Addressing Carbon Emissions and Oil Price Volatility

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Addressing Carbon Emissions and Oil Price Volatility

Wade Hoxtell

^•

Andreas Goldthau

Challenges and Opportunities for Transatlantic Energy Cooperation

Supported by the

European Commission

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Global Public Policy Institute (GPPi) Reinhardtstr. 

 Berlin

Phone: + •  •   -

Fax: + •  •   -

gppi@gppi.net ^• www.gppi.net

Authors: Wade Hoxtell, Andreas Goldthau Published: Berlin, February 

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in Berlin. His research interests include global energy governance, climate change, public-private partnerships and corporate social responsibility. He also works as a consultant to a number of United Nations agencies, including the UN Global Compact Office, UNICEF and the ILO, on partnerships and sustainability issues.

Before joining the Global Public Policy Institute in May 2006, he was a project assistant with the Aspen Institute Berlin. From 2003-2004 he worked as a legislative aide in the Wisconsin State Senate. He holds an MA in European Studies from Jagiellonian University in Krakow, Poland and undergraduate degrees in international relations, German, European studies and global cultures from the University of Wisconsin-Madison.

Dr. Andreas Goldthau is the head of the department of public policy and as- sociate professor at Central European University, an American graduate school based in Budapest, Hungary. His current academic interests focus on energy security and on global governance issues related to oil and gas. Prior to joining Central European University, Andreas worked as a transatlantic postdoc fellow in international relations and security with the Paul Nitze School of Advanced International Studies at Johns Hopkins University, the RAND Corporation and the German Institute for International and Security Affairs. He was also a research fellow with the Institute for East European Studies at the Freie Universi- ty in Berlin and a Fulbright senior scholar with the Elliott School of Internation- al Affairs at George Washington University. He has further worked as a Robert Bosch visiting lecturer at the Tyumen State University in Russia. Andreas holds a joint graduate degree in political science from the Institut d’Etudes Politiques de Paris and Freie University Berlin, a state certificate in Russian language from Lomonossow University in Moscow, and a PhD from Freie University Berlin.

Acknowledgements

This report draws on a two-year research and debate project entitled “Common Goals – Different Approaches? Strengthening Transatlantic Cooperation on Global Energy Issues” which was conducted by the Global Public Policy Institute (GPPi) and the Brookings Institution and generously funded by the European Commis- sion. The report is based on and summarizes the main findings of both applied research and the Transatlantic Energy Governance Dialogues (TEGD), a multi- stakeholder conference series bringing together EU and U.S. policy-makers, representatives of think tanks, NGOs, academia and the private sector.

The authors would like to thank Björn Conrad for valuable contributions and comments to this paper.

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1 Introduction . . . 5

2 Mitigating Carbon Emissions . . . 7

2.1 Diverging Policy Stances . . . 7

2.2 Engaging China . . . 9

2.3 Opportunities for Transatlantic Cooperation . . . 10

2.4 Policy Conclusions . . . 18

3 Strengthening Global Oil Governance . . . 20

3.1 Shifting Consumption and Production . . . 21

3.2 The Effect of Low-Carbon Policies on Oil Markets . . . 23

3.3 Opportunities for Transatlantic Cooperation . . . 23

3.4 Policy Conclusions . . . 26

About this Paper . . . 27

The Global Public Policy Institute . . . 27

The Brookings Institution . . . 27

Supporters . . . 28

Endnotes . . . 29

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1 Introduction

The common dependency on energy, shared by societies around the world, entails policy challenges of global nature and scope. From dealing with the negative externalities of greenhouse gas emissions and adapting to dwindling low-cost reserves of fossil fuels in the context of massively rising demand driven by major emerging economies such as China and India, energy poses challenges that transcend national borders, involve both the public and private sectors and cannot be meaningfully addressed at national or regional levels.

While the global dimension of energy challenges is unambiguous, the international community generally, and the transatlantic alliance in particular, has so far failed to supply the effective governance mechanisms that would form the basis of an effective multilateralism. Most of the existing institutions of energy governance have been crafted by the transatlantic alliance after the end of the Second World War, and thus in many ways reflect the economic and political realities of the Cold War era. There can be no doubt that this existing and largely fragmented system is in need of serious reform. And it is also clear that the transatlantic partners will have to play a decisive role in that process.

However, the transatlantic alliance is confronted with a number of crucial challenges in this context. First, while the EU and the U.S. promote broadly con- gruent goals and objectives in the context of global energy policy, there remain conspicuous exceptions where the transatlantic partners do not pull their end of the rope. The issue of climate change is one example. Americans and Europe- ans still promote fundamentally different goals and strategies in international climate negotiations under the umbrella of the United Nations Framework Con- vention on Climate Change (UNFCCC). Transatlantic unity, while no longer a sufficient precondition for effective global solutions to emerge, is nonetheless of absolute necessity.

Second, as indicated above, joint transatlantic action is no longer sufficient to or- ganize effective global energy governance. Even in case Europeans and Americans agree not just on goals but also on strategies to achieve such goals, their common weight, while still considerable, won’t be enough to result in lasting policy solutions. New powers, especially the major emerging economies such as Brazil, Rus- sia, India and China (the so-called BRIC countries) need to be brought into the mix. Thus far, the transatlantic partners have failed to effectively include these crucial new players in the global energy arena. This especially holds true with regards to China, an increasingly important player in global energy.

Enhanced cooperation between the EU, the U.S. and China is therefore a crucial prerequisite for more effectively addressing global energy challenges. Indeed, as Javier Solana, the former EU High Representative for the Common Foreign and Security Policy, has argued the EU needs to “go beyond a narrow Western

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prism” in seeking effective global energy governance. Only through a shared understanding – not necessarily to be equated with an alignment of interests, but rather an increased awareness of, and the capacity to manage, divergences – can Europe and the United States succeed in contributing to designing effective global energy governance and help to include China as a joint stakeholder for effective global energy multilateralism.

This report addresses transatlantic commonalities and dividing lines in two key energy issue areas: mitigating carbon emissions and governing the global oil market. These issue areas are highly intertwined and a prerequisite for mitigating carbon emissions consists of stable prices of oil, the prime energy commodity. This report sketches opportunities and constraints for the transatlantic alliance in exerting leadership on these issues.

The report draws on a two-year research and debate project funded by the Euro- pean Commission. The project, entitled “Common Goals – Different Approach- es? Strengthening Transatlantic Cooperation on Global Energy Issues”, was based upon a two-pronged approach of applied research and the Transatlantic Ener- gy Governance Dialogues (TEGD), a multi-stakeholder conference series bringing together EU and U.S. policymakers, representatives of think tanks, NGOs, academia and the private sector. Research and dialogue were closely integrated and implemented in parallel in order to inject interim research results into the planned dialogue sessions to foster substantive debate while at the same time also leveraging the expertise and experience of dialogue participants towards the research process. This reports summarizes the main findings of the project by de- liberately focusing on the two issues that participants considered the key challenges to current global energy governance: climate change mitigation and oil market management.

