Part II - Coherence and Management in the Climate-Energy Nexus

4 Renewable Energy A Loosely Coupled System or a Well-Connected Web of Institutions?

Lisa Sanderink

4.1 Introduction

Energy is the lifeblood of modern society: it is required to fulfil people’s basic needs and everyday activities, and, in the same vein, the world’s economic processes heavily rely on energy. However, global energy consumption and production is putting high pressure on the earth system and is arguably the main culprit behind climate change; fossil-fuel combustion accounts for two-thirds of total greenhouse gas (GHG) emissions and 80 per cent of carbon dioxide (IEA/OECD 2017). Therefore, decarbonization of global energy systems is of paramount importance for a sustainable future, and a global uptake of renewable energy plays a key role in this trajectory (e.g. Ki-moon 2011; IRENA 2015; WFC 2016).

While the overall share of renewables in total final energy consumption grew to around 19 per cent and reached a new record in 2017, this growth must accelerate to reach a two-thirds share by 2050 (IRENA 2018a). This is both technically and economically feasible, yet it requires effective global governance to get governments committed, to put regulatory frameworks in place, and to facilitate knowledge exchange and technology transfer (Röhrkasten 2015). As discussed in Chapter 3, the renewable energy subfield is institutionally complex. It is governed by a wide range of different institutions, including international organizations, alongside private institutions and multi-stakeholder partnerships. On top of that, the subfield covers different renewable energy sources, such as solar and wind, and has to navigate three critical challenges, commonly known as energy security, energy access, and environmental sustainability (e.g. Cherp et al. 2011; Florini and Sovacool 2011; Karlsson-Vinkhuyzen et al. 2012). Finally, the renewable energy subfield is still dominated by national policy making as nation states continue to have sovereign control over the energy domain.

Various studies have introduced mappings of the institutional complexes for climate change (e.g. Keohane and Victor 2011; Abbott 2012; Widerberg et al. 2016) and energy (e.g. Sovacool and Florini 2012; Wilson 2015; Sanderink et al. 2018), but only a few zoom in on the institutional complex for renewable energy specifically. This is regrettable, as the subfield is most prominent within the climate-energy nexus and can be characterized as institutionally diverse (see Chapter 3). Furthermore, existing mappings are biased toward public institutions, mostly excluding nongovernmental institutions (e.g. Suding and Lempp 2007; Barnsley and Ahn 2014; Röhrkasten 2015). However, recent literature has argued that the global energy transition is driven by bottom-up and polycentric governance rather than through integrated international cooperation (Aklin and Urpelainen 2018; Meckling 2018). Hence, novel insights are needed into the institutional constellations and dynamics within the renewable energy subfield, to ultimately answer the guiding question: is the institutional complex of renewable energy contributing to the global energy transition in an effective manner?

A first step in the search for an answer to this question is to advance our understanding of the institutional complex and to evaluate coherence and management (as laid out in further detail in Chapter 2). First, coherence is understood as the harmony of institutional features and interactions across institutions toward an overarching purpose. Meso-level coherence, i.e. the level of coherence in the subfield as a whole, is determined based on the following indicators: first, the convergence/divergence among interpretations of the core norm, i.e. to substantially increase the share of renewables; second, the distribution of membership, i.e. a limited or wide range of targeted actors; and third, an (un)balanced allocation of governance functions. Micro-level coherence, i.e. the level of coherence between specific individual institutions, is assessed along the same three dimensions and, more importantly, mechanisms of interactions. These can be distinguished as cognitive (i.e. when knowledge is transferred), normative (i.e. when rules and norms interact), and behavioural (i.e. when impacts of behaviour intersect). Second, management is defined as attempts to deliberately steer interactions between two or more institutions (Zelli 2010), and is merely assessed at the micro level. It is determined based on the levels and agents (e.g. unilaterally or jointly), and consequences of management (e.g. increased harmony of institutional features: core norm, membership, governance functions, interaction mechanisms). Juxtaposing levels of coherence and management enables the characterization of the renewable energy subfield by synergy, coexistence/duplication, or conflict, or rather by division of labour, coordination, or competition (see Chapter 2).

For studying coherence and management at the micro level, three important multi-stakeholder partnerships were selected, since global (renewable) energy governance remains underdeveloped under the umbrella of the United Nations (UN) and in the intergovernmental sphere in general (Karlsson-Vinkhuyzen 2010; Röhrkasten 2015). Moreover, the chapter aims to go beyond dyadic relationships between intergovernmental institutions and seeks to analyze the plethora of interconnections among different forms of governance. The selected institutions include the Renewable Energy and Energy Efficiency Partnership (REEEP), the Renewable Energy Policy Network for the 21st Century (REN21), and Sustainable Energy for All (SEforALL), all of which can be described as transboundary cooperation efforts between public and private actors that aim at addressing a public policy objective (Schäferhoff et al. 2009; Pattberg and Widerberg 2014).

The analysis builds on three methodological steps: first, a thorough analysis of the institutional constellations, second, a content analysis of official documents and reports of the selected institutions, and third, an analysis of the views of climate and energy experts obtained through semi-structured interviews. The interviewees were staff members of the selected institutions, experts from academia and civil society organizations (CSOs), and government officials, who are closely associated with the respective institutions. Based thereon, this chapter advances our understanding of institutional complexity, specifically for global renewable energy governance. Therewith, it provides insights from which lessons can be drawn for governing the overall climate-energy nexus.

The chapter is structured as follows. Section 4.2 briefly introduces the topic of renewable energy and its centrality. Subsequently, Section 4.3 analyzes the institutional features and measures meso-level coherence for the renewable energy subfield as a whole. Thereafter, Section 4.4 determines micro-level coherence by examining institutional features and interaction mechanisms across the selected partnerships. Finally, Section 4.5 describes attempts to manage these interactions at the micro level, after which Section 4.6 concludes with some final remarks and suggestions for future research.

4.2 Renewable Energy: Providing Sustainable Energy for All

‘We all know that renewable energy is limitless and will last forever’ is what former UN Secretary-General Ban Ki-Moon stated in 2016 at the International Renewable Energy Agency (IRENA) Debate in Abu Dhabi.¹ This statement mirrors the high importance of the role of renewable energy in the world’s trajectory to sustainable development.

Firstly, renewable energy is crucial for satisfying the increasing energy demand. In light of the world’s growing population, energy security is a high priority for governments worldwide (Dubash and Florini 2011; Van de Graaf 2013), in the way that they wish to ensure an ‘uninterrupted availability of energy sources at an affordable price’.² At present this is particularly challenging, since finite energy sources are depleted rapidly, while global energy demand is rising sharply. As a consequence, diversification of energy sources is of great necessity, and renewables can play an important role in this. Solar, wind, and other types of renewable energy have the potential to alleviate the increasing scarcity, to decentralize the production of energy, and to diversify energy supply (Röhrkasten 2015).

Secondly, renewables are key to ensuring worldwide energy access. The challenge of energy access is related to the 1.1 billion people who do not have access to electricity and to the 2.8 billion people who continue to rely on biomass, coal, and kerosene for cooking (OECD/IEA 2017). Not only does this deprive this large part of the human population from economic modernization, it also poses urgent health threats and environmental degradation risks (Dubash and Florini 2011). This demonstrates the urgency to tackle the widespread and persistent lack of access to modern energy services, which is predominantly the case in rural areas in the developing world. Switching to renewables does not only reduce the indoor air pollution and improve the population’s health, it is also highly suitable for small-scale and decentralized deployment, which is particularly important to address energy access (Röhrkasten 2015).

Thirdly, an increased uptake contributes to tackling the negative environmental externalities that are associated with today’s energy systems, and the first and foremost issue related to energy is climate change. Other urgent environmental issues are air pollution, acid rain, contamination of marine environment, nuclear meltdowns, collapsed coal mines, natural gas explosions, dam breaches, and so forth (Dubash and Florini 2011; Florini and Sovacool 2011; and Röhrkasten 2015). This makes the imperative to substitute fossil fuels and further diversify the energy mix even stronger, and renewables have the potential to do so. However, an increased uptake has its own environmental risks. For example, the cultivation of biofuel crops is associated with soil degradation and deforestation; the construction of hydropower dams with disruption of local fish stocks; the use of nuclear energy with the danger of toxic substances; and the production of solar and wind energy with the displacement of food production, interventions in stability of ecosystems, and dangers to bird life (Van de Graaf 2013; Röhrkasten 2015).

4.3 Meso-Level Coherence

Before zooming in on institutions at the micro level, this section describes meso-level coherence for the overall subfield of renewable energy by describing its emergence, the core norm, membership, and governance functions.

4.3.1 Emergence of the Institutional Complex on Renewable Energy

The timeline in Figure 4.1 illustrates the emergence of the institutional complex for renewable energy. As of January 2017, the institutional complex consists of forty-six institutions with different constitutive characteristics. Even though first global environmental concerns were already raised in the 1970s, and the dependence on fossil fuels was already questioned in the Brandt Report (1980), it took until the early 1990s for interest in renewable energy to grow significantly.

Figure 4.1 Starting years of renewable energy institutions from 1950 to 2015 (Author’s data).

Institutions that were established prior thereto mostly include intergovernmental cooperation efforts that were initially shaped by energy security concerns as a consequence of the oil crises in the 1970s. For example, the International Energy Agency (IEA), which initially focused on fossil sources of energy, slowly but surely widened its portfolio and extended its analyses to renewable energy (Van de Graaf 2012; Heubaum and Biermann 2015). The emergence of institutions from the early 1990s appears to be linked to the UN Framework Convention on Climate Change (UNFCCC), adopted in 1992, followed by the Kyoto Protocol in 1997. As an illustration, the same year the UNFCCC was adopted the Global Sustainability Electricity Partnership (GSEP) was established to decarbonize the world through sustainable electrification (GSEP 2018), and similar to the Kyoto Protocol, the CarbonNeutral Protocol (CNP) was set up in 1997 to stimulate carbon reductions, for example through renewable energy certificates (CNP 2018).

However, it took until the turn of the millennium for institutions to exclusively focus on renewable energy. In 2001 the topic was for the first time discussed at the UN’s high political level, at the Ninth Session of the Commission on Sustainable Development (CSD) (Karlsson-Vinkhuyzen et al. 2012), although no substantial agreement was reached (Röhrkasten 2015). Instead, intergovernmental institutions started to emerge outside the UN system. For example, IRENA was established in 2009. It serves as a principal forum for transboundary cooperation and provides a repository of policy, technology, resource, and financial knowledge (IRENA 2018b). That same year, the Clean Energy Ministerial (CEM) was initiated, bringing together ministers with responsibility for clean energy, to promote policies and programmes, and share knowledge and best practices (CEM 2018).

A decade later, in 2015, a growing consensus at the UN level on the strong link between energy and poverty eradication eventually led to the inclusion of Sustainable Development Goal (SDG) 7 in Agenda 2030 to ‘ensure access to affordable, reliable, sustainable and modern energy for all’ (United Nations 2015, 19). More importantly, SDG 7 included target 7.2 that commits countries to, ‘by 2030, increase substantially the share of renewable energy in the global energy mix’ (United Nations 2015, 19). Along with the Paris Agreement and its target to keep global temperature rise well below 2 degrees Celsius, SDG 7 at least marks the emergence of universal objective for global (renewable) energy governance.

In parallel to this development, a somewhat smaller expansion of institutions took place. In 2011, for instance, the Low-Emissions Development Strategies Global Partnership (LEDS_GP) was established to facilitate learning, technical cooperation, and information exchange supporting low emission development strategies (LEDS_GP 2018). Furthermore, the Africa Renewable Energy Initiative (AREI) was initiated in 2015 to accelerate and harness the African continent’s renewable energy potential (AREI 2018). While these two institutions focus primarily on the deployment of renewables to expand energy access, other institutions focus specifically on emissions reductions. For instance, RE100, established in 2014, brings together influential businesses to collectively promote the compelling business case for renewables (RE100 2018). Likewise, the Low Carbon Technology Partnerships initiative (LCTPI) was set up that same year to unite energy and technology companies to scale up renewables (LCTPi 2018). Finally, several other institutions exclusively target solar energy, including the Global Solar Council (GSC) and Global Solar Alliance (GSA).

In sum, the institutional complex for renewable energy comprises a multitude of institutions established within different contexts and with different institutional characteristics. The following subsections will further elaborate on some of these institutional characteristics and the variation across them.

4.3.2 The Core Norm of Renewable Energy

The Paris Agreement and the inclusion of SDG 7 as part of Agenda 2030 arguably constitute the major institutional incentive to ensure access to sustainable energy for all. More specifically, target 7.2 of SDG 7 sets the objective to substantially increase the share of renewable energy in the global energy mix by 2030 (United Nations 2015). Altogether, these institutional targets speak to the three critical challenges for global (renewable) energy governance: energy security, energy access, and environmental sustainability. In sum, the core norm for the renewable energy subfield can be described as: to substantially increase the share of renewable energy in the global energy mix, in order to ensure access to and availability of clean energy for all. The normative coherence of the renewable energy subfield depends on the degree to which this core norm is shared or disputed across institutions.

A closer inspection of the institutions’ web pages and mission statements shows that, for one-third of the institutions (17 out of 46), this core norm applies literally. These are mostly public institutions, for instance IRENA and CEM, but also three private institutions, including GSEP, EUROSOLAR, and the International Solar Energy Society (ISES), as well as two multi-stakeholder partnerships, the Global Bioenergy Partnership (GBEP) and REN21. This implies that the majority of institutions interpret the core norm more selectively, by prioritising either one or two of the main objectives, i.e. energy security, energy access, and environmental sustainability, rather than approaching them in an integrated manner.

Sixteen institutions put environmental sustainability first, and interpret the core norm as to substantially increase the share of renewables to mitigate environmental externalities, most urgently the effects on the global climate. More specifically, seven of these institutions explicitly refer to the norms and targets set by the UNFCCC and its Kyoto Protocol. For instance, the LCTPI Rescale programme aims to scale up renewables and calls for action to ‘stay below 2°C of global warming’ (LCTPi 2018). Most of the institutions with a focus on environmental sustainability are public, such as Regions 20 (R20), which supports subnational governments to develop low-carbon infrastructure projects, and the Climate Investment Fund (CIF), which provides investment programmes to scale up renewable energy in low-income countries (R20 2018; CIF 2018). In addition, there are several private institutions, such as RE100 and CNP, and multi-stakeholder partnerships, namely the Roundtable on Sustainable Biomaterials (RSB), LEDS_GP, and LCTPI.

Five institutions adhere to the core norm to substantially increase the share of renewables to expand access to clean energy sources, for the purpose of improving energy access as well as mitigating climate change. These include two public institutions, namely UN Energy (UN_EN) and the Clean Energy Solutions Centre (CESC), one private institution, the Gold Standard (GS), and two multi-stakeholder partnerships, namely REEEP and SEforALL. Finally, the remaining eight institutions target either energy security, energy access, or both, or energy security and environmental sustainability simultaneously.

Figure 4.2 provides an overview of the institutions according to the core norm they predominantly adhere to. Altogether, and allowing overlaps, forty-one institutions prioritize climate change mitigation, twenty-seven addressing energy access and twenty-two energy security policy objectives. In other words, the uptake of renewables is predominantly linked to mitigating climate change, while particularly the potential of renewables to address energy security concerns is less institutionalized.

Figure 4.2 Distribution of renewable energy institutions according to their interpretation of the core norm (Author’s data).

As a consequence of these diversified priorities, there is much room for trade-offs and potential conflicts. Institutions prioritising energy security and access may, in addition to renewables, turn to the more affordable energy sources that might have a negative impact on the environment (Röhrkasten 2015).³ Additionally, expanding energy access implies increased energy demand, which in turn puts those institutions under pressure that seek to ensure energy security and environmental sustainability (Newell et al. 2011). On top of this, the subfield lacks a clear definition of what constitutes a renewable source of energy, resulting in frequent controversies on bioenergy, hydropower, and nuclear energy (e.g. Elliott 2000; Frey et al. 2002; Adamantiades and Kessides 2009).⁴ While solar and wind are widely acknowledged as renewable energy sources within the renewable energy subfield, twenty-five institutions include bioenergy, seventeen (small-scale) hydropower, and three nuclear power.

These diverging views have entailed conflicts of interests and competition over resources, visibility, and media attention across institutions targeting these different energy sources.⁵ As long as the potential of renewable energy to address energy security is not fully institutionalized, and as long as there is no consensus on what constitutes a renewable energy source, full substitution of fossil fuels by renewables, particularly in industrialized countries, may remain unattainable.

4.3.3 Membership

The governance triangle introduced in Chapter 3 distinguishes different types of institutions and actors that are involved in promoting the uptake of renewables globally. Figure 4.3 additionally summarizes the respective figures in a table.

Figure 4.3 Distribution institutions per zone in the governance triangle (Author’s data; see also Chapter 3).

