As to how large cuts in carbon emissions might be achieved, attention has focused on the role of a global climate change agreement. Although some progress was made at the Cancun Climate Change Conference, agreement concerning an emissions trading scheme seems as remote as ever.
Even if such a market mechanism were agreed upon, it would be insufficient to resolve the crisis. Carbon pricing does not address the large market failures undermining research and development in climate mitigation, such as incompatibility with existing infrastructure and weak intellectual property rights protection. Nor would such a market mechanism sufficiently accelerate the development and dissemination of low carbon technologies.
In examining mitigation options ‘beyond the market’ the single most important sector is energy. Energy production and consumption accounts for over 40 per cent of greenhouse gas emissions, and without achieving a drastic transformation in the energy sector, climate change mitigation will be close to impossible.
This is every bit as complex a challenge as achieving a climate change agreement. It raises questions: how can resources be pooled to create a global technology development fund? How can intellectual property constraints on the use of new technology be minimised? And how can developing countries be effectively integrated into a global energy strategy? Such questions are about the appropriate allocation of scarce resources and the coordination of collective action. As such, they are all, fundamentally, questions of regulation and governance, concerned with ‘societal steering’.
Unfortunately, current energy policy frameworks fall far short of what is needed to transition to a low carbon economy. Within Asia, some of the challenges can be illustrated by the circumstances of Indonesia, the world’s second-largest thermal coal exporter and currently the ‘darling of the West’, having made commitments to climate change mitigation and to renewable energy.
However, there is a tension between energy security (having a reliable and adequate supply of energy at reasonable prices) and climate change mitigation. With large coal reserves and a growing demand for electricity, building more coal-fired power stations offers a relatively low cost and reliable means of increasing electricity production. While this makes sense as a matter of political expediency, it runs counter to Indonesia’s commitments to reduce its greenhouse gas emissions.
Second, there are perverse incentives. Fuel prices are heavily subsidised, and removing or even reducing these subsidies would put the government at serious political risk. This makes a transition to renewable energy extremely difficult. Alternative fuel sources, such as Indonesia’s vast geothermal potential, cannot be realised because, particularly in early stages of development, they cannot compete with the subsidised fossil fuel prices set by the state electricity supplier.
Third, there is tension between climate change mitigation, energy policy and economic development. For example Indonesia, along with Malaysia, produces about 90 per cent of the world’s palm oil. Widespread deforestation is the price for this development, but with Indonesian palm oil generating some $14 billion per year further growth in deforestation is anticipated. Climate change mitigation continues to be trumped by the demands of resource exploitation.
Fourth, no government can deliver on its promises without harnessing state institutions to implement them. The Indonesian bureaucracy lacks the capacity and resources to do so. Key energy policies are not well defined, nor is it clear how energy governance is handled across the bureaucracy.
Of course, much depends upon an individual country’s energy profile and capability. By way of contrast, Korea, which imports more than 90 per cent of its energy, has a strong incentive both to increase energy efficiency and identify low carbon sources of energy (primarily nuclear power) to reduce supply risk and its energy bill. China, which is similarly heavily energy dependent, is also taking energy policy seriously (notwithstanding its posture in international negotiations) and may well become an important energy innovator in future years.
But the central challenge of energy governance — meeting growing global energy needs while transiting to a low carbon economy — must be engaged in globally and regionally. What is needed, in the words of the International Energy Agency, is ‘radical and co-ordinated policy action across all regions’.
Within Asia, regional agreements such as the ASEAN Petroleum Security Agreement, (which commits signatories to cooperate in times of shortage and oversupply) might also be expanded. The Trans-ASEAN Gas Pipeline project is already in train and will be important in terms of regional energy security. An ASEAN Power Grid project is also being contemplated.
Notwithstanding some modest individual achievements, acting collectively on matters of collective interest on the scale that will be necessary has so far proved an insurmountable challenge. States have guarded their autonomy over energy issues, especially energy security, with the result that global and regional institutions, norms and organisations are weak or absent. Strikingly, no UN organisation has the responsibility to regulate energy policy internationally (apart from the International Atomic Energy Agency).
In the case of the many developing countries that lack the economic and the technological capacity to bring about an internal energy transition, it is only with considerable assistance and support that change can be achieved. The level of support currently provided by the World Bank, Asia Development Bank and national aid agencies does not remotely approach this level. Whether a sufficient proportion of the $100 billion Green Climate Fund, the key outcome of Cancun, will be allocated to assist the transition to a low carbon economy in developing countries remains to be seen.
Neil Gunningham is Professor and Co-Director of the Climate and Environmental Governance Network within the College of Asia Pacific’s Regulatory Institutions Network at the Australian National University. His current research (in collaboration with Professor Peter Drahos) is in global energy governance.