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2 Mitigating Carbon Emissions

As the scientific understanding of the catastrophic effects of global warming deepens, climate change is gradually being accepted as one of the most daunting challenges of our times. Like few other policy areas, global warming as an unam- biguously transnational phenomenon highlights the inadequacy of national approaches. This presents considerable challenges for the EU and the U.S., not only due to the diverging policy stances in the EU and the U.S., but also due to the fact that any significant reduction of global carbon emissions will have to reach beyond traditional alliances and integrate the emerging economies of the developing world, particularly China.

Despite these challenges, numerous opportunities exist for transatlantic cooperation. While the U.S. has thus far failed to follow the EU’s lead on multilateral efforts for binding emissions reductions, there are many potential avenues for cooperation at the sub-national level where interests among actors in the EU and the U.S. align, for example, among municipalities and businesses. Moreover, transatlantic cooperation on research and development holds considerable potential, not just for the development and deployment of new technologies such as smart grids, renewables and carbon capture and storage (CCS), but also to serve as the powerful core pushing towards a low-carbon transition. Finally, joint EU-U.S. strategies for engaging China on carbon emissions represent a critical area of cooperation which, arguably, must be a key building block of any transatlantic agenda.

2.1 Diverging Policy Stances

The transatlantic partners have been fundamentally divided over their approaches and priorities towards climate change in the past. The EU has established itself as the global role model and vanguard of climate change policy by setting a number of ambitious carbon emission reduction goals as well as spearheading legislative measures like the European Union Greenhouse Gas Emission Trading Scheme (EU ETS). While flawed, the EU ETS by far represents the most advanced market-based carbon emissions trading scheme in the world. While the EU’s mitigation efforts have not been immune to serious concerns about other world regions free-riding on Europe’s unilateral restrictions as well as internal conflicts about the distribution of mitigation costs, the EU can still consider itself the most committed player in the global climate change arena.

The EU puts a strong emphasis on multilateral emissions reduction efforts and has acted as the primary advocate for internationally coordinated measures against climate change since the early 1990s. It has been one of the main forces behind international agreements created under the umbrella of the United Nations Framework Convention on Climate Change (UNFCCC) and a staunch promot- er of internationally binding and quantifiable greenhouse gas (GHG) reduction

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commitments. In addition, the EU has put forward various incentive schemes to promote pro-climate action. For instance, the EU has committed to scale up its emissions reduction targets for 2020 from 20 percent to 30 percent if other developed countries define and commit to similar targets for their own economies.

In addition, in July 2009 as part of the Major Economies Forum the EU reiter- ated its commitment to scale up its emissions targets if China agreed to limit the growth of emissions to 15 to 30 percent below the business-as-usual benchmark.

In contrast, the U.S. has been extremely cautious in binding itself to any sort of mandatory carbon reduction commitments and the domestic political situation at present has created enormous barriers for any action on climate change. While ironically the most innovative approaches to emissions reduction, including the idea of cap-and-trade, originated in the U.S., domestic efforts to limit U.S. carbon emissions have been modest at best. The emissions reduction goals formulat- ed by the Bush administration in 2002 stipulate the reduction of GHG intensity by 18 percent over a ten-year period. This goal, representing merely a slowdown of U.S. emissions growth instead of any absolute emission reduction, has to be considered unambitious by any standard.

Moreover, the U.S. role in international climate change negotiations mirrored the lackluster domestic approach. While the Kyoto Protocol was signed during the Clinton administration, it was never put before Congress for ratification. In- stead, the Byrd-Hagel Senate resolution of 1997, stating that the U.S. would not sign the Protocol without appropriate binding commitments for developed and developing countries and assurances that the carbon reduction commitments would not seriously harm the U.S. economy, set the tone for the noncommittal U.S. position in international climate change negotiations. The inevitable deadlock between the U.S. and China on agreeing to binding emissions targets represented a convenient pretext for the U.S. not to invest itself in multilateral efforts to re- duce global emissions.

With the election of Barack Obama, there were high hopes for a shift in U.S. climate change policy and a breaking of the vicious cycle. The spring of 2009 witnessed a legislative battle in Congress with the introduction of the American Clean Energy and Security Act – a bill which was passed by the U.S. House of Repre- sentatives, but failed to achieve a vote in the Senate, ultimately resulting in the de- mise of both the bill and hopes for a shift in U.S. policy in the foreseeable future.

Since 2008, both blocs continue to suffer from the economic and financial crisis that hit the globe, a state of affairs which has shifted policy agendas. While the low carbon agenda in Europe has been impacted by more dominating policy issues, notably the Euro crisis, the EU continues to inch the process for mitigating global carbon emissions forward. In the U.S. against the backdrop of upcoming elections in 2012 as well as a slowing U.S. economy, the Obama administration seems to have ultimately put the low carbon agenda on hold.

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With diverging policy stances, the challenge of finding common transatlantic goals for mitigating carbon emissions cannot be understated. As the U.S. continues to lag behind the EU in setting up a mandatory carbon reduction mechanism at the federal level, goals and expectations for any sort of effective transatlantic cooperation in mitigating carbon emissions must be adjusted accordingly.

2.2 Engaging China

As the world’s largest carbon emitter, China plays a decisive role in combating climate change. According to projections of the International Energy Agency, Chi- na’s energy demand is set to grow by 75 percent until 2013, then representing 22 percent of global consumption (IEA, 2010). Since most of this demand increment will need to be satisfied by fossil fuels, notably coal, Chinese emissions stand to grow further. However, despite the massive growth of demand for fossil fuels, China has instigated a dramatic reversal of its domestic approach to emissions reductions over the span of only a few years, moving from climate change skeptic to dynamic player in the effort to move towards a lower carbon economy. In its twelfth five-year plan (2011-2015), China has set a number of ambitious targets, including a 16 percent reduction in energy intensity by 2015; greater industrial energy efficiency and more efficient buildings; increasing non-fossil fuel energy sources to 11.4 percent of primary energy consumption, part of which is planned to result from an increase in wind power to 70 gigawatts over the next five years, exceeding the 2020 target set a few years back; among other targets (WRI, 2011).

China’s position in international climate policy has so far been to stress its still comparably low per capita GHG emissions. Against the backdrop of their heavy carbon heritage, both on a per capita basis and in absolute terms, China therefore regards the U.S. and Europe as being mainly in charge of carrying the burden of mitigating climate change. While there is truth to this argument, it is future emissions paths – notably China’s – that will determine whether climate change can be contained or not. However, the diverging policies of the transatlantic partners and lack of shared leadership has proven effective engagement of China extremely difficult. A transatlantic agenda, combining U.S. and EU influence and resources, would be the ideal prerequisite for successfully engaging Chi- na in a multilateral framework for carbon reduction. These frameworks could be flanked by incentive schemes rewarding Chinese mitigation efforts with overpro- portionate efforts by the U.S. and Europe. However, the fundamentally diverging interests and strategies on both sides of the Atlantic have effectively prevent- ed the emergence of a desperately needed transatlantic agenda on climate change.

