Frédéric Gilles Sourgens, James McCulloch Chair in Energy Law & Faculty Director, Tulane Energy Law & Policy Center
Normally, this space is for book reviews, but today’s post is on my own book, A Theory of Global Energy Governance (‘Theory’), which first appeared in print this month. I cannot review my own book, so this post instead offers a brief overview of the arguments in Theory. The book will speak for itself.
Theory is the last in a trilogy of books on critical global energy topics I have written or co-authored. The first was Principles of International Energy Transition Law (‘Principles’), which I co-authored with Leonardo Sempertegui. What drove us to Principles was our concern that the discourse around energy transition had become almost exclusively focused on climate policy. On the contrary, we argued that the energy trilemma required us to do more than just increase the environmental and climate sustainability of the global energy system. Rather, it requires us to improve energy access and energy security, as well. We argued that these demands were codified in in international economic law, in international human rights law, in international environmental law outside of the climate context, as well as in general international law. What emerged from that discussion was a legal regime that is more holistic in its treatment of energy transition – one that would help give more room to policy decisionmakers to approach energy transition choices. The second book, The Transnational Law of Renewable Energy (‘Transnational Law’), looked at the commercial and regulatory work of international energy lawyers, focusing on renewable energy. In Transnational Law, Catherine Banet, Teddy Baldwin, and I asked if we could restate the principles of transnational law in the renewable energy space through comparative legal and commercial analysis. We concluded that that task could indeed be accomplished, and we provided a preliminary list of relevant transnational legal principles.
In the third book, I stepped outside the work of an international energy lawyer and looked at energy through an interdisciplinary lens. In Theory, I asked the fundamental question: what holds the broader principles and transnational legal rules outlined in the earlier works together? After all, the energy world has been in transition broadly since the Industrial Revolution. There are economic principles that explain how such transitions occur. They also explain what regulatory frameworks make an appearance, when and why. We therefore can step back from our current conundrum and understand where we are in the energy cycle and how we can best respond to this moment in time.
What is new in the current moment compared to earlier energy transitions is the complexity of the geopolitical tensions surrounding energy. This is not the first time the energy world has faced a multipolar geopolitical world. Rather, the period from the beginning of the Industrial Revolution to 1945 – the genesis of modern energy – was just such a period. Yet, the current phase of economic globalization is sufficiently different to require us to take revisit how domestic energy policies unwittingly invite geopolitical conflict. Theory proves that such a mechanism is indeed at play and that it can be defused by traditional realpolitik means. Yet, realpolitik is always a means to an end. It is not the end itself. The question, therefore, is whether we can do better by providing an energy-system internal logic for how to diffuse these tensions.
Theory intends to offer a logic for the energy system itself. The energy system has a life of its own. This life comes from the fact that we need many stakeholders to play a number of roles to make the global energy system work. Each stakeholder will act in a manner that is predictable. Systemic innovators act within, and often expand, existing market designs. Market design is just another phrase to describe a complex set of incentives set by policymakers to deliver public energy goods (e.g., a stable and accessible domestic energy system). Once created, energy companies and their suppliers respond to these incentives to broaden the energy system. Still, their responses look to monetize incentives rather than to deliver public energy goods. Unsurprisingly, this means that, eventually, interests between different stakeholders misalign. At this stage, policymakers intervene and alter energy market design to realign the energy system and deliver improved energy outcomes and secure returns for companies that assist in that purpose. Sometimes, this intervention is to liberalize the energy system and let competition drive results. At other times, this intervention goes in the opposite direction and nationalizes energy systems to have direct governmental control over how public energy goods are received and used. Still, at some point, financial and/or policy returns diminish. Now, innovators look to solve the next roadblock to bring more, better (i.e., cheaper) energy outcomes to more people. This generally means we have to re-design energy markets to accommodate and accelerate innovation. And so, the cycle begins anew.
This cycle is never limited to one country. Instead, national market design incentives draw in global stakeholders wanting to take part in the new ‘energy rush’ created by innovative technologies. These global stakeholders have a comparative advantage – typically in cost – to first movers in the new space. This means that they gain gradual market share. This growth in market share explodes when policymakers intervene to bring down costs during times of misalignment. Now, costs really drive decision-making and other factors become more secondary. Bringing down costs means to rationalize. To rationalize means to concentrate. The risk of geo-politically meaningful over-concentration in key value chains is particularly high at this point in time (and explains China’s meteoric rise in critical value chain in particular). Such over-concentration allows geopolitical actors to gain sway over critical parts of the entire energy system by controlling bottlenecks. Astute realpolitik should aim to prevent such over-concentration, but because energy policy lives at the interstice between domestic and foreign policy, it often does not. Domestic cost concerns can override realpolitik concerns. When they do, the energy system can become a flashpoint for global conflict. At a minimum, I argue, domestic energy policymakers must give due regard to realpolitik concerns in domestic market design interventions to mitigate or hopefully prevent such tensions – something that they can do. I outline in the book how they might approach.
Of course, this realpolitik is not itself an end – it is always a means. The same is true of profit motives in the domestic setting. These, too, are means and not ends. Profits are good for something (dividends, reinvested earnings etc.). The question then becomes: can we do better and define an end of the energy system in its own right?
In Theory, I argue that the energy system’s logic permits us to gain a deeper understanding of this end. All stakeholders can achieve their goals only when they are connected to, by, and through the entire energy system. Without a market, no innovator (no matter how smart) can set up an energy company to sell to customers. This market depends on policy choices. These policy choices, in turn, require energy companies to step in to deliver desired results. The energy system ties them together. They belong together and are tied together by a bond of belonging. This bond of belonging exists to deliver more energy. This energy, in turn, is profitable only to the extent it improves human development outcomes. The very logic of more energy compels more human development and human empowerment to live a dignified life. Without this as a goal, energy growth will end. With this goal, however, energy growth flourishes. When we ask the last ‘why’ of energy, the answer Theory gives is that the energy system exists to further energy growth to support the progressive realization of human development and that such continued growth presupposes action consistent with a bond of belonging tying together correlative rightsholders in the energy space.
Importantly, the same bond of belonging applies globally and not just domestically. We need inputs from around the world to make national systems work. Innovation, similarly, is global. This means that there is a common global energy good benefitting all stakeholders. Acting for the common global energy good is something that is also good for one’s national energy good. Energy realpolitik, in other words, can and does have a goal that is valuable in its own right: it means to be an active participant in the global energy system. Just like it is prudent to develop one’s own land when a neighbor drills a well, realpolitik means that we must develop our own resources to decentralize and deconcentrate energy inputs from ideas to materials, refining capacity to manufacturing. The logic of energy systems makes sense of how we can do this whenever we align incentives for stakeholders to strengthen the system. It is this logic that the book develops on an interdisciplinary basis to explain and provide a backstop for the legal work done in Principles and Transnational Law.
This paper represents the research and views of the author(s). It should not be construed as legal or investment advice. It does not necessarily represent the views of the Tulane Energy Law & Policy Center, or Tulane University. The piece may be subject to further revision.
