Introduction

Following the adoption of a ground-breaking compliance mechanism under the Montreal Protocol, there has been a rapid development of compliance procedures and mechanisms (CPMs) in multilateral environmental agreements (MEAs) that span environmental issues as diverse as climate change, genetically modified organisms, and hazardous waste.

One of the most sophisticated responses to compliance issues was the adoption of the compliance mechanism under the Kyoto Protocol. As negotiations on future related processes under the United Nations Framework Convention on Climate Change (FCCC) and its Kyoto Protocol progress, the issue of compliance will once again come to the fore. To provide a context, this chapter sets out an overview of existing CPMs in MEAs. First, the chapter will give a brief historical overview of the development of CPMs in MEAs. It will then examine the relationship between some of the key substantive obligations in MEAs and their CPM and then provide a brief comparative analysis of the main elements of the existing mechanisms, noting some of the operational challenges faced.

The decade of the 1970s brought the matter of energy policy to public consciousness and made regular headline news. The immediate precipitating events were the Arab and Iranian oil embargoes of that decade. Gasoline at the pump was rationed for the first time since World War II, oil prices quadrupled, inflation ensued, and a recession followed. The United States was seen as vulnerable to having its oil spigot cut off by Middle Eastern oil producers. Also at that time, our culture was experiencing a rising period of environmental consciousness. Combined, the forces of greater environmental awareness, energy vulnerability, and economic sensitivity gave rise to a series of energy policy studies that examined energy more strategically than we had in the past. Strategic energy studies are again in the news and have led to new approaches to how our country, and the world, should think about how to produce, distribute, and consume energy and how to handle its waste.

This chapter will examine the new energy thinking that began more than a generation ago. The next chapter will provide a set of more specific policy prescriptions that follow from the new thinking. To be sure, over the last generation, thoughts about energy policy have evolved. That evolution will be traced here.

Today, we can echo Lord Giddens and say that the United States has no politics of energy transition, at least, no comprehensive politics most certainly at the federal level. Successfully achieving a transformative energy policy is as much about paradigm and systems change as it is about crafting new substantive provisions. Moving away from fossil fuels to a low-carbon energy strategy is quite simple to articulate. It is more difficult, however, to manage the change in a multibillion-dollar, century-old economic and political energy system that continues to influence the way we think about our energy needs. The government has not banned offshore drilling in deep waters. Consumers have not stopped buying SUVs. There is no federal plan for financing the smart grid. And, environmentalists have not stopped opposing wind and solar projects. All serve as examples of the reluctance to abandon old fuel habits to the benefit of fossil fuel incumbents.

Systems change can occur if we accurately analyze the challenge and then apply the proper regulatory and market responses. Three themes emerge if we are to succeed. First, the endpoint is low-carbon energy, and it is not necessarily dependent on accepting either the science or the rhetoric of climate change.

Introduction

Moving away from energy business as usual has a direct and significant impact on our electricity future, particularly as electricity plays a larger role in transportation. To get there, however, the oil and electricity sectors will require different regulatory regimes. In the past, the two sectors were regulated significantly differently. Except in times of crisis, the oil industry was largely immune from price and allocation regulations. Instead, the oil industry was free to set its prices and, except for the beginning of the twentieth century, was treated as a competitive non-monopolistic industry. To the extent that government intervened in the oil industry, it did so through subsidies and financial supports, some of which were direct, some of which were indirect, and some, such as military support, were hidden. Such financial support subsidized, and therefore underpriced, the cost of gasoline at the pump. By contrast, the electricity industry was heavily regulated as a natural monopoly, which had the intended effect of supporting its expansion and capital development.

As our energy future evolves, the case can easily be made for the removal of government price supports and subsidies to the oil industry. The case can further be made for the necessity of pricing carbon, which will affect the price of oil, bringing it closer to its true cost.

There is much to be said about President Obama's remarks. We have talked for decades and decades about oil dependence and about the need to “break our addiction.” Government regulation has been held captive by oil lobbyists. We do lack the political will to move away from the traditional energy path. And, tragically, the country may now have an opportunity to focus on an energy transition because of the ecological disaster in the Gulf of Mexico. Later in his remarks, the president also called the transition to a clean energy future a national mission to be furthered by technological research and innovation and through a new energy economy. This chapter explores the political impediments that have prevented the transition and argues, more hopefully, that a new energy politics is emerging. The new politics is based on a non-partisan consensus energy policy and is supported by a broad array of public and private actors employing a wide set of strategies to make a transformation to a clean energy future possible.

