View source for Energy Commons as a Governance Framework for Climate Stability and Energy Security


'''* Article: THE ENERGY COMMONS. A Governance Framework for Climate Stability and Energy Security. By Charles Elworthy.'''


=Executive Summary=

Charles Elworthy:

"The interrelationship between energy, energy security and environmental protection at
an international level can be understood using the context of an energy commons, a communal
form of governance without a central authority. The current energy commons governance
system fails to adequately address environmental externalities, and the attempts of the Kyoto
Protocol to control carbon emissions through measures by energy consuming states are
fundamentally flawed. Energy producers have been given perverse incentives to increase
rather than curtail extraction, and to divert energy production to non-Kyoto states which
generally possess dirtier energy technologies.

The appreciation of supply-side feedback mechanisms leads to the conclusion that
controlling carbon emissions will require quantitative restrictions on extraction and
exploration. The implementation of a cap and trade system for fossil-fuel extraction and
exploration is proposed, to be administered by an intergovernmental organisation. The
suggested governance structure is based on the successful model of independent central banks:
strategic decisions would be made by an intergovernmental council, with operational
implementation delegated to an accountable and effective executive. The achievement of
relevant energy security and carbon emission objectives requires particular policies and
mechanisms.

...

The governance framework has similarly fundamental consequences for energy
suppliers and consumers, and indeed all those affected by climate change. Involving the most
relevant stakeholders at an early stage would bring their expertise to the evaluation and
improvement of both the overall proposal, and its particular elements. It is in this participative
spirit that this paper is intended to contribute to discussion about appropriate global
governance systems, and the provision of climate stability and energy security."



=Excerpts=

==Introduction==

"This paper has the ambitious objective of reconciling the economic and the
environmental impacts of energy usage. It is an unpolished “work in progress,” and covers a
wide range of themes from a variety of perspectives. Despite the generous assistance that I
have been given I am very aware of its inadequacies, and suggestions and criticisms are most
welcome. It is in this participative spirit that this paper is intended to contribute to discussion
about appropriate global governance systems, and the provision of climate stability and
energy security.

These two worlds of energy and the environment tend, in both their academic and
their practical manifestations, to speak different languages. The paper develops a simple
interpretive framework connecting the two worlds using the concept of the commons, a
communal form of governance without a central authority. It contends that the
interrelationship between energy and the environment at a global level can be understood
from the context of an energy commons, and shows that the failure of the Kyoto Protocol is
comprehensible—und was predictable—from this perspective.

The paper examines attempts to impose demand-side constraints over the emission of
carbon dioxide. It concludes that control must instead be achieved by addressing the
fundamental causes of carbon emissions—the extraction and combustion of fossil-fuels. This
implies the control of current and future extraction through an international authority.
The characteristics of energy security are examined as the critical requirement for
economic growth and development. The paper then assesses the extent to which the
apparently divergent needs of energy security and climate stability can be reconciled in an
energy commons regime. It examines the characteristics of a possible institutional structure
and assesses the most important governance objectives of such a system, concluding with a
brief review of the financing, feasibility and fairness of the proposal.


==The Concept of the Commons==

The word “commons” originally described an area in England of communal
ownership, such as the village green. While perhaps evoking images of country cricket and
bucolic rural scenes, the expression has been broadly extended and is often associated with
central issues which generate intense social conflict. In general it refers to common pool
resources (or common property resources, CPRs), where resources are held in common and
the use by one actor reduces the utility derived from that resource by everybody else. In
contrast to open access resources CPRs are characterised by property rights, but they are
exercised by a collective or community rather than one private entity.

It has long been recognised both theoretically and practically that resources may be
subject to overuse if property rights are not clearly and appropriately assigned. In particular
this happens when competing parties gain the entire benefit from an activity, such as fishing,
while the costs are spread over all users of that resource—in this case all fishermen. Garrett
Hardin coined the memorable expression “The Tragedy of the Commons” for this
phenomenon, which has been observed in a wide variety of areas and eras. Hardin’s
analysis is widely interpreted to imply that communal usage will lead generally lead to suboptimal
management of CPRs and that private property rights are preferable.

This line of thinking has been challenged by important research generally associated
with Elinor Ostrom and her co-workers who have shown, through use of an inter-disciplinary
framework and detailed examination of particular cases, that communal rights do not
automatically lead to overuse of CPRs. Instead outcomes are not pre-determined, depending
instead upon the characteristics of each particular case. In the face of what appear to be very
similar situations, it is not uncommon for one community to develop an excellent
management regime, while the neighbouring village does not. A related finding is that
externally recommended or imposed solutions, such individual property rights to replace
collective rights, may lead to substantially inferior outcomes.

Resolving this apparent dichotomy between the apparent advantages of private
property and common property is made easier if we look at the details of the arguments that
Hardin and Ostrom have made, and recognise that property rights are embedded in a complex
institutional framework which supports their definition, enforcement, and exchange. 