In the absence of this strong transatlantic lever, engaging China on reducing carbon emissions has led to a more fragmented approach which is closely reflected by both sides’ strategies towards China. The EU, true to its role as a global pro- moter of climate change mitigation, has gradually built a multi-layered network of EU-China cooperation on climate change consisting of institutionalized mech-

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anisms for political dialogue in combination with an array of working-level initiatives and joint programs covering most aspects of carbon emissions reduction.

Despite this comprehensive framework for engagement, EU-China cooperation on climate change has thus far produced mixed results, suffering from political resistance of powerful veto players on the Chinese side, non-existent backing from the U.S. side as well as internal divisions and political ambiguity on the EU side.

The U.S., likewise true to its role as a procrastinator of decisive action on climate change, also lagged in engaging in cooperative measures with China on the issue of climate change until relatively recently. Issues having to do with climate change were virtually absent from the U.S.-China political dialogue and exchanges on the bureaucratic level were extremely limited until the Obama administration acted quickly to change this situation by moving the issue to the very top of the U.S.-China agenda. In July 2009, the U.S. and China signed a memorandum laying the basis for an unprecedented level of bilateral cooperation on climate change (U.S. Department of State, 2009). The Memorandum provided a coherent framework for cooperative projects, created a coordinating committee for energy and environment agencies in the U.S. and China and formed a working group for coordinating efforts through the Strategic and Economic Dialogue (S&ED) and the Ten Year Energy and Environment Framework – two high-level fora for bilateral cooperation (Seligsohn et al., 2009).

Yet, creating reliable partnerships for engaging China on climate change, either through effective transatlantic collaboration or, more realistically, through sep- arate though coordinated approaches, is certainly no trivial endeavor. It will require building a common understanding of goals vis-à-vis China, making a collective choice of instruments most promising to achieve these goals and agreeing on a set of strategies to facilitate the implementation of these instruments in China.

Moreover, a major barrier to bilateral or even trilateral cooperation is the potential clashing of economic interests. While the problem of climate change requires cooperative measures and transfers of key technologies to solve it, new technologies are also sold in a very competitive market and the rents on innovation are substantial. Reconciling these two opposing forces is thus a considerable challenge for both cooperation among the EU, U.S. and China as well as for solving the climate dilemma (Conrad and Meissner, 2011).

2.3 Opportunities for Transatlantic Cooperation

It is becoming increasingly clear that, despite the best efforts of the Europe- an Union to the contrary, a comprehensive global agreement for the reduction of greenhouse gases is unlikely in the next decade. This is primarily due to the stance of both the United States and China who, due to a number of political, social and economic conditions, have not committed to binding and verifiable emissions reductions targets and, in doing so, create disincentives for other states to commit as well. Exacerbating the situation, the ongoing financial crisis has led

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to environments of austerity in the EU and the U.S. and trade-offs have relegat- ed climate policy to the back burner, particularly in the U.S..

Despite these challenges, opportunities exist for a wide spectrum of meaningful transatlantic initiatives. These range from top-down cooperation on governance challenges at the global level, bilateral cooperation on research and development and best practice sharing for transitioning to low-carbon economies through the short- to medium-term replacement of coal with cleaner-burning natural gas, to bottom-up initiatives at the sub-national level for promoting sustainable growth.

Finally, while all approaches will be necessary to achieve broad-based progress on emissions reductions in the EU and the U.S., strategies for engaging China on reducing emissions should represent a key priority for the transatlantic alliance.

2.3.1 Multilateral Cooperation

Despite the failure of the multilateral process in creating a global regime for le- gally binding carbon emissions reductions, there is plenty of space for transatlantic cooperation at the global level. First, with the commitments made at the 2010 United Nations Climate Change Conference in Cancún, Mexico for setting up a US$ 100 billion per year green climate fund by 2020, new international institutions and mechanisms are needed to manage the flows of future climate fi- nance and to set key priorities. Yet. such discussions would not necessarily take place within the Transitional Committee of the UNFCCC. Rather, as past experience shows, outlets such as the G20 or the Major Economies Forum become major fora for addressing issues of global concern. Crucially, they include emerging powers, notably China but also India. Moreover, they lend legitimacy to these talks as they give voice to developing countries in the process. Finally, they operate through top level summits, where key negotiations and agreements tend to take place anyway. Channeling carbon emission issues through the G20 and MEF means that emerging economies, particularly China, will need to have a bigger role in decision-making and thus take on more responsibility, something which China currently avoids.

Second, massive commitments of public money will be necessary to ensure that investments are made for transitioning to low-carbon economies, in addition to funding the commitment as agreed upon in Cancún. The EU and the U.S. must develop a shared vision on how to move forward in order to make a strong political case to constituent populations, as well as the private sector and investors, of why and how energy investments need to be made, particularly in light of the current economic and financial turmoil. Such discussions could occur within the context of the EU-U.S. Energy Council, a high-level forum launched in 2009 with the aim of providing a new framework for tightening transatlantic dialogue on energy issues, particularly with respect to economic growth and speeding up the low-carbon transition through cooperation on research programs and regulatory regimes.(Council of the European Union, 2010).

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2.3.2 Bilateral/Trilateral Cooperation

Multilateral outlets and efforts will not be sufficient to avoid climate change and considerable opportunities exist for bilateral cooperation between the EU and the U.S., as well as together with emerging economies such as China. In particular, cooperation is needed in the areas of research and development and strategies for bridging the fossil fuel age with the low carbon age. First, in order to push towards a low carbon economy, the world needs a substantial investment into research and development of promising new technologies, including renewables, smart grids and, of particular importance, carbon capture and storage and energy efficiency technologies, without which the achievement emissions reductions targets are impossible. For example, a new initiative between the United States Department of Energy and the Joint Research Centre of the European Commis- sion aims to facilitate global standardization of electric vehicles and the charg- ing infrastructure (smart grids) which would allow seamless operation of vehicles and EVSEs across borders and service areas of different utilities.(Argonne National Laboratory, 2011).

While public money will play a key role in contributing the needed capital for financing a global green transition, commitments by national governments will not be enough. In order to fill this gap, the role of the private sector is crucial and governments in the EU and the U.S. must commit political backing to this agenda by setting the right incentives for R&D, by creating clear and reliable regulatory frameworks, including, if appropriate, subsidy schemes in clean energy, and design frameworks that allows for corporate-level cooperation.

