domestic industrial sectors; there are also several
disputes over the pricing of low-carbon exports
such as solar panels, which have led to increases
in import duties. These disputes have raised
prices, damaging the deployment of renewable
energy sources.
The trade in electricity is a special case.
Electricity is not traded globally, unlike most
other products and services that are subject to
international competition. Furthermore, in its
classification by the WTO, electricity is treated as
both a good and a service and is therefore subject
to different tariffs and rules. In addition to the
interconnectors needed for the flow of electricity
across borders, there is the issue of market coupling, i.e. arrangements that allow efficient trading of energy (in this case electricity) between
markets. These tend to be managed under bilateral and regional arrangements, the most extensive being those in the EU and with its
neighbours.
Increasing trade in electricity is driving a
growing number of agreements on electricity
trade via interconnectors. As well as governing
operation, agreements can also mitigate the
investment risks associated with large infrastructure projects. For example, in 2016, the North
Sea countries of Belgium, Denmark, France,
Germany, Ireland, Luxembourg, the Netherlands,
Norway and Sweden signed an energy cooperation agreement to build missing interconnectors
and allow greater trading of energy, while further
integrating their respective national energy markets. In July 2015, the EU adopted trading regulations on Capacity Allocation and Congestion
Management. The regulations were designed to
integrate more renewables into the grid and
enable effective cooperation regionally between
grid operators, power exchanges and regulators
of the 28 EU member states, saving EU consumers €2.5–4 billion.
Growing deployment of new technologies—
especially batteries—is increasing trade in critical raw materials such as lithium, cobalt,
polysilicon and rare earth elements. Goldman
Sachs estimates that for every 1% increase in the
penetration of plug-in battery electric vehicles,
lithium carbonate equivalent (LCE) demand will
increase by 70,000 tonnes per year, equating to
around half the current annual demand for LCE.
However, compared to energy commodities,
international metals and minerals markets are
relatively ungoverned: transparency is poor and
when cooperation occurs, it has often taken the
form of collusion; markets are also regularly
disrupted by unilateral export controls.
5.2 Investment
Finance and investment regimes are fast
becoming new frontiers of energy governance,
driven in part by efforts to shift capital from
high-carbon to low-carbon energy sources, as
well as concerns over disruption to the business
models of utilities. More than 60% of global
emissions are caused by investments in, and
operation of, long-life infrastructure, which have
the potential to lock in emissions far into the
future. The IEA 2°C pathway requires a tripling
of annual investment in low-carbon power
infrastructure by 2035, and an eightfold increase
in energy efficiency investments. Today, shadow
carbon prices are already used as investment
screening tools by many oil majors, and attention
is growing among financial regulators and
policymakers.
Expansion of shadow carbon prices and greater
investment screening within the fossil fuel sectors
have become commonplace. There is growing
scrutiny from institutional investors, particularly
regarding so-called transition risk to assets and
business models arising from decarbonisation of
the economy. A major game-changer is the G20
Financial Stability Board’s Task Force on
Climate-related Financial Disclosures (TCFD),
which has published recommendations on climate
disclosure. Recently, investors voted for ExxonMobil to publish annual assessments of the
impacts of a low oil demand scenario under a 2°C
target. The first step under the TCFDs implementation path is illustrated in Fig. 31. Coordination among financial policymakers and
regulatory authorities will be necessary if
climate-related financial disclosures are to
encourage portfolio rebalancing.
Special Report 5: International Energy Cooperation and Governance
627
disputes over the pricing of low-carbon exports
such as solar panels, which have led to increases
in import duties. These disputes have raised
prices, damaging the deployment of renewable
energy sources.
The trade in electricity is a special case.
Electricity is not traded globally, unlike most
other products and services that are subject to
international competition. Furthermore, in its
classification by the WTO, electricity is treated as
both a good and a service and is therefore subject
to different tariffs and rules. In addition to the
interconnectors needed for the flow of electricity
across borders, there is the issue of market coupling, i.e. arrangements that allow efficient trading of energy (in this case electricity) between
markets. These tend to be managed under bilateral and regional arrangements, the most extensive being those in the EU and with its
neighbours.
Increasing trade in electricity is driving a
growing number of agreements on electricity
trade via interconnectors. As well as governing
operation, agreements can also mitigate the
investment risks associated with large infrastructure projects. For example, in 2016, the North
Sea countries of Belgium, Denmark, France,
Germany, Ireland, Luxembourg, the Netherlands,
Norway and Sweden signed an energy cooperation agreement to build missing interconnectors
and allow greater trading of energy, while further
integrating their respective national energy markets. In July 2015, the EU adopted trading regulations on Capacity Allocation and Congestion
Management. The regulations were designed to
integrate more renewables into the grid and
enable effective cooperation regionally between
grid operators, power exchanges and regulators
of the 28 EU member states, saving EU consumers €2.5–4 billion.
Growing deployment of new technologies—
especially batteries—is increasing trade in critical raw materials such as lithium, cobalt,
polysilicon and rare earth elements. Goldman
Sachs estimates that for every 1% increase in the
penetration of plug-in battery electric vehicles,
lithium carbonate equivalent (LCE) demand will
increase by 70,000 tonnes per year, equating to
around half the current annual demand for LCE.
However, compared to energy commodities,
international metals and minerals markets are
relatively ungoverned: transparency is poor and
when cooperation occurs, it has often taken the
form of collusion; markets are also regularly
disrupted by unilateral export controls.
5.2 Investment
Finance and investment regimes are fast
becoming new frontiers of energy governance,
driven in part by efforts to shift capital from
high-carbon to low-carbon energy sources, as
well as concerns over disruption to the business
models of utilities. More than 60% of global
emissions are caused by investments in, and
operation of, long-life infrastructure, which have
the potential to lock in emissions far into the
future. The IEA 2°C pathway requires a tripling
of annual investment in low-carbon power
infrastructure by 2035, and an eightfold increase
in energy efficiency investments. Today, shadow
carbon prices are already used as investment
screening tools by many oil majors, and attention
is growing among financial regulators and
policymakers.
Expansion of shadow carbon prices and greater
investment screening within the fossil fuel sectors
have become commonplace. There is growing
scrutiny from institutional investors, particularly
regarding so-called transition risk to assets and
business models arising from decarbonisation of
the economy. A major game-changer is the G20
Financial Stability Board’s Task Force on
Climate-related Financial Disclosures (TCFD),
which has published recommendations on climate
disclosure. Recently, investors voted for ExxonMobil to publish annual assessments of the
impacts of a low oil demand scenario under a 2°C
target. The first step under the TCFDs implementation path is illustrated in Fig. 31. Coordination among financial policymakers and
regulatory authorities will be necessary if
climate-related financial disclosures are to
encourage portfolio rebalancing.
Special Report 5: International Energy Cooperation and Governance
627