The largest share of renewable energy institutions (28) are public. These include international organizations, such as IRENA and the IEA, as well as regional alliances, such as the Latin American Energy Organization (OLADE), the Asia-Pacific Economic Cooperation Energy Working Group (APEC_EWG), the Association of South East Asian Nations (ASEAN) Centre for Energy, and the Baltic Sea Region Energy Cooperation (BASREC). Besides these intergovernmental efforts, a number of institutions unite cities and regions in their search for appropriate strategies toward an energy transition, such as the International Solar Cities Initiative (ISCI), Energy Cities (EN_CITIES), the Covenant of Mayors (COM), and R20. While the influence of these different institutions is limited to their respective members, several other public institutions aim at assisting developing countries in increasing their share of renewables. Such institutions include, for example, the Africa-European Union Energy Partnership (AEEP) and the Global Energy Efficiency and Renewable Energy Fund (GEEREF).

In addition to public institutions, there are ten private institutions, of which four exclusively bring together firms, industry associations, and investors. One of these is the Energy and Climate Cluster of the World Business Council on Sustainable Development (WBCSD_E&C), which unites companies from different sectors to scale up climate and renewable energy solutions globally (WBCSD 2018). In addition, there are three institutions that exclusively include nongovernmental organizations (NGOs) and other organizations representing civil society. These include the Gold Standard (GS), set up by the World Wide Fund for Nature (WWF) and two other NGOs, which provides a standard for climate and development projects under the UNFCCC Clean Development Mechanism (Gold Standard 2018). Furthermore, three institutions include firms, industry associations, and investors, as well as NGOs and other civil society actors, e.g. GSC and ISES.

Finally, there are eight hybrid institutions, or multi-stakeholder partnerships, which represent collaborations across societal sectors. The LCPTI is the only institution restricting its membership to public actors and firms, industry associations, and investors, while the other seven bring together all three main types of actors. Three out of these seven partnerships have been selected for further analysis in Section 4.4 on micro-level coherence: REEEP, which develops financing mechanisms to strengthen markets for clean energy in low- and middle-income countries; REN21, which connects stakeholders to facilitate knowledge exchange and policy development toward a transition to renewable energy; and SEforALL, which marshals evidence, benchmarks progress, and connects stakeholders toward achieving SDG 7 and the Paris Agreement.

While the majority of renewable energy institutions are public, private and multi-stakeholder institutions have started to play a significant role in promoting a worldwide uptake of renewable energy. In other words, there is a wide variety of actors involved, ranging from governments, international organizations, cities, and subnational authorities, to companies, financial institutions, and not-for-profit organizations. Mapping and understanding these variations is an important step toward assessing not only the coherence but also the effectiveness of the institutional complex of this subfield, since collaborations between these actors are considered key for a successful global governance of renewables (e.g. Sovacool 2013).

4.3.4 Governance Functions

Renewable energy institutions perform different governance functions, which can be distinguished as setting ‘standards and commitments’, ‘operational’ activities, sharing ‘information and networking’, and ‘financing’ (see Chapter 2). Ideally, all of these governance functions are performed in a complementary manner, in accordance to the core norm, and without functional gaps or duplications.

The largest share of institutions in the sample (17 out of 46) governs renewable energy through ‘information and networking’, in combination with ‘operational’ activities. This implies that most institutions combine evaluation activities, as well as collecting and publishing information, with pilot projects, technical assistance, and capacity building. For example, Energy for Impact (E4I) assists local businesses and project developers in East and West Africa to expand energy access and publishes reports on related topics (E4I 2018). In addition, fifteen institutions exclusively govern through ‘information and networking’. A well-known example is IRENA as an international organization, which claims to serve as a centre of excellence, and a repository of knowledge (IRENA 2018b). This said, several multi-stakeholder partnerships also fulfil such a role, for instance REN21, which connects key stakeholders to facilitate knowledge exchange (REN21 2018c).

Furthermore, there are eight institutions that set ‘standards and commitments’, and more specifically develop rule-making processes, mandatory or voluntary commitments, or schemes for implementation and enforcement. This governance function is not merely reserved for public institutions, since various private and multi-stakeholder institutions provide certifications and standards to which different actors can voluntarily commit. For instance, whereas the Kyoto Protocol sets binding emission-reduction targets (United Nations 1998), the Roundtable on Sustainable Biomaterials (RSB) sets principles and criteria to help operators, brand owners, and investors to identify and manage sustainability issues (RSB 2018). Finally, five institutions are involved in ‘financing’ to promote a global uptake of renewables, for instance through funding projects or developing aid programmes. These solely include public institutions, with one exception: REEEP, which ‘invests in clean energy markets in developing countries to reduce CO₂ emissions and build prosperity’ (REEEP 2018b).

Summarizing this and the previous subsection, Table 4.1 provides an overview of the individual renewable energy institutions based on their governance functions and membership. Altogether, there is not a clear division of labour in terms of governance functions across the public, private, and hybrid institutions in the renewable energy subfield. Yet, while private and hybrid institutions play a role in all governance functions, the distribution of institutions in Table 4.1 clearly conveys the dominance of public institutions. Moreover, the table shows that there is a certain profusion of information-sharing and networking opportunities, while standards and commitments, and financing mechanisms, are limited to a few institutions. This suggests that, within the renewable energy subfield, soft measures prevail over hard ones.

Table 4.1 Overview of governance functions across different types of institutions (public, hybrid, private) for renewable energy (Author’s data).

	Public	Hybrid	Private
Standards & Commitments	CoM, KP, UNFCCC	RSB, SEforALL	CNP, GS, RE100
Operational	BASREC
Information & Networking	IRENA, ISCI, MEF, ACE, APEC_EWG, ECO, EnR, SEADS, CESC	LCTPi, REN21, LEDS_GP	GSA, INFORSE, ISES
Financing	CIF, GEEREF	REEEP
Standards & Commitments; Operational
Operational; Information & Networking	CEM, GMI, R20, AEEP, CCREEE, ECREEE, EN_CITIES, GNESD, IEA, OLADE, UN_EN	GBEP, E4I	GSEP, WBCSD_EC, EUROSOLAR, GSC
Information & Networking; Financing	RECP
Standards & Commitments; Information & Networking
Standards & Commitments; Financing
Operational; Financing	AREI

4.3.5 Summary: Coherence at the Meso Level

The renewable energy subfield is institutionally complex in various ways. It includes a high number of institutions with different constitutive characteristics, covers several sources of energy and distinctive technologies, and targets no less than three critical challenges. The question remains, however, whether this plurality of institutions and objectives affects the normative, functional, and membership-related coherence in this subfield.

Altogether, this meso-level coherence, i.e. the level of coherence in the subfield as a whole, can be determined as low to medium, based on three conclusions. First, while there exists a core norm to substantially increase the share of renewables, the majority of institutions have diverging views on which objectives to prioritize. Most of these focus on promoting renewables for the purpose of mitigating climate change, or, to a lesser extent, to expand energy access, while a minority of institutions targets the potential of renewable energy to ensure energy security. As a consequence of this divergence, there is much room for trade-offs, controversies, and potential conflicts among institutions and actors across them, suggesting that normative coherence is low.

Second, the renewable energy subfield is currently dominated by public institutions, including international organizations as well as regional and subnational institutions. At the same time, the number of private institutions and multi-stakeholder partnerships has been steadily growing. The range of actors involved in the sample of this study thus increasingly stretches from public to private, implying medium membership-based coherence.

Third, all governance functions are covered by one or more institutions: most govern renewables through information-sharing and networking, and a fair share of institutions are involved in operational activities. By contrast, standards and commitments are mostly set in the form of voluntary standards and certification schemes, and financing schemes are provided by only a few institutions. In other words, there appears to be a profusion of informal activities at the expense of other important governance functions, which suggests medium functional coherence.

4.4 Micro-Level Coherence

As explained in Chapter 2, the assessments of the subfields do not stop at looking at the core norms, membership, and governance functions across the subfields as a whole. Additionally, the case studies in this volume scrutinize relations between individual institutions, i.e. at the micro-level. Whereas previous studies mostly focus on dyadic relationships between intergovernmental institutions (e.g. Charnovitz 2003; Oberthür and Gehring 2006b; Zelli and van Asselt 2010), this study analyzes a plethora of interconnections among different types of institutions. This allows for a much more encompassing assessment of an entire subfield, especially one so densely populated as renewable energy.

The subfield comprises no less than forty-six institutions, and three specific ones were selected for the in-depth analysis presented in this chapter. The following subsections describe the institutions under scrutiny, and determine micro-level coherence based on core norm, membership, and governance functions, and more importantly, by identifying mechanisms of interaction among the selected institutions.

4.4.1 Institutions under Scrutiny

Even though the majority of renewable energy institutions are public, private and multi-stakeholder institutions play an important role in governing renewables. This is particularly true for multi-stakeholder partnerships, which bring together public and private actors to collectively contribute to a public policy goal. Such partnerships generally emerge as a response to a lack of intergovernmental cooperation (Szulecki et al. 2011, 713). As national policy-making continues to dominate when it comes to energy issues, international energy governance is weakly developed, and especially so for renewable energy. Furthermore, cooperation between public and private actors is considered of great importance for increasing the share of renewables in the global energy mix (Sovacool 2013). Whereas previous literature focused predominantly on international organizations for energy (e.g. Colgan et al. 2012; Leal-Arcas and Filis 2013; Wilson 2015), a shift toward multi-stakeholder partnerships can provide novel insights on the interactional dynamics within the overall institutional complex for renewable energy.

The Renewable Energy and Energy Efficiency Partnership (REEEP) was one of the first multi-stakeholder partnerships on energy-related issues. Led by the British government, a group of regulators, businesses, and NGOs announced REEEP in 2002 at the World Summit on Sustainable Development in Johannesburg (Florini and Sovacool 2009; Röhrkasten 2015). Two years later the partnership was formally established as an international NGO based in Vienna. By investing in clean markets and targeting small- and medium-sized enterprises, REEEP aims to accelerate market-based deployment of renewable energy and energy-efficient systems in low- and middle-income countries (REEEP 2018b). The partnership relies on donors, which include governments, multilateral and international organizations, NGOs, and foundations. More than 350 members currently back up REEEP, including businesses, NGOs, national governments, research institutes, and many other entities. The partnership is governed by a Governing Board and an Advisory Board and is steered by an international team with more than twenty staff members and consultants. REEEP is seen as an important multi-stakeholder partnership with a clear purpose, significant output, and strong institutional formality (Pattberg et al. 2009; Szulecki et al. 2011; Sovacool and Van de Graaf 2018).

Besides REEEP, the Renewable Energy Policy Network for the 21st Century (REN21) forms an important coalition of different stakeholders to advance renewable energy policy. The German government initiated REN21 at the International Conference for Renewable Energies in 2004 in Bonn, after which it was formally launched in Copenhagen in June 2005 (REN21 2005; Röhrkasten 2015). The partnership brings together different stakeholders to facilitate knowledge exchange, policy development, and joint action toward a rapid global transition to renewable energy (REN21 2018c). Its existence depends on grants offered by governments, international organizations, and other donors, and by the end of 2017, REN21 counted sixty-four members, including industry associations, international organizations, NGOs, national governments, and research entities. The partnership is governed by its Bureau, General Assembly, and Steering Committee and has a small secretariat housed at the UN Environment Programme (UNEP) in Paris. It is considered as an important advocacy network and global governor for renewable energy (Szulecki et al. 2011; Röhrkasten 2015).

A more recently established multi-stakeholder partnership is Sustainable Energy for All (SEforALL). It was initially launched as a UN initiative by former UN Secretary-General Ban Ki-Moon in 2011, and thereafter formalized as a non-profit quasi-international organization (Röhrkasten 2015). While SEforALL inherited close ties to various UN agencies, it is now open to different stakeholders including governments, businesses, financiers, development banks, communities, and others. SEforALL’s mission is threefold: to ensure universal access to modern energy services; to double the global rate of improvement in energy efficiency; and to double the share of renewable energy in the global energy mix (SEforALL 2018a). The partnership relies on donor contributions mostly coming from national governments, and in 2017 SEforALL counted more than eighty partners. These can be distinguished among funding partners, delivery partners (partners that commit to contribute quantifiable results and to report on progress), proud partners (partners that support SEforALL’s objectives, and use the name and platform to amplify meaningful work), and those participating in SEforALL’s regional and thematic hubs, and accelerators (SEforALL 2018b). The partnership is governed by an Administrative Board and a Funder’s Council, which guide SEforALL’s Global Team that is headquartered in Vienna and partly operating in Washington, DC. With this, SEforALL has a unique standing in the institutional complex, since it is an important multi-stakeholder partnership and major UN initiative at the same time (Röhrkasten and Westphal 2013).

4.4.2 Interlinkages

The three selected multi-stakeholder partnerships show differences as well as commonalities with regard to their institutional features.

First, the interpretations of the core norm for renewable energy among the three multi-stakeholder partnerships largely overlap. Particularly the partnerships REEEP and SEforALL commonly adhere to a core norm strongly influenced by targets set by the UNFCCC regime and SDG 7: to substantially increase the share of renewables for universal energy access and to limit global warming to 2 degrees Celsius. For example, REEEP repeatedly stresses the importance to connect its goals, targets, and metrics to the Paris Agreement (REEEP 2016a), and celebrates the inclusion of SDG 7 as a validation of REEEP’s work over the years to expand energy access (REEEP 2016a, 11). Similarly, SEforALL’s objectives include to ensure universal access to energy, double the global rate of energy efficiency, and double the share of renewables, which were formulated in the run-up to SDG 7. In addition, SEforALL reiterates that actions to achieve these objectives should be in line with the 2 degrees target agreed upon in the Paris Agreement (SEforALL 2018c). By contrast, REN21 takes on a broader approach to the core norm. REN21’s flagship publication, the Renewable Energy Global Status Report (GSR) 2018, acknowledges that scaling up renewables is crucial for limiting temperature rise below 2 degrees and for meeting the aspirations of SDG 7 (REN21 2018b). However, the partnership additionally takes into consideration the policy objective to boost national energy security (REN21 2018b).

Second, the membership directories of the three partnerships partly overlap. For instance, REEEP and REN21 share sixteen members. These include international organizations, such as the European Commission and the UNEP, and national governments such as Brazil, Germany, and the United Kingdom. In addition, REEEP and REN21 share various NGOs as members, e.g. the WWF and The Energy and Resources Institute (TERI). As SEforALL is essentially a partnership between the UN and the World Bank, there are no shared members with REEEP and REN21. However, some of the funding and delivery partners of SEforALL are members to REEEP (9), including respectively Austria, the European Commission, and Germany, as well as Johnson Control, UNEP, and the UN Foundation (SEforALL 2018b). Similarly, a set of funding and delivery partners are members to REN21 (6), including respectively Germany, the European Commission, Norway, and the United Kingdom, as well as the Global Association for Off-grid Solar Energy Industry (GOGLA) and UNEP (SEforALL 2018b). Among approximately 500 members spread across the three partnerships, there are only five actors all three have in common: the European Commission, UNEP, Germany, Norway, and the United Kingdom.

Third, when it comes to governance functions, the selected partnerships do not overlap, but rather complement each other. However, it is important to note that the three partnerships were also selected according to their variations in governance functions. Whereas REEEP develops and provides financing mechanisms to advance market readiness for clean energy services in low- and middle-countries (financing) (REEEP 2018b), REN21 connects different stakeholders to facilitate knowledge exchange toward a rapid transition to renewable energy (information and networking) (REN21 2018c). Finally, SEforALL connects leadership to mobilize action on SDG 7 specifically (standards and commitments) (SEforALL 2018c). Consequently, the three partnerships also target different entities; while SEforALL speaks to government leaders and REN21 to policy makers more broadly, REEEP targets small- and medium-sized enterprises.

4.4.3 Mechanisms

Institutional interactions can be broadly understood as situations in which the policy processes, knowledge, norms, or functions of two or more institutions are connected, and affect the development, performance, and impact of these institutions (Oberthür and Gehring 2006a; Zelli et al. 2012). Hence, in addition to drawing parallels based on core norm, membership, and governance function, it is key to examine the underlying interaction mechanisms between and beyond the selected partnerships. The following subsections distinguish and describe these as cognitive, normative, and behavioural (see Chapter 2; Stokke 2001; Oberthür and Gehring 2006a).

4.4.3.1 Cognitive

A cognitive interaction is driven by the power of knowledge and persuasion, and can be seen as cross-institutional learning (Stokke 2001; Oberthür and Gehring 2006a). In other words, a cognitive interaction can be determined when knowledge and information are exchanged, or certain practices and methodologies are transferred from one to the other institution. As there is a large share of institutions that govern renewable energy through information and networking, there is presumably a high degree of cognitive interaction across the institutional complex.