Second, soaring unconventional (shale) gas production in the United States, together with the widespread discovery of shale formations in key demand centers such as OECD countries and China, has led many to make the case for natural gas as a transition fuel towards a low-carbon age. Due to new technologies developed and tested in the U.S., there is now the possibility of accessing huge reserves of unconventional natural gas at a relatively low cost. Taken together, there is a legitimate possibility for a large-scale replacement of coal-fired power plants with natural gas plants – a move which many believe could achieve more than a 50 percent reduction in greenhouse gas emissions.

This development opens up new opportunities for the transatlantic alliance. As a global leader in the effort to stop climate change, shale gas is attractive for the European Union with respect to driving the efforts of the world’s largest pollut- ers, namely the United States and China. In the case of the U.S. where shale is already competitive against coal, this could lead to huge reductions without the need for implementing politically unpopular cap-and-trade or carbon tax policies.

In China, there is also a compelling argument for domestic shale production.

While coal represents roughly 66 percent of total primary energy demand and is growing (IEA, 2010), there are natural limits of growth in Chinese coal consump-

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tion to cover this demand. At present, half of the country’s railroad system is ded- icated only to the transportation of coal as reserves tend to be located consider- ably far away from major Chinese demand centers; pollution levels in major cities have reached maximum peaks, exerting negative effects on health and the environment and hence creating costs elsewhere. Thus, China would be well-served to increase the share of gas for meeting energy demand, particularly through domestic shale gas sources, of which there are plenty, as well as through LNG imports or imports from Russia.

Despite these optimistic prospects, a number of challenges remain which, at the same time, represent key opportunities for transatlantic cooperation. First and foremost, concerns regarding the need for large volumes of water for hydraulic fracturing and the potential risk of groundwater contamination are a huge potential sticking point. A study by the U.S. Environmental Protection Agency on the impact of hydraulic fracturing on drinking water is due in 2014, with prelim- inary results to be made public by 2012. However, additional research on the environmental implications of unconventional gas production is needed.

Second, as opposed to the United States, in Europe logistical and administrative hurdles regarding land access may halt widespread production of unconventional reserves (IEA, 2010). Whereas U.S. citizens own resources located under their property, and can thus reap considerable financial benefits if gas is produced on their land, this is not the case in the European Union. As resources in Europe in most cases belong to the government, there is considerable opposition to shale gas due to disruptive exploration and production methods, especially in areas of high population density.

To assist in framing the debate in Europe, the EU should continue to learn from the U.S. by sharing information and lessons learned, especially on environmental issues. The U.S. Global Shale Gas Initiative (GSGI), which helps countries identify and develop their shale resources safely and economically, already has partnerships with China, India and Poland, among others and is one potential forum for the transfer of technological, regulatory and environmental best practices.

2.3.3 Sub-National Cooperation

Despite popular support among a majority of Americans for policies to both prevent climate change as well as develop innovative new energy technologies, it is highly unlikely that the United States Congress will adopt a federal policy for mitigating carbon emissions any time soon. Because of this stalemate, efforts by the European Union and the UNFCCC to reach a global agreement on carbon emissions are likely bound to fail.

However, national policy measures and the top-down UNFCCC discussions and are not the only game in town. In the absence of a global climate deal, the best

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opportunity for EU-U.S. cooperation is to identify those actors with an overlap- ping interest in mitigating greenhouse gas emissions. The most promising avenues in this respect are numerous bottom-up initiatives designed to encourage emissions reductions, the most interesting and potentially constructive of which is cooperation between municipalities, regions and industry sectors in the EU and the U.S., as well as with third parties such as China.

In fact, expertise in this type of cooperation has been built up for years, with the European Union participating and providing expertise in numerous municipal, state and regional initiatives in the U.S. which aim overcome the federal stalemate on climate legislation. For example, the mayors of 1054 U.S. cities signed a Climate Protection Agreement which aims to meet or exceed the obligations of the Kyoto protocol. The state of California and many northeastern states have ad- opted aggressive policies for reducing greenhouse gas emissions, promoting energy efficiency and establishing renewable portfolio standards. Various regional cap-and-trade initiatives are also popping up, including the Regional Greenhouse Gas Initiative (RGGI), a collection of ten northeastern and mid-Atlantic states and the Western Climate Initiative (WCI), a collection of six U.S. states and four Canadian provinces. In addition, hundreds of corporate, non-profit and government entities have signed on to The Climate Registry, a non-profit organization that establishes standards throughout North America for businesses and governments to calculate, verify and publicly report their carbon footprints in a single, unified registry.

In addition, U.S. municipalities and states cooperate with their European counter- parts in a number of global initiatives. The International Carbon Action Partner- ship, for example, shares best practices in designing and implementing cap-and- trade systems and includes member states from the European Union and states participating in the RGGI and WCI, among others. The C40 Cities Climate Lead- ership Group, together with the Clinton Climate Initiative, is a network of large cities from around the world committed to implementing climate policies, while the Cities for Climate Protection, an association of over 1220 local government members and from over 70 countries committed to sustainable development, cooperate to implement sustainable development policies

These cooperative networks, among numerous others, represent the most promising opportunity for the European Union and the United States to both jointly mitigate carbon emissions as well as engage with other crucial actors in China.

They are sub-state levels and hence less politically charged. There is expertise on how to coopt actors from various countries into regional or even global policy networks. And a problem oriented approach – through mayors sharing a clean- air agenda or businesses caring about the carbon image of their products – provides for natural ‘allies’ as Chinese, European and American policy makers or businesses are exposed to similar issues.

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2.3.4 Engaging China on Global Carbon Emissions

While all of the above represent crucial opportunities for EU-U.S. cooperation on mitigating greenhouse gas emissions, it will not be enough to slow the onset of potentially catastrophic global warming. It is crucial that China, as the world largest emitter of carbon dioxide, be brought on board. Between the established channels of institutional cooperation between the EU and China on many climate-related issues and commitments for more bilateral cooperation between the U.S. and China, a promising starting point exists for the creation of a coherent and comprehensive transatlantic agenda vis-à-vis China and climate change.

The first step on the way to a transatlantic agenda will be the definition of a set of common goals that strikes the right balance between an effective reduction of GHG emissions and high feasibility in light of the Chinese political reality. Sim- ilar to the EU’s engagement with the U.S., this means parallel processes of high- politics for hashing out an international agreement with China on board, bilateral cooperative measures at the national level, as well as sub-national initiatives among actors in the EU, the U.S. and China with common interests, for example, municipalities, business sectors or researchers. Only through more depoliticized, sub-national initiatives, flanked by international processes such as the UNFCCC and bilateral cooperation measures, can China be engaged on a level which is both politically possible and allows for the credible delivery of emissions reductions.

