Episode 168      28 min 58 sec
Lost generation: Governance gone missing in global energy security

Energy security and global governance analyst Professor Ann Florini explains the urgent need for global coordination of energy resources, and why existing institutions such as the International Energy Agency (IEA) are not up to the task. With host Jennifer Cook.

"Roughly half of the current size of the total global economy needs to be invested from here to 2030 just to meet predictable market demand.  That figure goes up every year because demand keeps going up." -- Prof Ann Florini




           



Prof Ann Florini
Professor Ann Florini

Ann Florini is Visiting Professor, School of Social Sciences, Singapore Management University.  She is also Senior Fellow in the Foreign Policy Studies Program at the Brookings Institution in Washington, DC.

She is internationally recognized as an authority on new approaches to global governance, focusing on the roles of information flows, civil society, and the private sector in addressing global issues.  Her books include China Experiments: From Local Innovation to National Reform (with Hairong Lai and Yeling Tan, forthcoming Brookings Press); The Right to Know: Transparency for an Open World (Columbia University Press, May 2007); The Coming Democracy: New Rules for Running a New World (Island Press, 2003/Brookings Press 2005); and The Third Force:  The Rise of Transnational Civil Society (Carnegie Endowment for International Peace/Japan Center for International Exchange, 2000). She has published numerous scholarly and policy articles in such journals as Energy Policy, Global Governance, Global Policy, International Security, International Studies Quarterly, and Foreign Policy.  Dr Florini received her Ph.D. in Political Science from UCLA and a Master’s in Public Affairs from Princeton University.

Credits

Host: Jennifer Cook
Producers: Kelvin Param, Eric van Bemmel
Audio Engineer: Gavin Nebauer
Voiceover: Nerissa Hannink
Series Creators: Eric van Bemmel and Kelvin Param

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VOICEOVER

Welcome to Up Close, the research talk show from the University of Melbourne, Australia.


JENNIFER COOK

I'm Jennifer Cook, thanks for joining us.  Imagine for a moment a world where there is a limitless supply of energy, a world in which suddenly the two and a half billion people currently without power experience for the first time what it's like to be able to turn on an electric light.  Everyone on the planet would have enough electricity, gas, coal and oil to meet all of their needs.  Even if it could be realised, what would this world look like?  How would it be organised and who would be in control?
Helping us envisage this scenario is Professor Ann Florini.  Ann, who is joining us via Skype from Singapore, is an internationally recognised expert on new approaches to global governance, particularly to do with energy issues.  Professor Florini is Visiting Professor, School of Social Sciences, at the Singapore Management University and she is also Senior Fellow in the Foreign Policies Studies Program at the Brookings Institution in Washington DC.
Professor Florini, welcome to Up Close.


ANN FLORINI

Thanks, it's good to be here.


JENNIFER COOK

Let's begin by you walking us through this brave new world.  What does it look like to live in such a place?  How's it different and I'd imagine for a start there'd be a lot less violent conflict


ANN FLORINI

There would be a lot less of a whole bunch of the world's biggest problems.  If you take this though experiment of perfect access to energy with no bad consequences at all, if you think about geopolitics, poverty, environment, even national governance, everything gets a lot better.  On the security side, international security side, the biggest concerns people have now about the prospect for a major war is conflict over natural resources, particularly energy resources and we're already seeing signs of the potential for conflict in places like the South China Sea.  It's easy to imagine a scramble for resources in the Arctic, which is starting to melt and open up, degenerating into that kind of conflict as well.
It's not very likely that you're going to get a major war other than in that way, as a scramble over resources, because you don't have the big ideological conflicts that you had in the 20th century.  So if you solve the energy problem, in large part you might solve the war problem as well.


JENNIFER COOK

So Ann, tell me what it's like for a person living with power all of a sudden, suddenly they get electricity.  How does that change their daily life?