For REEEP, various instances of cognitive interactions were found. First, REEEP applies a framework developed by the World Bank in 2015 for SEforALL to define the concept and measures of energy access (World Bank 2015; REEEP 2018a). Second, REEEP’s regionally focused report on Powering India is informed by the IEA’s India World Energy Outlook (WEO) 2015, and REEEP’s report supporting a transition to inclusive green economies in African countries is influenced by IRENA’s Africa 2030 report (REEEP 2016b, 2017). Vice versa, REEEP’s publications have informed SEforALL and IRENA. For instance, the ‘Making the Case’ report published by REEEP influenced the Water-Energy-Food Nexus High Impact Opportunity (HIO) set up by SEforALL (REEEP 2015). The SEforALL HIOs serve as platforms that bring together stakeholders working on initiatives for the purpose of highly relevant topics related to clean energy, such as mini-grids and sustainable bioenergy. Additionally, REEEP’s publication ‘Making the Case’ contributed to IRENA’s report on ‘Renewable Energy in the Water, Energy and Food Nexus’ (REEEP 2015).

Cognitive interactions are found in larger numbers for REN21, since it is this institution’s primary role to share information and set up networking opportunities. It is especially the work of IRENA and the IEA that is regularly cited in REN21’s flagship GSRs (e.g. REN21 2017a; REN21 2018b). For instance, REN21’s latest GSR features 85 pages of endnotes including no less than 386 references to the IEA’s World Energy Outlooks, statistical reports, regional market analyses, and energy and CO₂ reports, and 161 references to IRENA’s calculations and thematic reports (REN21 2018b). Similarly, REN21’s regional status reports, such as those focused on the East African Community and the regions of the UN Economic Commission for Europe (UNECE), are influenced by SEforALL’s data and information (REN21 2016a; REN21 2017b).

Besides, many more regionally focused and energy access-oriented institutions inform REN21’s regional reports, for instance the Economic Community of West African States (ECOWAS) Centre for Renewable Energy and Energy Efficiency (ECREEE), the Africa-EU Renewable Energy Cooperation Program (RECP), CIF, and E4I. Vice versa, the information REN21 shares through its GSRs is widely acknowledged,⁶ and regularly shared at key events. For example, a preview of GSR 2015 was presented at the IRENA Council that same year, GSR 2016 was launched at CEM 7 in San Francisco, and the Global Futures Report of 2017 was introduced at the 2017 SEforALL Forum (REN21 2018a).

Finally, SEforALL shows similar cognitive interactions, although to a lesser extent. Besides the SEforALL HIO being informed by REEEP, the statistics, data, and country profiles of the IEA and IRENA feed into SEforALL’s Heat Maps. These inform the international community about which regions should be prioritized to close the energy access gap (SEforALL 2018b). Similarly, knowledge of ECREEE, AREI, CIF, WBCSD, and the Global Network on Energy for Sustainable Development (GNESD) has been included in SEforALL’s publication on the state of electricity access worldwide (SEforALL 2017).

4.4.3.2 Normative

The normative type of interaction (or: interaction through commitment) occurs when the commitments, norms, and principles upheld by one institution confirm or contradict those of other institutions (Stokke 2001; Oberthür and Gehring 2006a). On the one hand, a low degree of normative interaction can be expected for the entire institutional complex, as the majority of institutions interpret the core norm more selectively by prioritizing either one or two of the core objectives, i.e. energy security, energy access, and environmental sustainability. On the other hand, Section 4.4.2 has shown that the selected partnerships are rather consentient in this regard, thus the normative interactions between REEEP, REN21, and SEforALL are considerable.

It is an enormous task to carefully compare the commitments, norms, and principles of REEEP, REN21, and SEforALL with those of all other institutions for renewable energy. However, some overlaps are expected based on the above broad evaluation of the institutions’ core norm (see Section 4.3.2). First and foremost, all three partnerships show strong normative interaction with the UNFCCC regime. As described earlier, REEEP and REN21 as well as SEforALL stress the importance of aligning their commitments, norms, and principles with the 2 degrees target set by the Paris Agreement under the UNFCCC regime. In addition, the commitments, norms, and principles of REEEP and SEforALL necessarily overlap with those institutions similarly prioritizing renewable energy for environmental sustainability and energy access, including CESC, UN Energy, and the Gold Standard (GS). Likewise, REN21’s commitments, norms, and principles presumably overlap with such institutions that are similarly inclusive toward energy security objectives, such as CEM, IRENA, and AREI.

4.4.3.3 Behavioural

A behavioural interaction refers to situations in which the actions undertaken by one institution, or members thereof, are supportive or disruptive for the performance of other institutions (Stokke 2001; Oberthür and Gehring 2006a). For instance, if an institution aims to expand access to energy services in rural areas by providing clean cooking appliances, these activities inherently support actions undertaken by institutions to foster emission reductions. In contrast, carbon offsetting programmes developed by an institution may undermine the efforts of institutions aiming at 100 per cent renewable energy. Thus, behavioural interactions can be driven by matching objectives (Gehring and Oberthür 2009), but also include, for instance, shaming, pressure, brand management, or monitoring each other’s performances (see Chapter 2). For the scope of this study, it would lead too far to measure the actual impact of behaviours and activities, so the following analysis suffices with distinguishing and illustrating major behavioural interactions.

It is REEEP’s main objective to advance clean energy services in low- and middle-income countries. Similarly, it is SEforALL’s priority to secure affordable and reliable clean energy for all by 2030. Thus, synergistic behavioural interactions of REEEP and SEforALL most likely occur with institutions with matching objectives at the intersection of energy access and environmental sustainability. These include UN Energy, Gold Standard (GS), and CESC (see Section 4.3.2). The synergies are supposedly strong: first, since the membership directories of these institutions only partly overlap, so that the matching objectives apply to a wider range of actors, second, as these institutions pursue these objectives through different means of governance, i.e. governance functions, complementary to those of REEEP and SEforALL.

In addition, behavioural interactions through monitoring and potentially influencing the performance of other institutions take place between REEEP and SEforALL on the one hand, and the UNFCCC, IRENA, and CEM on the other. First, REEEP visits and actively participates in IRENA’s General Assemblies, the yearly SEforALL Forum, and the UNFCCC COPs.⁷ Second, SEforALL similarly performs sustainable energy diplomacy at the General Assemblies of IRENA, the UNFCCC COPs, and at the Clean Energy Ministerials (CEM) (SEforALL 2018b). Moreover, SEforALL is heavily involved in the UNFCCC process, particularly through Rachel Kyte, CEO of SEforALL and Special Representative of the UN secretary-general, and through organizing Energy Days jointly with IRENA at COP21 and 22, and presumably future COPs (SEforALL 2018d).

As mentioned earlier, it is REN21’s mission to ensure a global transition to renewable energy, to limit temperature rise below 2 degrees, to meet the targets set by SDG 7, and to boost energy security. Hence, synergistic behavioural interactions of REN21 are expected with the sixteen remaining institutions with matching objectives at the intersection of energy security, energy access, and environmental sustainability (see Section 4.3.2). Similar to the interactions of REEEP and SEforALL with other institutions, these interactions of REN21 likely yield considerable benefits for both sides, since they expand the range of actors to which these objectives apply and cover complementary governance functions.

In addition, REN21 monitors and potentially influences the performance of the UNFCCC, IEA, IRENA, and SEforALL. The partnership actively participates in the UNFCCC COPs. For instance, in the run-up to COP21 in Paris, REN21 joined forces with the Covenant of Mayors (COM) to set up the Paris Process on Mobility and Climate (PPMC), and organized a series of events on ‘re-energising the future’ together with IRENA (REN21 2015). Also at the following COPs in Marrakech and Bonn, REN21 hosted and participated in several renewable energy events. On top of that, REN21 regularly attends IRENA’s General Assemblies, and SEforALL’s yearly Forum, and is a member to the IEA’s Renewables Industry Advisory Board and IRENA’s Coalition for Action (IRENA 2018c; REN21 2015, 2016b).

4.4.4 Summary: Coherence at the Micro Level

While having in common that they are key governing institutions for renewable energy, the three selected multi-stakeholder partnerships are different in a variety of ways. Whereas REEEP is backed up by more than 350 members, REN21 and SEforALL ‘only’ have 64 and 86 members, respectively. In addition, while SEforALL speaks to government leaders and REN21 to policy makers more broadly, REEEP targets small- and medium-sized enterprises. Finally, REN21 provides policy-relevant information to support a global transition toward renewables, whereas SEforALL connects leadership to mobilize action on SDG 7, and REEEP mobilizes funding to accelerate market-based deployment of renewables.

In addition to these more obvious differences, a closer analysis of the institutional features and interaction mechanisms helped determine further aspects of micro-level coherence. First, the three institutions largely share their interpretations of the core norm, and the governance functions they perform are complementary, whereas the membership directories show little overlap. In other words, the normative, functional, and membership-based coherence and complementarity across the selected institutions is high.

Second, there is an abundance of cognitive interactions between the selected institutions and beyond, which substantiate the dominance of information and networking activities within the renewable energy subfield. In addition, there are considerable normative and behavioural interactions, resulting in various synergies while, at the same time, clustering different sets of institutions around certain priorities. The interaction mechanisms therefore appear to contribute to a functional imbalance and normative divergence in the subfield as a whole. In summary, despite the fact that the institutional features between the selected institutions are highly coherent, micro-level coherence as a whole should rather be qualified as medium.

4.5 Micro-Level Management

Finally, this section zooms in on deliberate attempts to manage institutional interactions among the renewable energy institutions analyzed in the previous section. These are deliberate attempts that seek to improve institutional interaction and its consequences, so as to prevent or strengthen the influence of one institution on the performance of another (Stokke 2001; Oberthür 2009). Typical examples are the provision of guiding principles by an overarching institution, joint coordination of activities across institutions, or unilateral management by individual institutions, for the purpose of more efficient goal-attainment (Oberthür 2009, 375–376). Such management attempts may lead to stronger coherence in terms of institutional features, for instance increased convergence among interpretations of the core norm, or novel interaction mechanisms for improved exchange processes.

First, the UNFCCC regime and Agenda 2030 come forward as important overarching frameworks for the three selected partnerships. As shown in Section 4.4.2, REEEP, REN21, and SEforALL ensure that their activities match the 2 degrees target of the Paris Agreement and SDG 7. For the subfield in general, these overarching goals provide ‘international agreement’, or at least a high degree of consensus, to globally phase out fossil fuels and foster a transition toward renewables.⁸ This said, besides the three partnerships ‘only’ thirteen other institutions explicitly link their activities to the UNFCCC and SDG 7. This suggests that this overarching framework has not yet fully made its way to all renewable energy institutions.

Second, three examples were found of how interactions have been managed jointly by the three partnerships put under scrutiny here. First, REEEP and REN21 collectively operate reegle.info, which is a publicly recognized information portal on renewables, energy efficiency, and climate change.⁹ The portal provides country energy profiles, energy statistics and research, and a directory of relevant stakeholders (REEEP 2018c). Second, REEEP worked with IRENA to create and launch the Renewables Tagger in 2016, which is a specialized version of the Climate Tagger and automatically scans and sorts data and documents holding renewable energy content to support knowledge-driven organizations to streamline their information (Climate Tagger 2018). Third, REN21, IEA, and IRENA have recently partnered up and published a report together on ‘Renewable Energy Policies in a Time of Transition’ (IRENA, OECD/IEA, and REN21 2018).

Finally, REN21 and SEforALL unilaterally manage institutional interactions with third institutions. First, REN21 and its flagship GSR, more specifically, facilitate numerous cognitive interactions.¹⁰ All members to REN21 can contribute to the publication, and various institutions provide authors, contributors, and reviewers, such as IRENA and the IEA (REN21 2017a; REN21 2018b). Second, SEforALL provides an important overarching platform for various institutional interactions, particularly through its thematic and regional hubs and accelerators.¹¹ For instance, IRENA hosts the SEforALL thematic hub on renewable energy; REN21, CESC, and ECREEE take part in SEforALL’s People-Centred Accelerator; and OLADE is an important player in SEforALL’s regional hub for Latin America and the Caribbean. On top of that, SEforALL’s Global Tracking Framework reports of 2015 and 2017, which measured progress on SDG 7, were coordinated by the IEA (World Bank and IEA/OECD 2015; World Bank and OECD/IEA 2017).

In sum, the renewable energy subfield is characterized by managed relationships, which, most significantly, provide an overarching normative framework and address cognitive interactions – and therewith, the potential overflow of information in the renewable energy subfield.

4.6 Conclusions

A global uptake of renewable energy is of paramount importance for a sustainable energy future, and while the share in the global energy mix is increasing, the growth rate is not sufficient to reach the targets set by SDG 7 in Agenda 2030 (United Nations 2018). Hence, effective global governance continues to play an important role in promoting renewables. As Chapter 3 has shown, global renewable energy governance is characterized by considerable institutional complexity. However, it is yet unclear whether this complexity significantly qualifies the institutional complex’s impact on the global energy transition. To this end, this chapter scrutinized coherence and management within the renewable energy subfield, examining institutional features at the meso level, and interaction mechanisms and management attempts at the micro level.

The analysis of the subfield, comprising forty-six institutions, shed light on various important connections across institutions and their properties. First, while one-third of renewable energy institutions share the core norm to increase the proportion of renewables for energy security, energy access, and environmental sustainability, the majority of institutions interpret the core norm more selectively and prioritize either one or two of these objectives. Second, the subfield is dominated by public institutions, complemented by various private institutions and multi-stakeholder partnerships. Third, whereas most institutions facilitate information exchange and networking and, to some extent, implement projects on the ground, a significantly smaller set of institutions develops standards and commitments and financing mechanisms. Hence, the renewable energy subfield is characterized by diversified priorities – with a wide variety of institutions and actors, and with governance functions unevenly performed. The degree of meso-level coherence is therefore low to medium.

The selected multi-stakeholder partnerships, REEEP, REN21, and SEforALL, provided more detailed insights on interactional specifics at the micro-level. While these partnerships largely share the core norm for renewable energy, their membership directories hardly overlap, and governance functions are mostly complementary. Furthermore, cognitive interaction is the predominant mechanism involving the three partnerships put under scrutiny, notwithstanding the relevance of certain normative and behavioural interactions. Since these interaction mechanisms seem to aggravate the normative divergence and functional imbalance in the subfield, micro-level coherence can be determined as medium.

Besides interaction mechanisms, various management attempts were found to steer institutional interactions and foster synergies across renewable energy institutions. These mostly provide an overarching normative framework and manage the potential overflow of information within the subfield. Hence, this chapter concludes that, with a medium degree of coherence and management mechanisms in place, the renewable energy subfield is largely characterized by coordination (see Table 2.1, Chapter 2). However, such a densely populated subfield dealing with several critical energy challenges may require more than ad-hoc coordination to iron out controversies, trade-offs, and potential conflicts.

For the subfield to move toward a stronger division of labour, i.e. deliberate and continuous sharing of governance functions and norms for complementary membership (see Chapter 2), the following measures are recommended. First, the role of renewable energy to address energy security, energy access, and environmental sustainability in an integrated manner needs to be fully institutionalized. A reframing of the global energy challenge and the role of renewables may contribute to such a development (Sanderink 2019), as well as an expansion of membership of institutions toward those actors that are concerned with energy security. Second, the subfield would benefit from a track record or clearinghouse of the activities performed by existing renewable energy institutions, so that duplication and conflictive impacts can be resolved or prevented. Finally, it is necessary for institutions to strive for more cognitive alignment and some common understanding when it comes to defining renewable sources of energy. These three measures may require one coordinating institution, with IRENA being the likely choice: it advocates for a widespread adoption of renewables for energy security, energy access, and environmental sustainability; is closest to universal membership of all institutions in the subfield; and already positions itself as a principle platform for cooperation and repository of expertise (IRENA 2018b). Chapter 8 substantiates these policy recommendations in further detail.

Finally, this chapter gives rise to new questions that open important research opportunities. For example, how does the level of coherence and management relate to the effectiveness and legitimacy of individual institutions and the institutional complex for renewable energy as a whole? Or, what recommendations can be provided to specific public, civil society, or business actors that are trying to navigate the institutional complex? While this chapter provided a novel contribution on questions of coherence and management in renewable energy governance, these further questions will be revisited in Chapters 7 and 8.

5 Fossil Fuel Subsidy Reform Interactions between International Cooperative Institutions. The More, the Merrier?

Cleo Verkuijl and Harro van Asselt

5.1 Introduction

There is increasing recognition that fossil fuel subsidy reform (FFSR) can contribute to a host of environmental, social, and economic objectives, and thereby contribute to achieving both the Sustainable Development Goals (SDGs) and the goals of the Paris Agreement on climate change (e.g. Jakob et al. 2015; Jewell et al. 2018; UNEP 2018). However, at several hundred billion dollars a year (OECD 2018), fossil fuel subsidies persist in both developed and developing economies.