2.3.4.1 Multilateral Cooperation

Moving towards a transatlantic agreement on goals and objectives starts with a debate about the most fundamental aspect of governing global carbon emissions, namely the fair distribution of the burden associated with emissions mitigation.

Support for carbon reduction hinges upon a distribution of costs that is perceived as acceptably fair by all parties. Reaching such a common understanding with China is inconceivable without first creating a stable agreement between the transatlantic partners regarding an appropriate framework for global burden-sharing.

In the past, the most prominent instrument used by the EU for emissions reductions in China has been the Clean Development Mechanism (CDM) under the Kyoto Protocol. However, the CDM is a mechanism that is most suitable for har- vesting low-hanging-fruits such as energy efficiency and the potential of the CDM in China in this respect is approaching exhaustion. While the overall effectiveness of the CDM is subject to much debate, it has succeeded in building local awareness of carbon reduction as a tradable good. China’s experiences with the CDM therefore might be a promising starting point for the promotion of a nation-wide market-based emissions trading system (ETS) and thus becomes an interesting avenue to explore for an emerging transatlantic agenda.

While binding commitments towards absolute and quantifiable emissions reduc-

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tions certainly represent the key objective, China will continue to perceive absolute reduction goals as effectively creating a ceiling for China’s economic development, rendering such demands unfeasible in the mid-term. An alternative approach to this could rather include measurements of GHG intensity – primarily the amount of GHG emissions per unit of GDP – which is a measuring unit more in line with the Chinese domestic climate change efforts and perhaps a more appropriate target value for an emerging economy.

2.3.4.2 Bilateral or Trilateral Cooperation

Another instrument that is being prominently promoted in China by the EU is the development of Carbon Capture and Storage (CCS) facilities. Initially, making cost-intensive and experimental CCS technology a primary focus of EU climate change policy vis-a-vis China was highly contested among EU member states.

Eventually, the proponents of CCS under the leadership of the United Kingdom prevailed and CCS has since become the flagship of EU climate change efforts in China. While it is still too soon to evaluate the ultimate success of the EU’s efforts in this field, the introduction of CCS technology has already become an instructive example for the diversity of interests and the intricate setup of actors on the Chinese side that will also influence the success of a future transatlantic agenda. While CCS has met intense resistance from powerful Chinese government entities, and thus putting the future of the EU’s efforts at constant risk, it has also found an internal champion with the Chinese Ministry of Science and Technology.

A further avenue for potential cooperation is through supporting China’s legislative and regulatory efforts by sharing experiences and best-practices. Administrative support initiatives represent a way to improve the formulation and implementation of domestic climate change policies in China. The EU has gathered exten- sive experiences with these kinds of initiatives in the past, for example, through the EU-China Energy and Environment Programme (EEP) or more specific initiatives such as the CDM facilitation project or the EU’s Support to Regulatory Activities for CCS (STRACO2). These EU initiatives have encountered significant constraints due to China’s concerns regarding any sort of foreign meddling in domestic policy issues as well as by inflexible and bureaucratically convoluted processes on the EU side. The lessons learned from past EU administrative support initiatives can provide a head-start for comparable transatlantic measures to be implemented in the future.

In addition to prominently discussed instruments of emissions reduction such as carbon markets, there exists a whole spectrum of innovative measures worthy of exploring which could represent the pieces of a joint transatlantic agenda. The development of China’s market for natural gas through the utilization of abundant Chinese coalbed methane (CBM) or the creation of low-carbon Economic Zones (LCZs) modeled after China’s Special Economic Zones of the early 1980s repre-

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sent two of many options. But as the example of CCS promotion vividly shows, all of these approaches have something in common. They will have to be pursued with great awareness and sensitivity for the interests of different Chinese actors, expectations and political context.

Other thinkable strategies to facilitate the implementation of emissions reduction instruments through burden-sharing include major EU and U.S. investments in China’s energy infrastructure. These large-scale infrastructure deals, as argued by scholars such as David Victor, could significantly increase leverage on carbon emissions in China. For example, investments into natural gas infrastructure that make it more feasible for China to implement a shift from coal-fired to gas-fired power plants appear to be a promising option to be considered within the framework of a transatlantic agenda.

2.3.4.3 Sub-National Cooperation

A joint transatlantic agenda, combining U.S. and EU influence and resources, would be the ideal prerequisite for successfully engaging China in a multilateral framework for carbon reduction. However, in the absence of this strong transatlantic lever, the multilateral process must be flanked by a more fragmented and depoliticized approach involving actors with common interests and common challenges, for example, at the level of business sectors and municipalities.

While China’s experiences with the CDM may represent a promising starting point for the eventual adoption of a promotion of a nation-wide carbon market in the future, the more feasible avenue in the short- to medium-term is the creation of regional emission trading schemes, something which has already occurred in Tianjin, Beijing and Shanghai and which illustrate the opportunities of an emissions trading system in China. An intermediate step on the way to a full-fledged ETS might be sectoral crediting mechanisms (SCM), which establish a less ambitious carbon crediting scheme for especially well-suited business sectors, for example the electricity sector, spanning across different world regions. Sectoral mechanisms thus represent a way to participate in a ‘global’ agreement without making binding emissions reductions at the national level (Gavard et al., 2011).

The most hotly debated option for burden-sharing is the transfer of cutting-edge green technology that would save China the investments and time necessary to develop these technologies itself. While considered by China as the most important prerequisite for its commitment to an international accord on emission reductions, western governments and patent holders resist comprehensive technology transfer, which will create intensified competition by Chinese manufacturers entering the global market for green technology and thereby limit the rent on innovation.

As previous international cooperation efforts shaped primarily by the logic of economic competition have failed to significantly affect China’s energy transi-

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tion, joint technology development and testing could be a much more promising approach (Conrad and Meissner, 2011). European companies, having had ample experience with unfavorable joint ventures and intellectual property rights (IPR) infringements in China in the past, remain reluctant to engage in technological cooperation with Chinese partners. The UK’s Near-Zero Emissions Coal initiative (NZEC) in China follows this approach and illustrates its opportunities as well as its limits. One solution could be the creation of an IPR compensation fund for minimizing risks and increasing incentives for EU and U.S. companies interested in joint collaboration with Chinese companies (Conrad and Meissner, 2011).

Finally, joint technology development, particularly in the area of smart grids, represents a tremendous opportunity, particularly for EU and U.S. companies. While R&D on smart grids is still in its early phases in the EU and the U.S., and only a few pilot projects are up and running in, for example, Mannheim, Germany and Austin, Texas, China plans to install a smart grid system by 2020 and has pledged to invest upwards of US$ 37.6 billion in the coming years (China Economic Re- view, 2011). This presents considerable opportunities for EU and U.S. companies to use the “China laboratory” to improve their own technology through cooperation In fact, companies such as Siemens, General Electric and IBM are already involved in joint ventures with Chinese companies in the area of smart grids.

