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What is Sustainable Electricity Regula7on?
• Regulatory system which seeks to integrate economic, social and environmental goals: – Managing transi7on to a low carbon economy; – Eradica7ng fuel poverty and protec7ng vulnerable consumers;
– Promo7ng energy saving; – Ensuring a secure and reliable energy supply; – Suppor7ng improvement in all aspects of the environment.
Previous Energy Policy Paradigms
• The market paradigm: – Protec7ng consumers and promo7ng economic efficiency through compe77on and compe77on-‐subs7tutes
• The post-‐war ‘industrial model’: – Securing economies of scale and expansion of networks and genera7ng capacity to meet rising demand, though centralisa7on, ver7cal integra7on and monopolisa7on
• Paradigm shiLs are never complete
The Transi7on to Sustainable Energy Markets
• Changes to wholesale and retail markets • Reform of network price controls, plus charging, access and opera7onal rules
• Greater interconnec7on between systems • Incen7ves for innova7on • Support for low carbon genera7on • Promo7on of energy efficiency/conserva7on • Protec7on for consumers against rising energy costs • Removal of planning and other legal barriers to low carbon genera7on/networks
• Control of GHG and other emissions • Greater co-‐ordina7on between energy markets
Sustainable Electricity: the Regulatory Challenge
• Massive investment required: – Capital intensity, sunk costs and long-‐asset lives make electricity investments very risky
– Par7cularly prone to path dependency and technological lock-‐in
• Urgent and concerted regulatory ac7on required, but: – Considerable uncertainty about appropriate development path
– Hos7le regulatory cultures – Dispersed regulatory capaci7es – Significant short term costs/poli7cal opposi7on
• The problem: securing the necessary investment in change requires high degree of regulatory commitment, but commitment is hard to achieve
Electricity Regula7on in Britain • Priva7sa7on and liberalisa7on 1990/1; full market opening 1998 – ‘the poster child of global liberalisa7on’ (The Economist, 2002)
– Strongly pro-‐market regulatory culture • Widening of energy policy goals in 2003 and regulator given new sustainable development objec7ve in 2004
• But 2007 Sustainable Development Commission report – sustainable development only weakly embedded in Ofgem’s culture; social and environmental measures seen as market distor7ons to be kept to a minimum
• Heavy reliance on emissions trading • Measures to promote social and environmental goals weak, piecemeal and of limited effec7veness
Electricity Regula7on in Britain
Since 2008, a step-‐change in Bri7sh energy regula7on: • Energy policy goals: – ‘to keep the lights on, to keep energy bills affordable and to decarbonise electricity genera7on.’ (DECC, 2012)
– Market the context, but no longer the overriding goal
Electricity Regula7on in Britain • Significant regulatory reform, eg: – Fundamental reform of network price regula7on – New incen7ves for microgenera7on – Stronger support for renewables – Promo7on of carbon capture and storage – Statutory social tariffs – Innova7ve measures to promote energy efficiency – Planning reform to facilitate infrastructure investment – Carbon price floor – Smart meter roll out – New capacity market – New financial supports for low carbon genera7on – Emissions performance standards for fossil generators
Electricity Regula7on in Britain
• But major problems: – Investment problems in renewables, CCS, nuclear – Significant public opposi7on to grid expansion/onshore wind
– Imminent security of supply crisis – Rising prices and fuel poverty – Energy efficiency underdeveloped – Wholesale market reform insufficient – Mixed messages over commitment to decarbonisa7on and future role of unabated gas
Sustainable Electricity Regula7on and the Role of Law
Why focus on meta-‐regula7on? • Achieving sustainable outcomes requires mul7ple interven7ons and repeated adjustments ∴ regime orienta7on mahers
• Promo7on of good governance = key element of sustainable development
• Law makes independent and not merely facilita7ve contribu7on to achievement of sustainable outcomes
Sustainable Development and the Role of Law
Func7ons of law: • Reinforcing poli7cal commitment to sustainable outcomes and maintaining it over 7me
• Co-‐ordina7ng dispersed regulatory capaci7es • Balancing regulatory certainty and flexibility
Ins7tu7onal Design
• New regulatory ins7tu7ons (personnel, procedures) as means of changing regulatory culture and securing policy integra7on
• Limited scope for ver7cal integra7on – independent regulatory agency required by European Union law
