G20 Foundation Publications Australia 2014 | Page 86
86
ENERGY
ENERGY
Balancing the Energy
Trilemma: much work
remains to be done
Energy Agency (IEA) institutionalizes the
joint approach among OECD countries
regarding the strategic petroleum reserves
(SPR). Regional organizations promote
the complex objective of cross-border
infrastructure integration in all regions,
generally with slow progress only. The
UNFCCC and UN SE4All face the most
challenging objectives, which can only be
achieved through international cooperation:
achieve universal access to modern energy
services and avoid climate destabilization.
Christoph Frei, Secretary General, World Energy Council
Building on shared values
Energy Ministers of the G7 recently
signed a joint statement in Rome on
energy security. The fundamental
principle they subscribed to is
that energy security is a common
responsibility. One country’s
energy security relies on energy
security in neighboring countries
and on coordinated solutions to
overcome weaknesses. However,
the foundation for a successful
collaboration on energy security is
a robust policy framework in every
single country. To deliver long-term
energy security every single country
has to provide a balanced policy
framework that also includes energy
affordability, energy access and
environmental sustainability.
The World Energy Council calls this
balancing approach the “Energy
Trilemma” and it is clear that much work
remains to be done at national level when
it comes to balancing the Energy Trilemma
and delivering on the energy security goal.
The ongoing energy infrastructure
expansion, renewal, modernization and
transition require every single country
to mobilize large amounts of capital.
However, political and regulatory risk
is the major factor that prevents the
mobilization of the capital required.
Balanced policy frameworks in terms
of energy security, energy equity and
environmental sustainability are the best
guarantee to avoid sudden and dramatic
policy changes – ‘political risk’ – and
therefore a condition for the mobilization
of the required capital. Ultimately, a good
Energy Trilemma balance is a strong
basis for prosperity and competitiveness
of individual countries.
Collaboration is key
While the specific context requires that
every country finds its individual solution
to the best Trilemma balance it is clear
that many energy challenges have their
most effective solutions in collaboration
that goes beyond borders. The three
guiding questions that should drive
international cooperation are: First, what
are fundamental energy related objectives
that can only be achieved through
international cooperation? Second, what
creates energy insecurity that needs
international fixing? And third, how to
most effectively share uneven access to
resources to the benefit of all involved.
WEC’s annual assessment of the issues
that keep energy leaders most awake at
night, the World Energy Issues Monitor,
identifies that CO2 price uncertainty (in
the absence of an international climate
framework) has for many years been the
number one issue keeping political risk high
and investment levels below the required
levels. Further critical issues include market
distortions created through subsidies and
trade barriers (including for green goods
and services) as well as outdated market
design, which often lead to unintended
consequences and inefficiency or even
market failure. Electricity markets lack
incentives for backup capacity or storage;
gas storage similarly suffers from a lack of
incentives; and current CO2 markets fail to
deliver a signal that mitigates emissions.
Opportunities for the storage of oil, gas
and electricity are unevenly split as
are resources themselves. This makes
international collaboration and regional
integration in terms of infrastructure
and markets critical. The International
With these issues in mind, the real
challenge when it comes to international
collaboration are shared values and
principles on our future climate framework,
universal access, trade rules, subsidies,
market design as well as burden sharing
and coordinated RD&D in system critical
components such as electric storage and
carbon capture and storage (CCS). Clearly,
all of these issues urgently need greater
international cooperation and progress
than what we have observed over the past
two decades. We must keep ambitions high
for COP21 next year in Paris. The UN SE4All
process has generated new dynamics in the
international understanding that energy
access is critical for the entire development
agenda – yet, the issue must now move
from the heart to the feet. On the trade
side, regional trade platforms must pick
up the issues where WTO progress is slow
and ensure that green goods and services
are not prevented from reaching their
markets due to high tariffs and other trade
barriers. Low tariffs can unlock the use of
new technologies at lowest possible prices
and support the energy transition. Lastly,
the German Energiewende has certainly in
Europe emphasized the need for greater
collaboration on joint electricity market
design, which also affects the system
critical role of natural gas.
It is important to highlight that the best
foundation for collaboration in these
areas, again, is strong and Trilemma-
balanced national policies. This is
specifically true for an international
climate agreement: there can be no
effective international climate framework
in the absence of strong and balanced
national energy policy frameworks.
Well-functioning and balanced national
energy policy frameworks are the only
viable enforcement mechanism for an
international climate agreement.
Bismarck said that politics is the art of
the possible. In Rome the G7 energy
ministers defined some specific areas for
intervention: diversification of energy
fuels, sources and routes; encouragement
of indigenous sources of energy supply;
enhancing energy efficiency; promoting
sustainable energy technologies and
infrastructure modernization. These
are pragmatic steps that can support
the Trilemma aspirations. However,
the objectives agreed by the G7
energy ministers miss out on the more
fundamental and d