2.4 Policy Conclusions

Multilateral Cooperation

• Designing mechanisms and institutions for governing financial flows need to occur at the highest level, not within the UNFCCC process, but through fora such as the G20 or the Major Economies Forum. Emerging economies, particularly China, will need to be encouraged to play bigger role in decision-making and take on more responsibility in designing the appropriate institutions and mechanisms.

• China’s experiences with the CDM therefore might be a promising starting point for the promotion of a nationwide market-based emissions trading system (ETS) and thus becomes an interesting avenue to explore for an emerging transatlantic agenda.

• China will continue to perceive absolute reduction goals as effectively creating a ceiling for China’s economic development, rendering such demands unfeasible in the mid-term. An alternative approach to this could rather include measurements of GHG intensity – primarily the amount of GHG emissions per unit of GDP – which is a measuring unit more in line with the Chinese domestic climate change efforts and perhaps a more appropriate target value for an emerging economy.

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Bilateral/Trilateral Cooperation

• The EU and the U.S. must set the right incentives for R&D and create clear and reliable regulatory frameworks for encouraging private sector investments.

• The EU and the U.S. must develop a shared vision on how to move forward regarding the transition to low carbon economies. In order to con- vince constituent populations in the EU and the U.S. regarding the need for large-scale energy investments. Such discussions could occur within the context of the EU-U.S. Energy Council.

• The EU and the U.S. should explore the development of China’s market for natural gas, including the potential for investments into natural gas for encouraging a shift from coal-fired to gas-fired power plants.

• Additional research on the environmental and regulatory implications of unconventional gas production is needed in order to determine the limits and potential of natural gas as a bridge fuel to low-carbon economies. The EU and China, among others, should continue to learn from the U.S. by sharing information and lessons learned, especially on environmental issues through the U.S. Global Shale Gas Initiative (GSGI).

• Past EU administrative support initiatives should be evaluated for lessons learned in order to provide a head-start for comparable transatlantic measures to be implemented in the future.

Sub-National Cooperation

• A problem oriented approach at the sub-national level provides for natural ‘allies’ as Chinese, European and American policy makers or businesses are exposed to similar issues. These “bottom-up” initiatives, such as the C40 group of cities and partnerships between industry sectors, must play a key role, flanked by multilateral efforts.

• An intermediate step on the way to a full-fledged ETS in China might be Sectoral Crediting Mechanisms (SCM), which establish a less ambitious carbon crediting scheme for especially well-suited sectors, such as electricity generation.

• To encourage joint cooperation in the research and development of new technologies between the EU, U.S. and China, an IPR compensation fund could be created for minimizing risks and increasing incentives for EU and U.S. companies interested in joint collaboration with Chinese companies.

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3 Strengthening Global Oil Governance

Oil continues to play a critically important role as a source of energy for both industrialized nations and for newly industrializing countries, particularly Chi- na. Caused by an unmatched globalization process since the end of the last century, oil has become a truly global commodity. Now, oil is traded on exchanges in London, New York and Beijing; energy deals are hedged by financial service companies; prices are set by market movements and expectations of private agents of all kind; and all sorts of energy derivatives have become a playground of their own for financial speculators.

However, a number of challenges are putting in question the existing structures and mechanisms for governing global oil relations, including: a shift in the levels of consumption from west to east; a shift in non-domestic oil production from international oil companies to new state-controlled oil companies; and uncertainty regarding policies for mitigating carbon emissions.

These challenges are complex and involve an interplay of numerous actors and instruments involved in financing, producing, trading and consuming oil, together with the international, regional or national governance structures which set various incentives or disincentives. However, the current debates on oil are primarily focused on the security perspective and, particularly, on the role of national governments as the key actors in global energy relations (Goldthau, 2011a). This unilateral focus on “securing supply” is detrimental and can lead to the self-serv- ing prophecy of zero-sum relations in global energy where one state’s gain is another state’s loss.

If solutions to these challenges are not provided by the market, public action is required in order to avoid market failure and to ensure the provision of the global public good “energy security”. To do so, a number of criteria and key elements of institutions, organizations and processes to facilitate the provision of this global public good are necessary, including enhancing transparency on markets, decreas- ing uncertainty among state and non-state agents and regulating energy markets on a national and international level. For this, the existing framework of global energy governance must be updated, organizations are needed for exerting regulatory power, serve as a clearing house for vital oil market information and data and promote dialogue among consumers and producers.

Through analyzing the rules which govern the global oil market as well as the interplay between different actors, policymakers can develop solutions which are based not only on national interests, but on cooperative, win-win mechanisms.

The transatlantic alliance must form the core of any push towards more effective and inclusive mechanisms for governing global oil. However, none of these tasks

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can be taken on by the transatlantic partners alone and, in this context, defining the building blocks of a transatlantic agenda that give viable answers to these issues must also recognize the essential role that “new” oil consumers, particularly China, need to play in governing global oil.

3.1 Shifting Consumption and Production

Global oil consumption is rising drastically due to increasing demand from the non-OECD world, in particular Asian countries. The International Energy Agen- cy (IEA), the OECD energy watchdog, projects that global oil demand will rise to 99 million barrels per day (mbpd) by 2035 – a 15 percent increase over 2010 consumption levels. Since OECD demand falls in absolute terms, all of this growth comes from non-OECD countries, and almost 50 percent from China alone (IEA, 2011). By that time, the International Energy Agency projects China to consume 70 percent more energy that the U.S., the second largest consumer (IEA, 2011).

At the same time, the world’s oil reserves are increasingly controlled by state- backed national oil companies (NOCs), which control about 80 percent of the world’s oil reserves (The Economist, 2011). While in itself not a threat to global oil production, the problem is that many NOCs, as opposed to international oil companies (IOCs), tend to be opaquely governed and not required to report their activities. Consequently, market information such as exploration and production costs, investment volumes, total oil output or the financial information of their project is not made available, resulting in an increasing lack of market transparency and thus an unstable price environment (Goldthau, 2011a). This coincides with an increasing role of OPEC in the global market in the years to come. Until 2035, the organization will account for most of the output increment in global oil, pushing OPEC’s share in global production to more than 50 percent (IEA, 2011).

These shifts in consumption and production come with implications and challenges for existing institutions and mechanisms of global energy governance, particularly in two key areas: measures for mitigating supply shocks and ensuring accurate and timely market information. First, as the institution responsible for coordinating strategic oil stocks for responding to oil supply shocks, the IEA faces considerable challenges in fulfilling this role as a result of the shift in global oil consumption to non-IEA members. The mechanism designed to mitigate against supply shocks, the Coordinated Emergency Response Measures (CERM), requires member countries to maintain a strategic petroleum reserve equivalent to its consumption of net oil imports for a period of 90 days. The main function of the CERM is thus to ensure that, in case an international disruption to the global oil supply occurs, the IEA is empowered to release emergency oil stocks to member countries to help buffer the supply shock. However, as China and India are not members of the OECD and thus not integrated into the IEA and its emergency response measures, the strategic stocks of the OECD world reflect a decreas- ing market share which translates to reduced effectiveness against a supply crisis.