ANN FLORINI

Well solving the energy problem also largely solves the poverty problem.  Because think of what it would be like if you could never turn on a light, if you had no light in the evening, which is the situation facing somewhere between one and two billion people on the planet right now.  You can't read in the evenings, you can't do any of the things that we normally do during the day any time that the sun is not up.  That's an incredible constraint on the quality of life.  In fact, you can define poverty as in large part energy poverty, lack of energy to resources.
One story that I heard recently is that lack of access to electricity even has huge health consequences.  People don't want to use malaria bed nets to keep out mosquitoes if they are lighting their houses with kerosene lamps, because if the lamp tilts over and the malaria bed net catches fire, you're trapped inside.  Once you get a light bulb in there and you can just turn on a light, you get rid of that problem as well.  So it totally transforms the quality of life.


JENNIFER COOK

That makes me think too, Ann, of electricity used to refrigerate vaccines.


ANN FLORINI

Absolutely; you would need to refrigerate vaccines, you need it to produce basic consumer goods.  It essentially changes everything if you have that kind of access to energy.


JENNIFER COOK

Let's move now to climate change, just as we get part of this overall picture, what's the weather like with enough energy for everyone?


ANN FLORINI

Depends on how you're getting the energy.  If you're getting your energy by burning fossil fuels, you get runaway climate change and that's a very bad scenario for the world.  You have to have an energy source that doesn't have what an economist would call environmental externalities.  It doesn't impose big costs on the environment and fossil fuels inherently do that.  You would need energy sources that operate differently, that aren't pumping a bunch of carbon back into the atmosphere.


JENNIFER COOK

You have said before, even if we did have access to cheap energy that was environmentally friendly, there are big restrictions and obstacles to that being taken up by everyone.  Could you tell us about that?


ANN FLORINI

The reason that we have an energy system that is, in many ways, counterproductive as the one we currently have, is because of the way it is governed.  At the national level, almost every country handles energy rather badly.  One of the things that we've been looking into a lot is how do you govern energy at the national level?  So we've looked at countries like China, India, the United States, the Philippines, a whole range of them and we have yet to find a country that governs energy effectively.


JENNIFER COOK

Tell us about the different ways that they do it.  How does China do it?  Hoes does that differ to India and to the US?  Because you're saying too, don't you, that international rules reflect national rules, so if we can know how each one operates, it might give us an idea.


ANN FLORINI

Yes, you have two overall problems with national energy governance.  One is that it doesn't correspond very effectively to the international efforts to cooperate on making the system better, which makes it very hard to implement anything.  You also have a vast amount of corruption and inefficiency at the national level as well.  So in India, for example, there are five different energy ministries and they're divided up by fuel sources.  So you have a coal ministry, you have a renewables ministry.  These kind of things don't make any sense because what you need is an energy policy.  What your country needs is energy services provided.  It doesn't matter what fuel source they come from and yet that's the way in which rules get set and decisions get made.  Of course you have massive turf battles as a result as well.
In China, if anything it's worse because they tried at one point to have an overarching energy ministry; that didn't work very well.  They now have a somewhat lower level body that is supposed to be coordinating energy across the board, but it doesn't have the bureaucratic power or the resources.  It can't even rein in the state-owned enterprises that are the ones that are going up and setting up the deals in Africa and other places.
So across the board, not meaning to pick on the developing countries - US energy policy is no shining example either - so across the board, you have bad systems of decision making, turf battles and nobody really looking out the for the long term public interest.


JENNIFER COOK

You did mention the US there Ann, what is their energy policy and why aren't they a shining beacon?


ANN FLORINI

There's several different energy policies in the United States.  There is a Department of Energy that at the moment is headed by people who have a very strong sense of vision of the direction in which energy policy ought to go, but they are not able to implement all of that vision because of the usual problems with American politics.  We have deep vested interest in some of the major oil companies, we have deep vested interest in the coal industry, we also have an ageing and dilapidated energy infrastructure in the United States.  You put all of those pieces together, there's an awful lot of work the US has to be doing too.
And you take all of these pieces, all of these national energy governance systems and then you say, how do we take these systems and put them together in some kind of internationally coordinated system that can deal with the geopolitical security problems, the poverty problems, the environment problems.  It's a bit of a mess.


