The Transnational Politics of Energy

Robert O. Keohane & David G. Victor

© 2013 by Robert O. Keohane & David G. Victor

ROBERT O. KEOHANE, a Fellowof the American Academy since1983, is Professor of Public and In-ternational Affairs in the Wood-row Wilson School at PrincetonUniversity.

DAVID G. VICTOR is a Professorin the School of InternationalRelations and Paci½c Studies atthe University of California, SanDiego, where he also serves asDirector of the Laboratory onInternational Law and Regulation.

(*See endnotes for complete contributorbiographies.)

For countries to deal successfully with energyissues, they must engage in international coopera-tion. This requires being strategic in selecting issuesto address. Although domestic politics undoubtedlytakes center stage in formulating energy policy,energy markets and environmental problems haveboth become global. As a result, any nation’s actionsto reduce greenhouse gas emissions meaningfully, tosecure reliable energy supplies, or to stabilize energyprices will be affected by the actions of many othercountries. International considerations raise hurdlesin the formulation of effective national policies, butthey can also create opportunities. In this essay, weexplore when such opportunities can arise, howsome hurdles to effective international coordinationcan be cleared, and how analysts and policy-makersshould think about the design and impact of inter-national regulatory frameworks. We argue that thestructure of international cooperation on someenergy problems, such as climate change, is prone todeadlock. But by recrafting these problems–usuallyby making them “smaller” and focusing on the areaswhere national interests are better aligned forinternational cooperation–participating countriescan avoid an impasse.

97

Abstract: Creating effective energy policy is hard, in part because it often requires effective internationalcoordination. For most salient energy-related issues–such as control of the emissions that cause globalclimate change or the building of stockpiles to make oil supplies more secure–international coordinationis inherently dif½cult. Solutions lie in making these problems more manageable by working in smallgroups of relevant countries; successful cooperation also hinges on ½nding incentive-compatible commit-ments that align, to the extent feasible, with national interests and are focused on areas where coopera-tion will yield tangible joint gains. The outcomes of such cooperation efforts are likely to be decentralizedcomplexes of networked institutions rather than integrated, hierarchical treaties that govern a coherentlyde½ned issue-area.

In the ½rst volume of this two-volumespecial issue of Dædalus, editors Robert Friand Stephen Ansolabehere ask, “Why iscreating energy policy so hard?”1 Focus-ing on the United States, they identify anumber of reasons, three of which couldbe summarized as follows:

1. Most important, the U.S. public does not want to pay more for energy even though full social-cost pricing is key to acoherent energy policy.

2. In particular, the U.S. public does not put signi½cant weight on global warm-ing as a driving force for policy regard-ing choice of fuels and energy technolo-gies.

3. Finally, the competitive and intensely polarized state of U.S. politics means that no policy elite can develop and impose a coherent energy policy with-out facing the impossible task of appeal-ing to extreme positions while also retaining enough centrist support to achieve policy passage.

The problems are not principally abouta lack of scienti½c knowledge, and theycannot be recti½ed with research. Instead,the problems are political and, as the ½rstvolume makes clear, apparently intrac-table. Action can be taken at the margin.For example, the Obama administrationrecently imposed new regulations thatmake the construction of new coal-½redplants in the United States very unlikelywhile also creating strong incentives toshut down a large fraction of the existing(mainly older) coal-½red plants. Overall,however, as volume 1 suggests, the politi-cal forces needed for major changes inU.S. energy policy are not in place. Thissecond volume, which also focuses pri-marily on the United States, devotes muchattention to the underlying behavioral andinstitutional forces that drive decision-making and choice. While there are some

causes for optimism, this volume echoesthe pessimistic message of volume 1.

It would be gratifying to report that thesituation in other countries looks morepromising, and there are indeed someglimmers of hope. The European Unionis in principle committed to reducingemissions by 80 percent by 2050; there ismore support in most of the EuropeanUnion for vigorous action on climatechange–and, therefore, on energy–thanelsewhere in the world.2 But Europe isdeclining as an economic force, account-ing now for only about one-½fth of theworld’s commercial energy consump-tion.3 China and India are rising forces inenergy (and most other matters of inter-national importance). Together, these twocountries account for at least half of thelikely growth in energy consumption andglobal warming emissions over the nextthree decades. If the advanced, industri-alized countries continue to struggle witheconomic stagnation as well as meetinglimits on emissions, the share of growthin emissions from these and other emerg-ing economies will be even greater.4 BothIndia and China (especially China) haveaggressive national programs to addresssome aspects of energy use, such as theneed to cut local pollution and raise ener-gy ef½ciency; nonetheless, independentnational action is unlikely to add up to aneffective global response on any of themajor energy issues requiring internation-al coordination. Neither China nor Indiaintegrates its oil stockpiles with the Inter-national Energy Agency (iea) system,and both have signaled wariness aboutentering into binding international agree-ments on climate change.