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While integrating major non-OECD consumers into the IEA and its emergency response mechanisms and data reporting requirements would be the most forth- right way of both ensuring the effectiveness of the CERM and the availability of comprehensive, accurate and up-to-date oil market data, the bylaws of the IEA require that new members first become members of the OECD, which entails cer- tain democratic and market economy principles. Even if potential new members fulfill these criteria (or if they are changed), potential new member will likely (and rightfully) challenge the distribution of voting rights in the organization in order to reflect their gravity in the global oil market. Furthermore, the current situation represents a classic free-rider dilemma where consumers such as China and India benefit from the existence of IEA strategic stocks and market information while not bearing the associated costs. The overall challenge, then, is whether the IEA can either provide sufficient incentives to make membership IEA attractive to these countries. If this isn’t the case, alternative governance solutions must be found. As the rule setting power in global energy is clearly shifting east, this is both a tremendous challenge to established IEA mechanisms (representing the ‘old’, OECD consumers), as it is a clear call on the emerging consumers in the oil market: China and India.

Second, while members of the IEA are bound to provide data on production and consumption, non-IEA members are bound to no such requirement. As a greater share of consumption is represented by non-IEA members, the overall accuracy and reliability of global oil market data is jeopardized. Compounding this problem, as discussed above, NOCs in non-IEA member states are not required to report their exploration and production costs, investment levels and production output. Taken together, these intransparencies have consequences on the proper functioning of the oil market, particularly with respect to price stability/volatility, supply and demand volumes and investment needs – potentially leading to supply crises down the road (Goldthau, 2011b, Harks, 2010). As the percentage of global oil both consumed by non-IEA members and produced by state-backed NOCs continues to increase, this problem can only become more exacerbated.

Finally, and coming as an additional challenge, oil market governance will need to cope with a still increasing share of supply stemming from a volatile region.

As the recent diplomatic quarrels surrounding Iran’s nuclear program have re- vealed, the Persian Gulf remains prone to conflict. This may not only have implications for oil price volatility, historically also a function of political turmoil in the Gulf, but also with regards to physical supply and transit. Traditionally, the U.S. has secured oil transit through the Strait of Hormuz, the world’s main

‘chokepoint’ for seaborne oil shipment. Yet, according to IEA projections, the U.S. will consume and hence import much less oil from the region in the future, due to efficiency gains in its car fleet and new domestic supplies (IEA, 2011). As a result, Washington may in the future be less inclined to foot the bill for keeping sea lanes open at any costs, which may have governance implications for physical trade and transit in oil.

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3.2 The Effect of Low-Carbon Policies on Oil Markets

The global oil market is also impacted by policies for moving towards a low carbon economy, particularly due to the fact that the greenhouse gas emissions resulting from the burning of fossil fuels contribute to global warming. The lack of policies for internalizing this externality into the price of oil and other fossil fuels represents a huge market failure – one that has only until relatively recently begun to be addressed through various means, including the Kyoto Protocol carbon markets and emerging Post-Kyoto climate regimes.

However, attempts in Copenhagen in 2009, in Cancun in 2010 and in Durban in 2011 to set binding CO2 emissions reductions target have failed and cap-and- trade systems still remain in their infancy. As witnessed in the U.S. and Austra- lia, even if cap-and-trade sys-tems are proposed, they will each take on a consid- erably different flavor depending on the political-economic circumstances in each country (Behr et al., 2009). Emerging markets such as China are certainly exper- imenting with domestic cap and trade schemes as well, but these laudable steps are clearly in their early stages. Moreover, economic interests of different countries or regions may well top climate change goals. Broadening Europe’s ETS system towards air traffic recently experienced major resistance from the U.S. and China, an issue which has the capacity to lead to a trade war in the aviation sector between Brussels on the one side and Beijing and Washington on the other.

This patchwork of carbon markets and the varying the degree to which regional or domestic carbon regimes are implemented impacts the oil market. Investments in the oil market, as in any other market, depend on stable expectations on the

‘rules of the game’. Depending on the success of any existing or emerging carbon market regimes, the price of carbon will vary and have an effect on the price of oil. This, in turn, may have negative implications on investment choices due to uncertainty among business on how future low-carbon policy choices might affect their costs. Industry representatives have therefore expressed strong interest in politics defining and implementing carbon regimes – with a clear outlook on design and timing. Furthermore, as the OECD signals its desire to move towards low-carbon economies, there is an even lower incentive for producer countries to make the necessary investments unless policies are set in place that provide for clear a outlook on the implementation and consequences of low carbon policies. Taken together, these uncertainties can lead to an environment of price volatility – something which is harmful to both producers and consumers alike.

3.3 Opportunities for Transatlantic Cooperation

While most observers on both sides of the Atlantic would subscribe to the general statement that a market provides the most effective allocation mechanism

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for any commodity, including energy, markets themselves do not exist in a vacu- um. They are created by states and maintained by state agencies and institutions – on a national or global level. These institutional foundations of energy markets require constant overhaul and adjustment. In light of the key challenges de- scribed above, there are a number of opportunities for the EU and the U.S. – as the core and driver behind existing global energy governance structures – to ensure that the institutional foundations underpinning the global oil market are inclusive and effective.

3.3.1 Reforming the International Energy Agency

As the share of global oil consumption shifts from the OECD to the non-OECD world, coupled with the emergence of a new low carbon energy paradigm among mostly Western nations, the primary transatlantic goal must be to ensure cooperative outcomes and a transparent, effective and efficient way to account for new players demanding their share of the cake – be it new consumer economies entering the global oil market or new industries.

At present, the only existing organization functioning as both a regulatory au- thority and a global hub for oil market information is the International Energy Agency. As discussed above, the organization faces a considerable challenge to its original mandate of facilitating a collective consumer response to potential oil supply shocks. As the overall share of the oil market represented by the strategic oil stocks of IEA members continues to fall, the ability of consumers to effectively hedge against an oil supply shock is compromised. Therefore, it is of crucial interest for the transatlantic alliance to ensure the IEA continues to serve a functional role in global energy governance by making the Coordinated Emergency Response Measures (CERM) fit for the future. This can only be accomplished by either providing the proper incentives to consumers such as China and India to join the organization, namely through the elimination of the OECD link and by reforming the IEA’s out-of-date voting mechanisms, or to design an alternative system of cooperation which incorporates emerging economies into emergency response measures. Either way, reforming the IEA is truly a multilateral endeav- or which requires a strong transatlantic core driving the process.