While past research has sought to address this puzzle through the lens of domestic politics – pointing to challenges to reform such as popular opposition, vested interests, interest groups, path dependency, and capacity and data gaps (e.g. Victor 2009; Inchauste and Victor 2017) – international cooperation can also play an important role in promoting, or impeding, FFSR (Smith and Urpelainen 2017; Skovgaard and van Asselt 2018). For instance, while international institutions can adopt new rules, catalyze international commitments, enhance states’ accountability, and facilitate information-sharing and capacity-building, there is also a risk that they will struggle to move beyond rhetoric, promote weak, vague, or otherwise inadequate norms, or be perceived to favour certain approaches over others. Where more than one international institution is active at the same time, the door is open for cooperation, as well as competition and conflict between different institutions. This raises questions regarding the institutional coherence of international FFSR governance (see also Chapter 2).

In this chapter, we consider how various international institutions are approaching FFSR governance. First, we briefly introduce the rationale for FFSR (Section 5.2). Next, we discuss the international FFSR governance architecture, with a view to analyzing institutional coherence at the meso level (Section 5.3). This includes the possible emergence of a core norm of FFSR, membership distribution, and the governance functions carried out by the various international institutions active in this area. To further evaluate the degree of coherence in this field, we zoom in on the meso level. Concretely, we examine a subset of three international clubs whose FFSR activities are among the most prominent globally: the Group of 20 (G20), the Asia-Pacific Economic Cooperation (APEC), and the Friends of Fossil Fuel Subsidy Reform. We first introduce the FFSR activities being undertaken by each of these three institutions, and then consider the interlinkages between these activities, as well as efforts to manage them (Sections 5.4–5.5). We conclude by considering implications of our findings for the future management of FFSR governance and the complexity thereof (Section 5.6).

5.2 Fossil Fuel Subsidies: The Rationales for Reform

Fossil fuel subsidies are a form of government support that benefits the producers or consumers of coal, oil, and gas. Both developed and developing countries subsidize fossil fuels: subsidies for consumers are more commonplace in developing countries, while those for producers are found across the board (Bast et al. 2015). Such assistance can come in many guises; some more direct than others. Common types of subsidies include direct transfers of funds; the setting of prices above or below market rates; exceptions or reductions on taxes; favourable loans, loan guarantees, or insurance rates; and preferential government procurement. Support can also be provided in-kind, such as when a government builds infrastructure for the primary or exclusive use of a coal company.

The Organisation for Economic Co-operation and Development (OECD), the International Energy Agency (IEA), and the International Monetary Fund (IMF) have all published estimates of government support to fossil fuel use and consumption. These numbers vary, depending on what valuation method is used; which countries and regions are covered; fluctuations over time; and which definition of a ‘subsidy’ is being used. However, even by the more conservative OECD and IEA estimates, global fossil fuel subsidies totalled between US $373 and 617 billion per year between 2012 and 2015 (OECD 2018). The IMF’s approach, which incorporates the non-priced externalities of fossil fuel production and consumption such as air pollution, traffic congestion, and climate change, suggests the public costs lie much higher: in the range of US $5.3 trillion in 2015 (Coady et al. 2017).

Unsurprisingly, the IMF’s broad ‘post-tax’ interpretation of what constitutes a fossil fuel subsidy has proved controversial. Yet the Fund’s approach does help to illustrate the broader societal costs of fossil fuels. Moreover, regardless of the definition used, fossil fuel subsidies are associated with significant economic, social, and environmental impacts. Even excluding non-priced externalities, fossil fuel subsidies can represent a major burden on the public purse, taking up as much as 35 per cent of the public budget in some countries (El-Katiri and Fattouh 2015). They thereby reduce the investments available for key development sectors such as health and education (Merrill and Chung 2015), representing an important opportunity cost for developing countries in particular. Moreover, while fossil fuel subsidies are often defended as being ‘pro-poor’, the evidence suggests that such measures tend to be highly regressive, and, perversely, generally benefit those who consume the most energy in society, or powerful interest groups (Arze del Granado and Coady 2012).

But perhaps the most urgent rationale for phasing out fossil fuel subsidies lies in their environmental impact. These subsidies artificially enhance the competitiveness of fossil fuels, potentially locking in unsustainable fossil fuel infrastructure for decades (Asmelash 2016). Indeed, it has been estimated that more than a third of carbon emissions between 1980 and 2010 were driven by fossil fuel subsidies (Stefanski 2014). According to the 2018 Emissions Gap Report by the United Nations Environment Programme (UNEP), phasing out fossil fuel subsidies worldwide could reduce global carbon emissions by up to 10 per cent (UNEP 2018). Government support to fossil fuels also diverts investment from areas such as energy efficiency and renewable energy, while their reinvestment in these areas could bring about important climate change mitigation benefits (Merrill et al. 2016).

Notwithstanding the adverse fiscal, socioeconomic, and environmental effects of fossil fuel subsidies, decades of experience with fossil fuel subsidy reform in various countries attest to the political challenges. While some countries, such as India, Indonesia, and Mexico, have made some progress in reforming subsidies, other countries, such as Nigeria, have struggled to implement or sustain reforms. Reforms have usually been linked to macro-economic factors such as falling fossil fuel prices (Benes et al. 2015) or financial crises, but in many cases domestic political factors, such as the role of special interest groups, a country’s institutional and governance capacity, and the political system, play a crucial role in making FFSR a success (Skovgaard and van Asselt 2018).

The importance of macro-economic and domestic political factors in hindering or driving FFSR may suggest that there is no or only a limited role for international cooperation in steering reform. However, as the next section shows, international governance can help drive (or hinder) domestic reform.

5.3 Meso-Level Coherence

5.3.1 Emergence of the FFSR Institutional Complex

As fiscal instruments of energy policy that can have numerous social, economic, and environmental effects, it is not surprising that fossil fuel subsidies are governed by a range of institutions from respective domains, such as energy, trade, and sustainable development (Van de Graaf and van Asselt 2017). However, until well into the previous decade, there were hardly any international institutions focusing specifically on the problems posed by fossil fuel subsidies, or options for their reform.

This changed in 2009, a watershed moment for the international politics of FFSR. Meeting in Pittsburgh in September, G20 leaders made the first international commitment to address fossil fuel subsidies (G20 2009). This commitment was closely followed by a similar pledge by the 21 APEC economies (APEC 2009). Then-US President Barack Obama is widely credited with orchestrating the G20 pledge as he sought to shape his administration’s climate legacy, with the economic crisis offering a further window of opportunity to promote new approaches to financial governance (Van de Graaf and Blondeel 2018).

Over the subsequent decade, a range of additional institutions has become active in this field. These include various international organizations such as the OECD, IEA, IMF, and World Bank; additional minilateral coalitions such as the Friends of Fossil Fuel Subsidy Reform (Friends); and nongovernmental organizations (NGOs) such as the Global Subsidies Initiative. The profile of FFSR has further been raised through two further developments: a reference to the need to ‘rationalize inefficient fossil fuel subsidies’ in SDG target 12.c (UN 2015); and the recent adoption, by twelve members of the World Trade Organization (WTO), of a Ministerial Statement that highlights the need to take this agenda forward in the international trade sphere (IISD 2017).

5.3.2 The Core Norm of Fossil Fuel Subsidy Reform

The starting point of any analysis of a core norm of FFSR is the aforementioned G20 commitment, made at the Group’s third leaders’ summit in Pittsburgh in September 2009. In their statement, leaders recognized that inefficient fossil fuel subsidies encourage wasteful consumption, distort markets, impede investment in clean energy sources, and undermine efforts to deal with the threat of climate change (G20 2009, preamble). As such, they committed to ‘[r]ationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption’ (G20 2009, paragraph 29). As mentioned in Section 5.3.1, ministers of APEC adopted a similar pledge later that year (APEC 2009).

While we take this formulation as the general core norm for this chapter, the precise content of the norm of FFSR remains contested and invites different interpretations. First, as mentioned in Section 5.2, there is no universal definition of a ‘fossil fuel subsidy’, and indeed, different organizations have historically approached this question in various ways (see also Chapter 8). It should be mentioned, however, that a common conception of a fossil fuel subsidy may be increasingly within reach, in particular as official guidance for their measurement has been released in the context of the SDG process (UNEP et al. 2019). Nevertheless, the G20 and APEC commitments leave important qualifiers such as ‘inefficient’ and ‘wasteful consumption’ undefined. This has given countries considerable leeway to adopt their own interpretations of their international FFSR commitments (Asmelash 2016; Aldy 2017). As a consequence, countries such as Japan, Saudi Arabia, and the United Kingdom have been able to claim they have no fossil fuel subsidies at all (Van de Graaf and Blondeel 2018). Another issue that remains unclear is by when fossil fuel subsidies need to be phased out. Although a range of stakeholders, including leading investors and insurers (Reuters 2017), have called for a phase-out by 2020, and the G7 adopted a date of 2025, the G20 and APEC commitments do not have a clear timeline (with the G20’s reference to the ‘medium-term’ adding limited guidance).

Despite the textual ambiguity of these initial pledges, the understanding that at least a subset of fossil fuel subsidies ought to be reformed has gained significant global traction over the past decade, including through a reference to FFSR in the UN’s 2030 Agenda for Sustainable Development (UN 2015, SDG target 12.c). The European Union has also adopted its own pledge to phase out harmful fossil fuel subsidies by 2020. Indeed, as noted by Rive (2018, 164), the G20 and APEC’s initial pledges have been instrumental in ‘a reframing of a conception of fossil fuel subsidies as a legitimate government tool to enhance economic development, energy security and welfare into a normative conception that is broadly negative in fiscal and environmental terms’.

Recent developments nevertheless suggest that support for this core norm cannot necessarily be taken for granted. In 2017, the year US President Trump assumed office, G20 leaders omitted FFSR from their declaration for the first time since 2009. While the accompanying G20 Hamburg Climate and Energy Action Plan for Growth (G20 2017) includes a separate FFSR section, the document contains an overall reservation from the United States. Significantly, the 2017 APEC Leader’s Declaration also omits a reference to FFSR (APEC 2017).

5.3.3 Membership

The international institutions governing fossil fuel subsidies include government-driven multilateral regimes, international organizations, and clubs involving a small group of countries (see Table 5.1). This diversity notwithstanding, all but one of the institutions outlined in Table 5.1 are public. The only exception is the Geneva-based Global Subsidies Initiative, a programme of the International Institute for Sustainable Development, a Canadian NGO (Lemphers et al. 2018). One explanation for this is that fossil fuel subsidies are, by definition, provided by governments, who therefore have a key role in addressing them. The dominant role of public institutions suggests that the global governance architecture on FFSR is somewhat less institutionally complex than that of other subfields in the climate-energy nexus that heavily involve civil society and the private sector (see Chapter 3).

Table 5.1 Overview of governance functions across different types of institutions (public, hybrid, private) for fossil fuel subsidy reform.

	Public	Hybrid	Private
Standards & Commitments	G7, UNFCCC, UN (SDGs)
Operational
Information & Networking	IEA, OECD, OPEC, WTO, UNEP
Financing
Standards & Commitments; Operational
Operational; Information & Networking			Global Subsidies Initiative
Information & Networking; Financing	IMF, World Bank
Standards & Commitments; Information & Networking	APEC, Friends of Fossil Fuel Subsidy Reform, G20
Standards & Commitments; Financing
Operational; Financing

5.3.4 Governance Functions

The range of international institutions working on FFSR covers the full gamut of governance functions. The diversity of these institutions engaged is notable: they range from those whose core mandates concern fiscal governance (e.g. the G20, OECD, IMF, and World Bank), to trade liberalization (WTO and APEC), to energy (IEA and OPEC), to the environment and climate change (UNEP and the UN Framework Convention on Climate Change (UNFCCC)).

In terms of standards and commitments, forums such as the G20, G7, APEC, and Friends have made pledges or otherwise publicly promoted the norm of FFSR. The UN’s 2030 Agenda, through SDG 12.c., also encourages countries to ‘rationalize’ inefficient fossil fuel subsidies. Fossil fuel subsidy review processes, such as those organized by the G20 and APEC, provide an opportunity for individual countries to pledge to address certain subsidies; while the UNFCCC, through its system of nationally determined contributions (NDCs), allows countries to make similar national commitments.

Regarding information and networking, organizations such as the OECD, IEA, IMF, World Bank, Friends, and Global Subsidies Initiative conduct research to clarify the scale of subsidies provided. At the same time, forums such as the G20, APEC, and the WTO create mechanisms for countries to report on their fossil fuel subsidies, although notification rates are patchy. The UN Environment Programme supports countries in better understanding the extent of their fossil fuel subsidies through the development of international indicators. As discussed in more detail in Section 5.4, the Friends engage in behind-the-scenes networking to further promote international reform efforts.

Operational activities such as technical assistance and capacity-building are provided by international organizations such as the World Bank, Friends, and Global Subsidies Initiative, including through publications, events, and online webinars.

Finally, organizations such as the World Bank and Friends have made financing available to help developing countries undertake reform, while structural adjustment policies implemented by the IMF and the World Bank have at times involved FFSR.

5.3.5 Summary: Coherence at the Meso Level

The coherence of the institutional complex for fossil fuel subsidies may seem limited at first sight. There is not a single definition that all institutions adhere to and, as Section 5.2 pointed out, existing definitions and ways of measuring subsidies differ widely. Moreover, international institutions seem to address fossil fuel subsidies for very different reasons, from fiscal to environmental. Lastly, membership is heavily skewed toward public institutions, and the role of private and hybrid institutions is limited.

However, the level of inconsistency should not be exaggerated. First, notwithstanding divergences in the way fossil fuel subsidies are defined and measured, there are also important similarities in the various definitions published by the OECD, IEA, and IMF (Koplow 2018), and joint estimates by the OECD and IEA have been published (OECD 2018). Second, a deeper dive into the types of governance functions fulfilled by various institutions suggests that there is a certain synergy emerging, with all governance functions being fulfilled by several institutions (Table 5.1). While some forums have been instrumental in agenda-setting, and the formulation of broad commitments (e.g. the G20, APEC, Friends), other organizations have focused on providing information on subsidies and their impacts (e.g. the OECD, IEA, IMF), while yet others have been key in supporting FFSR on the ground through, for instance, financing and capacity-building (e.g. World Bank, Global Subsidies Initiative).

Partially, this distribution is the result of active coordination. As a notable example, the G20’s 2009 commitment to phase out inefficient fossil fuel subsidies largely preceded the availability of robust data into global and domestic fossil fuel subsidies (Van de Graaf and Blondeel 2018). However, in their Pittsburgh Statement, G20 leaders requested ‘relevant institutions’, such as the IEA, the Organization of the Petroleum Exporting Countries (OPEC), the OECD, and the World Bank (the ‘IGO-4’), to provide an analysis of the scope of energy subsidies and suggestions for the implementation of the G20’s reform efforts (G20 2009), with several reports issued thus far, including on how such reforms can be made while assisting the poor (IEA, OECD, and World Bank 2010a, 2010b, 2011; World Bank 2014).

In terms of the terminology introduced in Chapter 2, our overall assessment of the meso-level coherence therefore falls between synergy and division of labour.

5.4 Micro-Level Coherence

The remainder of this chapter will focus on three forums in particular to scrutinize coherence at the micro level of the FFSR subfield. These forums are: the G20, APEC, and Friends. Despite differing overarching mandates and approaches, they have been among the most active in this subfield, including through proactive promotion of an international norm on FFSR. All three are clubs involving a limited number of economies, who moreover began to address fossil fuel subsidies roughly around the same time (2009–2010). As such, their activities in this space are comparable. Nevertheless, as will be discussed, there are differences in their approaches as well. To shed light on how international FFSR governance is impacted by the parallel efforts of these three forums, we consider how each is addressing FFSR, to what extent their approaches are consistent, and the management of the interaction between them.

5.4.1 Institutions under Scrutiny

5.4.1.1 The Group of 20

The Group of 20 was established in 1999 in response to the Asian financial crisis. During the financial crisis of 2008, the Group’s status was elevated to that of a leaders’ summit, with members’ heads of state and government convening once or twice a year since to address issues relating to global economic governance and reform (Wade 2011). Comprising nineteen of the world’s largest developed and developing economies,¹ as well as the European Union, the Group accounts for some two-thirds of global population; 85 per cent of global gross domestic product (GDP) (Kim and Chung 2012), and 75 per cent of global greenhouse gas emissions (Climate Transparency 2015).

While economic governance is the Group’s raison d’être, climate change has featured on the leaders’ agenda from the beginning (Kirton and Kokotsis 2015). Assessments of its performance in this regard have often been cautiously positive (Van de Graaf and Westphal 2011; Garnaut 2014; Kirton and Kokotsis 2015), with commentators identifying the Group’s flexibility over topics and time; its ability to exploit issue linkages; and ‘a sense of being equal’ among members (Kim and Chung 2012) as advantages. However, important drawbacks of the ‘exclusive minilateralism’ pursued by the G20 have also been identified, including a lack of legitimacy, transparency, and accountability, in particular when compared to bodies with a more universal membership, such as the UNFCCC (Eckersley 2012; Kim and Chung 2012).