International cooperation is essentialfor an effective global response to energyand climate change issues, but true inter-national coordination is inherently dif½-

98

The Trans-national

Politics ofEnergy

Dædalus, the Journal of the American Academy of Arts & Sciences

cult to organize. Because there is no worldgovernment, effective collaboration mustinvolve states, multilateral institutions,and those ½rms and non-state actors thatplay important roles in an issue-area. Suchcooperation does occur, most notably intrade through the World Trade Organiza-tion (wto), in development through theWorld Bank, and on monetary issues–atleast when crisis concentrates the mindsof elites and publics–through the Inter-national Monetary Fund and Group of 20(G-20). But with respect to energy andclimate change, cooperation has beenhalting at best.

Under favorable conditions, coopera-tion emerges because there are tangiblejoint gains to be reached, such as bene½tsfrom international trade. In economicterms, as long as the status quo lies belowthe Pareto frontier, arrangements can bemade that bene½t all parties–providedthat agreements are reliably crafted andenforced. In such situations, cooperationemerges not out of harmony but from thediscord that has hitherto prevented par-ties from capturing these potential jointgains. Discord in such situations adverse-ly affects the interests of all participants,generating mutual desire for policy coor-dination that all crucial players ½ndpreferable to what would otherwiseensue.5 Our task in this essay is to applythe logic of international cooperation toenergy questions. In many respects, thereis little that is “new” about energy. Thefundamental challenges to and opportu-nities of political action within and amongcountries are familiar.

Conditions for cooperation at the glob-al level vary by the nature of the problem.Problems that are close to pure coordina-tion problems–with minimal conflicts ofinterest–are relatively easy to solve. Forexample, establishing common rules thatall aircraft will follow as they fly throughdifferent national airspaces involves com-

plex transnational coordination on topicssuch as radio frequencies, language, andthe design of navigational equipment,but these rules raise few dif½cult politicalissues because interests usually convergearound a focal point that provides thebasis for a solution. Often these focalpoints simply reflect the path blazed byearly, large adopters. When distribution-al issues loom large, however, problemsbecome more dif½cult: wrangles over“who pays” are familiar.

Also important is whether the bene½ts inquestion accrue to those who take action.Participants are more likely to invest incooperation when its bene½ts accrue onlyto them than when nonparticipants alsobene½t. When bene½ts can be appropri-ated, actors can employ reciprocity togenerate cooperation because one party’scooperative actions are contingent on re-ciprocal moves by others. If the sequenceof moves extends inde½nitely into thefuture, and if the prospective bene½ts toeach party are substantial, the reputationsfor credibility that develop can lead tosustainable cooperation.6 Leadership isalso more likely to be forthcoming whenpotential leaders see that they can appro-priate bene½ts from their actions.

By focusing on these two dimensions ofcooperation problems–that is, the degreeof conflict of interest and whether bene½tsaccrue to cooperating states or are morewidely diffused–we can generate expecta-tions about the relative dif½culty of solv-ing different energy-related problems atthe international level. Table 1 provides auseful stylization of the various coopera-tion problems. When there are few distri-butional issues and private goods areinvolved, we expect relatively easy coop-eration on a voluntary, decentralized basisbetween parties that will bene½t (upperleft-hand quadrant). In contrast, whensevere distributional issues and publicgoods are in play, as in the lower-right

99

Robert O.Keohane &David G.Victor

142 (1) Winter 2013

quadrant of Table 1, cooperation is verydif½cult. No single actor or small set ofactors has incentive to bear the costs andrisks of cooperation; potential leaders donot step in because they fear having topay disproportionately for revealing theirpreferences for action.

The off-diagonal boxes in Table 1 repre-sent intermediate situations, in whichcooperation is conditional on some othervariable. If the goods are public but rela-tively inexpensive to provide–keepingdistributional issues relatively minor–asingle participant or small group may½nd it worthwhile to bear the expense ofproviding the public good (Table 1, upper-right quadrant). In this scenario, thehegemonic actor or small group bene½ts,on balance, even after paying the costs;others get a free ride. Finally, if goods areprivate but distributional issues are pro-nounced, devising institutions that pro-mote repeated play, in which no actormakes huge unconditional commitmentsand con½dence is slowly built up over

time, can promote cooperation (Table 1,lower-left quadrant).

Table 1 shows that the prospects forcooperation (and the appropriate institu-tional design) depend on the “problemstructure.” The two dimensions shownin Table 1 are not the only possibilities;problems vary in many other ways, suchas whether costs and bene½ts are proxi-mate or far into the future. However, thissimple framework is a useful ½rst step inanalysis. Applied to international energyproblems, the framework in Table 1 re-veals why some problems have garneredcooperation while others fester. Table 2applies that framework to some majorenergy-related issues that have inspiredefforts at international coordination. Inthe following sections, we illustrate howthe problem structure affects the degreeof cooperation on each set of issues, andthen draw some implications for policy.

Cooperation is easiest in areas marked byharmony because countries already have an

100

The Trans-national

Politics ofEnergy

Dædalus, the Journal of the American Academy of Arts & Sciences

Table 1Four Basic Problem Structures: Prospects and Strategies for Cooperation

Cooperation Focuses on Private Goods

Cooperation Focuses on Public Goods

Low Conflict over Distribution of Gains and Losses

Harmony: Least severe challenges for cooperation; soluble when parties know their interests

Hegemonic cooperation: Soluble when a large country obtains a large enough share of the bene½ts that it is willing to invest in cooperation that bene½ts all

High Conflict over Distribution of Gains and Losses

Iteration: Soluble with repeated play

Entrenched discord: Most severe challenges; dif½cult to solve unless problem is broken down into smaller units where harmony, iteration, or hege-monic cooperation strategies are available

Source: Table created by authors.

incentive to make needed changes in poli-cy. Nonetheless, many of these cases looklike instances of international cooperation,in which agendas are set for internationaltalks, diplomats and political leadersmeet and wrangle over texts, and agree-ments are forged. But underlying thoseovert efforts at cooperation is a problemstructure that almost guarantees success.

Consider the G-20’s 2009 agreement tophase out fossil fuel subsidies.7 Manycountries were already far along in theprocess of removing subsidies for con-ventional fossil fuel technologies andredirecting those subsidies toward newenergy technologies–notably, renew-ables. A large amount of research haddocumented the harmful ½scal and envi-ronmental effects of these subsidies andhad shown that where subsidies promot-ed consumption of imported fuels, theyalso degraded national energy security.By the time the G-20 took up the matter,the various national policy efforts werefar from complete. In India, for example,large subsidies for kerosene and electricpower, which had originally been justi½ed

on grounds that they helped promotewelfare in rural, poor populations, hadbecome politically entrenched. But evenin these cases, governments were mobi-lized and making progress in changingpolicy.8 In the large energy-producermembers of the G-20–notably in Russia,and to some degree Saudi Arabia–sub-stantial market-oriented (and subsidy-reducing) energy-reform efforts wereunder way. (The world’s biggest users offossil fuel subsidies–Iran and Venezuela

–were conveniently not members of theG-20, and their subsidizing behavior re-mains unswayed by the G-20’s proclama-tions.) The politics for signi½cant (if notcomplete) subsidy reform were alignedwithin nearly all the major G-20 nations.9Conversely, if the G-20’s subsidy reformagenda had included other topics onwhich the countries did not already agree

–such as realigning subsidies for renew-able energy or nuclear power–the pros-pects for bold international agreementswould have been dim.

Even in these cases of harmony, inter-national cooperation is not automatic;

101

Robert O.Keohane &David G.Victor

142 (1) Winter 2013

Table 2Energy Issues by Problem Structure

Cooperation Focuses on Private Goods

Cooperation Focuses on Public Goods

Low Conflict over Distribution of Gains and Losses

Harmony: Example: phaseout of fossil fuel subsidies agreed by the G-20; agreements to “transfer” technology

Hegemonic cooperation: Example: coordinated manage-ment of international oil market, including strategic oil stockpiles, through the iea

High Conflict over Distribution of Gains and Losses

Iteration: Example: investment in deploying new energy tech-nologies through U.S.-China bilateral energy partnership

Entrenched discord: Example: constructing an effective global regime for climate change or energy

Source: Table created by authors.

active efforts at cooperation are oftenneeded. For example, international agree-ments such as the 2009 G-20 deal cangenerate common knowledge of com-mitments and help lock collective gainsinto place, preventing backsliding.10

They can reduce the costs of transactions–for instance, by creating a focal pointfor future cooperation. Work on fossilfuel subsidies could beget reforms onother types of subsidies. (As governments,besieged by ½scal austerity, start reform-ing renewable power subsidies on theirown, the prospects for international co-operation on these subsidy reforms willrise as well.11) Visible success in an im-portant area of policy can signal to coun-tries that are not members of the cooper-ative effort–in the case of fossil fuel sub-sidies, that includes most major energyexporters–that reforms are both neededand feasible.

Problems that seem intractable, whetherbecause they have severe distributionalimplications, involve public goods, orboth, often become much easier to man-age as a result of exogenous changes inpolicy, technology, or other circumstances.For example, consider the issue of technol-ogy transfer: that is, the overt (by gift orwith concessional funding) transfer ofhardware and intellectual property fromrich industrialized countries to developingcountries. Ever since the New Interna-tional Economic Order of the 1970s, mostinternational talks on energy and envi-ronmental issues that include developingcountries have also involved contentiousdiplomacy on technology transfer. Everymajor international environmental treatycrafted from the 1980s to the present hasincluded different obligations for indus-trialized and developing countries; inmany cases, such as in the ozone layer ac-cords, special funds have helped countrieson both sides of the rift ½nd commonground and engage in collective action.12

Meanwhile, an array of changes innational policy and economic growth ismaking technology transfer easier. Sincethe late 1980s, barriers to trade in prod-ucts with high intellectual property con-tent have plummeted because states haveviewed it as advantageous to open trade,within or outside the wto. For example,a sweeping set of reforms in India in theearly 1990s reduced or removed barriersto importing foreign energy technologies.As a result, Indian manufacturers of thesetechnologies have been forced to becomemore competitive, foreign suppliers nowhave new markets in India, and newpower plants in India are signi½cantlymore ef½cient than the older vintages.13

(Higher ef½ciency means lower emissionsas well as lower use of fuel, reducing thedanger of national shortages of coal anddependence on large coal imports.14)The sharp uptick in economic growth inall the major developing economies, atleast until recently, has also boosted de-mand for trade in technology and focusedgovernments on the national policiesneeded to keep energy use in check.

All these changes have made technologytransfer much easier. This progress has noterased the regular theatrical discussion oftechnology transfer in global environmen-tal talks, but it has led markets to transfermuch more technology. A problem withthe characteristics of discord was trans-formed into one that much more closelyapproximates harmony.

Turning to the off-diagonal boxes inTables 1 and 2, we now consider the twokinds of cooperation known as hegemoniccooperation and iteration. The most visiblehistorical example of multilateral coop-eration on energy–the iea’s efforts tocoordinate large oil consumers and man-age oil markets–arose largely as a resultof hegemonic leadership by the UnitedStates. In the wake of the ½rst oil shock,

102

The Trans-national

Politics ofEnergy

Dædalus, the Journal of the American Academy of Arts & Sciences

the large oil consumers saw a compellingneed to join forces. Given that oil is a fun-gible commodity, unilateral action by oneconsumer (for example, hoarding) can beharmful to other major consumers, whileconcerted action (for example, the coor-dinated ½lling and release of oil stock-piles) can improve the welfare of the col-lective. Cooperation of this type aims toprovide public goods but does not facesevere distributional barriers. At the time,all the large oil importers were alreadycooperating on other economic issuesthrough the Organisation for EconomicCo-operation and Development (oecd).Thus, they assigned the task to a newagency created within the oecd: theiea.15

The second oil shock (in 1979) revealedthat the mechanisms the oil importershad created did not work well in a crisis,compelling the iea to tighten its proce-dures and strengthen its systems forintergovernmental cooperation. Sincethen, no oil shocks of that severity haveoccurred–in part because large changesin the oil markets and the elimination ofmost price controls and quota systemshave made market signals more effectivein encouraging the private sector tostockpile and adjust behavior in line withfundamentals. The few tests of the system,such as in the aftermath of HurricanesKatrina and Rita in the United States(which knocked out a large fraction ofU.S. oil-re½ning capacity), suggest thatthe system is truly cooperative and rea-sonably effective.

Hegemonic leadership took a problemmarked by strong incentives for countriesto defect and made cooperation more like-ly. While all consuming countries stood togain from coordination, the largest con-sumer (the United States) was positionedto reap the largest bene½ts. Thus, the Unit-ed States had a strong incentive to incurmost of the costs and risks associated with

establishing the iea.16 Once created, theinstitution has endured even as U.S. eco-nomic power (in relative terms) haswaned. Whether the iea can endure therise of new economic powers remains tobe seen. Both China and India are largeoil importers, and thus both gain fromeffective coordination of stockpiles andmanagement of the oil market; but bothalso have strong incentives to accept a freeride. China, in particular, faces strong in-ternal pressures to seek security throughunilateral actions–namely, special dealsthat “lock up” supplies for China, importquotas, and a national system of oil stock-piles that is large yet whose purpose andoperation are shrouded in secrecy.

Looking at the lower-left box in Tables1 and 2, iteration can help yield coopera-tion in areas where the parties might dis-agree about the allocation of bene½ts andcosts but are able to internalize the gainsfrom cooperation. In such settings, coun-tries will cooperate if they are con½dentthat the other side will not defect. Whilethere are many ways to boost con½dence,one of the most reliable is through itera-tion. Past cooperation becomes a reliablesignal that more cooperation is possible,and the prospect of future interactionfocuses minds on long-term gains ratherthan short-term opportunities to defect.Joint investment agreements are anexample. Solving most energy problemsrequires new technologies, and mostenergy technologies are capital-intensiveand ½xed to the ground. Most intellectualproperty also requires high up-front costsand a long time horizon for pro½tability.As a result, a large fraction of internation-al investment disputes concern energytechnologies such as power plants. Yetcooperation produces huge gains becauseit raises overall levels of investment(which generally leads to more secure andless polluting energy systems). Moreover,a larger international market gives inno-

103

Robert O.Keohane &David G.Victor

142 (1) Winter 2013

vators more installations on which theycan test new ideas that, through learning,yield technological change. Iteration isone of the logics behind bilateral invest-ment treaties (bits), and it is also thelogic that inspires the U.S.-China bilateralinnovation and investment talks.

“Energy” intersects with many otherissue-areas, including climate change;thus, there are often calls for coherentinternational arrangements to managethese problems. In light of the frameworkpresented in this essay, it is not surprisingthat a coherent international regime doesnot exist for either energy or climatechange, let alone both of them together.In a word, these issue-areas fall into thelower-right box of Tables 1 and 2: discord.Understanding why there is no suchregime for climate change helps explainthe absence of an energy regime as well.

International regimes–institutions withlegally binding rules–are formally con-structed by elites who represent state in-terests as they conceive them. A coherentclimate change regime on the model of theKyoto Protocol would impose large sover-eignty costs on states by committing themto carbon emissions targets far into thefuture. Adhering to these targets would bevery expensive in economic terms, andleaders who took action would capturealmost none of the material bene½ts.Limiting climate change is a public goodbecause CO2 emissions affect Earth’s cli-mate–a public good that is available to(and potentially tarnished by) all peoples.Making matters worse, future generationswould be the major bene½ciaries, but pres-ent generations would pay the cost. It isdif½cult to imagine either democratic orauthoritarian leaders paying signi½cantcosts during their terms of of½ce for thesake mostly of people yet to be born inother countries, unless the prospect of cli-mate change becomes so severe and pal-

pable that ordinary people begin to worryintensely about it.

With respect to energy, the distribution-al problems are even more serious. A risein the price of oil, while good for produc-ers, is bad for consumers. The situation isnot zero-sum because both sides have aninterest in relative stability. That stabilitymight, in fact, arise through iteration–such as current efforts by oil suppliers andusers to improve the quality of data aboutthe oil market–were the conflicts overdistribution not so large and the economicconsequences of energy supply so highlydiffused. But interests diverge sharply.The interests of oil producers, reflected inthe Organization of Petroleum ExportingCountries (opec), and those of consum-ers, reflected in the iea, are often at oddswith one another. Consumers want secu-rity of supply, price stability, and relativelylow prices. The producers are divided be-tween price hawks and relative moderates,such as Saudi Arabia, which value stabilitymore highly; but their joint preference,certainly, is for higher prices than con-sumers prefer. And some producers wantto retain the “oil weapon” to put pressureon consuming countries with respect toother issues, such as political relationshipsin the Middle East.

As a result of these centrifugal politicalforces, efforts in the contemporary worldto construct integrated regimes that limitthe extent of climate change and assurethe supply of energy have failed. Instead,there is in each issue-area a regime complex:a loosely coupled set of speci½c regimes,as depicted for climate change in Figure 1.The most important reason for the emer-gence of a regime complex rather than acoherent regime lies in the nature of stateinterests as described above: that is, dueto intense distributional conflict and highuncertainty, incentives for states to makecommitments are low. Yet both broadissue-areas present opportunities for

104

The Trans-national

Politics ofEnergy

Dædalus, the Journal of the American Academy of Arts & Sciences

greater convergence on particular issues,or for smaller “clubs” to act. Remarkably,for example, the European Union hasmade signi½cant commitments to takedeep action.17 The result is a regime com-plex rather than a coherent regime or theabsence of agreement altogether.

In other words, discord helps explainwhy there is no coherent, integratedregime for climate or energy and why,instead, “complexes” of institutions haveemerged in both areas. Progress is beingmade on issues that pose few conflicts ofinterest, are dominated by one or a few

states, and in which iteration over timeenables cooperation to emerge and sus-tain itself: that is, issues that fall into theupper half and lower-left cell of Table 2.

The emergence of a regime complexrather than an integrated, comprehensiveregime on issues such as energy and cli-mate change should not lead us to despair.On the contrary, policy-makers who seekmore effective limitation on the magni-tude of climate change can use regimecomplexes to their advantage. And theavailability of a regime-complex policy

105

Robert O.Keohane &David G.Victor

142 (1) Winter 2013

Figure 1The Regime Complex for Managing Climate Change

Boxes show the main institutional elements and initiatives that make up the climate change regime complex.Elements inside the oval represent forums where substantial efforts at rule-making have occurred, focused onone or more of the tasks needed to manage the diversity of cooperation problems that arise with climate change;elements outside are areas where climate rule-making requires additional, supporting rules. Guide to acronymsused in the ½gure: Asia-Paci½c Partnership on Clean Development and Climate (app); bilateral investmenttreaty (bit); Convention on Biological Diversity (cbd); Convention on the Prohibition of Military or Any OtherHostile Use of Environmental Modi½cation Techniques (enmod); Food and Agricultural Organization of theUnited Nations (fao); General Agreement on Tariffs and Trade (gatt); Global Environment Fund (gef);Intergovernmental Panel on Climate Change (ipcc); intellectual property rights (ipr); multilateral developmentbank (mdb); Major Economies Forum (mef); Post Conflict Fund (pcf); United Nations Framework Conventionon Climate Change (unfccc); World Trade Organization (wto). Source: Reprinted from Robert O. Keohaneand David G. Victor, “The Regime Complex for Climate Change,” Perspective on Politics 9 (1) (March 2011): 10.

strategy suggests that countries mostcommitted to doing something aboutenergy issues should reflect on how totake advantage of the flexibility andadaptability of regime complexes, inso-far as the more coherent approach of aninternational regime remains unavailable.

One potential advantage of regimecomplexes lies in the faults of integratedregulatory systems that are already ap-parent in the United Nations FrameworkConvention on Climate Change (unfccc)and the Kyoto Protocol. It is dif½cult todesign effective regulatory systems in thecontext of a multiplicity of cooperationproblems, a broad and shifting distributionof interests, extreme uncertainty aboutwhich measures governments are willingand able to implement, and ambiguityabout how to craft viable linkages. Whenregimes are constructed, therefore, theyare likely to be unwieldy–a product ofpolitical compromise. But the dif½cultyof renegotiation will lead participants tocling to existing institutions, which takeon monopoly characteristics. For example,the broad coalition of developing countries–the Group of 77 and China–lambastedattempts led by rich countries to work insmall groups and outside the unfcccprocess during the run-up to the Copen-hagen conference, despite mounting evi-dence that the formal sessions were mak-ing little progress.

The dysfunctions of the unfccc mo-nopoly are especially evident in the KyotoProtocol’s Clean Development Mecha-nism (cdm), a system for encouraginglow-emission investments in developingcountries. Over the long term, engagementwith developing countries is essential; it ismathematically impossible to reach deepcuts in world emissions of warming gaseswithout these countries’ participation.The main compensation mechanism forenticing developing countries to partici-pate has been linkage to emission credit

markets through the cdm. Yet studiessuggest that, due to poor administration,perhaps two-thirds or more of cdm cred-its issued do not represent bona ½dereductions in emissions. Despite this real-ization, it is proving very dif½cult to ½xthe cdm. The complex and highly politi-cized nature of decision-making within itsun-based administrative system as wellas the unfccc and the Kyoto Protocolhave precluded meaningful reform.

While institutional monopolies havedysfunctions, a regime complex can be toofragmented. Components may conflictwith one another in ways that yield grid-lock rather than innovation; the lack ofhierarchy among speci½c regimes cancreate critical veto points; and forum-shopping can lead to a “race to the bot-tom.” Various crises in the energy regimecomplex over the years–notably the oilprice surges associated with the 1973 to1974 Arab state oil embargo and the Iran-Iraq war, particularly from 1979 to 1980–disrupted consumer markets.18 We arenot arguing that regime complexes arenecessarily better than other institution-al forms. Instead, we view them as likelyoutcomes in areas such as energy and cli-mate, where grand issue-wide efforts atinternational cooperation are likely toyield discord. In the linked issue-areas ofenergy and climate change, an integratedregime might be attractive as the mostlegitimate institutional form, but effortsto craft such a regime face enormouspolitical and organizational barriers. Theresult of efforts to construct such systemsin these issue-areas will be gridlock andonly weak substantive commitments. Amore loosely coupled system is inevitable.

If governments and non-state actorsseeking more effective management ofclimate change and energy issues behavestrategically, they can use fragmentedinstitutions to their advantage. A broadtopic such as “climate change” or “energy”

106

The Trans-national

Politics ofEnergy

Dædalus, the Journal of the American Academy of Arts & Sciences

consists of many detailed areas for inter-national cooperation, including the reformand eventual elimination of most fossilfuel subsidies; the creation of incentivesfor private investment in new low-emis-sion technologies, such as renewables,nuclear, and natural gas; and reforms toexisting institutions such as the cdm.Decentralized institutions can be moreinviting for leader countries that wish totake action on one or more of these topicsyet ½nd the full agenda daunting. For suchreasons, elsewhere we have argued thatregime complexes, if managed well, offerat least two distinct advantages over ef-forts to create single, integrated regimes:flexibility across issues and adaptabilityover time.19

Dispersed institutions also have disad-vantages, including multiple opportuni-ties for manipulation, a proliferation ofveto points, and gridlock as well as the factthat it is time-consuming and costly notto have a single set of rules. Therefore,proposals for speci½c elements, such asnew clubs, that would further fragmentclimate institutions should be carefullyassessed relative to whether they wouldenhance the overall performance of theregime complex. Whether the prolifera-tion of different forums working on theseissues is an asset or liability depends onhow these dispersed efforts are coupled.20

Yet thinking about regime complexesrather than simply focusing on the Kyotoclimate change regime can open up inter-esting possibilities for policy action. Forexample, it may be possible to address non-CO2 contributors to climate change, suchas black carbon, methane, lower atmos-pheric ozone, and industrial gases such aschlorofluorocarbons (cfcs) and hydro-fluorocarbons.21 Thus, while taking careto ensure that the regime complex doesnot become dysfunctional, climate policy-makers should look for additional actionsthat are feasible within the framework

outlined in Tables 1 and 2 and seize oppor-tunities to design programs consciouslybuilt on hegemonic power and iteration.

Domestic policy choices with respect toenergy and its externalities depend heavilyon the potential for successful internation-al cooperation. Without ambitious globalagreements and processes for detailed pol-icy coordination, many potential actions(such as raising the price of carbon) arelikely to be politically infeasible withinindividual countries because they willcreate competitive disadvantages. Eveninnovative countries–such as the eunations acting on climate change–will bewary of adopting national measures thatimpose costs much greater than what canbe justi½ed through international coop-eration. Wise energy and climate changepolicy hinges on what sorts of interna-tional agreements are viable.

We have argued that the feasibility ofpotential international agreements de-pends on problem structure as indicatedin Tables 1 and 2, which emphasize con-cerns over access to public goods and theseverity of distributional issues. Directlytackling issues that involve both publicgoods and severe distributional issues–which, unfortunately, include core issuesof energy and climate change–is likely tobe futile. But this conclusion is not a recipefor inaction. Instead, it suggests the needto identify elements within those broadtopics where the problem type is moreamenable to cooperation, where basic har-mony of interests or hegemonic powerand iteration can be brought to bear.

For countries to deal meaningfully withenergy issues over the next decade, theymust engage in international cooperation.To do so successfully, they will need to bestrategic in choosing the issues they willaddress.

107

Robert O.Keohane &David G.Victor

142 (1) Winter 2013

108

The Trans-national

Politics ofEnergy

Dædalus, the Journal of the American Academy of Arts & Sciences

endnotes* Contributor Biographies: ROBERTO. KEOHANE, a Fellow of the American Academy since 1983,

is Professor of Public and International Affairs in the Woodrow Wilson School at PrincetonUniversity. A member of the National Academy of Sciences, he has served as Editor of Inter-national Organization and as President of the International Studies Association and theAmerican Political Science Association. His publications include Power and Interdependence(with Joseph S. Nye, Jr., 1977), Designing Social Inquiry: Scienti½c Inference in Qualitative Research(with Gary King and Sidney Verba, 1994), and Power and Governance in a Partially GlobalizedWorld (2002).

DAVID G. VICTOR is a Professor in the School of International Relations and Paci½c Studiesat the University of California, San Diego, where he also serves as Director of the Laboratoryon International Law and Regulation. His publications include Climate Change: DebatingAmerica’s Policy Options (2004); Natural Gas and Geopolitics: From 197o to 2040 (edited withAmy M. Jaffe and Mark H. Hayes, 2006); and Global Warming Gridlock: Creating More Effec-tive Strategies for Protecting the Planet (2011), which The Economist named one of the best booksof the year.

1 See Robert W. Fri and Stephen Ansolabehere, “The Alternative Energy Future: Challengesfor Technological Change,” Dædalus 141 (2) (Spring 2012): 5–9.

2 Communication from the Commission to the European Parliament, the Council, the European Econom-ic and Social Committee and the Committee of the Regions: A Roadmap for Moving to a CompetitiveLow Carbon Economy in 2050 (Brussels: European Commission, August 3, 2011).

3 Statistical Review of World Energy 2011 (London: bp, 2011).4 World Energy Outlook 2011 (Paris: International Energy Agency, 2011). 5 Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy

(Princeton, N.J.: Princeton University Press, 1984). 6 Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984).7 G-20, Leaders’ Statement: The Pittsburgh Summit, Pittsburgh, Pennsylvania, September 24–25,

2009, http://www.canadainternational.gc.ca/g20/index.aspx?lang=eng&view=d. 8 Rahul Tongia, “The Political Economy of Indian Power Sector Reforms,” in The Political Econ-

omy of Power Sector Reform: The Experiences of Five Major Developing Countries, ed. David G.Victor and Thomas C. Heller (New York: Cambridge University Press, 2007), 109–174; andNavroz K. Dubash and Sudhir Chella Rajan, “Power Politics: Process of Power Sector Reformin India,” Economic and Political Weekly 36 (35) (September 1–7, 2001): 3367–3387, 3389–3390.

9 David G. Victor, Untold Billions: Fossil-Fuel Subsidies, Their Impacts and the Path to Reform–ThePolitics of Fossil-Fuel Subsidies (Geneva: Global Subsidies Initiative of the International Institutefor Sustainable Development, October 2009).

10 For a general discussion of this point with respect to international institutions, see Keohane,After Hegemony.

11 David G. Victor and Kassia Yanosek, “The Crisis in Clean Energy: Stark Realities of theRenewables Craze,” Foreign Affairs 90 (4) (2011): 112–120.

12 Elizabeth R. DeSombre and Joanne Kauffman, “The Montreal Protocol Multilateral Fund:Partial Success Story,” in Institutions for Environmental Aid, ed. Robert O. Keohane and Marc A.Levy (Cambridge, Mass.: mit Press, 1996), 89–126.

13 Anshu Bharadwaj, Rahul Tongia, and V. S. Arunachalam, “Whither Nuclear Power? EnergyImplications of the U.S.-India Nuclear Power Deal,” Economic and Political Weekly 41 (12)(2006): 1203–1212.

14 David G. Victor and Richard K. Morse, “Living with Coal: Climate Policy’s Most InconvenientTruth,” Boston Review (September/October 2009).

109

Robert O.Keohane &David G.Victor

142 (1) Winter 2013

15 Wilfrid L. Kohl, “Consumer Country Energy Cooperation: The International Energy Agencyand the Global Energy Order,” in Global Energy Governance: The New Rules of the Game, ed.Andreas Goldthau and Jan Martin Witte (Washington, D.C.: Brookings Institution, 2010),195–220.

16 Robert O. Keohane, “The International Energy Agency: State Influence and Transgovernmen-tal Politics,” International Organization 32 (4) (Fall 1978): 929–951.

17 The nature of the problem structure makes us skeptical about the sustainability of these pro-posed cuts, absent reciprocal action by other major emitters.

18 opec revenues quadrupled between 1972 and 1974 and increased by more than 50 percentbetween 1978 and 1980. See Jeffrey Colgan, Robert O. Keohane, and Thjis van der Graaf,“Punctuated Equilibrium in the Energy Regime Complex,” Review of International Organiza-tions 7 (2012): 117–143, Table 4.

19 For this argument, see Robert O. Keohane and David G. Victor, “The Regime Complex forClimate Change,” Perspective on Politics 9 (1) (March 2011): 14–16.

20 In the climate change issue-area, such forums are indicated in Figure 1 and include the G-20Major Economies Forum (mef), various technology and investment partnerships, and privatesector and nongovernmental initiatives. In the energy area they include, in addition to opecand the iea, organizations such as the International Energy Forum and the InternationalRenewable Energy Agency. See Keohane and Victor, “The Regime Complex for ClimateChange”; and Colgan, Keohane, and van der Graaf, “Punctuated Equilibrium in the EnergyRegime Complex.”

21 David G. Victor, Charles F. Kennel, and Veerabhadran Ramanathan, “The Climate ThreatWe Can Beat: What It Is and How to Deal With It,” Foreign Affairs (May/June 2012); andTowards an Action Plan for Near-Term Climate Protection and Clean Air Bene½ts, unep Science-Policy Brief (Nairobi: United Nations Environment Programme, 2011).

d

g