JENNIFER COOK

I'm Jennifer Cook and on Up Closet this episode we're speaking with energy governance expert, Professor Ann Florini. 
Now Ann, could you tell us about this international organisation, the IEA, International Energy Agency?  Who are they and what do they do?


ANN FLORINI

The IEA is as close as the world currently has to anything like an overarching energy organisation that helps to coordinate what governments do to deal with energy problems.  It's a very good little agency, but it's so highly constrained in what it can do that it's certainly not the answer to global energy governance.  It was set up in the 1970s in response to the oil shocks and it was basically the oil consumers' response to OPEC.  So all the consumers got together and said, if the producers are going to get together, then the consumers also have to get together.


JENNIFER COOK

Ann if you could explain to us who OPEC is and where they are in this picture.


ANN FLORINI

OPEC is the Organisation of Petroleum Exporting Countries.  It was the organisation that raised oil prices sharply in the 1970s, caused all sorts of problems for the oil consumers at that point.  It has many, although not all, of the world's major oil producers as part of it and they get together regularly to try to agree on setting prices for oil.  So the International Energy Agency is the consumers' response to OPEC, so it was set up with the countries that happen to be the major oil consumers in the 1970s, which was the rich countries, the developed countries.
Forward to 2011, you have an International Energy Agency whose membership is still limited to the club of rich countries.  Actually, it's an offshoot of an organisation called the OECD, which is the club of the world's rich countries that has, as part of its charter, that its members have to be democracies, they have to meet all these other standards.   Yet at the same time, we have the rise of all these major new oil importers such as India and particularly China.  These countries are not part of the International Energy Agency and because of the way the IEA was set up, it would be very difficult to make them part.  So you have a consumption agency that doesn't include an awful lot of the major consumers anymore.


JENNIFER COOK

That means, doesn't it Ann, that they can go off and make their own deals and create their own rules, is that what's happening?


ANN FLORINI

What's happening because India and China and other major consumers are not part of the IEA at this point, is that it's not clear how important the IEA is going to be, at least in the oil part of the energy picture going forward because they can no longer coordinate among all of the major consumers if there's another oil price shock.
What the IEA is supposed to do is if there's another major supply shock, is get all of its members together, they all have to have strategic reserves of oil and they coordinate on when they're going to release supplies from this big reserve.  If you don't have those reserves and they're not coordinated by a lot of the other consumers, you can get what you got in the 1970s initially when OPEC raised the oil prices, which is absolute chaos in the oil market.  Every time you get chaos in the oil market, you get big economic consequences for the world.


JENNIFER COOK

Ann how likely is it that in the future we will have a major supply shock and the IEA will have to move and won't have all the players on board?


ANN FLORINI

The IEA has actually had to move recently.  It invoked its emergency oil system as recently as the summer of 2011 with the Libya uprising.  That's only the third time in its history it's actually done that.  Given the kind of instability that there is right now in the Middle East, which is where much of the world's oil supply comes from, the idea that you're going to need some kind of coordination among oil suppliers is pretty likely that it's going to be a major issue.


JENNIFER COOK

So it's heading up.  It's not cooling down at all?


