The International Energy Agency (IEA) turns 50 this year. Doubtless there will be champagne-infused celebrations at its Paris headquarters. But on this side of the Atlantic, it’s past time for the United States, the biggest source of that agency’s funding, to rethink the IEA’s role. To be blunt: the U.S. should suspend payments to the IEA until it has been restructured in a fashion suitable for the times. There’s plenty of precedent for such an action, from both sides of the aisle.
Why is reform needed? Start with the fact that the creation of the IEA was triggered by an “energy shock” that caused a global recession. Over the first quarter of 1974, because of the Arab oil embargo, oil prices jumped 400%. Policymakers and businesses around the world scrambled to find reliable information about sources, supply chains, and options.
Once the dust settled, they knew that the challenges would continue—and they understood that assessing future risks and preparing for consequences starts with having accurate and credible information. The absence of such, and the collateral opportunities for coordination at the international level, was one of the key motivating factors for creating the IEA. Another incentive was the desire for some “mechanism” for coordinating the supply and demand for oil during any disruption—a mechanism that would not pan out as hoped, being rarely deployed and showing little evidence of effectiveness in the years since.
Today, the prospect of a mere 40% oil-price hike evokes panic in politicians and investors. Many believe that an “energy transition” will move us away from the risks of dependency on petroleum, or hydrocarbons in general, but that’s where the naiveté begins—and it epitomizes the IEA’s problem. The need for secure, reliable, and affordable energy—and the need for oil, too—is greater today than it was a half-century ago.
Energy markets and geopolitics are at least as vulnerable to high-consequence disruptions as they were 50 years ago. Of course, there’s a lot about today’s world that has changed since then. The Internet, smartphones, and personal computers, never mind AI, didn’t exist in 1974. But all these technologies, and more, have helped create a bigger world economy, one that consumes far more energy. And over 80% of the energy required to fabricate and operate everything, including the digital features of our economy, is still supplied by hydrocarbons. Oil, the progenitor of the first modern energy crisis, remains the touchstone fuel in geopolitics.
Over 95% of the movement of all people, goods and services is powered by oil. Economies collapse if the costs of transportation soar or, worse, if transportation ceases. Since 1974, the number of cars in the world is up 500%, total maritime tons shipped is up 350%, and air travel has risen nearly 2,000% (in passenger-miles). And the quantity of oil supplied from the Middle East is greater today. Of course, and consequentially, U.S. oil production is also greater (despite bygone projections that the U.S. had passed “peak oil”). The future growth for all these metrics will look a lot like their past growth.
And no, neither electric vehicles nor Tesla can change this equation. Simple arithmetic shows that even if batteries power half the world’s cars by 2034—an impossibly high goal—the resulting reduction in global oil use would barely exceed 10%.
Those are the realities. One is reminded of the aphorism created by the great science fiction writer, Philip K. Dick: “Reality is that which, when you stop believing in it, doesn’t go away.” Lots of realities about energy aren’t going away, no matter the aspirations nor the spending. And, speaking of realities, it would be the very definition of naiveté to discount the chance that events might play out in the future in a fashion similar to the past.
In the meantime, since its first meeting in Paris on November 18, 1974, the IEA has strayed from its initial mission and adopted a new raison d’être, one that conflicts with its earlier mandate as a credible, unbiased source of facts about the realities of the foundational industry that makes all else possible for civilization. What happened?
In 2015, the IEA recast its mission to adopt advocacy of an “energy transition” alongside “energy security.” And in 2022, the IEA doubled down on that shift, with its governing board voting to expand the mission into one “to guide countries as they build net-zero emission energy systems to comply with internationally agreed climate goals.” [emphasis added] While the IEA continues its analyses and reports on hydrocarbons, it is now internally and psychically conflicted because of its vocal public posture pushing policies to abandon hydrocarbons. As one recent report from the European Parliament put it, the “IEA has become an advocate of ambitious reductions in greenhouse gas (GHG) emissions to combat climate change.”
It should be obvious that ambitions to rapidly replace hydrocarbons can themselves create, rather than ameliorate, the risks of hydrocarbon disruptions. And those ambitions also create new risks for disruptions associated with energy alternatives.