• Objec7on in principle to horizontal integra7on: – giving economic regulators social and environmental objec7ves undermines efficiency and involves them in poli7cal decision-‐making
– Over-‐es7mates neutrality of economic regula7on and under-‐es7mates connec7ons between economic, social and environmental objec7ves
Ins7tu7onal Design
• No fundamental ins7tu7onal change, but: – New func7ons for Ofgem in delivering social and environmental programmes
– New statutory objec7ves/guidance – New department for energy and climate change (DECC) established 2008
• Limits to ins7tu7onal integra7on: – The Treasury as an obstacle to sustainability
Statutory Du7es
• Changes to Ofgem’s general statutory du7es 2004, 2008, 2010, 2011, to increase priority to be given to sustainability objec7ves
• Administra7ve law literature scep7cal about extent to which law influences bureaucra7c behaviour: no automa7c transla7on of statutory instruc7ons into regulatory decisions
• Compliance ac7on may be taken for norma7ve, instrumental or symbolic reasons
Statutory Du7es
• Substan7al legal discre7on makes judicial enforcement unlikely: – Vague and complex list of du7es – Courts unwilling to interfere with substan7ve policy judgments
• But Ofgem exhibits high legal consciousness: – Credible threat of legal challenge – Statutory du7es important to regulatory legi7macy
– Legal change creates expecta7on of ac7on and peg for public cri7cism
Statutory Du7es
• Evidence of symbolic change in response to changing statutory du7es – Ini7ally limited and superficial, reflec7ng rela7vely weak poli7cal commitment to sustainable energy
– More significant impact on organisa7onal structures, policy ini7a7ves and decision-‐making processes as sustainability obliga7ons have become stronger over 7me
– Ofgem now sees itself as having important role to play in facilita7ng transi7on to sustainable electricity system
Statutory Du7es
• But limits to what can be achieved by general statutory du7es: – Open to interpreta7on, and may not achieve effec7ve alignment with wider policy objec7ves
– Need to be supported by appropriate procedural requirements for consulta7on, repor7ng and scru7ny
Legally-‐Binding Targets
UK government subject to number of legally-‐binding targets relevant to electricity industry: • Eradica7on of fuel poverty by 2016, as far as reasonably prac7cable
• 80% reduc7on of greenhouse gas emissions by 2050 (26% by 2020 + 5 yearly binding ‘carbon budgets’)
• 15% of final energy consump7on from renewable sources by 2020
• 17% reduc7on in EU-‐wide energy consump7on by 2020 (+ indica7ve na7onal targets)
• ??? Power to set target for decarbonisa7on of electricity system by 2030
Legally-‐Binding Targets
Why set legally-‐binding targets? – Commitment – Accountability – Certainty
Cri7cisms: – Inflexible, inefficient , arbitrary and distor7ng – Deliverability
Legally-‐Binding Targets
• Significant doubts as to enforceability: – R (Friends of the Earth) v Secretary of State for Energy and Climate Change 2009
– Other targets dis7nguishable? – Relevant considera7ons/irra7onality/procedural impropriety
• Is legal enforceability missing the point? – Symbolic importance of (not) seqng binding target
– Significance of suppor7ng procedural framework
Guidance, Strategies and Plans
• Prolifera7on of statutory obliga7ons to produce statements, strategies and plans, but contents rarely have any legal weight.
• Excep7ons: – Social and environmental guidance – Strategy and Policy Statement – Na7onal Policy Statements
• Limita7ons: – Limited scope/7mescales/specificity – Liable to change – A marked reluctance to plan
Legal Protec7on Against Regulatory Change
• Protec7on of vested interests oLen built into regulatory instruments, e.g.: – Transi7onal arrangements – Sustainable network regula7on and the Regulatory Asset Value
– Contracts for Difference and private law contracts • But addi7onal protec7on some7mes required: – Secretary of State for Energy and Climate Change v Friends of the Earth and Others 2012
– Cf Tate and Lyle Sugars Ltd v Secretary of State for Climate Change 2011
Conclusions • Law can play important role in facilita7ng transi7on to sustainable electricity regula7on: – Not limited to judicial enforcement – Symbolic commitment, visibility, clarity – Ins7tu7onal and procedural reforms
• Law isn’t a subs7tute for poli7cal change, but legal and poli7cal commitment are mutually reinforcing
• More specific the legal commitments, the more effec7ve they are in producing change
• But significant tensions – market efficiency, democracy, sustainability all require flexibility
• How far should the law go in commiqng to a par7cular development path?
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