ANN FLORINI

The questions of the stability of oil markets, that's going to be a fragile situation for the foreseeable future.  It's hard to imagine that it's going to really stabilise.  But all of this is only one part of what the International Energy Agency does.  It's essentially becomes the keeper of the world's energy statistics, it's the best source of information we have, it does scenarios as to what the energy picture across the board, not just in oil, but across the board is going to look like out for the next few decades.  Their flagship publication, the World Energy Outlook is really a bible for the entire energy industry.
Now one of the things that the IEA has done in the last few years is it has tried to pull together how do you think simultaneously about all of the big public policy problems that energy involves; climate change and other environmental issues, balances of supply and demand, long term price stability, how do you put all these kinds of pieces together.  But this is an agency with a professional staff of only - it's about less than 250 people.  It's a tiny little agency in Paris.  They just don't have the resources to be making the rules for the world.
It would be very easy to raise the funding for the IEA.  Its member governments simply have to decide that they're going to put more resources into dealing with energy.  Unfortunately all inter-government organisations have been caught in this trap of zero real growth budget for the last couple of decades and this is largely a reflection of US policy.  There are forces in the US that are hostile to the whole idea of inter-governmental organisations and they've managed to keep the US from taking the lead on improving the quality of inter-governmental organisations for quite some decades now.
The IEA is an unusually competent international organisation, but it's tiny, it certainly has its own internal issues.  It by itself cannot possibly be the answer to global energy governance, although it's a very important player.  But there's a lot of other inter-governmental organisations and other kinds of bodies that matter as well.  There are funding agencies, there are all sorts of other points of leverage over the system where it might be possible to make some real changes in how energy is provided and how it's governed.


JENNIFER COOK

I just wanted to go back to your point, you said the IEA pretty much writes the bible that is followed for the rest of the people involved in energy.  What does that bible say?


ANN FLORINI

What the World Energy Outlook does and they have lots of other good publications as well, but the World Energy Outlook first puts out the basic statistics on oil, gas, coal, all of the major energy supply sources, who has what, what's being traded, those kind of questions.  The rest of it, they have a set of scenarios that they play out every year under various assumptions, what kind of picture are we looking at, say, for 2030.
There was a presentation that the then head of the IEA, Claude Mandil, gave several years ago that I went to in which he laid out this is what demand for fossil fuels is going to look like, this is what supply is going to look like, this is how much money is going to be needed to invest in energy such that that supply is available, this is how much more it would take in order to make it at least reasonably compatible with not overheating the planet through climate change.  But he laid out the basic market driven supply and demand scenario for energy in great detail and then he said, this is not compatible with reality, which is a fairly shocking statement to make.
Essentially the point that he was making and that the agency has been making for several years is that the energy path that the world is on now is a fundamentally unsustainable path.  It's unsustainable environmentally, it's unsustainable geopolitically because of the potential for scramble over resources, it's unsustainable because it doesn't even begin to address energy poverty.  It doesn't meet the world's needs, but it is still the path that we're on and there is no sign of, yet, a whole scale transformation in energy that the world desperately needs.


JENNIFER COOK

Ann, that is quite a dire prediction and summation that the way we're going is not sustainable, you say economically, environmentally, we're in big trouble.  But you also say there's another part of this equation that needs to be taken into consideration.  We have to follow the money, don't we?


ANN FLORINI

Absolutely; there are certainly vast points of leverage where this system could be changed and I think we need to think about what all those points of leverage are.  In terms of following the money, there's a couple of statistics to throw out.  The first one is the projections for how much needs to be invested just to get business as usual to carry forward so that you get the basic supply of energy that you need to have to meet market demand by the year 2030.  The IEA's projections for that are $26 trillion.  So in other words, roughly half of the current size of the total global economy needs to be invested from here to 2030 just to meet predictable market demand.  That figure goes up every year because demand keeps going up.
That is without even trying to take account of any of the kinds of problems we've been talking about.  If you want to deal with climate change, just the climate change problem, on top of that you're looking at an additional investment according to the IEA of an additional $10 trillion.  That's a lot of money to be investing in energy, but it also means that obviously investment gives us a big point of leverage into the current system.  If there's going to have to be a lot of money put into energy, let's think about how to do it intelligently, rather than just building on the system that we've already got in place. 
So the points of leverage that you want to look at are investors, funders, government regulators who are shaping how a lot of this money gets invested because much of the finance for energy goes across national borders.  Sources of capital in one part of the world are investing in energy services and energy supplies in other parts of the world.  So there's a lot of places where you can shape and channel and use rules to address all these what you can call market failures in the current energy system.