Ending Dirty Energy Policy was completed while the stories and the federal investigations of the Upper Big Branch Mine disaster and the Deepwater Horizon offshore explosion, which appeared intent on killing the Gulf of Mexico, were unfolding. The corporations responsible for these tragedies, Massey Energy and BP, through their CEOs Don Blankenship and Tony Hayward, sadly exemplify the dominant energy policy of the United States: Fossil fuel profits are to be made at the expense of the safety and lives of workers and at the risk of catastrophic, sometimes irreversible, environmental degradation. This callous attitude cannot be blamed on corporations alone. The United States government served as partner to constructing a fossil fuel policy intent on bringing to market cheap and dirty energy. As consumers of cheap fossil fuels, we are complicit as well. The century-old, fossil-fuel-based U.S. energy policy must be transformed for a clean and economically healthy energy future.

The thesis of this book is straightforward. Regardless of one's position on climate change, traditional energy policy and its regulation must be dramatically reformed. In this way, energy policy transformation is a prelude to an effective climate change response. Ending Dirty Energy Policy proposes two dramatic changes. First, traditional energy policy with its fossil fuel favoritism must be rejected. Instead, new energy markets and new entrants that generate energy more cleanly through energy efficiency, and with renewable resources, must be promoted and supported. Second, the twentieth-century model of government regulation must also be rejected.

Introduction

The previous chapters demonstrated that the century-old U.S. energy policy has entrenched not only private, for-profit firms that provide and distribute energy; traditional energy policy has also entrenched public-sector regulators and bureaucrats that, ostensibly, oversee private actors “in the public interest.” Today, policymakers are faced with several demands for a new energy path, and a growing consensus has established the contours of that policy. In addition to climate change, a new energy policy is necessary to respond to threats to national security and economic security, which arise from a dependence on foreign oil; to respond to a desire for environmentally sensitive energy resources; and to respond to the desire for economic growth through the more efficient distribution and use of energy. The problem, then, should be clear: How can a transition to a new, smart energy policy occur in the presence of embedded private and public-sector actors?

Entrenchment occurs with any institution whether it is public or private or whether it is profit or nonprofit. The belief in one's own press, the willingness to maintain a market niche by producing tomorrow what one produced yesterday, the desire to replicate past successes and ways of doing business, and the ambition to exist in perpetuity can render any firm, bureaucracy, or philanthropy ineffective.

Thomas Edison would clearly recognize today's electric grid. John D. Rockefeller would also clearly recognize the desire to drill for oil in remote places. Both would recognize our passion for fossil fuels. Neither would recognize the extent of the government regulation of energy or the development of the field of energy law. Energy law, as a legal discipline, grew out of the energy crises and legislation in the 1970s. The first legal casebooks were published at that time, energy law treatises and journals were begun, and the organized bar and law schools began to treat energy law as a recognized field.

At the time, energy issues, particularly high oil prices and the costs of nuclear power, were regular headline news. President Carter staked his presidency, and lost it, on his aggressive, and largely failed, approach to redefining U.S. energy policy. Now, a generation after Carter, we find ourselves confronting another energy crisis in the form of global warming and environmental catastrophes. To date, the energy legislation that has passed Congress has not dramatically reformed U.S. policy. Nevertheless, energy policy makers and energy politics have taken on new configurations as new think tanks, new university-based research centers and institutes, and new non-governmental energy organizations (NGEOs) have entered the energy policy arena. Energy issues are again headline news.

In both the Apology and the Republic, Plato has Socrates issue the Delphic command: “Know Thyself.” Throughout the dialogues, Plato, for himself as well as for his teacher Socrates, issues another command: “Question everything.” I had the great good fortune of attending Christian Brothers Academy, CBA to its devotees, in Lincroft, New Jersey, where both commands were embedded in our education. CBA was, and is today, an all-boys high school that offered a college prep curriculum and so much more. As I remember our second day of classes, our homeroom teacher, Brother Brian, rolled up the sleeves of his cassock, which always meant business, stared at us for a moment, then asked: “How many of you were taught by the nuns?” From where I sat, all hands were raised. He paused and then said: “Well forget everything they taught you.”