Partha Dasgupta created a generalised theoretical analysis of CPRs, showing that the provision of
private property rights is a particular institutional solution that leads to socially optimal
results in certain conditions, but that:

both privatisation of the grazing land and cooperation over the use of that land as a CPR
involve trust. If the allocation defined by equation … is to be realised, the herdsmen have to
trust the ‘legal system’ to enforce private property rights to their parcels of land. Similarly, if
cooperation over the use of the pasture as a CPR is to be achieved, they have to trust one
another to enforce the agreement to limit each herd size.

Dasgupta’s analysis helps to tease out the various elements of various CPR
governance solutions. In particular he demonstrates the relative attractiveness of a private
property solution when there is a trustworthy external actor, typically the state with its
judicial systems, to assist the definition and maintenance of property rights. In contrast it is
generally more difficult for a community to create arrangements which result in socially
beneficial collective agreements. Communities find it difficult to create credible and longterm
commitments to impose punishments and sanctions on those that exploit common
property and therefore tend to unravel. 

In general:

* the higher the discount rate (the value of goods today as compared to in the future)
* the greater the uncertainty about the future
* the larger the size of the community
* the lower the productivity of the resource, the more difficult it will be to induce actors to limit their individual self-interest for the collective good.

Ostrom’s research meshes with this observation, as the following list of design
principles which she has found are associated with successful CPRs illustrates:

* Clearly defined boundaries
* Congruence between appropriation and provision rules and local conditions
* Collective-choice arrangements allowing for the participation of most of the appropriators in the decision making process
* Effective monitoring by monitors who are part of or accountable to the appropriators
* Graduated sanctions for appropriators who do not respect community rules
* Conflict-resolution mechanisms which are cheap and provide easy access
* Minimal recognition of rights to organize (e.g., by the government)
* In case of larger CPRs: Organisation in the form of multiple layers of nested enterprises, with small, local CPRs at their bases.

These rules have the effect of creating clearly defined and easily enforceable property
rights without private property as such. They show that clearly defining the group that
“owns” a resource, and then giving it appropriate structures to monitor activity and impose
sanctions, is central to the prospects for success. 


Similarly, Hardin’s argument can by no
means be regarded as simply advocating private property rights:

- "The tragedy of the commons as a food basket is averted by private property, or something
formally like it. But the air and waters surrounding us cannot readily be fenced, and so the
tragedy of the commons as a cesspool must be prevented by different means, by coercive laws
or taxing devices that make it cheaper for the polluter to treat his pollutants than to discharge
them untreated. We have not progressed as far with the solution of this problem as we have
with the first. Indeed, our particular concept of private property, which deters us from
exhausting the positive resources of the earth, favors pollution. The owner of a factory on the
bank of a stream--whose property extends to the middle of the stream, often has difficulty
seeing why it is not his natural right to muddy the waters flowing past his door. The law,
always behind the times, requires elaborate stitching and fitting to adapt it to this newly
perceived aspect of the commons."

More generally, authors such as Karl Wittfogel have argued that the coordination
needed if a community is to meet the challenges of a complex irrigation system was a centralfactor behind the creation of large and effective states.

Extending this idea, such a capacity
can be regarded as an important dimension by which to measure the ability of a society to
coordinate individual behaviour in order to achieve collective goals. 

In Dasgupta’s words

“we usually reserve the term ‘society’ to denote a collective that has managed to equilibrate
at a mutually beneficial outcome”.

==[[Energy from the Perspective of the Commons]]==

At first sight it may seem odd to consider addressing energy resources, especially
those derived from fossil-fuels, from the perspective of the commons. For the most part
fossil-fuels are subject to clearly defined property rights. Yet closer investigation reveals that
in the vast majority of jurisdictions there are no simple private property rights which provide
for the ownership and sale of energy resources in a similar way to other resources such as
land or buildings. Instead governments are generally the legal owners of energy resources,
and control extraction either directly, through their own enterprises, or indirectly through the
creation of licences to extract for certain periods under certain conditions. Those few
countries which allocate direct ownership rights for energy resources, such as the United
States, have very extensive systems of laws and regulations governing multiple dimensions of
energy extraction, from financial payments through to technical and environmental
provisions.

There are a myriad of reasons for this special role for the energy sector which include
strategic, financial, technological and environmental factors, but which would go beyond the
scope of this paper to explore further. This government control of energy property rights is
especially apparent where energy resources lie outside conventional land property definitions.
In the United States, for example, there is no private ownership of mineral rights in territorial
waters. They belong to either State or Federal governments, who sell leases to energy
companies.

A second form of commons is at the “energy frontiers”. These are regions, such as
the Arctic, where the territorial sovereignty is not clearly ascribed to particular states. The
value of energy resources is so high that where such rights do not exist solutions tend to be
rapidly found. Important developments in the demarcation of rights under the Law of the Sea
and in areas such as the Arctic and the South China Sea can be ascribed to this pressure.12
Similar processes have led to the resolution of extractive commons, as when several parties
had rights to gas resources which were linked to create one common pool.

A third form of commons relates to attempts to harvest “free” renewable resources
such as wind, wave, tidal or solar energy. These are open access resources, and with
increasing energy extraction we can expect increasingly negative spatial externalities among
the producers. This is leading to calls for the establishment of legal frameworks which
provide solutions to this aspect of the commons, such as by assigning appropriate property
rights.

