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The U.S. Chamber’s Energy Security Index: Where’s the Definition?

The U.S. Chamber of Commerce’s Institute for 21st Century Energy recently unveiled the “first-of-its-kind” Index of U.S. Energy Security Risk.  The U.S. Chamber in general does a lot of good work. I am a big fan of them than when they push for free-market capitalism instead of political capitalism, which is not always the case. But this report is disappointing to say the least. A thorough start-over should be considered.

The report, in its own words, provides “the first quantifiable measurement of energy security based on 37 individual metrics.” But herein resides a major problem. With so many inputs for  calculation, a definition of security is required.

But there is no such definition. We learn that the Index “addresses the need for an overarching framework with which to measure energy security in all its facets” (page 14). Shortly afterward we find that it “is designed to convey the notion of risk” (page 16). A “notion” is akin to what musicians say about “soul”: if you have to define it you can’t possibly understand it. But scholarship about energy security ain’t about soul.

Rotisserie Energy Security

The index is a weighted average of the 37 pieces of data, normalized to range from zero to 100. Even if you don’t know what’s in it you can learn a lot just by looking at the numbers.

The Chamber’s calculations start in 1970, when the index was 75.7. By 1980 it had reached its all-time high – 100.0. Algebraically, this seems to imply that things could never be worse than they were then. Things did get better for a while – by 1994 we were basking in peak security (72.6), only to lose it all four years later when the 2008 index hit 99.8. Did it feel like 1980 to you? By 2009 it had fallen to 83.7. This is 11 points above 1994 and 16 below 2008, i.e. a drop of 59 percent of its observed range in just a year.

The Chamber admonishes that “had this index been available in the past, the warning signs of impending threats to our energy security would have been unmistakable” (page 40). Maybe every year has been bad, since there’s never been a score between zero and 72.6. No wonder the Chamber’s members have trouble with Sarbanes-Oxley.

Now for what’s in the index. There are four major components that assemble the data into sub-indices: Geopolitical (30 percent of the total score), Economic (30 percent), Reliability (20 percent) and Environmental (20 percent). Where did the percentages come from?

They don’t say. But imagine how one could manipulate the index by changing the percentages. They didn’t bother showing, but it’s easy enough to calculate. And then the components, which range from energy prices to expenditures on energy to amounts burned to measures of efficiency to carbon emissions to average miles per gallon to science and engineering degrees.

And the figures are adjusted, again and again. World oil reserves and production (and many similar variables) are weighted by an index of democracy and civil liberties, with more in non-democratic hands meaning more of a threat. Judging from recent experience it’s hard to believe that democracies are more concerned than dictatorships about good credit ratings and reputations for keeping agreements.

And the interpretations. Fully 10.8 percent of the whole index is crude oil prices, with another 4.4 percent for volatility. The exact connections to risk are unclear – don’t high prices increase domestic exploration and production, and isn’t volatility hedgeable?

Other oil related figures total somewhere around half of the index, with much duplication among categories. The Chamber sees our energy security risks as including coal (almost all domestic) and natural gas (don’t you feel insecure about importing from a nation of hockey buffs?).

And what on earth do carbon emissions have to do with any sort of security? Non-petroleum transport fuels (which fuel a bit more than 2 percent of all vehicles) make up 2.5 percent of the entire index.

Time to Start Anew?

The report is the equivalent of rotisserie baseball. Pick some areas of interest almost at random, measure them in idiosyncratic ways, add up the apples and oranges, and declare that the total is something that matters.

The real question is why the Chamber bothered spending its members’ dues on this whole pointless exercise. It’s clear that the document is nothing but a roundabout way to say that the chamber favors what assorted politicos think of as “comprehensive energy policy,” with numbers that suggest increased domestic production, mandatory efficiency measures, more research, more renewable power, etc.

Global warming has become so 2008, and the public appears to have seen through it a lot sooner than the public-spirited folks. As for the other problems, markets have coped with them a lot longer and a lot better than your Congressman ever will.

The irony, or perhaps tragedy, of this document, is that if the policies it endorses ever come into being, the primary victims will be the Chamber’s members, particularly the smaller ones who carry little individual influence in Washington. If this is representative of the Chamber’s work, these businesses are fools to keep paying membership dues. If there is a real source of energy insecurity, it’s on the Potomac and not the Persian Gulf.

Links to “U.S. Energy Security Risk”

1 comment

1 Steve C. { 06.04.10 at 1:47 pm }

I’ll give them the benefit of the doubt and assume they had good intentions, and this is likely aimed to influence our overlords on the Potomac.
That said, it appears to buy into the same mythology that spawned “energy independence”. “Energy independence” is a close relative of other political tropes: “sugar independence”, “footwear independence”, “automobile independence” and “cheap knit cotton clothing independence”. That’s the problem with those dunderheaded Americans, you just can’t convince them that paying higher prices for domestic goods are better than lower prices from foreigners.

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