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In pursuit of the elusive 'energy strategy'

To create an effective strategy, you have to think like an investor.

I had the privilege last month of attending the excellent New York Times Energy for Tomorrow meeting, which was held in Paris prior to the COP22 meeting in Marrakech. The meeting involved a wide range of well-known and well-respected leaders from both government and the private sector. The list included political leaders such as Vidar Helgesen, Ségolène Royal and Laurence Tubiana, and business luminaries such as Peter Agnefjäll, Peter Brabeck-Letmathe and Carlos Ghosn.

Highlighting the agenda was narrative after narrative about what companies and policy makers are doing — or, in some cases, could be doing — to facilitate the hotly desired but largely elusive transition from a carbon-intensive to a low-carbon energy future. A shortlist of interrelated talking points included the importance of a price on carbon, the need to transition to an electrified economy that does not depend upon fossil fuels, the promise and perils of CCS and the efficiencies that might be obtained from a distributed (vs. bulk utility) energy delivery model.

More than once, these ideas — and others — were highlighted as the strategies for helping governments and business to meet the goals set forth by COP21.

But here’s the thing: A strategy for facilitating an energy transition isn’t the same thing as discussions about all the things we could or should do, or that we have done. Putting it another way, energy strategies should not be mistaken for the promotion of specific options, such as the deployment of electric vehicles, the construction of wind farms, R&D in carbon capture and storage or renewed investment in nuclear power. (This meeting took place in France, after all, where nuclear power accounts for approximately three-quarters of the country’s electricity supply).

It’s far too easy to respond with what I have come call the litany of 'No, because' arguments.

Don't get me wrong: Discussions about options are necessary to fuel the imagination with images of what might be. But at the same time, when strategic discussions focus with too much exclusivity on specific options, it’s far too easy to respond with what I have come call the litany of "No, because" arguments. No, we can’t have electric cars because the electricity to power them comes from coal. No, we can’t have wind farms because they are unsightly and are hazardous to birds and bats. No, we can’t invest in CCS because of the risks of leakage, or because the required price threshold for carbon has yet to be reached.

There’s also a flip side to the "No, because" argument. It’s that, when it comes to decision-making within complex systems, saying no to something implicitly removes an opportunity to make an informed, evidence-based decision. When considering energy transitions, for example, saying no to nuclear power implicitly means saying yes to something else — to a default, such as coal or hydro — without thinking in detail about the default’s merits relative to the wider range of options that otherwise might be considered. Ultimately, when it comes to things like infrastructure and policy, saying no to something usually means saying yes to sunk costs and the status quo.

Smart and forward-thinking

So, if all of this is represents a bad substitute for the development of an energy strategy, what might count as a good one?

The cornerstone of an effective energy strategy — or any kind of business or public sector strategy, for that matter — is smart and forward-thinking decision-making. That is, a process for organizing analysis, encouraging deliberation and generating and evaluating options in a scientifically rigorous, transparent and defensible manner.

An energy strategy, therefore, isn’t a report that can be released to elected officials, citizens or shareholders. Rather, it is a living process that hinges on organizing information and dialogue about the risks, costs and benefits of a wide array of energy options. Likewise, it offers a mechanism for understanding — and making choices in light of — path dependency; certain decisions and investments made today will open and close doors in terms of future decisions and investments. An effective energy strategy structures decision-making about energy options in a manner that facilitates tradeoffs when objectives conflict.

It’s important to recognize that an energy strategy isn’t a one-size-fits-all proposition.

It’s also important to recognize that an energy strategy isn’t a one-size-fits-all proposition. The suite of options that may work in one country or economic sector aren’t necessarily going to be workable in others. On the surface, this may seem like an obstacle; in reality, it’s a benefit.

National and corporate sovereignty means that actors will strategize about their own energy futures. However, sovereignty doesn’t mean turning a blind eye to the broad marketplace of options and experiences of others; building upon the tenets of adaptive management, an effective energy strategy incorporates learning and — importantly, facilitates mid-course corrections — within and across organizations and communities — after selected options are deployed.

Portfolio pros and cons

When I teach or talk about this in public, the analogy I use for how to think about energy strategy is financial investments. No serious financial investor — and make no mistake: energy strategy, because of its consequences for sustainability, is serious business — would make decisions without thinking creatively about different portfolios, and without thinking about their pros and cons and risks and benefits. Moreover, no serious investor works in an information (and learning) vacuum; nor would they make and implement decision today without monitoring and, when necessary, revisiting that decision in the future.

Likewise, different investors have different objectives and different tolerances for accepting risk, both of which necessarily change over time. It makes perfect sense, therefore, that the investment strategy of Investor A will different from that of Investor B; likewise, Investor A’s strategy today will differ from this same investor’s strategy 10 years from now. Moreover, even if Investor A and Investor B strike out on different pathways, it would be counterproductive for them to not monitor and learn from each other’s experiences.

An energy strategy is also specific to the objectives of the "investors" involved. A useful strategy is one that establishes a framework for helping these investors — policymakers, scientists and innovators and the public in this case — to answer questions about which components of an energy system are preferred. Specifically, an energy strategy should inform decisions about the desired level of investment in each element of an energy portfolio, where these investments should be made geographically and the signals or tipping points that will trigger the reallocation of funds and attention from one resource (coal or natural gas, for example) to another (say, renewables) over time. It should also help to distinguish between sources that are ready for development and those that require additional research.

Overlaid on these elements are questions about the level of risk and uncertainty ... that affected stakeholders are willing to tolerate.

Overlaid on these elements are questions about the level of risk and uncertainty — about the near-terms costs and long-term climate impacts of different energy futures — that affected stakeholders are willing to tolerate. At the end of the day, energy strategies hinge on a series of decisions that require a heavy lift; the inherent complexity can’t be nudged away.

By the end of the New York Times meeting, I was struck by the fact that, when it comes to "energy for tomorrow," there’s no shortage of good ideas out there. However, there is a shortage of good strategy. The energy landscape is dynamic and represents arguably the most important front in the battle against climate change.

Rethinking the manner in which we define and carry out energy strategy — especially in the era of Trump — this will be imperative.

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