As mentioned earlier, the G20’s 2009 FFSR pledge has been instrumental in elevating the issue to the international agenda. In addition to this role, leaders at the 2009 Pittsburgh summit also agreed to prepare and report on implementation strategies and time frames for the rationalization and phase-out of inefficient fossil fuel subsidies (G20 2009). To facilitate this work, the G20 established a working group on energy in which energy experts, under supervision of Finance and Energy ministers, reviewed the fossil fuel subsidies in their countries (Kim and Chung 2012). However, despite its potential to enhance transparency in the area of fossil fuel subsidies, the results of this exercise have been described as ‘meagre’ (Van de Graaf and Westphal 2011, 28) and ‘disappointing’ (de Jong and Wouters 2014, 34), with almost half of the G20 countries providing little or no further information on their subsidies (Van de Graaf and Blondeel 2018).

A more in-depth process to increase the transparency on subsidies of a subset of G20 countries is currently ongoing. This goes back to June 2012, when G20 Leaders requested Finance ministers to explore options for a voluntary peer review (VPR) process (G20 2012). In February of the following year, G20 Finance Ministers committed to undertake such a process, and, several months later, released a corresponding methodology (G20 Energy Sustainability Working Group 2013). Reciprocal VPRs have been conducted by China and the United States, as well as Germany and Mexico. Reviews between Indonesia and Italy, and Argentina and Canada, have also been announced. While the VPR process appears to provide opportunities for domestic and bilateral learning in the area of FFSR,² engagement in the voluntary process does not necessarily guarantee enhanced transparency. Germany’s VPR in particular has been accused of ‘ignoring the majority of fossil fuel subsidies’ in the country (ODI 2017).

5.4.1.2 The Asia-Pacific Economic Cooperation

The Asia-Pacific Economic Cooperation was created in 1989 as a regional forum in response to the increasing economic interdependence of the region (Elek 2005). Consisting of twenty-one developed and developing countries in the Asia-Pacific region, APEC countries account for half of global trade, 60 per cent of world GDP (APEC 2018), and 60 per cent of global energy demand (IEA 2017). Consequently, energy policy developments within APEC have significant impacts on global energy trends (IEA 2017).

Although action on climate change and energy has not been a central focus of APEC’s activities, since 2009 the forum has engaged in a range of activities related to FFSR. Just weeks after the G20’s 2009 commitment in Pittsburgh, APEC leaders similarly pledged to ‘rationalise and phase out over the medium term fossil fuel subsidies that encourage wasteful consumption’, while ‘recognising the importance of providing those in need with essential energy services’ (APEC 2009).³ As with the G20, enhancing transparency of existing subsidies was a first step in this effort. Meeting in Japan in 2010, APEC Energy Ministers instructed the group’s Energy Working Group (EWG) to provide an initial assessment of fossil fuel subsidies in the region (APEC Energy Ministers 2010). In 2011, APEC Leaders meeting in Honolulu agreed to set up a ‘voluntary reporting mechanism’ that allows members to self-report progress toward reform (APEC 2011).

Building on their peer review experiences in the areas of renewable energy and energy efficiency,⁴ APEC economies have also engaged in their own VPR process for fossil fuel subsidies.⁵ Guidelines for VPRs were adopted in November 2013 (APEC EWG 2013), with Peru as the first APEC economy to undergo review.⁶ Additional VPRs have been conducted for New Zealand (2015), the Philippines (2015), Chinese Taipei (2016), and Vietnam (IEA 2017). The APEC VPR process reviews fossil fuel subsidies in the volunteer economy, facilitated by the EWG and FFSR Secretariat, which was established to assist developing economies through coordination of peer review activities and provision of technical and logistical support.⁷ The results of the reviews, including policy reform recommendations, are shared to help disseminate lessons learned and best strategies for reform (IEA 2017).

Compared to the G20, APEC includes more developing countries.⁸ Perhaps reflecting this more diverse membership, capacity-building has also been an important focus of APEC’s FFSR work (APEC 2013), with dedicated FFSR capacity-building workshops held in Honolulu (APEC EWG 2015) and Jakarta (APEC EWG 2017).

5.4.1.3 The Friends of Fossil Fuel Subsidy Reform

The Friends is an informal coalition of countries set up in June 2010 ‘to build political consensus on the importance of fossil fuel subsidy reform’ (GSI n.d.). Currently comprising nine states – Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden, Switzerland, and Uruguay – the group’s establishment was directly inspired by the G20’s 2009 commitment to phase out fossil fuel subsidies (Rive 2016). Indeed, the Friends explicitly identifies itself in relation to, and in contrast with, the G20: as ‘an informal group of non-G20 countries’ (Friends, n.d.).⁹ Informal coalitions of ‘Friends’ that bring together countries with similar views around particular issue areas have become a familiar phenomenon in international affairs, including in the areas of trade, development, environment, and disarmament (Rive 2018). The Friends has elicited comparisons with the ‘Friends of Fish’: a group of developed and developing countries working within the WTO to promote sustainable fishing practices and elimination of harmful fishing subsidies (Young 2017).

The Friends was established by New Zealand, which continues to play a leading role (Rive 2016). The Global Subsidies Initiative performs a support function for the group (Lemphers et al. 2018). Coordination takes place at the sidelines of biannual meetings of the OECD Joint Working Party on Trade and Environment and other international meetings, through issue-specific meetings of technical experts, and through monthly conference calls.¹⁰

The Friends has primarily engaged in ‘soft’ activities in its efforts to promote FFSR. This is in line with Rive’s (2018, 158) observation that ‘the effectiveness of Friends groups on international norm and policy development and negotiations largely does not depend on securing and wielding political “hard” power … [i]nstead, it depends on their ability to network, influence, innovate, problem solve and profile raise’.

In this regard, one key forum that the Friends has focused on is the WTO. Through informal lobbying efforts as well as public outreach activities spearheaded by New Zealand, the group has been instrumental in the adoption, at the 11th WTO Ministerial Conference, of a Ministerial Statement on fossil fuel subsidies. In the statement, twelve signatories urge the WTO to advance the discussion on fossil fuel subsidies, and request transparency and reform of inefficient fossil fuel subsidies that encourage wasteful consumption. Such engagement has the potential to make a significant dent in fossil fuel subsidies globally, given the WTO’s previous experience with subsidies reform, for instance in the area of agriculture (Verkuijl et al. 2019). Besides the international trade space, the Friends have also promoted FFSR within the UNFCCC process, advocating, among others, the inclusion of reform plans by countries in their NDCs (Merrill et al. 2016).

Part of the Friends’ approach also appears to lean on ‘leading by example’, with three Friends’ Members having undergone self- or peer reviews of their fossil fuel subsidies (Finland and Sweden have conducted independent reviews, while New Zealand’s was completed under the auspices of APEC). However, it is worth noting that while at least thirteen countries have made reference to fossil fuel subsidies in their NDCs to date, this includes only two Friends countries: Ethiopia and Costa Rica (Terton et al. 2015; Merrill et al. 2016).

Another key output of the Friends was the release of a Fossil Fuel Subsidy Reform Communiqué in April 2015, which invites all countries, companies, and civil society organizations to join in supporting accelerated action to eliminate inefficient fossil fuel subsidies (Friends 2015). Although it remains to be seen to what extent endorsement will lead to meaningful stakeholder engagement, the document has broadened the range of actors overtly committed to the cause of FFSR. These now include twenty-eight non-G20/APEC countries as well as a host of international organizations and NGOs, and associations representing more than 90,000 investors and corporations (IISD 2016; Rive 2018).

Since the group’s inception, developed country Friends members have also contributed to reform efforts through financial support to the FFSR-related activities of organizations such as the World Bank, IMF, OECD, and the Global Subsidies Initiative¹¹ (see Merrill et al. 2016). Finally, the Friends also contribute to capacity-building through side events at international meetings and webinars on FFSR (Friends 2018).¹²

5.4.2 Interlinkages

The activities of the G20, APEC, and Friends intersect in various ways, even as the three groups show variations in terms of membership and geographic scope, the norms they promote, and their governance functions. Taking these dimensions as a starting point, this section examines the coherence between the three groups and their FFSR activities.

There appears to be general consistency with respect to the core norm that the G20, APEC, and Friends espouse in relation to FFSR. In their respective Leaders’ Declarations, both the G20 and APEC explicitly commit to ‘rationalise and phase out’ fossil fuel subsidies that are ‘inefficient’. The G20 further qualifies its reform commitment by singling out subsidies that ‘encourage wasteful consumption’. On the other hand, the Group’s pledge is strengthened by the inclusion of a ‘medium-term’ timeline for reform. Although APEC’s initial pledge in 2009 contained an identical reference, this was dropped in some of the later iterations (e.g. APEC 2010, 2011, 2012). The Friends’ efforts in this area appear geared to ‘help remind countries’ to keep this topic on their agendas through various diplomatic channels.¹³ Notably, however, the norm espoused in the Friends’ 2015 Communiqué does not meaningfully depart from those of other previous pledges.¹⁴ Similar to the G20 and APEC commitments, the document omits a reference to a specific date for achievement of FFSR and leaves the concept of a subsidy undefined.

As noted, the textual ambiguity of the G20 and APEC’s pledges has enabled several economies in these groups to avoid taking any meaningful action on FFSR. While it is unsurprising that certain group members – particularly those with large subsidies or a big fossil fuel industry – may seek to maintain the opacity of the FFSR norm, it is less evident why a group such as the Friends has not succeeded in further crystallizing it. One explanation may lie in the fact that the Friends has trod a fine line between trying to enhance ambition while simultaneously seeking not to ‘alienate’ other governments,¹⁵ particularly those from the G20 and APEC.¹⁶ Another reason relates to a possible strategic value in maintaining the ambiguity of the term ‘subsidy’. A flexible definition can be conducive to reform as it enables governments to engage at a level they feel comfortable with, rather than setting ‘too high a threshold’ for action.¹⁷

As regards membership, Figure 5.1 illustrates the degree of overlap between members of the G20, APEC, and Friends. As shown, the majority of G20, APEC, and Friends economies (28 out of 41) only belong to one of these three groups. However, all three groups display at least some degree of overlapping membership, with thirteen members associated with two of the groups. Since countries are unlikely to pursue duplicative or contradictory policies in different forums with similar goals, we can hypothesize that such overlaps will lead to more coherent governance. We can further expect coherence to be enhanced where membership overlaps strongly and where pivotal actors with the ability to influence dynamics straddle multiple groups (Gehring and Faude 2014).

Figure 5.1 Membership of the G20, APEC, and Friends.

Against this backdrop, it is notable that nine economies are a member of both the G20 and APEC. Moreover, two key global players – the United States and China – have been advocates of FFSR across both groups,¹⁸ including by engaging in some of the first peer reviews, and, in the case of the United States, giving impetus to the initial FFSR pledges made in these forums. Yet, although these interlinkages may increase the likelihood of a common approach between both groups, important differences between the G20 and APEC remain in terms of both their membership and mandate. As such, the mere existence of the G20’s 2009 FFSR pledge did not make such a commitment a fait accompli in APEC: APEC economies’ own interest in fiscal reform at the time was the decisive factor.¹⁹

Beyond G20-APEC overlaps, New Zealand’s membership of both APEC and the Friends also stands out. As one of the strongest proponents of FFSR in APEC, the country has been ‘keen to lead by example’ in the group, for instance by being among the first to undergo peer review and by seeking to set a ‘good benchmark’ in doing so.²⁰ Seeing their APEC activities as ‘part of their Friends work’, the country has moreover sought to work with like-minded APEC members to inspire APEC to take up similar commitments to the G20.²¹ As with China and the United States’ overlapping memberships, it is likely that New Zealand’s membership of both groups has strengthened the consistency and complementarity between the Friends and APEC’s approaches, including by allowing other APEC members to draw on New Zealand’s expertise in this area.²² By contrast, there is little evidence that G20 dynamics have been affected by Denmark, Finland, and Sweden’s association with both the Friends and – by virtue of their European Union membership – the G20: presumably a result of competing visions on the topic of reform among the Union’s Member States.

While overlapping membership has thus helped to enhance consistency between the three groups, the fact that members diverge, particularly in terms of their geographic scope, also contributes to the complementarity of their actions. Indeed, by following on the G20’s FFSR pledge, APEC committed eleven additional non-G20 economies in the Asia-Pacific region to FFSR.²³ Similarly, the Friends’ 2015 Communiqué broadened support for FFSR to an additional twenty-eight countries and numerous other stakeholders. The three groups’ FFSR review activities have also been complementary in scope: at the time of writing, twelve economies had undergone, or committed to undertake, peer reviews under APEC and the G20, with an additional two Friends members having completed self-reviews.

Lastly, in terms of governance functions, there is a significant degree of overlap between the FFSR activities of the G20 and APEC, with both forums engaging in standard and commitment setting, as well as information and networking activities through their progress tracking and peer reviews. Compared to the G20, APEC appears to place a stronger emphasis on building the capacity of its members to engage in FFSR by facilitating operational activities such as capacity-building. Nevertheless, these differences should not be overstated. As observed by Steenblik,²⁴ peer review – while primarily related to information – can also be regarded as an important means of promoting capacity-building, allowing developing and developed countries alike to create a better understanding of the types of fossil fuel subsidies that exist, and ways of addressing them.

There are nonetheless nuances in the way the G20 and APEC have approached their activities. Although much of the G20’s FFSR work has been concentrated in its energy working group, its original pledge was coordinated by finance ministers, who have remained heavily involved in this topic.²⁵ APEC’s reform activities, on the other hand, have largely been restricted to the forum’s EWG and energy ministers: a deliberate choice on behalf of the forum’s FFSR proponents, who feared that involvement of senior finance officials would have rendered this work ‘too political’.²⁶ By allowing APEC to draw on its EWG’s experience in delivering on projects in other areas, including peer reviews on renewable energy and energy efficiency, this approach enabled APEC economies to complete the first fossil fuel subsidy review as early as July 2015. By contrast, the G20’s approach to peer reviews has been more political, including through the ‘pairing’ of a developed and developing country review in every review cycle, resulting in a more drawn-out process.²⁷

Both groups’ approaches to VPRs may be associated with certain advantages. By enabling individual countries to undergo peer review once they are ready, APEC’s approach has allowed for a quicker succession of reviews than the G20 approach, which is based on willing pairs of countries stepping forward. On the other hand, it is notable that all the G20 members of APEC have conducted their peer reviews under the auspices of the G20, which is perhaps associated in the public’s mind with greater political prestige.²⁸ One challenge for both groups is how to maintain momentum for VPRs going forward. Naturally, those countries most eager to undergo review were among the first to volunteer, while some remaining countries are more reluctant to engage: for example, several maintain they have no inefficient subsidies in the first place, or want to delay committing to a review for reasons of political timing.²⁹ Moreover, a backlog of peer reviews has reportedly accumulated under APEC, as funding for these efforts, which had previously come largely from the United States, has not been renewed.³⁰

The Friends’ activities have some overlaps with those of the G20 and APEC. Much like the G20 and APEC’s reform pledges, the Friends’ 2015 Communiqué focuses on setting standards and commitments for FFSR. Similarly, some members have engaged in information and networking by undergoing fossil fuel subsidy reviews. However, in line with the Friends’ consensus-building role, their activities have generally been more externally focused than those of the other two groups. While the G20 and APEC’s work largely revolves around their member base, the Friends have actively engaged in operational activities such as events and webinars to influence third actors, including G20 and APEC members, as well as those involved in forums such as the WTO and UNFCCC. Key achievements in this regard include socialization of the concept of peer review within the G20 and APEC,³¹ and the adoption of the Ministerial Statement on FFSR at the WTO. Individual Friends members have also provided financing for FFSR through their aid budgets. By seeking to strengthen existing reform efforts and spread such efforts to new forums, the Friends’ activities seem to provide a useful complement to the G20 and APEC’s internal efforts.

5.4.3 Mechanisms

All three consistency mechanisms identified in Chapter 2 are reflected in the dynamics between the G20, APEC, and Friends.

Normative mechanisms, whereby the norms and rules of one institution impact on those of another, seem to be at play with regard to all three groups’ public FFSR announcements. After the G20 announced its FFSR commitment in September 2009, APEC quickly followed suit with an almost identical pledge to ‘rationalise and phase out’ such subsidies, while leaving important questions about the scope of these measures and end-date for their phase-out, unaddressed. Although the Friends’ Communiqué does not represent a direct commitment, the document similarly mirrors the key facets of the G20 and APEC pledges, even where those fall short on ambition and clarity. From a long-term perspective, there may be value in such a prudent approach, as ‘speaking the same language’ arguably allows for more possibilities for the Friends to engage with the other two groups, including their more hesitant members.