3.3.2 Improving Market Transparency and Investment Planning

The shifts in consumption and production patterns and the carbon pricing challenge stressed above lead to considerable implications for market fundamentals, including levels of supply and demand, price formation, investment planning and, of course, accurate information for measuring these. In order to ensure that the oil market can function properly, governance mechanisms are needed which include transparency and planning security through dialogue among consumers and producers as well as long-term policy certainty regarding the price of carbon.

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The key problem in the global oil is not the long-term availability of oil supply, but ensuring that supply keeps up with demand and that major global players have a voice in the development of global energy governance and energy devel- opments. First, only through producer-consumer cooperation emphasizing accurate market information for investment planning can this challenge be addressed head on. As observers have stressed, the only quasi-institutional arrangement at the international level for promoting producer-consumer cooperation so far is the International Energy Forum (IEF). The IEF is unique in that it brings together all major actors in the global oil market, including the IEA, OPEC, emerging economies as well as business representatives, to discuss key issues including market transparency, price volatility, production and consumption rates and investment planning. The IEF’s Joint Oil Data Initiative (JODI) was constructed in order to address market transparency by collecting, coordinating and publishing data representing almost 90 percent of world oil supply and demand (Harks, 2010).

In the absence of a perfect market, the IEF thus represents the best opportunity for bringing together all relevant players in the global oil market to ensure coordinated efforts in addressing key issues such as market transparency, investment planning, and supply and demand levels.

Second, in the absence of an effective multilateral response to these, and other, pressing energy challenges, the role of other informal groupings of major global players such as the G8 and G20 are also important (Graaf and Westphal, 2011).

Whereas the IEF can play a key role in ensuring market transparency and investment planning, the G8 and the G20 can provide complementary platforms for discussing key energy issues and broader trends. While the record of the G8 and G20 on energy issues is spotty at best, the groups can serve to provide a political impetus for group members and existing institutions of global and regional energy governance to address existing and future challenges.

While China’s participation in existing mechanisms of global energy governance has been limited, anecdotal evidence suggests this may be changing. At the Fifth World Future Energy Summit on 16 January 2012, Chinese Premier Wen Jiabao stressed the need for a better global energy market governance mechanism within the G20 framework to ensure fair, reasonable and binding international rules to make the global energy market more secure, stable and sustainable. (Ministry of Foreign Affairs of the People’s Republic of China, 2012). This represents both a positive development as well as a key opportunity for the transatlantic alliance to ensure more effective and inclusive means of governing global energy markets.

Finally, with regards to the carbon pricing challenge, as a global market for carbon is highly unlikely in the coming years, regional solutions will prevail and it is thus crucial to find ways to link different pricing regimes and have clarity regarding how they contribute to a global GHG emissions trajectory. Moreover, as the widespread development and deployment of renewables depends on being cost-competitive with fossil fuels such as oil, a predictable oil (and carbon) price is crucial for planning a low-carbon transition.

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3.4 Policy Conclusions

• To prepare for and ensure an effective consumer response to a supply crisis, China and India should be invited to actively participate in the IEA’s exercises of its Coordinated Emergency Response Measures.

• Producers and consumers must coordinate to a much greater extent than currently being undertaken. The International Energy Forum and its Joint Oil Data Initiative represent the best existing mechanism for ensuring market transparency through reliable data and cooperative decision-making.

• The G8 and the G20, as high-level and informal fora for discussing crucial global issues amongst major global actors, should work towards creating a common vision for global energy governance and translate this vision into policy recommendations for group members and the more functional institutions of energy governance, for example, the IEA, OPEC and the En- ergy Charter Secretariat. The G20 in particular, as a result of China’s new policy stance on the need for more effective energy market governance, is set to play a key role.

• As a uniform global carbon price is unlikely any time soon, aligning the carbon pricing policies of existing regional, national or sub-national regimes is crucial in order to ensure a more transparent and predictable investment environment.

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About this Paper

This paper is the result of a two-year research and dialogue program titled “Com- mon Goals – Different Approaches? Strengthening Transatlantic Cooperation on Global Energy Issues,” conducted by the Global Public Policy Institute (GPPi) and the Brookings Institution. The program was supported by a generous grant from the European Commission, with additional support from the Draeger Foun- dation and Central European University. For more information on the program, please visit www.globalenergygovernance.net.

The Global Public Policy Institute

GPPi is an independent think tank based in Berlin. mission is to develop innovative strategies for effective and accountable governance and to achieve lasting impact at the interface of the public sector, business and civil society through research, consulting and debate. To learn more about GPPi, please visit www.gppi.net.

The GPPi Approach

• GPPi is an independent and non-profit institute. GPPi receives project funding from foundations as well as from project partners and clients from the public and private sectors. The institute reinvests profits from consulting activities into its research work.

• GPPi builds bridges between research and practice. The institute’s international team combines research and public policy expertise with management consulting skills. GPPi fosters the exchange of knowledge and experience between researchers and practitioners.

• GPPi promotes policy entrepreneurship. Its work strengthens strategic com- munities around pressing policy challenges by bringing together the public sector, civil society and business.

The Brookings Institution

The Brookings Institution is an independent, nonpartisan organization devoted to research, analysis, education, and publication focused on public policy issues in the areas of economics, foreign policy, and governance. The goal of Brookings activities is to improve the performance of American institutions and the quali- ty of public policy by using social science to analyze emerging issues and to offer practical approaches to those issues in language aimed at the general public. For more on the Brookings Institution, please visit www.brookings.edu.

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The European Commission

The European Commission supports the joint GPPi/Brookings “Common Goals – Different Approaches? Strengthening Transatlantic Cooperation on Global Energy Issues” project as well as the “Transatlantic Energy Governance Dia- logues” conference series through a generous “EU-U.S. Policy Research and De- bate” grant. More information on the European Commission can be found at http://ec.europa.eu/index_en.htm.

The Draeger Foundation

The Draeger Foundation, founded in 1974, is a non-profit institution committed to the promotion of science and research, especially in the field of national and international economic and social order. By encouraging the intensive exchange of experience and ideas regarding issues which are of importance for our future, the Draeger Foundation endeavors—within the bounds of its capabilities—to make a contribution toward improved international relations. More information can be found at www.draegerstiftung.de.

Central European University (CEU)

Located in one of Europe’s most elegant capital cities, Budapest, accredited in both the U.S. and Europe, CEU offers a uniquely international atmosphere of academic excellence, critical reflection, and social engagement. CEU students come from over 100 countries of five continents, our faculty – from 30 countries. CEU stresses both academic excellence and public policy relevance of its teaching and research. We focus on key issues of the 21st century ranging from climate change to democratic governance and from international security to deeper understanding of history and philosophy. To learn more about CEU, please visit www.ceu.hu.

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