JENNIFER COOK

So Ann, we've got all these people who need to be hearing what the IEA is saying, who is listening?  How do we make sure they listen?


ANN FLORINI

There's a lot of people listening on energy at this point because the problems are becoming so glaringly obvious.  There are a whole bunch of non-governmental organisations and these kind of hybrid organisations that bring together governments and investors and consumers and all sorts of different types of networks who are trying to figure out how you put all these pieces together.  You have a new inter-governmental organisation that was created just in the last few years called IRENA, the International Renewable Energy Agency which is headquartered, in all places, Abu Dhabi, although it was set up primarily at German instigation.  Frankly, you have to give Abu Dhabi credit because they are looking at this as the long term energy future, cannot be reliant on the kind of energy that Abu Dhabi itself produces, they're one of the world's largest producers of fossil fuels.  But they are looking forward to an era in which we need a fundamentally different energy system.
So you've got IRENA based in Abu Dhabi, you have agencies like the World Bank which are setting up clean energy funds, clean investment funds to try to get energy switched out of this fundamentally unsustainable path into something that's very different.  You have a very vigorous bilateral program between the US and China who're by far the world's largest energy consumers, who are also trying to figure out how do you develop technologically.  But at the same time, you also have to be thinking about how do you change the national systems of energy governance so that they function effectively and in the long term public interest, rather than just in the short term interest of get more energy sources out there very quickly.
There's also a lot of people who are trying to look at how do you get consumers of energy services to behave differently, to demand the cleaner and more sustainable forms of energy.  So there are programs like the Carbon Disclosure Project which has brought together a whole bunch of investors who then send letters off to various companies saying, how much carbon are you emitting and how do you disclose that information in a way that can get investors to preferentially choose to invest in companies whose carbon emissions are better than their competitors.  All of these things are at a very, very early stage.  They need a lot of work in order to be able to function effectively, but there are all these points of leverage out there.


JENNIFER COOK

I'm Jennifer Cook and on Up Close this episode we're speaking with energy governance expert Professor Ann Florini.
Now Ann, I just want to take us back to the money trail and could you talk to us about the problem of national export credit agencies and the role they play?


ANN FLORINI

Export credit agencies are one of the best points of leverage that you can find to try to deal with energy issues.  The way an export credit agency works is its job is to help investors from each country be able to invest elsewhere or to export elsewhere.  If you're looking at something like investment in an oil field or a coal mine or something like that, those are long term investments with very high up front sunk costs.  So if you imagining say you're investing in something in some relatively unstable country, you're going to be very nervous about sinking a lot of money into that country without some guarantee that if something goes wrong, you're going to get a good part of your money back.
An export credit agency provides that guarantee.  That's its role.  Most of the major countries now have export credit agencies.  It's a way of trying to support their own business communities at home to be able to function overseas.  But the rules by which they act don't take into account these bigger questions of what's the long term public interest.  They're really concerned very much with supporting the business interests of their home business communities.  It would be very easy to use an export credit agency to say, we will support your investments as long as you follow a certain set of guidelines as to the kinds of projects that you're investing in.  It's a great point of leverage if you want to change what kind of energy projects are getting supported.


JENNIFER COOK

Ann what is the role of the World Bank and the Asian Development Bank in this scenario?


ANN FLORINI

These multilateral development banks are actually in a rather difficult position because they have member governments on both sides of the energy issue. Especially the World Bank is under pressure from the existing rich country governments, particularly the Europeans, to be supporting this transition to a clean energy future, a much more sustainable energy future.  Their member governments like China and India are pressing very hard for project loans that are for more traditional energy resources because these are countries that are trying to develop fast and they don't particularly want to have to pay the costs of cleaning up the world's energy systems at a point when they're still much poorer than the rich countries.
So the World Bank is, at the same time, supporting large fossil fuel projects in many parts of the world and trying to pressure the government to whom it is lending to invest much more heavily and to accept project loans on clean energy funds.  By and large the proportion is still overwhelmingly at both the World Bank and the Asian Development Bank, overwhelmingly they're supporting fossil fuel plants, although they're trying to clean those up as well.  It would certainly be possible, given that they control a fair amount of project funding, for the World Bank and the ADB to play a larger role in bringing about the transition to a more sustainable energy future.   But they're under very difficult pressures right now between their two sets of governments.