Cognitive mechanisms, whereby knowledge and information are shared across institutions, are similarly present across all three groups. Like many other organizations working on energy, the APEC Secretariat is invited to provide brief oral reports on its activities at G20 EWG meetings.³² Since the G20 lacks a formal secretariat, the Group is not offered a similar platform within APEC, although information exchange is facilitated by the two groups’ overlapping memberships.³³ Indeed, the APEC EWG guidelines encourage APEC members undergoing a VPR through the G20 to share the results with members of the APEC EWG ‘in order to transfer lessons learned from that process to all Members’ (APEC EWG 2013, 6).³⁴ To support mutual learning, APEC’s capacity-building workshops have also featured talks on G20 experiences (APEC EWG 2015, 2017).³⁵

Similarly, the Friends have occasionally held observer status in G20 meetings³⁶ while ‘invited guests’ from non-Friends countries and international organizations have also participated in the Friends’ six-monthly meetings.³⁷ Friends’ side events on the margins of meetings of the UNFCCC and the World Bank and IMF have also seen the involvement of representatives from G20 and/or APEC countries such as India, Indonesia, the Philippines, and Mexico (Friends 2017; Sanchez 2017). In 2013, New Zealand’s then-Ambassador to the EU and the North Atlantic Treaty Organization (NATO) was invited to present on peer review at a workshop hosted by the Russian G20 Presidency.³⁸

Behavioural mechanisms are also present in how the three groups interact, with various examples of institutions being impacted by the functional and strategic behaviour of their members and other actors. Indeed, as discussed in more detail in Section 5.5, such mechanisms go to the heart of the Friends’ activities, which are directed at monitoring and influencing the FFSR activities of the other two groups, including through lobbying and capacity-building activities. These behavioural dynamics are also a product of interlocking memberships. Countries such as the United States and China have helped to push reform commitments and peer review efforts forward in both the G20 and APEC, while New Zealand has actively sought to promote the FFSR agenda through its APEC membership.

5.5 Micro-Level Management

As noted, there is a significant level of consistency between the G20, APEC, and Friends with regard to the core norm they promote. Although their approaches vary to some extent, the three groups also fulfil governance functions in a synergistic fashion. Their activities further complement each other in terms of their geographical scope. As we discussed earlier, this relatively symbiotic relationship may in part be explained by the groups’ overlapping memberships.

In addition to such overlaps, the different groups and their members also engage in formal and informal coordination efforts. This includes creating spaces for attending one another’s meetings and external events and, in the case of APEC, institutional encouragement to its members to share experiences from the G20 peer review process with other members.

Most interaction management between the three groups seems to take place informally, however, including through meetings on the sidelines of international events;³⁹ outreach to Friends members for their expert knowledge;⁴⁰ and outreach of Friends members to other countries, particularly in advance of G20 summits.⁴¹ The Friends’ Communiqué was furthermore drafted with the involvement of both the United States and France as well as the IEA, IMF, and OECD.⁴²

Even where interaction has not been direct, it is furthermore clear that the G20, APEC, and Friends have kept abreast of one another’s FFSR activities. As described earlier, APEC economies were well aware of the way the G20 was approaching its FFSR pledge and its VPRs, which helped inform its decision to follow a slightly different tack. Furthermore, Yoshida notes that APEC took care to ensure that the peer reviews undertaken under APEC did not undermine momentum in the G20 by co-opting members from this Group.⁴³ Meanwhile, APEC developments were also tracked by G20 members. For instance, observing that progress under the G20 was less forthcoming than under APEC, the United States volunteered to undergo a VPR under the former, rather than the latter.⁴⁴

Through what can be characterized as a ‘broker’ role, the Friends have also proactively sought to enhance the complementarity of the three groups’ actions. For instance, developments at the G20 provided New Zealand and others with leverage to ensure similar efforts were undertaken under APEC, both in terms of the adoption of reform commitments as well as the introduction of a peer review process in this area.⁴⁵ In undergoing its peer review, New Zealand also involved representatives from China, which in turn informed China’s understanding of what the review could look like in a G20 context.⁴⁶

5.6 Conclusions

Over the past decade, more than a dozen international energy, economic, environmental, and trade institutions have sought to promote FFSR in different ways. They have done so by providing financial and other incentives to implement reform, coercing states to undertake reform, diffusing the emerging norm of FFSR, and disseminating information about fossil fuel subsidies and their adverse impacts. However, little is still known about how the efforts of these various institutions ‘add up’, and the extent to which the activities in different institutions complement or contradict each other. This chapter has sought to shed light on this question by assessing the coherence of the institutional complex governing FFSR.

At the meso level, we identify an emerging division of labour in this subfield. Institutions such as the G20, APEC, and Friends play an important role in setting agendas and commitments (and to a lesser extent, sharing information), while organizations such as the OECD, IEA, and IMF engage in information-sharing on the scale of subsidies and their impact. In parallel, organizations such as the World Bank and Global Subsidies Initiative have emphasized operational activities for capacity-building and implementation purposes. Where activities do overlap, they generally appear to reinforce one another.

Zooming in on a subset of FFSR actors, the activities of the G20, APEC, and Friends have been among the most prominent in the field. Together, these three groups cover forty-one economies and a range of activities from standard and commitment setting, information and networking, operational activities, to financing. We find their efforts in this regard to be consistent with one another, and in many cases complementary. For instance, while their membership partially overlaps, the G20 and APEC’s peer review activities target different countries, thereby expanding the geographic reach of such efforts. In addition, many of the efforts undertaken by the Friends and their members have been intentionally directed toward enhancing reform efforts under the G20 and APEC. This high level of consistency appears to be the result of planned coordination between institutions and overlapping memberships, as well as a proactive brokering role taken on by some countries, including the Friends.

Despite these synergies, country-level progress on reform remains limited. Public funding for fossil fuel consumption and production continues to total many billions of dollars each year, including in G20 and APEC economies (Bast et al. 2015; Rentschler and Bazilian 2017). While the many domestic political factors impeding FFSR undoubtedly play an important role in this, international cooperation can, at least in theory, help to overcome some of these barriers (see Section 5.2). But if this is the case, why has progress been halting? And how does the multiplicity of institutions governing this field factor in? We return to these questions in Chapter 8, where we take stock of international institutions’ effectiveness in governing FFSR to date.

6 Carbon Pricing Overlaps and Formal Collaboration

Jakob Skovgaard and Jana Canavan

6.1 Introduction

Putting a price on carbon provides a straightforward instrument for climate policy, but it also has important repercussions for energy use. This is because most emissions covered by carbon pricing and markets stem from industries with high energy use, and because carbon prices suppress the consumption of energy through directing the choice of fuels away from emissions-intensive fuels. A global price on carbon has been touted as the solution to climate change by actors across the political and geographical spectrum, especially economists (Ball 2018).

It is no surprise then that the last ten years have seen a surge in international and transnational institutions aimed at promoting carbon pricing and carbon markets. A couple of such institutions have existed since the 1990s (most notably the International Emissions Trading Association, IETA), but most have appeared since 2007 (Sanderink et al. 2016). These institutions have promoted carbon taxes and emissions trading, as well as systems for the offsetting of emissions. More specifically, the general promotion of placing a price on carbon has taken its shape in the form of the setting of standards and commitments, information-sharing and networking, operational activities such as pilot and demonstration projects, and, to a lesser degree, financing.

The overall purpose of this chapter is to provide an overview of the existing carbon pricing and trading institutions. Specific attention lies on mapping out their focus areas and points of interaction that shape the roles, areas of specialization, and underlying norms that relate to the pricing of carbon emissions. We illustrate that carbon-pricing institutions constitute a subfield of interconnected and interactive parts, which together perform crucial tasks of carbon taxing, emissions trading, and offsetting; all directed toward promoting wider carbon-pricing efforts. In this, we follow the argument of Sanderink et al. (2016), as well as Zelli et al., and Sanderink et al. in Chapters 2 and 3, that it is instructive to identify the membership, governance functions, and interlinkages between institutions within such a subfield of the climate-energy nexus.

The institutions we target for such an analysis constitute global (public and hybrid) institutions that focus on promoting carbon pricing on the international level and are vital to the wider field of climate change governance. While no orchestrating entity exists, we hold that the United Nations Framework Convention on Climate Change (UNFCCC) and carbon-pricing institutions embedded in the World Bank (the Carbon Pricing Leadership Coalition [CPLC], the Networked Carbon Markets [NCM], and the Partnership for Market Readiness [PMR]) constitute the most important institutions within the subfield. The UNFCCC and the World Bank differ in that the UNFCCC is an environmental institution that constitutes the incumbent and the central hub within the climate nexus, while the World Bank’s involvement with climate change is more peripheral but has been increasing during the last twenty years (Park 2010; Gallagher and Yuan 2017). Beyond the UNFCCC and the World Bank institutions, a range of public, hybrid, and especially private institutions also constitute parts of the carbon-pricing subfield. Public institutions included here are the Western Climate Initiative (WCI), the International Carbon Action Partnership (ICAP), the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), and, as mentioned, the UNFCCC and the PMR. Hybrid institutions cover the UN Global Compact for Climate (C4C), the NCM, and the CPLC. Lastly, covered private institutions are the Gold Standard, Carbon Neutral Protocol (CNP), Verified Carbon Standard (VCS), the (IETA), and the International Air Transport Association Carbon Offset Program (IATA_COP).

So far, studies of carbon pricing have mainly focused on economic aspects and on single cases of carbon-pricing efforts at national, provincial, and European Union levels (Skjærseth and Wettestad 2008; Harrison 2012; Sterner and Coria 2012; but see Betsill and Hoffmann 2011). Several scholars have analyzed carbon markets from a critical perspective and emphasized their neoliberal underpinnings (Stephan and Paterson 2012; Lane and Newell 2016). Analyses covering both carbon taxes and emissions trading are rare, as are comparative studies of the adoption of carbon pricing (Harrison 2012; Rabe and Borick 2012). Concerning the international level, studies of the diffusion of carbon-pricing instruments, such as carbon markets, tend to focus on the diffusion between peers (from government and industry) in different polities, while paying less attention to the role of international institutions that promote such diffusion (Meckling 2011a; 2011b; Stephan and Paterson 2012; Paterson et al. 2014).

This chapter will contribute to this literature by focusing on the neglected issue of what the governance of carbon pricing on the international level looks like. In the same vein, the chapter contributes to the analytical ambition of this book by exploring and mapping out the meso level of international institutions that are promoting carbon pricing.

The existence of no less than thirteen institutions promoting carbon pricing begs the question of how the institutions align in terms of membership, governance functions, and their interpretation of the norm of carbon pricing, as well as how they interact, especially given that there is no immediately visible division of labour or orchestrating entity. The alignment and interaction are particularly important given the interdependence among these institutions in their efforts to promote carbon pricing. This interdependence is also rooted in the core norm of carbon pricing, which is based on the notion that climate change should be addressed through placing a price on emissions corresponding to its social costs (Nordhaus 2008). All institutions within the carbon-pricing subfield subscribe to this core norm of the subfield, yet there seems to be differences in terms of how this idea has been interpreted in practice (Meckling and Jenner 2016), which may have implications for the legitimacy and effectiveness of the work that they undertake.

The fact that the core norm has been interpreted in diverging ways and that the subfield is characterized by a medium number of institutions (fewer than the institutions addressing renewable energy, more than those addressing fossil fuel subsidies) also implies that it is difficult to predict the degrees of coherence and management of the subfield. Scholars of institutional fragmentation and polycentricity have argued that a shared core norm can enhance the coherence across a governance system (Ostrom 1990; Biermann et al. 2009). Yet, the diverging interpretations of the core norm may qualify such an effect. The same goes for potential cross-institutional variations of other dimensions such as membership or governance function. All this suggests to study the actual degree of coherence and management of the carbon-pricing subfield in greater detail.

Furthermore, it is worth mapping the subfield of carbon-pricing institutions due to their place within the climate-energy nexus complex (see Chapter 1). Carbon pricing, unlike fossil fuel subsidy reform and renewable energy, is explicitly climate-focused. Consequently, the UNFCCC plays a central role among the institutions that promote carbon pricing, but there is also a plethora of other institutions with little or no relation to the UNFCCC that have been highly active in the promotion of carbon pricing. We therefore explore the overall level of coherence between the institutions, and zoom in on the dyadic interlinkage between the UNFCCC and institutions embedded in the World Bank.

Following the analytical framework laid out in Chapter 2, we examine to which degree the interlinkage of said institutions is characterized by coherence, and how the degree of coherence has been managed by the institutions. Methodologically, this chapter is based on a qualitative case study that involves documentary analysis of official documents and secondary sources, as well as targeted interviews with key officials previously or currently working for the secretariats of the institutions under scrutiny or for closely related international organizations. All in all, twenty semi-structured interviews were conducted, either in person or via phone and Skype, whilst being audio-recorded, transcribed, coded, and analyzed with the NVivo programme. The interview questions as well as the coding of the interviews focused on the role of the individual institutions, their interlinkages and the attempts to manage them, and the overall subfield, as well as how the norm of carbon pricing has been interpreted.

Our chapter will proceed with first providing an overview of carbon pricing as a policy instrument, including a discussion of carbon taxes, carbon markets, and offsets as well as a review of the literature on carbon pricing. Subsequently, the international institutions that promote carbon pricing and carbon markets are mapped in terms of their interpretation of the previously mentioned core norm, their membership (public, private, or hybrid), and their governance functions. After this meso-level analysis, the chapter zooms into the interlinkage between the UNFCCC and the World Bank institutions and on how the interlinkage between these institutions has been managed.

6.2 Carbon Pricing: An Economic Solution to an Environmental Problem

Pricing greenhouse gas emissions is the fundamental solution to climate change, according to much of the environmental economics literature (see, for instance, Jacobs 1997; Tol 2011; Sterner and Coria 2012). Institutions that promote such pricing of emissions can be said to reflect the norm complex of liberal environmentalism (Bernstein 2001), and carbon markets in particular have been described as a key component of ‘climate capitalism’ (Lane and Newell 2016). Consequently, these institutions have been promoted by leading economists, economic organizations such as the International Monetary Fund and the World Bank, and influential journals and newspapers such as the Economist or Financial Times, as well as environmental NGOs such as the World Wildlife Fund (WWF).

Carbon pricing can take form through carbon taxation or the trading of allowances to emit greenhouse gases in a carbon market. The term ‘carbon market’ refers to systems for trading with other entities that are covered by the same emissions trading or cap-and-trade system with an overarching cap. Moreover, the term covers systems for purchasing carbon credits (or ‘offsets’) from entities outside of said target and that can be counted toward an emissions target, e.g. the Clean Development Mechanism (CDM) (Paterson et al. 2014).

Measures of carbon pricing were first adopted by Nordic countries such as Finland (1990) and Sweden (1991), which introduced carbon taxes preceding international agreements on climate change. Throughout the 1990s, carbon taxes were adopted by (mainly smaller) European countries. Carbon markets, which were inspired by US experiences with creating a market for trading allowances to emit sulphur (Aldy and Stavins 2012), quickly became one of the most popular climate-policy instruments in the period following the adoption of the Kyoto Protocol (Meckling 2011a; Meckling 2011b; Paterson 2012). In terms of covered emissions, the EU emissions-trading system introduced in 2005 constitutes the largest carbon-pricing instrument in the world and was crucial in establishing carbon markets as a key climate policy instrument. Private corporations (e.g. British Petroleum) as well as local and regional governments (e.g. California) also adopted carbon-pricing instruments.

More recently, however, carbon taxes have regained some of the attention they had received in the early and mid-1990s, while carbon markets (especially the EU emissions-trading system and the offset markets) have been plagued by periods of falling demand and prices. Both instruments have since 2010 been adopted by a diverse set of countries covering all regions of the world and different political systems and levels of income (Skovgaard et al. 2019). The emissions covered by carbon-pricing policies across the globe encompass 20 per cent of global emissions, mainly stemming from energy use within industry, transportation, and power generation, whereas emissions from non-energy use (e.g. agriculture, forestry, or waste) are covered in very few cases (World Bank 2018b).

6.3 Meso-Level Coherence

In this third section of the chapter, we will map out the field of international carbon-pricing institutions that are anchored around the World Bank and the UNFCCC. The first subsection is dedicated to provide a short overview of the emergence of the institutional complex on carbon pricing, followed by a fourfold distinction of how the institutions under scrutiny interpret the core norm underlying this subfield. Next, we describe the patterns of memberships and governance functions that shape the resulting net and coalitions among the selected institutions.

6.3.1 Emergence of the Institutional Complex on Carbon Pricing

The first cases of carbon pricing occurred long before the establishment of international institutions that would support such efforts. It was only following the introduction of carbon markets in the Kyoto Protocol that the first institutions were introduced specifically to promote carbon pricing. These were transnational business coalitions, most noteworthy IETA, that cover particularly finance and energy corporations and environmental NGOs, and are often highlighted as a key factor in the early diffusion of carbon markets (Meckling 2011a; Paterson 2012). These early carbon-pricing institutions promoted carbon markets as the solution to climate change and were important in the adoption of carbon markets in the European Union and US states; particularly in California and the northeastern states (Meckling 2011a; Paterson 2012). The UNFCCC played an important role both in defining carbon markets as a key policy instrument in the Kyoto Protocol and in subsequently promoting and defining the rules for offsets within the Kyoto Protocol framework (see discussion of the offsets in Section 6.4.1).

