World Energy Trilemma 2013

The World Energy Trilemma  refers to the fact that a sustainable energy system needs to provide secure, affordable, and environmentally-sensitive energy. In many countries, there are policy debates across all three dimensions of the energy trilemma. However, our research conducted with the World Energy Council shows that few countries perform well on all three dimensions.

Nearly half (59) of 129 countries assessed in the annual Energy Sustainability Index prepared by the World Energy Council and Oliver Wyman rank within the top 25 countries of the world on one dimension. But only 14 countries perform strongly across two dimensions, and only five countries (Switzerland, Denmark, Sweden, United Kingdom, and Spain) currently rank in the top 25 countries across all three.

One underlying reason that policymakers struggle to form policies that will improve performance across all three of these dimensions is that no single form of energy satisfies all three of these criteria.  Fossil fuels continue to beat renewable forms of energy in terms of both affordability and reliability. Solar and wind power are much cleaner, but still operate intermittently and continue to be more expensive than conventional energy.

As a result, energy policymakers have trouble reconciling the conflicting agendas inherent in prioritizing different forms of energy. Each country also faces its own unique challenges given its unique resource mix, trading partners, geopolitical position, and budgetary environment -- so there is no single preferred method for achieving a balance across all three dimensions.

Having said that, history shows that if a country focuses too much on one dimension, it's very difficult to switch and address the other two dimensions. So it's very important for countries to set a course now which is sensitive to all three dimensions. Otherwise, countries may remain locked into systems that will be very painful to correct later.

Developing sustainable energy systems involves coordinating energy policies with those being set in other government departments – for example transportation, environment, finance and other sectors.  Energy industry leaders who we have interviewed as part of our research have stressed that they consider consistent and predictable energy policies as critical for fostering investment in energy and infrastructure. Before making a substantial investment, energy companies and institutional investors will seek assurances that they will not have the value of their investments damaged by a change in transportation policy or environmental regulation.

To achieve sustainable energy policies, countries should develop a clearly defined and coordinated master plan that ensures national energy policies complement and link together with national industrial, financial, environmental, transportation, and agricultural goals and policies.  One country that does this well is Sweden. Decisions made by the Swedish government are seen as taken by the whole government even when they are based on proposals from individual ministries. In large part, this is because legal advisers monitor the consultation process among relevant ministries to ensure that a discussion takes place prior to presenting a final proposal to the collective government or a bill to parliament.

It is challenging to compare the effectiveness of energy policies across countries with very different economies, national priorities, and energy resources. The annual Energy Sustainability Index prepared by the World Energy Council and Oliver Wyman attempts to achieve this by ranking the energy systems of 129 countries on their security, affordability, and environmental sensitivity

The Index considers each country's performance based on an analysis of more than 60 data sets used to develop 23 indicators.  These indicators measure how well a country's energy supply meets its demand, how affordable and accessible its energy is, and the environmental impact of a country’s energy production and use. These indicators were selected based on their high degree of relevance to the research goals. Each is distinct and can be derived from reputable sources for most countries.  These rankings highlight where a country has made a different trade-off than others and this might point to key areas to which a country should devote extra policy attention in order to develop a more balanced energy profile.

Historical evidence shows that changes which lead to higher energy efficiency can lead over time to higher energy usage – a rebound effect which offsets the potential gains from actions to increase energy efficiency. For example, after major car companies introduced more energy efficient vehicles in California, driving distance increased and this change offset the savings from fuel efficiency.

Political and business leaders need to work more closely with the scientific community to accelerate research on behavioral responses to energy policy changes. More studies of the rebound effect should be sponsored by individual countries, and researchers should be encouraged to share more information globally. A fuller understanding of how and why the rebound effect varies across countries will help all policymakers weigh their choices more effectively.

Breaking through the present logjam that exists between policymakers and energy industry executives is critical to accelerating the transition to a sustainable energy system. Each is dependent on the other to move forward, and there needs to be increased dialogue between public and private stakeholders.

We interviewed more than 100 leaders in the energy sector ranging from chief executive officers, to energy ministers, to directors of development banks in collaboration with the World Energy Council to produce the annual World Energy Trilemma reports in 2012 and 2013. The first report describes the policies that more than 40 energy industry CEOs and senior executives consider necessary to make sustainable energy systems a reality. This year's report describes what public sector stakeholders believe they need from the energy industry.

Our research found that one area where policymakers would welcome working more closely with the energy industry is in building a national consensus on long-term energy goals. Policymakers should also work with industry leaders to test policy proposals prior to their adoption – to evaluate their impact on all three dimensions of the energy trilemma, and also to stress test them against a variety of possible future scenarios.

As we have seen from the pressure exerted by the discovery of massive amounts of relatively inexpensive hydrocarbons in North America, sustainable energy policies need to be effective across a wide spectrum of possible futures – such as a more plentiful supply of inexpensive fossil fuels.