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Energy Policy

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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

Policy

Set of ideas or plans used for making decisions, especially in politics, economics, or business

Politics

Process of determining who gets what, when, and how

Political Power

Ability to change (or prevent change) to conditions and processes shaping policy


Typical Policy Attributes

Jurisdictional Boundary

Defined scope of a policy

Record of Decision

Formal record of decisions that govern oversight and implementation of a policy

Enforcement Provision

Identification of the ramifications that may occur in cases of policy non-compliance

Assigned Authority

Identification of who has the ability to oversee the policy

Covered Entity

Identification of who is subject to the policy and who may be exempt

Compliance Obligation

Specifications regarding how the policy is to be enforced


Examples of Policy Mechanisms

Subsidy

A sum of money granted by the government or a public body to assist an industry or business

Rebate

Partial refund to someone after paying for goods or services in order to make the sale more attractive; does not require filing of taxes

Loan

When the government guarantees loans issued by banks or makes loans from its own loan office

Tax Credit

An amount of money that certain taxpayers can subtract from the taxes they owe

Grant

A sum of money granted by the government or a public body for a defined purpose

Carbon Tax

Puts a price on emissions to encourage consumers, businesses, and governments to produce less of them


Levels of Governmental Policies

International
  • Legally binding treaties; set goals but without enforcement provisions
  • Bodies such as United Nations, Intergovernmental Panel on Climate Change, Conference of Parties (COP)
Tribal (US)
  • Formal nation-to-nation relationship with the US government and Tribal-State relationships for local cooperation
  • Tribes possess all powers of self-government except when inconsistent with overriding national policy
  • Agencies such as EPA can regulate tribal land, but with close involvement of Tribal Governments in making decisions
Federal (US)
  • Federal agency, such as the EPA, sets national standards
  • Rebates, tax credits, grants, and loans
State (US)
  • States adopt laws at least as stringent as the federal; state laws take precedence if more restrictive
  • States can add an additional rebate or credit onto federal ones
Local (US)
  • Major policy-makers for transportation
  • Can negotiate local discounts; for example, clean electricity with the public utilities
  • City level sustainability plans for public entities are common

Effects of Policies

Trade Offs

A kind of compromise that involves giving up something in return for getting something else

Example:

Reduced conversion of forests has a tradeoff with reducing hunger and expanding food production

Synergies

Coordination in the design of multiple policies to improve efficiency in their implementations and achieve optimal outcomes

Example:

Reducing methane and nitrogen use in agriculture for the goal of reducing GHG emissions also helps marine life

Unintended Consequences

An unexpected side effect of a policy that has a negative effect on the problem the policy was created to solve

Example:

California’s 2006 clean fuel standards led to unnecessary imports and exports of corn and sugarcane ethanol, which unintentionally increased emissions due to fuel transportation


Select Key Global Energy Policies

1970:
Treaty on the Non-Proliferation of Nuclear Weapons (NPT)
  • Aims to prevent the spread of nuclear weapons and weapons technology
  • Promotes cooperation in the peaceful uses of nuclear energy
1973:
MARPOL (International Convention for the Prevention of Pollution from Ships)
  • Convention adopted by the International Maritime Organization (IMO), a specialized agency of the United Nations
  • Covered the prevention of pollution of the marine environment by ships from operational or accidental causes
1987:
Montreal Protocol
  • International treaty designed to protect the ozone layer
  • Phases out the production of numerous substances that are responsible for ozone depletion
1988:
Intergovernmental Panel on Climate Change (IPCC)
  • Created by the United Nations Environment Programme and the World Meteorological Organization
  • Goal is to provide governments at all levels with scientific information to develop climate policies
  • Provides comprehensive Assessment Reports for governments
1997:
Kyoto Protocol
  • Operationalizes the United Nations Framework Convention on Climate Change
  • Commits industrialized countries and economies in transition to limit and reduce greenhouse gas (GHG) emissions in accordance with agreed individual targets
  • Legally binding agreement with specific targets but no time frame
2015:
Sustainable Development Goals
  • A collection of seventeen interlinked objectives from the United Nations
  • Serve as a "shared blueprint for peace and prosperity for people and the planet, now and into the future."
2016:
Paris Agreement
  • Legally binding international treaty
  • Sets out a global framework to limit global warming to well below 2°C and pursuing efforts to limit it to 1.5°C
  • Calls on all nations to develop Nationally Determined Contributions to reduce GHGs, not just developed nations

