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Timothy Meyer University of Georgia School of Law

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1 Timothy Meyer University of Georgia School of Law

2  Climate governance has as one of its chief objectives changing energy consumption patterns  Roughly 65% of greenhouse gas emissions are from the energy sector  Climate regimes try to put a price on carbon  Pricing carbon incentivizes switching to lower-carbon fuels

3 No!  There are a wealth of energy institutions that attempt to influence the price of various fuels ◦ OPEC, IEP & IEA, IAEA, IRENA, GECF, ECT, WTO  Often institutions are single fuel-specific  Climate regime is a late arriver  Fragmentation: the proliferation of overlapping and non-hierarchical institutions  How does the climate regime interact with incumbent energy regimes?

4  The ability to influence the short and medium term price of oil turns on spare production capacity  Investments in fossil fuels require a long lead time to bring new capacity online  Price increases thus cannot be addressed in the short term by building new capacity

5  In the middle of the 20 th century the U.S. state of Texas, acting through the Texas Railroad Commission, effectively regulated the price of oil by holding up to 25% of production capacity in reserve

6  In conjunction with a U.S. inter-state agency, the Interstate Oil Compact Commission, and the major oil companies, the so-called Seven Sisters, the Texas Railroad Commission was an early example of public-private regulation of an international market

7  OPEC was formed in 1960 in response to a collapse in global oil prices  Early on, OPEC was focused less on production issues and more on renegotiating concession agreements with the Seven Sisters  Part of a larger effort by the developing world to assert sovereignty over natural resources  By early 1970s, OPEC nations had effectively nationalized int’l oil companies

8  By 1972, Texas was producing at full capacity  When the Arab-Israeli War resulted in the Arab oil embargo, Texas was unable to increase production and global prices soared  Regulatory power had shifted to OPEC

9  OECD nations responded by signing the Agreement on an International Energy Program ◦ Aimed to coordinate emergency response measures among oil-consuming states ◦ Imposed reserve requirements (60, then 90, days) ◦ Created the International Energy Agency

10  The Agreement)

11  Three types of linkages ◦ Institutional linkages  OPEC & IEA have observer status in the UNFCCC  Montreal Protocol contains trade sanctions for non- parties ◦ Bargaining linkages  OPEC countries link demands for financial assistance to support for climate change measures ◦ Functional linkages  Regulation in one area affects, e.g., consumption or production patterns in another area  A carbon tax might induce fuel switching and change investment patterns

12  Largely within the control of the parties  Can create value by creating mutually- supporting cooperative regimes ◦ Using trade mechanisms to enforce environmental obligations  Individual states may be able to create linkages to the disadvantage of other states ◦ OPEC’s insistence on financial assistance in exchange for support for climate change objectives ◦ The creation of the WTO and the TRIPs Agreement

13  Functional linkages are not within the control of the parties  The effect of functional linkages between issue areas is that cooperation in one area can either support or undermine cooperation in another area  Climate change institutions basically seek to raise the cost of carbon  Energy institutions have more complicated objectives

14  Oil prices rose to US$127/barrel of Brent crude during Libyan civil war  IEA members released oil from strategic reserves, triggering a 7.4% drop in the price of oil  What does this sort of incident mean for climate change?

15  Energy initiatives can interfere with each other ◦ OPEC and the GECF could increase production or reduce prices to defend market share & crowd out investment in renewables ◦ National fuel efficiency measures can cause the collapse of prices in carbon markets ◦ Emergence of the GECF and supplier dynamics could deter switching to natural gas

16  How do we manage functional linkages between energy and climate?  Issues of jurisdictional scope ◦ Single organization allows coordination of policies ◦ But increases transaction costs to setting policy  Issues of organizational detail ◦ Climate change is a pluralistic organization ◦ Energy institutions tend to be more technocratic  Incentives to comply?

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