Energy Policy

Fast Facts About
Energy Policy

Policies shape decisions about energy production and use. Institutions ranging from local governments to international trade organizations use different types of policy instruments, such as building energy codes, tax credits, and air quality standards, to influence energy-related behaviors. 

More than 7,000 energy policies have been reported by countries to the International Energy Agency. Those are just the tip of a cascade of energy policies enacted by provincial and municipal governments as well. In the US, states have enacted energy policies in several categories that are tracked in every state, and both existing state laws and newly introduced bills shed light on frontiers of policy innovation. In addition, more than 60 major cities around the world have shared their policies and plans for a rapid transition to clean energy.

Energy policies are forged by pressure from stakeholders with a host of interests including economic development, geopolitical security, climate action, and rapid deployment of new technology. The capacity of each group of stakeholders to influence decision-makers and hold them to account is different, and political science is a field that helps explain how differences in influence affect policy. For example, incumbent energy interests in the US have historically spent 10 times more every year to influence policy through lobbying than clean energy interests. More recently, spending by champions for clean energy on political influence in US federal policy surged in the election cycle that then led to landmark US policies accelerating deployment of electric vehicles and renewable energy.

Some policies use financial incentives to affect the relative price of energy products or end uses. Subsidies to fossil fuels, for example, have reached a record-breaking high of $7 trillion according to the International Monetary Fund, and it is a top international policy issue among world leaders who are also grappling with catastrophic effects of a changing climate. Tax credits, direct spending, and support for research are among other types of financial incentives that affect how energy systems develop. The US estimated these explicit subsidies across all energy types cost $30 billion in 2022. In at least 40 countries, some energy markets are affected by a different type of financial instrument, a price on carbon dioxide pollution. This policy shifts to producers and consumers of fossil fuels a fraction of the estimated costs paid by societies for damages from climate change.

Regulation is another large category of policies that affect the decisions of producers or consumers of energy. For example, regulations on air pollution from cars and power plants are powerful drivers for transitions to electric mobility and renewable energy. Building energy codes and appliance standards are other types of regulations that, along with other policies, have helped make energy efficiency the “first fuel” in clean energy transitions. Regulations in areas seemingly unrelated to energy, such as wildlife protection or waste management, also can affect decisions about energy, such as siting of renewable energy or treatment of coal ash.

The United Nations Framework Convention on Climate Change (UNFCCC) is a vital structure for negotiating agreements between nations, and the Convention is neither a set of regulations nor pricing policies. Under the Paris Agreement among participating countries, each country pledges to adopt and enforce their own policies as nationally determined contributions to action on climate change. The differences between nations in responsibility for climate changing pollution and respective capacities to take action justifies a critical policy category for global energy transition known as international climate finance. Pledges to pay $100 billion per year for climate finance were offered by wealthier countries to countries with less capacity; however, they have not yet been fulfilled, and that makes finance one of the most significant policy issues for climate justice.

Key Terms

Typical Policy Attributes

Examples of Policy Mechanisms

Levels of Governmental Policies

Effects of Policies

Select Key Global Energy Policies

Select Key US Energy Policies

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Drivers and Barriers to Clean Energy Policy

Our Lecture on 
Energy Policy

This is our Stanford University Understand Energy course lecture on energy policy. We strongly encourage you to watch the full lecture to understand the critical role policy plays in managing and sustaining energy systems and to be able to put this complex topic into context. For a complete learning experience, we also encourage you to review the Essential tools and readings we assign to our students before watching the lecture.

Presented by: Holmes Hummel, PhD; Energy Equity & Just Transitions, Managing Director, Precourt Institute for Energy, Stanford University 
Recorded on: October 30, 2023   Duration: 43 minutes

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