Yet, most of the carbon-pricing institutions that are currently active have been established since 2007. Recently, institutions promoting carbon pricing have proliferated, rather than solely carbon markets. This indicates a significant, yet under-explored, new development in the international governance of carbon pricing. It is important to note that this surge in carbon-pricing institutions involves public actors to a much larger degree than the initial carbon-market promoters, as discussed in the sections to follow. As we will show, the differences among these approaches reflect variations in how the underlying core norm of reducing emissions through pricing is interpreted.

6.3.2 The Core Norm of Carbon Pricing

The core norm of carbon pricing is based on the notion that climate change is best mitigated by giving emitters an incentive to reduce emissions in terms of a price signal, and that the decision of how to reduce emissions is best left to the market. These notions are, in turn, underpinned by the understanding of actors as economically rational, and of the response to climate change as compatible with liberal and capitalist systems.

Yet, while this core norm is fundamental to all carbon-pricing policies and efforts to promote carbon pricing, it can in practice be interpreted in rather diverging ways. In an institutional complex in which several institutions with different memberships are embedded within the climate-energy nexus, there is scope for diverging and even conflicting applications of this norm. We therefore distinguish four dimensions along which interpretations of the core norm may vary: quantity versus price instruments, whether polluters should pay for all of their emissions or not, mandatory versus voluntary schemes, and carbon pricing within a given jurisdiction versus offsetting. For each dimension, we discuss how the institutions have interpreted the dimension in practice.

First, on the most basic conceptual level, there is a key distinction between placing the costs of the externality of climate change on the polluters (Pigou 1932; Jacobs 1997) – thus also adhering to the ‘polluter pays principle’ (OECD 1974) – and between creating a system to allocate property rights to emit greenhouse gases, as well as to the trading of these rights (Coase 1960; Felli 2015). While carbon taxes explicitly constitute taxation, the tax component of carbon markets with auctioning consists of the money that polluters have to pay to the state (or other auctioning entity) for each emission allowance, and is hence more implicit. Nonetheless, this tax component is easily identifiable to the industry sectors that have to purchase the allowances (Rabe and Borick 2012).

Furthermore, carbon markets regulate the quantity of emissions, while carbon taxes regulate the price of emissions. This distinction between quantity and price instruments led Meckling and Jenner (2016) to argue that whereas carbon markets are rooted in neoliberalism and a US-dominated tradition of policy making, carbon taxes are rooted in ordo-liberalism and the European policy-making tradition. According to Meckling and Jenner, the former tradition delegates more authority to market forces since it creates a new regulatory market. Yet, we are not convinced by the association between carbon taxes and ordo-liberalism, since Pigou was a Keynesian economist and since carbon taxes are preferred over carbon markets by all kinds of economists worldwide (including neo-classical ones). This is due to its more direct imposition of the externality on the polluter (Rabe and Borick 2012).

While all institutions have promoted carbon markets, carbon taxes have almost solely been established by public and especially hybrid institutions, most notably the CPLC and the PMR. This is unsurprising given that the private institutions in question have been established to promote functioning carbon markets (with the exception of the C4C, which advocates that companies set an internal shadow carbon price). A more interesting development is an apparent move away from focusing almost solely on carbon markets to increasingly promoting carbon taxes in parallel. We will discuss this development further when focusing on the World Bank institutions in a subsequent section.

Second, there is a distinction between whether polluters must pay for all of their emissions – as they do in systems with a carbon tax and in emissions-trading systems in which all allowances are auctioned – or whether polluters only pay for emissions above a given baseline – as they do in emissions-trading systems with free allocation (so called grandfathering; see Aldy and Stavins 2012) and in case of voluntary offsets. These two options constitute parts of a continuum, with several carbon-market policies operating somewhere in between. For example, most of the world’s emissions-trading systems combine grandfathering and auctioning of allowances. Mandatory carbon taxes nonetheless always imply that all emissions are subject to the polluter paying for them. In terms of concrete interpretation, most of the institutions do not hold an explicit official position in this regard. This may be explained by the fact that a bulk of institutions that promote carbon markets would meet less support for their efforts if they explicitly preferred full pricing of all emissions.¹

The third conceptual dimension is whether carbon pricing is mandatory or voluntary. Carbon pricing has been adopted either in the form of mandatory schemes that cover all entities within particular sectors operating within the polity (states, sub-national entities such as provinces, and supranational entities such as the EU), or as voluntary schemes (mainly carbon markets) joined by companies that would like to commit to reducing or offsetting their emissions. Unlike most other mitigation policies, mandatory carbon pricing provides revenue for the public budget, a characteristic appealing to powerful finance ministries and politicians facing budgetary constraints. Voluntary carbon markets, on the other hand, refer to institutionalized markets that are responsible for trading those verified emissions reductions (VERs) that are not part of the regulatory schemes under the Kyoto Protocol and the EU ETS (Benwell 2009; Segerson 2013).

The voluntary carbon-trading actions of this sector are thus constituted of the activities of organizations or individuals taken outside of, in addition to, or beyond the existing environmental policies or basic environmental laws and regulations on carbon emission and trading. Operating independently from the UNFCCC emission targets and offset mechanisms, the voluntary carbon-trading markets are led by various public and private actors and follow standards created by its industrial stakeholders. Besides offering opportunities to engage in emissions trading and to enable genuine reduction of carbon emissions that could potentially exceed the goals set by mandatory carbon-trading markets, there are several other motivational factors for engaging in voluntary carbon-trading measures. In reaction to the normative pressure from NGOs or externally existing regulations to reduce emissions, actors can use carbon-trading measures to fulfil corporate social responsibility (CSR) goals and to realize marketing opportunities in line with liberal environmentalist goals and values (Lyon and Maxwell 2007; Benwell 2009). The voluntary carbon market therefore plays an influential role for the private sector as it focuses on individual consumers and green consumerism (Lyon and Maxwell 2007; Choi 2015). However, voluntary schemes are often established in relation to existing regulatory schemes, which means that they may undermine the process of establishing successful mandatory policies (Lyon and Maxwell 2003; Segerson 2013).

The institutions analyzed here have not explicitly taken a stance on whether mandatory or voluntary approaches are preferable. Most public and hybrid institutions (except the C4C) work mainly with mandatory policies, whereas IATA_COP and, to some degree, the Gold Standard and the NCM work with voluntary carbon markets or voluntary offsets. The different involvement in either regulatory or voluntary carbon pricing reinforces the divide between public actors such as the UN, the World Bank Group, and closely related state regulations and policies on the one hand, and the private actors referring to business corporations and individual consumers on the other hand. Within some areas, most notably aviation, there has been a development to move from voluntary standards (IATA_COP) to mandatory ones (CORSIA).

The fourth dimension of the norm of carbon pricing relates to the distinction between carbon taxes and emissions trading that reduce emissions within a defined jurisdiction on the one hand, and offsetting on the other hand, which enables the purchasing of carbon credits (or ‘offsets’) from entities in other jurisdictions, for example as in the CDM. Whereas both taxational emissions trading and monetary offsets are referred to as constituting carbon markets due to their shared focus on operating through the trading of emissions allowances, they differ regarding this key distinction of jurisdictions.

Thus, none of the institutions have explicitly endorsed offsets over within-jurisdiction reductions, or vice versa. In their practices, however, they have generally promoted one or the other. Today, offsets are to a larger degree supported and disseminated by private institutions, rather than by public and hybrid ones. Nevertheless, none of the latter are, as such, opposed to them. Offsets such as the CDM were defined as a key instrument in the global response to climate change by the UNFCCC and the Word Bank institutions in the years between the Kyoto Protocol and the Copenhagen Accord. Importantly however, the focus has increasingly turned to the linking of carbon markets, especially in the context of Article 6 of the Paris Agreement (Kansy 2016).²

In summary, while all institutions promote the norm of carbon pricing, there are important differences in how they interpret the norm in practice, creating clusters of private institutions on the one hand, and public and hybrid institutions on the other. These differences were most pronounced regarding the choice between carbon markets and carbon taxes.

6.3.3 Membership

In this section, we will outline the membership of the carbon-pricing and carbon-market institutions. This allows us to map how the institutions differ in terms of coverage of actors that have diverging preferences from the members of another institution, e.g. business and state actors. The carbon-pricing issue area mapped out here consists of thirteen institutions (see Table 6.1), comprising public, private, and hybrid constituencies. While a few of them have existed since the 1990s, most have been established from 2007 onwards. Business and public actors (states, IOs, and sub-national governments) are the main constituents, while civil society organizations are only involved in the CPLC, the C4C, the Gold Standard, and the NCM. With the exception of the WCI (which covers the states and provinces on the West coast of the USA and Canada), all institutions are global in terms of membership and reach. However, their members (especially from business and CSOs) tend to be concentrated in industrialized countries and, to a lesser degree, emerging economies.

Table 6.1 Overview of governance functions across different types of institutions (public, hybrid, private) for carbon pricing.

	Public	Hybrid	Private
Standards & Commitments		UN Global Compact Caring for Climate (C4C)	Gold Standard Carbon Neutral Protocol (CNP) Verified Carbon Standard (VCS)
Operational Activities	Western Climate Initiative (WCI)
Information & Networking	International Carbon Action Partnership (ICAP)	Networked Carbon Markets Initiative (NCM) Carbon Pricing Leadership Coalition (CPLC)	International Emissions Trading Association (IETA)
Standards & Commitments; Operational	Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)		International Air Transport Association Carbon Offset Program (IATA_COP)
Information & Networking; Financing	Partnership for Market Readiness (PMR)
Standards & Commitments; Information & Networking	United Nations Framework Convention on Climate Change (UNFCCC)

One important feature of carbon market institutions is, thus, that several of them are related to, or nested within, wider institutions. For instance, the C4C is nested in the UN Global Compact, which is a UN initiative to motivate businesses to adopt sustainable and socially responsible policies, while the PMR, the NCM, and the CPLC are nested within the World Bank (see also Figure 6.1). Regarding the aviation sector, CORSIA, adopted in 2016, is nested within the public International Civil Aviation Organization (ICAO), whereas IATA_COP is nested within IATA, which is the international trade association for the aviation industry. Institutions that are not couched within wider overarching institutions were often established by other international institutions, e.g. IETA being one of the founders of VCS, and the Gold Standard being founded by the WWF. Thus, some of the relations between the institutions are not only very close, but also hierarchical in nature (Alter and Meunier 2009).

Figure 6.1 Public, hybrid, and private carbon pricing institutions and their membership relations.

Figure 6.1 depicts some of these connections and also provides a first general overview of the institutions’ governance functions, which will be discussed in further detail in Section 6.4. The figure pictures the membership relations whilst being organized under the categories of public, hybrid, and private. Arrows denote that the institution is a member of the institution that the arrow points to. Note that the institutions’ position within the public, hybrid, and private groups, respectively, does not implicate a hierarchy or that they are in other ways more or less ‘public’ or private than other institutions within the same group.

6.3.4 Governance Functions

Mapping out the membership and governance functions of the thirteen institutions shows that they differ to some degree in their focus on various carbon-market activities, but that there are also considerable geographical and functional overlaps. In this section, we therefore identify and discuss two major clusters within the issue area; one centred around the public and hybrid institutions embedded in the World Bank, and another consisting of private institutions, mainly centred around IETA (see Figure 6.1). In order to illustrate our chosen approach to clustering the institutions, we later zoom in on two sets of public and hybrid institutions, namely the UNFCCC and the World Bank institutions, as we find them more politically and academically relevant than the private institutions (Section 6.4).

The private institutions have been instrumental in promoting emissions trading globally and in different polities around the world (Meckling 2011b; Paterson 2012; Paterson et al. 2014). Their key objective is to further carbon markets, which offers companies (including financial companies) useful business opportunities in the growing carbon-market sector. At the same time, they give emitting industries the possibility to continue their activities without costly carbon taxes and regulation (Paterson 2012). The Gold Standard’s efforts to ensure and improve the environmental and social integrity of offsets stands out in this respect, due to its clear and comprehensive focus on supporting social aspects of sustainable development.

In terms of governance functions, the private institutions focus on providing a venue for information and networking (IETA), on setting standards and commitments for offsets (VCS, Gold Standard), and on advancing company carbon neutrality (CNP). In order to facilitate successful and validated greenhouse gas emissions trading, actors such as CNP and VCS offer businesses, organizations, and technical partners a global standard framework for achieving carbon neutrality through internal mitigation measures (e.g. energy efficiency) and emission offsetting.

The goal of most of these private institutions is to achieve carbon neutral economic growth. For example, IATA_COP, a leading carbon offset programme for the aviation industry, endorses voluntary offset schemes in which passengers pay to offset the emissions caused by their individual share of the flight’s emissions (IATA 2009). Investing in such voluntary efforts to combat climate change with a focus on the individual customers allows businesses to address the CO_2-emissions impact of their industry without having to suppress the demand for air travel, and diminishes the call for mandatory and public regulation.

The governance functions of public institutions mainly regard the provision of information and networking possibilities between carbon-pricing actors, particularly from countries that have, or are considering to, implement carbon-pricing policies. The UNFCCC and CORSIA also engage in setting standards and commitments (both described subsequently). Of the public institutions, CORSIA and the WCI engage in operational activities, while the PMR provides financing for polities interested in adopting carbon-pricing policies. The aim of these undertakings is generally to offer platforms for collaboration to achieve decarbonization of specific sectors, countries, or states within federal systems. The goal of ICAP, for instance, is to provide a platform to strengthen the compatibility and effectiveness of the regulated carbon-trading market in order to promote innovation and allow for ambitious global reductions of global warming emissions. The objective of public institutions such as ICAP, the PMR, and the WCI is thus to provide a platform to strengthen the compatibility and effectiveness of carbon pricing. Following dissatisfaction with the private, voluntary efforts to curb aviation emissions, public and mandatory regulations to reach carbon neutrality were introduced with the establishment of CORSIA in 2016.

In public institutions, both carbon markets and taxes are promoted, albeit with a stronger emphasis on promoting carbon markets. Important in this respect is the objective of creating a global carbon market or at least to link the different carbon markets. Such linking is believed to improve economic efficiency by ensuring uniform prices and thus avoid distorting competitiveness and utilize low-cost abatement options (Kansy 2016). For instance, PMR-led programmes provide countries with grant funding to support the implementation of carbon taxes or emissions trading and include programmes for technical and policy work. The most recently established institution, CORSIA, has been created by the public aviation institution ICAO to ensure the offsetting of emissions above a given level; here relating to the total emissions of global aviation in 2020. CORSIA is voluntary until 2027, after which participation becomes mandatory for all countries except for those with a very low share of global aviation or those that are most vulnerable to climate change due to poverty and other structural inequalities.

Hybrid institutions perform governance actions and services that largely seek to bridge the gap between the public regulatory and the private voluntary markets to achieve broader and globally applicable schemes. The NCM, for instance, aims to support various actors from civil society, governments, and the private sector to link voluntary and mandatory carbon markets. Their goal is thus to facilitate cross-border trade and link carbon markets through improving the transparency and comparability of the existing markets (NCM 2017). The CPLC, too, offers voluntary partnership for leaders across governments, the private business sector, and civil society who share the long-term goal of achieving a global carbon-pricing economy.

The major governance functions of hybrid institutions include information-sharing, networking, capacity building, and knowledge-sharing, which are viewed as necessary instruments to connect strong institutions and regulations with the workings of the market economy. The CPLC and the C4C, for example, view carbon pricing as an essential step to approach zero net emissions, and both institutions see their core role in forming coalitions to approach a global carbon-pricing economy.

The institutions we studied are, with the exception of the WRI, all global in scope. Apart from CORSIA and IATA_COP, which focus on aviation, none of these institutions have specific sectoral foci, but focus on mitigation in general. De facto, this implies that the institutions address emissions from energy use to a significant degree, since virtually all carbon-pricing measures address energy use while not many of them cover emissions from other sources.

When summing up the just-presented mapping of institutional governance functions, it can be said that although all thirteen institutions work toward mitigating climate change by placing a price on carbon emissions, they do differ in regard to which activities they support. Broadly speaking, the public and hybrid institutions mainly focus on the support of political decisions to implement carbon pricing (e.g. CPLC, PMR) and to link mandatory carbon markets (e.g. ICAP, NCM), whereas the private institutions tend to focus on the facilitation of the trading of emissions allowances between private entities (e.g. IETA, see subsequent discussion). Among the private institutions we examined, both the Gold Standard and VCS aim to improve the social and environmental integrity of offsets. IETA³ is an association for companies within the carbon-market sector that works for a functional international framework for carbon trading, whereas IATA_COP offers voluntary offsets for air travel.

