Energy System Change not Climate Change

Catherine Mitchell, IGov Team, 14th December 2015

COP21 has led to a new climate change policy agreement. While it could have been stronger, it could also have been weaker. The world had already tipped to a global discourse towards a sustainable energy future, based on renewables. What the Paris Agreement has done has strengthened that global discourse. The dominant underlying energy technology pathways of the Intended Nationally Determined Contributions (INDCs) is towards more renewables. There will of course be outlier countries, like GB, who choose nuclear over renewables but on the whole the Paris Agreement reflects an energy future of declining fossil fuels, with renewables rather than nuclear as the low carbon choice.

So what is needed to rapidly move the Agreement from words to practice?

• A basic requirement is that energy system governance has to be restructured to suit a sustainable energy system – unless this happens, at best, movement will be slower and more expensive than necessary;
• the world should ‘learn’ from the few countries which are on track for transforming their energy systems;
• we can expect resistance to kick-in wherever it finds the space to do so – whether from companies, technologies, communities or countries (and their supply chains) who stand to lose. Countries have to stand up to ‘losers’ rather than ameliorate impacts on them, which will slow change and add to costs.

Looking at these in order:

IGov is working on the link between innovation and governance – where governance is viewed as the policies, institutions, rules and incentives within those institutions, such as market rules, and network regulations (which essentially enables or undermines activities), and the underlying politics of how the rules and incentives are set as they are. Current governance in GB has developed to match a centralised, fossil and nuclear based system. If GB – or any other country – is to have an energy efficient , renewable based energy system, then governance has to change in order to complement it. We have argued that current GB governance is unfit for purpose and have set out our solution to this with our own framework for governance.

We don’t think there are many essential dimensions of governance but they all have to change so that they do not undermine a more efficient, flexible operation [eg Policies; Codes (those deeply ‘techy’ and ‘nerdy’ legal rules which essentially keep the GB energy system running as it is and which make change so difficult); markets; network; institutional architecture and the relationships between them; business models; and the energy system characteristics (becoming pragmatic rather than economic pre-eminence; legitimate, accountable, transparent; flexible; inclusive to new entrants; open to learning; fairness with losers)].

Gradually, we are deepening our overarching framework so that we provide an in-depth alternative governance structure for each of these dimensions for GB, informed by our work on Denmark, Germany and various States in the US (California, Texas and New York). For example, we have set out our Governance recommendations for Codes. We are about to put up a blog on how the ‘heart’ of the system has to move to the distribution level – as NY State is trying to do – and its governance restructuring needs. And within the next few months, we will have added governance restructuring suggestions for the other dimensions.

Each country needs to understand what governance changes they need to undertake in order to implement their INDCs; and then they need to get on as quickly as possible to implement them.

Fortunately, some countries and US States have already gone some way to putting in place appropriate governance to enable an energy system transformation. Many countries are lucky – they have wonderful hydro or geothermal resources. But also many countries are less fortunate, often because their energy resources tend to be fossil fuel based and so they now have to make major changes to their energy systems. Germany and Denmark are classic examples of steady progress away from fossil fuels towards a long-term decarbonisation goal, and much can be learnt from them. California is an example of a State which has strong environmental ambitions but which now negotiates around the traumatic events of their 2001 electricity market collapse. New York State is trying to put in place a market based transformation to a decentralised energy system. Many other countries have managed major changes to their energy mixes in relatively short periods of time – eg Spain and Portugal. Evidence is thus available for all countries in the world to look at best practice – as well as difficulties encountered – for the means to transform energy systems rapidly. The ability to ‘learn’ from other countries and to have a sufficiently flexible governance system is a fundamental requirement of any country.

And finally, we can expect resistance from those who will lose from low carbon energy systems. Low carbon policies have caused existential impacts to companies or communities in only a few countries. This Paris Agreement will increase those impacts and can be expected to be resisted even more forcefully as a result. This is why a country’s attitude to ‘losers’ is so important. Country’s have to support the new energy system. The more they look after the ‘old’ energy system the longer it will take to make the transformation, but also the more costly the transformation will be. This is not to say that industry should not be given clear warning of policies and intentions to give them time to change – but country’s should not renegotiate once that warning period is over.

COP21 has been a useful step forward but in order for it’s aspirations and targets to be successful, governance of energy systems world-wide have to be altered to enable the Paris Vision to be delivered.

Posted by: rhoggett

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