The fourth usage of the energy commons is somewhat more abstract and normative.

We can speak of a village community’s governance of its fishery, forestry, or river commons,
even when individuals have legal or customary rights of management and usage of particular
resources in that system. Such commons regimes balance the rights and duties enjoyed by
individuals with the economic, social, and environmental needs of the community.

In a similar fashion we can speak of the governance of the global energy commons,
especially those linked to fossil-fuels, and it is this sense that the expression is used in the rest
of this paper. The international system has no clear authority, so that the logic of the
fundamental collective action problem is very similar. Good behaviour of one country
alone, even if large and well-intentioned, is doomed to failure unless other countries are
similarly cooperative. It is a similar logic to that of the “good villager” who restricts his
fishing catch only to watch others exploit the resource.

This applies even when states have particular rights to specific resources, and these
are allocated further to particular private companies and other commercial entities. It is the
states that are in competition with each other in the international system, so that it is the states
as actors that have the role of villagers as actors in a local commons. As with a village
commons the international system has multiple possible equilibria, typically some associated
with high-trust solutions which lead to maximisation of the general welfare and some with
low-trust solutions.

The current organisation of the global energy industry is strongly reminiscent of an
uncoordinated commons. The “anarchic” character of the international system is particularly
visible here, as states have ultimate control over the energy resources within their jurisdiction
and generally use this control for their national and strategic purposes. The role that energy
plays in international relations is critical but difficult to precisely specify, as it may be
associated with relationships ranging from highly cooperative to commercially and militarily
conflictual—depending upon the particular parties and situation involved.

Coalitions and alliances have been created between energy supplying states, such as
OPEC, but they are generally focused on coordinating production to maximise financial and
strategic interests, rather than maximising general welfare. In general the current energy
commons is dominated by a search for “energy security” by each country and low levels of
trust and cooperation between states. The provision of energy security conventionally
implies “securing adequate energy supplies at reasonable and stable prices in order to sustain
economic performance and growth”, but the combustion of conventional fossil-fuels has
dramatic implications for carbon emissions and the global environment."


==Summary and Conclusions==


The paper contends that understanding the interrelationship between the
environmental and the economic aspects of energy use is best achieved in terms of the
concept of an energy commons. It argues that the current energy commons governance
system fails to adequately address environmental externalities, and that the attempts of the
Kyoto Protocol to control carbon emissions through measures by energy consuming states is
fundamentally flawed. Energy producers have been given perverse incentives to increase
rather than curtail extraction, and to divert energy production to non-Kyoto states which
generally possess dirtier energy technologies.

The appreciation of supply-side feedback mechanisms leads to the conclusion that
controlling carbon emissions will require quantitative restrictions on extraction and
exploration. The implementation of a cap and trade system for fossil-fuel extraction and
exploration is proposed, to be administered by an intergovernmental organisation. While
such controls might superficially appear to conflict with the need for „reliable and adequate
supply of energy at reasonable prices“, further consideration reveals that energy security is
best fostered by international cooperation rather than attempts at national energy
independence.

The suggested governance structure is based on the successful model of independent
central banks: strategic decisions would be made by an intergovernmental council, with
operational implementation delegated to an accountable and effective executive. The
achievement of comprehensive energy security and effective carbon emission objectives
requires particular policies and mechanisms as discussed in section 5 and summarised in the
table below. It is argued that these measures are generally common to both domains, with the
exception of the compensation of environmental externalities through mitigation and
adaptation.

It is generally accepted that in a local pastoral, forest or water commons a cooperative
solution, based on the self-restraint of individuals, can maximise the welfare of the all. The
proposed governance framework offers a similar vision for the energy commons: a
cooperative international solution, based on the self-restraint of individual states, ensuring
energy security and climate stability.

This governance solution represents a remarkable opportunity, given the centrality of
the issues at stake. Realising this vision, however, requires the energy producing countries to
accept explicit quotas on their extraction and exploration, and would be most stable with a
broadly based agreement encompassing both energy producing and energy consuming
countries. In essence this implies the proposed International Energy Organisation would be
combination of a Super-IEA with respect to energy security and a Super-OPEC with respect
to restrictions on fossil-fuel supply. Such an international institution would have strategic
implications for each state, as the broad participation needed for stability requires the sharing
of sovereignty between countries that have often experienced conflictual relationships. The
geopolitical dynamics within this heterogenous group of states would be particularly complex
and the collection of the revenues from the extraction permits would place the energy
producers in a position of relative power. Whether such an international cooperation would
be feasible is clearly one of the central issues that the proposal raises.

The governance framework has similarly fundamental consequences for energy
suppliers and consumers, and indeed all those affected by climate change. Involving the most
relevant stakeholders at an early stage would bring their expertise to the evaluation and
improvement of both the overall proposal, and its particular elements. It is in this
participative spirit that this paper is intended to contribute to discussion about appropriate
global governance systems, and the provision of climate stability and energy security."



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