Select Key US Energy Policies

1957:
Price–Anderson Nuclear Industries Indemnity Act
  • Partially compensates the nuclear industry against liability claims arising from nuclear incidents
  • Viewed as a necessary incentive for the private production of nuclear power
1973-1974:
Oil Embargo
  • Arab members of OPEC banned US petroleum imports
  • US price controls encourage imports over domestic production
  • Shift of financial power towards oil producing states
1975:
Corporate Average Fuel Economy (CAFE) Standards
  • Intended to reduce energy consumption by increasing the fuel economy of cars and light trucks
  • Sets annual fleet-wide averages that must be achieved by each automaker for its car and truck fleet
1978:
National Energy Act (includes PURPA)
  • Multiple statutes all meant to promote energy conservation, fuel efficiency, and less reliance on international oil (e.g., Public Utility Regulatory Policies Act, Energy Tax Act, and National Energy Conservation Policy Act)
1975:
Energy Policy and Conservation Act
  • Banned crude oil exports
  • Established the Strategic Petroleum Reserve
  • Implemented fuel economy standards
  • Ended federal oil price controls
2005:
Energy Policy Act
  • Energy-related tax incentives
  • Creation of Renewable Fuel Standard (RFS)
  • Increased oil and natural gas production
2007:
Energy Independence and Security Act
  • Energy efficiency standards for appliances
  • Increased Renewable Fuel Standard and Fuel Economy Standard
2009:
American Recovery and Reinvestment Act
  • Measures to integrate renewables into the grid
  • Energy efficiency incentives
  • Support for management of nuclear waste
2015:
Energy Policy and Modernization Act
  • Energy efficiency in federal buildings
  • Electric grid cybersecurity
  • Water conservation measures
2021:
Infrastructure Investment and Jobs Act
  • $65 billion in funding for clean energy transmission and power infrastructure upgrades
  • Programs to support dams and nuclear reactors, encourage battery recycling and demonstration, deploy energy efficiency, and fund R&D
2022:
Inflation Reduction Act (IRA)
  • $369 billion investment to address energy security and climate change
Justice 40
(Part of IRA)
  • Mandate that 40% of federal climate and clean energy investments reach disadvantaged communities*

*Visit our Energy, Environment, and Justice page for more information about energy justice.


Drivers and Barriers to Clean Energy Policy

Drivers

  • Demands for affordable energy
  • Calls for action on climate change to protect life support systems
  • Need for clean air and water and the effects of the currently polluted resources for humans and wildlife
  • Depletion of natural resources from nonrenewable energy sources
  • Attention to jobs created by energy transitions

Barriers

  • Money in politics: reported oil & gas lobbying in the US exceeds $100 million every year since the Energy Independence Act of 2007
  • Resistance to losing high-paying jobs in the coal, oil, and gas industries
  • While policies are being passed, actual implementation and permitting processes are much slower
  • Fossil fuel subsidies tend to be long term and entrenched in tax codes

 

Updated October 2023

Before You Watch Our Lecture on
Energy Policy

We assign videos and readings to our Stanford students as pre-work for each lecture to help contextualize the lecture content. We strongly encourage you to review the Essential tools and readings below before watching our lecture on Energy Policy. Include selections from the Optional and Useful list based on your interests and available time.

Essential

Optional and Useful

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.

Holmes Hummel

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

Table of Contents

(Clicking on a timestamp will take you to YouTube.) 
00:00 Introduction 
07:11 Energy Policies and Instruments 
20:14 The Role of Power in Policy 
35:08 New US Energy Policies 
39:28 US State Policies 
41:48 How to Stay Current on US Energy Policy

Lecture slides available upon request.

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Additional Resources About
Energy Policy

Stanford University

Government and International Organizations