6.3.5 Summary: Coherence at the Meso Level

When assessing the overall consistency of the thirteen carbon-pricing institutions, one needs to consider that there is no clear division of labour, as their functions and activities overlap to a large degree. Not only do most of them cover the same global geographical scope and the same policy sectors (although CORSIA and IATA_COP focus on international aviation), but they often also perform similar governance functions with similar objectives. It can thus generally be said that the institutional carbon-pricing complex is characterized by a medium level of consistency with some duplication and coexistence.

Regarding the application of the core norm, one can observe medium consistency, with several of the private institutions promoting voluntary carbon markets and offsets, while public institutions promote mandatory carbon pricing in the shape of taxes as well as carbon markets. Yet, these differences in application do not inherently involve conflict. In terms of membership, we also see a medium degree of consistency, with considerable overlap between the memberships of the different institutions – and without any organizing principles except for institutions being respectively public, hybrid, and private.

Finally, concerning governance functions, there are considerable overlaps in terms of undertaking similar functions (especially Information and Networking, see Table 6.1) on a global level, but also a divergence that ensured that most governance functions were covered. In many cases, public, private, and hybrid institutions are performing similar governance functions to achieve similar or related objectives. For instance, ICAP (public), the NCM (hybrid), and IETA (private) all work to promote the linking of carbon markets by providing information and networking opportunities. They thus overlap in terms of what they do (governance functions and carbon markets) but represent different members with potentially diverging preferences, e.g. IETA representing the interests of the carbon-market sector and ICAP those of the polities with emissions-trading policies.

This notwithstanding, our interviews show that collaboration is more common than competition. The widespread information and networking activities (e.g. conferences and workshops) provide ample opportunities for maintaining informal personal contacts.⁴ Furthermore, sometimes institutional interlinkages are formalized in terms of Memoranda of Understanding or other written agreements between institutions, such as the Memorandum of Understanding between the IATA_COP and IETA. Importantly, formal relationships also exist in terms of institutions being members of each other (e.g. the WCI being a member of ICAP) or through participating in meetings of major institutions (e.g. of the UNFCCC). The World Bank institutions also often act as central hubs for interlinkages since they can draw on the expertise of the different World Bank departments.⁵

While the large amount of institutions may indicate possible competition, especially when new initiatives enter the field, our analysis shows that the here-mapped institutions often seek to avoid this by informal communication and networking, e.g. on the individual level.⁶ Through bilateral or multilateral exchange, policy makers engage in technical dialogue on the operation of their carbon markets and opportunities for deepening and connecting those markets.⁷ Hence, situations that could potentially lead to conflict have been defused through behavioural mechanisms of ad-hoc coordination. Furthermore, the institutions often collaborate on operational activities, e.g. the implementation of offset projects, and institutionalized benchmarking, for instance in making sure that CORSIA will only use credits that followed the standards of VCS or other institutions.⁸

However, the most predominant mechanism for collaboration includes knowledge production and leadership to drive ambition. Key activities include organizing workshops for stakeholders and co-developing guidance materials to mainstream climate-leadership practices. All collaborations are multi-stakeholder in nature, involving companies large and small as well as civil society and public institutions.⁹ Often such collaboration is based on complementarity, e.g. the diverse areas of expertise that the institutions exhibit.¹⁰ It equally builds on their diverse membership circles, inasmuch as private institutions often collaborate with public and hybrid institutions.¹¹ Such divisions of labour are generally not based on official agreements as much as on informal assessments of relative strengths.¹²

Altogether, the field is characterized by some duplication but also bilateral (sometimes ad-hoc) coordination. Arguably, had the institutions differed more on the core norm, e.g. if not all of them were in favour of carbon markets, coordination could not have played the same role. The conducted interviews indicate that the level of coherence can be explained due to informal contacts and a desire to avoid overlaps, rather than the institutions being synergetic by design.

6.4 Micro-Level Coherence

6.4.1 Institutions under Scrutiny

We argue that the UNFCCC and the World Bank–embedded institutions constitute the most politically important institutions within the subfield of carbon pricing, and two incumbent nodal institutions of the climate-energy nexus as a whole. Apart from their empirical importance, their crucial differences also give them high theoretical relevance. The UNFCCC is an intergovernmental environmental institution based on a multilateral environmental agreement, which serves as the forum for further intergovernmental negotiations concerning how to address climate change on the global level. The World Bank, on the other hand, is an economic institution, more specifically a multilateral development bank, focusing on poverty eradication and building shared prosperity in developing countries (Nielson and Tierney 2005; Park 2005). These thematic differences notwithstanding, both the UNFCCC and the World Bank, together with their secretariats and embedded institutions, share certain characteristics, such as their global membership reach and their public or hybrid (the CPLC and the NCM) constituencies.

Not unlike the way in which the UNFCCC Secretariat supports the UN climate regime, the World Bank provides secretariat services to the PMR, the NCM, and the CPLC. These services are managed by the World Bank’s climate change group, sometimes with the same person working for more than one institution. We refer to this form of relationship as embeddedness within the World Bank, although the associated institutions differ in their nature, with the CPLC being a coalition, the PMR a trust fund, and the NCM a World Bank initiative. Physically located at the World Bank headquarters in Washington, DC, the three World Bank institutions differ in their roles. The CPLC is a coalition of actors from business, civil society, and politics with the purpose of advocating carbon pricing and, increasingly, promoting carbon pricing among businesses. The PMR is a World Bank Group multi-donor trust fund that provides technical advice and funding to the (at the time of writing) nineteen developing countries that are interested in developing carbon-pricing policies. None of these countries are low-income countries. The trust fund also seeks to create and share knowledge about carbon pricing.¹³ The members of the PMR are state governments, usually represented by UNFCCC negotiators. The World Bank is also the trustee and the delivery partner of the PMR. Finally, the NCM supports the linking of climate markets through ensuring that the tradeable units from the different markets are comparable and fungible (that their units are interchangeable).

The UNFCCC has historically addressed carbon pricing in the context of the Kyoto Protocol’s flexibility mechanisms, namely the CDM, Joint Implementation, and emissions trading between industrialized countries. After 2015, the focus has changed from the flexible mechanisms of the Kyoto Protocol to the specific operationalization of Article 6 of the Paris Agreement (UNFCCC 2015), which includes the linking of emissions-trading systems and offsets as well as non-market approaches. Within the UNFCCC as an institution, the international bureaucracy of the UNFCCC Secretariat¹⁴ supports the negotiations and other activities of the UN climate regime, especially by providing information, arranging meetings, and drafting proposals (Busch 2009). Like other environmental regime secretariats, it performs key regime functions and has agency in its own right (Jinnah 2014, ch. 2). This said, the UNFCCC Secretariat has limited autonomy in its mandate and resources compared to the World Bank. The Secretariat is included in this analysis because of its important carbon-pricing activities, which can be divided into: (1) the support of negotiations specifying the contents of Article 6; (2) supporting the operation of clean development mechanisms; and (3) the supporting of countries that adopt carbon pricing to meet their Nationally Determined Contributions by providing technical advice, etc.¹⁵

Regarding the core norm of carbon pricing, the World Bank institutions are as such not permitted to promote official opinions about how carbon ideally should be priced, but they nonetheless have considerable autonomy from their member states (Nielson and Tierney 2005). The UNFCCC’s position on carbon pricing reflects a compromise between its member states. Even more restricted than the World Bank institutions, the UNFCCC Secretariat is not permitted to hold an official position on how carbon ideally should be priced. Nonetheless, it is possible to identify how the UNFCCC Secretariat and the three World Bank institutions have addressed and framed carbon pricing in their day-to-day practices and, in this way, interpreted key aspects of the norm.

The World Bank as well as the institutions embedded within it have since 2014 stressed the importance of pricing carbon and, except for the NCM, have emphasized carbon taxes, emissions trading, and, to a lesser degree, offsets. The current framing aims to internalize the ‘external costs of carbon emissions … and tie them to their sources through a price on carbon’ and to ‘shift the burden for the damage back to those who are responsible for it and who can reduce it. … In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society’ (World Bank 2018a). This framing and the bracketing of carbon taxes with carbon markets is a recent development. Prior to 2014, the World Bank focused on carbon markets and paid little attention to carbon taxes. Tellingly, the World Bank’s influential annual report, which since 2014 has been named ‘The State and Trends of Carbon Pricing’, was from the initial publication in 2003 and until 2012 named ‘The State and Trends of the Carbon Market’ (no report was published in 2013).¹⁶ This change is also visible in the content of the reports, with the pre-2014 reports focusing on the functioning of the carbon markets around the globe and their total volume measured in tonnes of CO_2-equivalents and US dollars, rather than carbon pricing as an instrument to address the externality of climate change or shift the burden (World Bank 2012). Thus, the focus was put on creating functioning markets and linking them rather than pricing emissions and ensuring that those responsible pay for them. This position is close to that of other carbon-market institutions such as IETA. Finally, whereas the PMR (founded in 2010) and the NCM (founded in 2013) contain the word ‘market’ in their names, the CPLC (founded in 2014) focuses on carbon pricing.

The UNFCCC also changed focus, from initially concentrating on the Kyoto Protocol mechanisms to now targeting the mechanisms under Article 6 of the Paris Agreement as well as promoting carbon pricing as a policy instrument. This change was driven by the UNFCCC negotiation process that culminated in the Paris Agreement. The UN climate regime did not adopt specific positions on what domestic carbon pricing should look like, including whether polluters should pay for all of their emissions. Instead, it implicitly emphasized and facilitated particular practices, including a new offset mechanism, the Sustainable Development Mechanism, under the Paris Agreement, which focuses on sustainable development in a broader sense, rather than just mitigation. The UNFCCC Secretariat considered carbon pricing a key policy instrument, without defining it as a stand-alone instrument but rather as one among many.¹⁷ Importantly, the Secretariat views carbon pricing as a tool to shift investment from carbon-intensive to sustainable means of production and to promote the deployment of the low-carbon technologies required for meeting the 2 or 1.5 degree target.¹⁸

6.4.2 Interlinkages

In terms of governance functions, all four institutions (UNFCCC, CPLC, PMR, and NCM) focus on sharing and creating new information as well as networking, while the PMR also engages in the provision of financing. These governance functions do not have the same inherent potential for conflict between the institutions as standard setting (see Chapter 2).

Regarding the core norm, the World Bank and its carbon-pricing institutions have tended to focus on first carbon markets and then carbon pricing as the crucial step in fighting climate change: once implemented, there is little reason to intervene politically in the subsequent causal chain leading to lower emissions. Nonetheless, there is also significant convergence between the UNFCCC and the World Bank institutions: they all place a strong emphasis on creating a functioning global carbon market, but in the interviews they did not take a stance on whether all emissions should be priced or if grandfathering was acceptable. Importantly, the World Bank has operated within the structures established by the UNFCCC (JI/CDM; NDCs; Article 6), but the main change in the perspective of the World Bank institutions (from a focus on carbon markets toward carbon pricing) did not originate in the UNFCCC. Likewise, all four institutions have promoted offsets as well as carbon pricing within given jurisdictions in various ways. The UNFCCC, the PMR, and the NCM all focus on mandatory carbon pricing, whereas the CPLC also has promoted voluntary carbon pricing within businesses.

A more important dividing line is the different confidence in the ability of the market. The World Bank institutions have been agnostic about how carbon pricing would lead to reduced emissions and framed the fact that carbon pricing leaves the decisions of how to mitigate to the market as a key strength. This neoclassical approach is based on the notion of the market as making the optimal choices. By contrast, the UNFCCC’s approach to carbon pricing leaves considerable discretion to the states in the context of their Nationally Determined Contributions (NDCs) and only operates with carbon pricing as one instrument among many. Although the Paris Agreement and subsequent activities in the context of the Agreement’s Article 6 endorse offset mechanisms and the linking of carbon markets, they very much leave any action up to the Parties and avoid talking about introducing a carbon price (Marcu 2016). The difference can be explained by the considerable autonomy of the World Bank institutions from their member states – compared to the UNFCCC set-up, in which states are involved in the decision-making process and can individually veto proposals.

6.4.3 Mechanisms

The UNFCCC and World Bank institutions interact in a range of different ways. First, and unlike for the subfield of carbon pricing in general, normative interlinkages play a major role. A sequence of rules from the UN climate regime, from the Kyoto Protocol to the 2015 Paris Agreement, have shaped much of the action of the World Bank institutions. The PMR is working with several countries to develop carbon-pricing policies that will help them achieving their NDCs. The NCM seeks to develop tools for linking of carbon markets that can be relevant under Article 6. Prior to the Paris Agreement, the Kyoto Protocol provided a similar context for the World Bank, which was key in developing JI/CDM – inter alia through its Prototype Carbon Fund and through its support for capacity building in countries seeking to host JI/CDM projects (Lazarowicz 2009; Lederer 2012). The World Bank institutions also promoted domestic carbon markets to help countries meet their targets under the Kyoto Protocol – and currently they (especially the PMR and the CPLC) promote carbon pricing as an instrument for countries to meet their NDC commitments.

Second, the World Bank institutions and the UNFCCC engage in behavioural interlinkages, especially through interlocking memberships. The UNFCCC Secretariat is an observer to the PMR and the CPLC, the same way that the World Bank is an observer to the UNFCCC. Importantly, several of the officials representing national governments within the PMR are also UNFCCC negotiators working on Article 6 within these negotiations.¹⁹ Furthermore, The CPLC was launched at COP21 in Paris.

Third, the behavioural interlinkages often provided the basis for cognitive interlinkages, especially in terms of exchanging information and knowledge. The UNFCCC has especially collaborated with the PMR, both regarding turning the provisions of Article 6 into more concrete guidelines and providing support for countries adopting carbon pricing in the context of their NDCs.

6.5 Micro-Level Management

Drawing on the typology of micro-level management outlined in Chapter 2, it can be stated that the relationship between the UNFCCC and the World Bank–embedded institutions is managed jointly, with both sides trying to ensure compatibility between their activities. There were not any attempts of orchestration by third parties. Notwithstanding some unilateral low-key attempts, management was mainly bi- or multilateral and mainly took place through regular institutionalized contacts and meetings between officials. Officials working on carbon pricing constitute the main agents of management, whereas higher echelons of the World Bank and the UNFCCC (e.g. the World Bank Group Boards of Directors or the UNFCCC Executive Secretary) were less involved.

The institutions tend to collaborate in case they operate within the same countries, especially in Africa.²⁰ Regarding the support for countries adopting carbon pricing in the context of their NDCs, an informal division of labour has emerged bottom-up: the PMR mainly works with middle-income countries while the UNFCCC Secretariat concentrates on less developed countries.

Altogether, it makes sense to characterize the interlinkage between the UNFCCC and the World Bank institutions as one of coordination, although the management attempts have been taken in a bottom-up, incremental manner rather than as the result of overarching deliberate planning. The carbon-pricing sub-system has been constantly evolving and proliferating, which makes it more difficult to assess the degree of coherence in a counterfactual no-management scenario. Yet, the informants interviewed for this study underscored the importance of management efforts in avoiding outright competition or conflict, albeit mainly for preventing deterioration. It is thus not possible to say whether the level of coherence has improved over time.

6.6 Conclusions

The analysis showed that the plethora of institutions that promote carbon pricing at the international level overlap to a significant degree in terms of geographical scope and governance functions. Most of them have global reach and membership, and several of them focus on either information-sharing and networking or standard-setting. The institutions were found to differ in terms of membership constituencies, with five public, three hybrid, and five private institutions. Mapping out institutional membership illustrated that the public and hybrid institutions are clustered around the World Bank, while the private ones circle around IETA. The institutions also differed in terms of their jurisdictional focus, with public and hybrid institutions mainly focusing on supporting political decisions to implement carbon pricing and to link carbon markets, and with private institutions focusing on the trading of emissions.

Altogether the field is characterized by coordination or coexistence, with significant attempts to establish a division of labour, and only little outright competition or conflict. Interlinkages have mainly been cognitive in nature (through workshops, co-developing knowledge, and information) and institutional (through interlocking memberships or written agreements). Generally, these interlinkages have been informal and took place between two or more institutions without significant differences in power.

We particularly focused on the interlinkage between, on the one hand, the UNFCCC and, on the other hand, the World Bank and the institutions embedded within it. The analysis showed that, despite the differences between the two camps, interlinkages are characterized by close coordination. This coordination has been mainly informed by a cognitive interaction mechanism – with institutions being observers at each other’s meetings – and a normative mechanism – with the World Bank institutions operating within the framework set by the UNFCCC, particularly the offset mechanisms and the NDCs. Both the UNFCCC and the World Bank institutions promoted carbon pricing in general and a global carbon price in terms of linking carbon markets specifically. Differences between both sides were managed in a bottom-up, incremental fashion, which leads us to characterizing the relationship between the two institutions as one of coordination.