Forget? What did Brother Brian mean? How could we forget? After all, we just graduated from primary school. And, isn't the purpose of education to remember all that we had learned? Was he simply taking a not-so-sly dig at the nuns? Was he otherwise preparing us for a different regimen of thought, a regimen taught by the Christian Brothers? Or did he have a deeper purpose? Was he challenging us to unlock the psychological mysteries of education, which, as revealed by Milan Kundera and Jorge Luis Borges, require memory and forgetting? Perhaps all of the above.

The history of energy policy reveals the tight relationship between government and industry. Over the course of the last 100 years, government regulation supported an energy industry that developed certain structural characteristics. In turn, regulatory agencies adopted a similar organizational structure. Called the “hard path” by Amory Lovins more than thirty years ago, hard path energy industries were privately owned, corporate, large-scale, capital-intensive, centralized, and regionally, nationally, or internationally operated. The oil, natural gas, coal, nuclear power, and electricity industries each possess those characteristics. Additionally, federal and state regulators mirrored the corporate structure and are highly centralized, operate over large jurisdictional areas, and are departmentalized to mimic the corporate operations of their regulatees.

Energy industries are large-scale. Internationally, nearly 80 percent of the oil produced in the world is produced by fifty state-owned and private oil companies. In recent years, privately owned oil companies have experienced significant mergers, such that five of the remaining super majors are all ranked in the top eleven private corporations in the world.

On March 21, 2010, President Obama proposed opening offshore waters along the Atlantic Coast, the eastern Gulf of Mexico, and the north coast of Alaska to oil and natural gas exploration. The area has preliminary estimates of 3.8 billion barrels of oil and 137 trillion cubic feet of natural gas. Was this announcement political heresy and a sellout of environmentalism or a hard-nosed realism consistent with a pragmatic view of our energy needs and of our energy politics? Oil exploration and drilling, in the face of cries for energy independence and environmental protection, is seen by some as a betrayal of a smart energy future. To others, though, it is unrealistic to assume that we will be driving electric vehicles powered by renewable fuels to any significant degree within the next generation, and it is equally unrealistic to assume that renewable fuels will supplant coal for electricity generation in the near term. Indeed, projections about the growth of electric vehicles reveal no significant market penetration for nearly a generation. Moreover, projections for electricity generation from renewable resources remain marginal, ranging from 9 percent in 2008 to 17 percent in 2035. Consequently, as attractive as a non-fossil-fuel future may be, a transition period appears to be most likely in which oil, natural gas, and coal play prominent roles. Yet problems persist.

The previous chapters covered the history of energy policy and regulation, the economic and political assumptions behind the traditional energy model, and the emerging critique of that model. Together, these analyses generated a new set of economic and policy assumptions on which to build a new energy policy and a new model of energy regulation. This chapter examines in more specific detail several policy proposals mostly published since 2006. In brief, since the turn of the millennium, a consensus energy policy has been developing from numerous studies, several of which emanate from either bipartisan or non-partisan organizations thus indicating the emergence of a new energy politics. To be sure, the emerging consensus has its direct predecessors, and the path to a new energy policy can be traced back a generation. Still, considering that the traditional policy is over a century old and has entrenched both private- and public-sector interests in multibillion-dollar industries, change comes hard and resistance is neither unexpected nor unpredictable.

Most carbon-emissions reduction is expected from investment and reinvestment choices in power, transport, housing and industry. Hence, one of the main purposes of the carbon-price signal is to drive investment choices. These choices, especially in the infrastructure sector, are typically associated with long time frames over which returns are expected to finance the initial investment. This does not automatically imply, as frequently argued, that infrastructure and technology choice cannot evolve rapidly.

Figure 4.1 illustrates the rapid investment in combined-cycle gas turbines for power generation which occurred after the liberalisation of the UK gas and electricity markets in the early 1990s. Within half a decade, the new technology captured the biggest market share of UK power generation. This illustrates that market environments can drive rapid change if the appropriate framework creates sufficient certainty and incentives for investors.

The European Union emissions-trading scheme has put carbon prices on the agenda with executives of emitting companies. The cost of carbon is relevant to the investment decisions of 73 per cent of energy-intensive industries in Europe. The Stern Review (2006) on the economics of climate change highlights some concerns about the impact of uncertainty on low-carbon investment choices: