International cooperation is a broader
set of collaborative actions. Agreements
are informal and compliance less enforceable. International cooperation tends to be
negotiated through diplomatic channels,
whereas global governance tends to occur
via multilaterals. In practice there is considerable overlap between global governance and international cooperation, for
instance, informal dialogue or cooperation
between China and the USA in the run-up
to COP21 facilitated the Paris Agreement.
It is widely accepted that energy systems are undergoing revolutionary change.
But it remains unclear how global energy
governance (institutions, mechanisms and
norms) and international energy cooperation should respond. As a consequence of
the high transaction costs associated with
the reform of multilateral institutions, or
indeed from the creation of new organisations, changes in the past have been slow
and evolutionary. Yet abrupt economic and
energy security crises have, at times, led to
a more dramatic change—most notably
after the 1973 oil shock.
However, building long-term coalitions
and the structures to support them tends to
be incremental, as the alignment of nation
states’ objectives requires multiple rounds
of negotiations. A key question is whether
the main trends and drivers reshaping
energy technologies and producerconsumer dynamics will be reflected in a
renewal of global energy governance.
Another is what role China will play in this
process.
2.1 Strategic Direction of Travel
China will face several key strategic decisions to
achieve energy security and grid reliability, while
accelerating the energy transition to improve air
quality and lower emissions. These strategies
will sit along a spectrum of unilateral to
multilateral
approaches,
enabling
policy-orientated or market-led approaches, as
illustrated in Fig. 2.
All actions will require leadership from government, especially in the initial design and
implementation, be they market or policy
approaches. Market approaches are generally
aimed at enabling rules-based commerce and
trade, and ensuring a level playing field for
energy markets. Policy approaches imply a more
direct role for governments, such as in strategic
oil storage or bilateral investment frameworks.
Overall, China’s increased engagement on
energy through cooperative mechanisms or
multilateral arrangements is likely to lead to
sustained, mutually beneficial outcomes from a
wider number of countries. China’s leadership
could provide the foundations of trust and willingness to act.
The calculation of costs, benefits and risks by
China’s partners will change, depending on the
engagement of great powers with multilateral
organisations. If China focuses primarily on
unilateral action and multiple bilateral agreements, confidence in wider collective approaches
is likely to erode, resulting in fragile energy
security, higher transaction costs, a breaking
down of trade, reduced overseas investment and
slower progress to reduce emissions. This risk
would be amplified if the USA steps back from
investing in rules-based trade and wider multilateral arrangements.
China will, of course, weigh the price of entry
to any multilateral or plurilateral arrangements—
such as steps towards greater transparency—just
as existing members will weigh the impact of
Chinese membership or enhanced engagement
(such as reduced voting shares), relative to the
benefits. A potential leadership role for China in
international energy cooperation is of particular
relevance for the Belt and Road Initiative, where
the trust and engagement of many partners is
needed to underpin a win-win approach.
Given the open-market focus of many multilaterals, China will also need to consider making
government interventions, not just domestically,
but at the international level. While a command
and control approach to international cooperation
Special Report 5: International Energy Cooperation and Governance
601
set of collaborative actions. Agreements
are informal and compliance less enforceable. International cooperation tends to be
negotiated through diplomatic channels,
whereas global governance tends to occur
via multilaterals. In practice there is considerable overlap between global governance and international cooperation, for
instance, informal dialogue or cooperation
between China and the USA in the run-up
to COP21 facilitated the Paris Agreement.
It is widely accepted that energy systems are undergoing revolutionary change.
But it remains unclear how global energy
governance (institutions, mechanisms and
norms) and international energy cooperation should respond. As a consequence of
the high transaction costs associated with
the reform of multilateral institutions, or
indeed from the creation of new organisations, changes in the past have been slow
and evolutionary. Yet abrupt economic and
energy security crises have, at times, led to
a more dramatic change—most notably
after the 1973 oil shock.
However, building long-term coalitions
and the structures to support them tends to
be incremental, as the alignment of nation
states’ objectives requires multiple rounds
of negotiations. A key question is whether
the main trends and drivers reshaping
energy technologies and producerconsumer dynamics will be reflected in a
renewal of global energy governance.
Another is what role China will play in this
process.
2.1 Strategic Direction of Travel
China will face several key strategic decisions to
achieve energy security and grid reliability, while
accelerating the energy transition to improve air
quality and lower emissions. These strategies
will sit along a spectrum of unilateral to
multilateral
approaches,
enabling
policy-orientated or market-led approaches, as
illustrated in Fig. 2.
All actions will require leadership from government, especially in the initial design and
implementation, be they market or policy
approaches. Market approaches are generally
aimed at enabling rules-based commerce and
trade, and ensuring a level playing field for
energy markets. Policy approaches imply a more
direct role for governments, such as in strategic
oil storage or bilateral investment frameworks.
Overall, China’s increased engagement on
energy through cooperative mechanisms or
multilateral arrangements is likely to lead to
sustained, mutually beneficial outcomes from a
wider number of countries. China’s leadership
could provide the foundations of trust and willingness to act.
The calculation of costs, benefits and risks by
China’s partners will change, depending on the
engagement of great powers with multilateral
organisations. If China focuses primarily on
unilateral action and multiple bilateral agreements, confidence in wider collective approaches
is likely to erode, resulting in fragile energy
security, higher transaction costs, a breaking
down of trade, reduced overseas investment and
slower progress to reduce emissions. This risk
would be amplified if the USA steps back from
investing in rules-based trade and wider multilateral arrangements.
China will, of course, weigh the price of entry
to any multilateral or plurilateral arrangements—
such as steps towards greater transparency—just
as existing members will weigh the impact of
Chinese membership or enhanced engagement
(such as reduced voting shares), relative to the
benefits. A potential leadership role for China in
international energy cooperation is of particular
relevance for the Belt and Road Initiative, where
the trust and engagement of many partners is
needed to underpin a win-win approach.
Given the open-market focus of many multilaterals, China will also need to consider making
government interventions, not just domestically,
but at the international level. While a command
and control approach to international cooperation
Special Report 5: International Energy Cooperation and Governance
601