will continue to confront that dependency. That does not mean there is nothing that we can do through energy policy; there are many steps that we can take to improve the situation at the margin. But energy policy alone will not fundamentally transform the structure of the problem.

In the long run, the difficulties associated with climate change present a different, possibly more important set of challenges, and there, the technological and long-term institutional challenges are enormous. We are just at the beginning of trying to deal with those problems and make progress to change the way governments work, the way companies work, and the way we fashion everything that touches the energy system.

Q: What are the most promising technological solutions currently on the horizon?

Hogan: There are many things that we have developed technologically over the last 30 years that are important and will be important in the future energy system. I cannot imagine what the technological solutions will be or which will turn out to be the most important. There will be surprises, and I am hoping we will have some favorable surprises.

Thirty years ago, if we were talking about sequestering carbon dioxide - removing it from the atmosphere and storing it in deep underground locations - it would have seemed like a fantasy, but now there is a serious conversation about how to do just that. Thirty years ago, the efficiency of the machines that we use to consume energy and generate electricity was half their efficiency today. A tremendous change took place in electricity generation, primarily because of research on jet engines, rather than because of people focusing on energy per se. Thirty years ago, the hybrid car was a glimmer in a technologist's eye, but now hybrid cars are on the street and in the marketplace. Wind technologies are better; and so on. The trick is finding more of these technology advances and making them more cost effective.

In the short run, one of the difficulties is dealing with the perception that conventional oil, natural gas, and coal are cheap relative to these other technologies. Trying to make some of the substitutes less expensive or getting people to internalize the total costs for oil, natural gas, and coal are challenging policy problems.

Q: How should policymakers think of market design when considering electricity market restructuring?

Hogan: This is an area which, in comparison to dealing with terrorism, the Persian Gulf, or the long term problems of global warming, is a much more micro and institutional question. But it is an important question, because of the policy of relying more on the forces of the market. In electricity systems, this policy requires new ways of thinking about how markets can and should work and about new roles for government and other institutions. There are now regional transmission organizations spanning large parts of the country, coordinating electricity markets. Establishing the rules for how they operate presents a critical set of policy problems that we are addressing now; this is part of the immediate focus of the Federal Energy Regulatory Commission (FERC) and of state regulators.

Q: How can and should government and business work together in confronting these complex energy challenges?

Hogan: The electricity example is a good case in point. It is a view that has developed over recent years that markets work well if you can get the incentives right in the marketplace. So, relying more on private businesses and private incentives is an important policy direction. But it is also clear that the rules of the game and the institutions that are going to exist in that marketplace have to be set by government. It's important for both sides of this discussion to recognize that the other side is necessary and important and, in executing these policies, not to try to go all the way to one extreme or the other. That presents tricky questions which are not easy to solve. But, in fact, what we have seen over time is a much more constructive view of this problem from both business and from government.

Q: What is your response to President Bush's call in the recent State of the Union Address to decrease our dependence on foreign oil? How can we go about that effectively?

Hogan: The good news about the State of the Union address was that the president showed that he is paying more serious attention to energy policy issues. The bad news was his framing of the problem as the nation's being 'addicted to oil.' We have a world oil market. It is not just the imports to the United States that matter. We can do many things to make some difference with regards to oil dependency through energy policy. But the fundamental problems in the Persian Gulf and other unstable regions will remain and cannot be solved through energy policy alone. It is very important that people understand this basic fact and not be misled into thinking that if we just spend enough money on new energy technologies, these problems would go away.