Seeking Coherence in Complexity? The Governance of Energy by Trade and Investment Institutions
Trade in energy products and services and investments in the energy sector are central to energy security. Despite the rhetoric of energy independence, the world’s leading economies inhabit a complex world of energy flows and institutions that seek to govern them. This article asks: how is energy governed by international trade and investment institutions and agreements; and how would it be governed by these institutions depending on alternative governance preferences? Drawing on recent developments, it outlines three sets of tensions – between emerging multipolarity and existing regimes, between states and markets, and a structural imperative between energy and climate – that are shaping the context for energy governance. The article then analyses, from the perspective of energy exporters, importers and firms, how the landscape of multilateral, plurilateral and regional agreements manages these challenges. The current institutional configuration reveals partially overlapping memberships, incoherent rules governing state-driven policies and market-led interventions, and inconsistent rules between energy and environmental concerns. In pursuit of coherence in this complex milieu, the article ends by outlining a schematic framework for institutional design. The design choices depend on countries’ preferences for greater or lesser consistency in rules and on more integrated versus fragmented governance across institutions.
- Given the pressures of energy security, climate change and trade liberalisation, energy trade and investment cannot be governed through a single institution or regime.
- In order to govern the complex structure of energy trade-related institutions, policy makers need to make two sets of decisions: making rules more or less consistent across regimes; and adopting more integrated or more fragmented institutional designs.
- A realistic outcome is fragmented governance with more consistent rules: policy makers should aim to liberalise trade in environmental goods and services at the WTO; a climate agreement can offer signals for more low-carbon investments in the energy sector; and Asian institutions (ASEAN+6; APEC) can promote technology cooperation in the region responsible for the most increase in energy demand.
- The status quo – fragmented institutions and inconsistent rules – will most likely add to tensions in energy trade: more disputes on state-subsidised clean tech investments; increased competition to secure exclusive access to oil, gas, coal and other minerals; and threats of unilaterally imposed environment-related trade barriers.