Whatever one thinks about its goals, as an advocacy organization the IEA is not constitutionally capable of serving as a disinterested player because it is now animated by an outcome that it hopes for, rather than analyzing the realities that exist. It is not alone. The massive disconnect between hope and reality is epitomized by an unprecedented scale of spending on “energy transition.” Thus far, European nations have spent trillions of dollars in pursuit of the energy transition, with plans to spend at least another $3 trillion by 2030.
And now, unless a future Congress decides differently, the U.S. has joined in that pursuit, embarking on the biggest federal industrial policy spending program in history. By most estimates, the Inflation Reduction Act—after passage, its advocates happily called it what it is, “the green new deal”—will lead to a total of $2 trillion to $3 trillion spent on alternative energy over this decade. That scale rivals the (inflation-adjusted) cost of prosecuting World War II. But this time, instead of adding industrial capacity to build a one-time war-fighting infrastructure, the goal now is to try and permanently replace as much as possible of the nation’s entire existing energy infrastructure. We have crossed the Rubicon, going past mere ambitions to fostering the emergence of new classes of energy risks.
It bears noting that even if all that spending happens, hydrocarbons will remain the dominant energy source in the 2030s.
It also bears remembering the context for this gargantuan industrial effort. In rough terms, the aim is to force a nearly 2-gigaton-per-year reduction in American CO2 emissions by 2030. Over that period, emissions in Asia will increase by over 2 gigatons per year, and by more than that if those nations don’t do what they promise with their own alternative energy programs. These nations dominate the industries that produce the materials and hardware that the U.S. and Europe buy. Thus, the net effect will be, at best, essentially no change in global emissions—but a very significant exchange of capital.
As such huge sums are converted to hardware—and everything about energy is fundamentally about hardware—we’ll see a blizzard of new claims added to existing ones about capabilities, risks, sources of supply, environmental impacts, and especially energy security, reliability, and costs. When it comes to the realities of how energy machinery can be built and operated, the facts and consequences are what matters, not the aspirations.
For example, the reality is that ambitious spending and goals for more wind turbines, solar panels, and EVs will require vastly increased copper production. Copper is the most critical material in electricity domains; its physics make it close to irreplaceable. There is no evidence that the world’s mining industries are now planning on producing (let alone capable of producing) the quantities needed in the timeframes proposed. Add to this the need to understand where copper is mined and refined. Here, China is a dominant player, and Beijing holds an even stronger position with the suite of other critical materials needed to build the machinery essential to “transition” goals.
Thus, returning to where we started: policymakers and businesses are in critical need of advocacy-free and credible energy information. There’s a simple solution. Break the IEA into two parts: a policy-free International Energy Information Agency (IEIA), and a separately funded and governed International Energy Transition Agency (IETA).
The constitution for an IEIA would prohibit it from engaging in advocacy. To minimize rapid polarizations and political whipsawing, the IEIA could be governed by a structure similar to that used by the Securities and Exchange Commission—with a five-member oversight/management commission, each member serving a non-coincident five-year term. The advocacy group, the separate IETA, would be easier to organize and would be, appropriately, subject to the domestic policies of its member countries.
Given the inertia of any organization, especially an international one like the IEA, the only effective mechanism for forcing reform is to suspend payments. That’s what President Reagan did with UNESCO in 1984, to much media hullabaloo, because it had strayed from its founding, humanitarian mission. UNESCO eventually reformed, and the U.S. rejoined it in 2002. In 2011, President Obama froze UNESCO contributions, reacting to the organization’s granting Palestine full membership. President Trump withdrew membership again in 2017, and President Biden rejoined in the summer of 2023.
There is a long history of similar actions by various presidents seeking reforms of international agencies gone astray. In 1950, Harry Truman pulled the U.S. out of Interpol. In 1977, Jimmy Carter withdrew the U.S. from the International Labor Organization. In 1996, Bill Clinton withdrew the U.S. from the UN Industrial Development Organization.
Climate activists want to ensure that all businesses disclose risks from the possibilities of “extreme weather” in the future. Whatever the merits of their demands, it is arguably more important for businesses—and policymakers—to disclose risks from unplanned energy disruptions, both physical and economic. And having some realistic confidence about those possibilities requires credible and unbiased information.
There may no longer be any corner of our society where facts can supersede politics. But we should at least try to improve confidence in the facts about the energy infrastructures that underpin our civilization. We can start by reforming the IEA.