Linkages between Climate Change Institutions and Energy Institutions

1. Linkages between Climate Change Institutions and Energy Institutions Timothy Meyer University of Georgia School of Law tlmeyer@uga.edu

2. Climate Change Regimes as Energy Regimes • Climate governance has as one of its chief objectives changing energy consumption patterns • Roughly 65% of greenhouse gas emissions are from the energy sector • Climate regimes try to put a price on carbon • Pricing carbon incentivizes switching to lower-carbon fuels

3. Is the climate regime the only one influencing the price of fuels? No! • There are a wealth of energy institutions that attempt to influence the price of various fuels • OPEC, IEP & IEA, IAEA, IRENA, GECF, ECT, WTO • Often institutions are single fuel-specific • Climate regime is a late arriver • Fragmentation: the proliferation of overlapping and non-hierarchical institutions • How does the climate regime interact with incumbent energy regimes?

4. International Oil Governance • The ability to influence the short and medium term price of oil turns on spare production capacity • Investments in fossil fuels require a long lead time to bring new capacity online • Price increases thus cannot be addressed in the short term by building new capacity

5. Texas Railroad Commission • In the middle of the 20th century the U.S. state of Texas, acting through the Texas Railroad Commission, effectively regulated the price of oil by holding up to 25% of production capacity in reserve

6. IOCC & the Seven Sisters • In conjunction with a U.S. inter-state agency, the Interstate Oil Compact Commission, and the major oil companies, the so-called Seven Sisters, the Texas Railroad Commission was an early example of public-private regulation of an international market

7. Organization of Petroleum Exportng Countries • OPEC was formed in 1960 in response to a collapse in global oil prices • Early on, OPEC was focused less on production issues and more on renegotiating concession agreements with the Seven Sisters • Part of a larger effort by the developing world to assert sovereignty over natural resources • By early 1970s, OPEC nations had effectively nationalized int’l oil companies

8. Arab Oil Embargo • By 1972, Texas was producing at full capacity • When the Arab-Israeli War resulted in the Arab oil embargo, Texas was unable to increase production and global prices soared • Regulatory power had shifted to OPEC

9. International Energy Program and the International Energy Agency • OECD nations responded by signing the Agreement on an International Energy Program • Aimed to coordinate emergency response measures among oil-consuming states • Imposed reserve requirements (60, then 90, days) • Created the International Energy Agency

10. Other Energy Institutions • The Agreement)

11. Linkages • Three types of linkages • Institutional linkages • OPEC & IEA have observer status in the UNFCCC • Montreal Protocol contains trade sanctions for non-parties • Bargaining linkages • OPEC countries link demands for financial assistance to support for climate change measures • Functional linkages • Regulation in one area affects, e.g., consumption or production patterns in another area • A carbon tax might induce fuel switching and change investment patterns

12. Institutional & Bargaining Linkages • Largely within the control of the parties • Can create value by creating mutually-supporting cooperative regimes • Using trade mechanisms to enforce environmental obligations • Individual states may be able to create linkages to the disadvantage of other states • OPEC’s insistence on financial assistance in exchange for support for climate change objectives • The creation of the WTO and the TRIPs Agreement

13. Functional Linkages • Functional linkages are not within the control of the parties • The effect of functional linkages between issue areas is that cooperation in one area can either support or undermine cooperation in another area • Climate change institutions basically seek to raise the cost of carbon • Energy institutions have more complicated objectives

14. Coordinated Emergency Response Measures • Oil prices rose to US$127/barrel of Brent crude during Libyan civil war • IEA members released oil from strategic reserves, triggering a 7.4% drop in the price of oil • What does this sort of incident mean for climate change?

15. Interaction • Energy initiatives can interfere with each other • OPEC and the GECF could increase production or reduce prices to defend market share & crowd out investment in renewables • National fuel efficiency measures can cause the collapse of prices in carbon markets • Emergence of the GECF and supplier dynamics could deter switching to natural gas

16. Questions • How do we manage functional linkages between energy and climate? • Issues of jurisdictional scope • Single organization allows coordination of policies • But increases transaction costs to setting policy • Issues of organizational detail • Climate change is a pluralistic organization • Energy institutions tend to be more technocratic • Incentives to comply?