JENNIFER COOK

Are developing countries reluctant to end the cycle of energy poverty because of the concerns of climate change?


ANN FLORINI

I think you've identified a very major problem right there in global energy governance.  There are trade offs as to which priority you assign to which goal.  One goal is ending energy poverty, which the poorer countries and developing countries care very deeply about.  They've got huge numbers of citizens who don't have access to electricity, don't have access to energy resources.  They have industrial sectors that are starved for energy.  They want energy, they want it now, they don't care as much as the richer countries do if these things add to longer term problems like climate change which are problems that the rich countries largely have caused.  These are not problems that the poorer countries have caused.  So the poorer countries care about energy poverty, getting their systems up and running. 
Unfortunately, the quick way to end energy poverty is to burn a whole lot of coal and to a less extent, the other fossil fuels.  That's the worst possible thing that you can do from the point of view of the environment.  So you have a real tension over global priorities, whose interests, long term, short term, how do you play this out, what priority do you put on which of these goals, is providing people with basic energy in a poor slum in Manila more important or less important than dealing with climate change issues that threaten to swamp the coastal communities all over the world?


JENNIFER COOK

So Ann, just to sum up for us, if you could just try and give us a picture of where are we and what can be done.  You're saying it's not completely hopeless, that we do have points of leverage, but I've got to say, $26 trillion just to maintain existing energy needs is terrifying.


ANN FLORINI

$26 trillion to meet market demand by 2030 is what the IEA is saying.  It's not inconceivable that that could happen, but it would actually be a very bad thing if it happened in the context of the current energy system.  What we have right now is a world that is on a fundamentally and probably catastrophically unsustainable energy path across the board, not just environmentally, but politically and economically in all sorts of ways.  That's increasingly recognised.  A lot of people are trying to do a lot of things to shift us onto a different path.  The points of leverage are working with investors, working with export credit agencies, working with funders like the World Bank and the Asian Development Bank, working with governments and their regulatory capacity.
One that we haven't talked about at all, but that is extremely important, is consumers.  Increasingly you have a choice as to what kind of power you are going to buy.  Your utility may give you options, though you may have to do some searching to find out what they are.  Pretty much every time you buy something, every time you open your wallet and buy either an energy service directly or something produced with an energy intensive service, you're voting on what kind of energy future you want to have; so there's a great deal that individuals can also do by getting online, checking out what's being produced efficiently, what are various ratings mean, buy things that are highly energy efficient and start demanding that their governments take action.


JENNIFER COOK

That's tremendously heartening on an individual level, because when you are confronted with those vast sums of money and these big organisations, it can feel very helpless.


ANN FLORINI

There is a tremendous potential here for effectively a social movement demanding a transformation of how we govern energy, how we regulate energy, how we use energy and how we produce energy.


JENNIFER COOK

Ann, thank you so much for joining us today on Up Close.


ANN FLORINI

It's been a pleasure.


JENNIFER COOK

That was Professor Ann Florini, visiting professor at the Singapore Management University and fellow of the Brookings Institution.  She joined us today via Skype and we were discussing energy and global governance.
Relevant links, a full transcript and more info on this episode can be found at our website at upclose.unimelb.edu.au.  Up Close is a production of the University of Melbourne, Australia.  This episode was recorded on 24 October 2011 and our producers were Kelvin Param and Eric van Bemmel, audio engineering by Gavin Nebauer.  Up close is created by Eric van Bemmel and Kelvin Param.  I'm Jennifer Cook, until next time, goodbye.


VOICEOVER

You've been listening to Up Close.  We're also on Twitter and Facebook.  For more info visit upclose.unimelb.edu.au.  Copyright 2011 the University of Melbourne.


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