International Experience in Energy Governance. Neil Gunningham Regulatory Institutions Network and Fenner School of Environment and Society, ANU

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1 International Experience in Energy Governance Neil Gunningham Regulatory Institutions Network and Fenner School of Environment and Society, ANU

2 Starting Points There is overwhelming evidence that to avoid dangerous climate change the world needs to develop a low carbon emissions trajectory and to do so urgently. Since energy production and consumption accounts for almost two thirds of greenhouse gas emissions, what is most needed is a transformation of the energy sector. according to the International Energy Agency (IEA, 2008, 3, emphasis added): what is needed is nothing short of an energy revolution the future of human prosperity depends on how successfully we tackle the central energy challenges facing us today.

3 Towards an Energy Revolution: The Roles of Law, Regulation and Governance Such an energy revolution can only be achieved through effective energy governance (social steering*). Governments hold the key to changing the mix of energy investment. The policy and regulatory frameworks established at national and international levels will determine whether investment and consumption decisions are steered towards low carbon options International Energy Agency, 2009

4 At National Level: Range of Policy Instruments adopted by Governments 1. Energy sector reform is at early stage in most countries (but substantial variation between countries and cultures, stages of economic development etc) But dwindling fossil fuel supplies and increasing demand are prompting change multitude of policy instruments available but all policies must somehow either provide incentives (carrots) to abate, or disincentives (sticks) to emit CO2, or both

5 Economic Incentives Emission Trading schemes, but query whether these are sufficient Fiscal incentives (re pricing of consumption or production) eg tax instruments (credits, taxes on fossil fuels (rare), subsidies eg re production and consumption of environmentally benign technology/products one of the most important policy initiatives would be the removal of inefficient fossil fuel subsidies Public Finance Mechanisms: public support for which a financial return is expected (soft loans, equity) or financial liability is incurred ((guarantee) egs contractual support for the construction of low energy buildings, support for development and commercialisation of new technologies

6 Regulation Technology standards require use of specified equipment, process o procedures performance standards specify allowable emission levels etc Feed in tariffs and tradable certification schemes Other regulatory initiatives (eg China s large for small, informational regulation) Effectiveness depends largely on the context, including characteristics of entities being regulated and capacity of the state to implement and enforce particular instruments

7 What Works, When and Why? Economic instruments promise greater cost effectiveness but sometimes gap theory vs practice Complementary combinations of instruments are likely to work better than stand alone tools Governments have often failed to implement lowest cost options or to apply findings of evidence based research Informational and market failures, shortage of technical skills, inadequate capacity within government and insufficient financing remain major obstacles

8 Towards an Energy Revolution: Global Energy Governance many of the most complex energy policy issues involve collective action challenges beyond the capacity of individual nation states to solve. For example: how to encourage technological innovation on a Manhattan Project scale, co ordinate and fund research and development, especially for energy poor countries how to overcome intellectual property constraints and effectively disseminate energy innovations/ transfer of appropriate energy technology to poor countries how to support developing countries to address energy poverty without exacerbating climate change authoritative assessments of global energy demand and supply a global mechanism to ensure energy supplies in crises and emergencies Mechanisms/institutions through which countries can agree on overall strategies and joint solutions These are all fundamentally, questions of governance which can only be effectively addressed at global (and to a lesser extent, regional) level.

9 Institutions of Global Energy Governance are fragmented and piecemeal A number of institutions focus on energy, but none with a mandate that is global and comprehensive The International Energy Agency is supposed to represent major consumer countries, but its 27 members are all OECD countries the Organisation of the Petroleum Exporting Countries (OPEC) represents some (13) producer states In any event, consumer and producer states are represented by two different institutions Only 51 countries, almost all in Europe and Asia, have signed the Energy Charter Treaty, whose focus is limited to issues such as trade, transit and dispute settlement. The United Nations co ordinating mechanism, UN Energy, has 20 member agencies, no budget or authority and serves as a modest forum for discussion International Atomic Energy Agency mainly concerned with nuclear non proliferation and safety of installations International Renewable Energy Agency (IRENA) only established in 2009

10 Obstacles to Global Energy Governance achieving credible global energy governance is as challenging as achieving a climate change agreement states have jealously guarded their autonomy over energy security issues, international institutions, norms and organisations are largely absent.

11 Transitioning to a low carbon economy: the Energy Trilemma Trilemma a state of things in which it is difficult to determine which one of three courses to pursue and as a quandary posed by three alternative courses of action How can the tensions be resolved between energy security (reliable and accessible supply of energy at reasonable prices), climate change mitigation and energy poverty (lack of access to modern energy services at household level)

12 The case of Indonesia Large coal reserves, great geothermal and other renewable energy potential, now net importer of oil 80 million people without electricity Blackouts, brownouts and insecure supply Threats to remove fuel subsidies frequently result in rioting But climate change will also have adverse impacts on Indonesia note Indonesia s commitment to 26% reduction in emissions by 2020

13 Competing Pressures Pressures for climate change mitigation are primarily external Pressures to mitigate energy poverty and to ensure energy security are powerful and internal Climate change mitigation is not as compelling as mitigating grinding poverty, maintaining a fragile democracy, increasing economic growth and meeting the basic needs of its citizens by developing grossly inadequate infrastructure

14 Testing by results Indonesia s Crash Programs Heavy reliance on coal based power Little incentives for renewables

15 Why? Coal fired power stations use cheap, quickly assembled, well established technology local and cheap source Oil is expensive and imported Most natural gas exported under long term contracts renewables development takes time, technology transfer, international finance, international partnerships Indonesia s current energy policy is driven by energy security and energy poverty concerns,

16 Electricity Generation In energy security terms, coal is readily available, accessible, affordability and (in domestic policy terms) acceptable. the same policy that will deliver affordable energy to industry and business will also extend the electricity grid But still antithetical to climate change mitigation

17 Electricity Generation: Win Win Lose The emphasis on the twin goals of alleviating energy poverty and ensuring energy security have served to relegate climate change mitigation to a peripheral role. In the case of energy generation the conflict between different horns of the trilemma, while deep seated, is not inevitable. what is needed is to dramatically speed up the transition to a low carbon economy while the trilemma in its strong form cannot be supported there is considerable support for its weaker version political pressures, including social expectations to expand the extent and the reliability of the grid in the shortest possible time, that are driven by energy poverty and energy security considerations. Renewables can only credibly be developed with international technical and financial support

18 Energy Policy reform within Indonesia? energy sector reform is addressed primarily at national level. economic incentives (carbon price), removal of fuel subsidies and support for renewables are the central tools in the policy arsenal This could be done mindful of addressing the trilemma

19 But the practical obstacles are daunting creating the necessary institutions, putting in place suitable policy frameworks and ensuring thorough and sustained implementation, encroaching on entrenched economic interests and cutting across established patterns of political power in managing the economy

20 Global Energy Governance? Fragmented and piecemeal institutions (see above) Norm development? G20, IEA, UNEP etc but IEA outreach insignificant, and climate change has little internal political resonance Role of G20, IEA OECD, NGOs (IISD) and fossil fuel subsidies but with little impact at domestic level A border carbon tax? taxing goods from countries that do not commit to CC mitigation nb aviation emissions under EU ETS

21 International finance lack of incentives to develop such technologies and spillover effects, inappropriate intellectual property rights, failure to incorporate the full costs of fossil fuels through carbon pricing etc) as well as multiple vested interests impede the progress of renewable technologies

22 the gap between the aid the developed world provides and what is needed to fight climate change is a chasm. We need $10 billion to shift the economy from coal to geothermal. We are not talking $20 or $30 million