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An ‘Old’ Institutional Perspective on Carbon Lock-In

by Oliver Summerfield on April 26, 2018

My thesis, An ‘Old’ Institutional Perspective on Carbon Lock-In: The Case Of The Australian Electricity Sector, focused on the need for a transition to low- or zero-emissions energy systems as a key mitigation strategy in addressing anthropogenic climate change.

It focused primarily on a conceptual contribution to the ‘carbon lock-in’ literature. Gregory C. Unruh coined the term ‘carbon lock-in’ to describe how industrial countries can become ‘locked in’ to carbon-intensive energy systems. He uses a co-evolutionary framework to introduce the concept of a ‘techno-institutional complex’ (TIC). This describes how the (mutually reinforcing) co-evolution between technology and technological systems, institutions, and human habits and behaviours, can lead to path dependency or inertia in a given system.

Unruh draws on a wide range of literature, including ‘new’ institutional economics (NIE). My thesis proposed that the carbon lock-in framework could benefit from the integration of ‘old’ institutional economics (OIE). As identified in a review of the carbon lock-in literature, the concept of ‘behavioural lock-in’ – in contrast to ‘technological/infrastructural’, and ‘institutional lock-in’ – is currently undeveloped, and there is uncertainty about the nature of the relationship between institutions and individuals. This conceptual gap, provides an opportunity for OIE, specifically Geoffrey M. Hodgson’s notion of ‘reconstitutive downward causation’, to influence this framework.

Hodgson identifies two forms of ‘downward causation’ (a term coined by Nobel Laureate Roger Sperry): a strong version and a weak version. The stronger form of downward causation – of interest to my thesis – which he labels ‘reconstitutive downward causation’, sees individuals and populations not only constrained, but also ‘changed, as a result of causal powers associated with higher levels’. For example, institutions, defined as ‘social rule-systems’, attain their longevity because habits act as a mechanism that embeds thoughts and preferences.

Hodgson rejects any form of reductionism (e.g., methodological individualism or methodological holism/collectivism) and instead advocates a layered ontology. Higher levels cannot simply be reduced to lower levels because they contain ‘emergent properties’ that lower levels do not obtain (‘the sum is greater than its parts’). Hodgson’s approach also seeks to draw on and (re)incorporate instinct/habit psychology and pragmatist philosophy into a Darwinian evolutionary framework. In doing so, this goes back to Thorstein Veblen, who provided the intellectual foundations for American institutionalism.

Australia’s National Electricity Market (NEM) was used as a case study in my thesis because it generates electricity for the majority of Australia’s states and territories and constitutes the majority of electricity demand in Australia. It was argued that the Australian NEM portrayed similar characteristics to those described by the carbon lock-in framework, and that the carbon lock-in framework provides a useful explanation for why there has only been a slow diffusion of renewable energy technologies (RETs) in Australia’s energy mix. Fossil fuels dominate the NEM’s energy mix (76% coal and 12% gas). Not surprisingly, the electricity sector accounts for more than one-third (35%) of Australia’s total GHG emissions, and this is primarily due to the reliance on fossil fuels. As such, the electricity sector (specifically the NEM) is a key part of any climate change mitigation strategy Australia puts forward.

Unruh also identifies three ‘generic’ policy alternatives to transition from carbon-intensive to more sustainable energy systems: (1) end-of-pipe (EOP); (2) continuity; and (3) discontinuity. For the purposes of my thesis, I focused on the notion of a discontinuity approach. This involves a complete replacement of the system. For example, this could involve moving from a centralized system to a more decentralized system. Unruh argues that a discontinuity scenario may require an ‘exogenous force’ to induce such a significant level of disruption. This might take the form of a ‘focusing event’ (e.g., extreme weather event).

I likened the 2016 state-wide blackout in South Australia to such an event. However, since the Blackout System, much of the public and political discourse has encompassed the term ‘energy security’. Energy security is not a policy. Rather, it is a concept that is used to frame policy discussion.

Energy security has the potential to be used as an incentive for the greater diffusion of renewable energy sources, as combating climate change and the associated greater frequency of extreme weather events will impact the energy network’s security. However, there is an (implicit?) assertion that ‘energy security’ is compromised by renewable energy sources – that fossil fuels such as coal and gas are the fuel sources capable of providing affordable, secure and reliable energy. As a response to the events in South Australia, ‘energy security’ has been used as a barrier to the diffusion of RETs, or mechanism to preserve the status quo.

Australia’s electricity sector is currently in a transitory phase, and the Australian government has adopted a ‘technology neutral’ approach to achieve the ‘trifecta’ of energy security, affordability and emissions reductions. However, the co-evolutionary nature of complex energy systems such as the Australian electricity sector makes this technology neutral approach problematic, as not all technologies operate on a ‘level playing field’.

Australia’s energy system has benefitted from the abundance of cheap fossil fuels, and although this has been beneficial for a long period of time, the increasingly urgent need for meaningful climate change mitigation means that this system is no longer viable. As an understanding of the ‘techno-institutional complex’ shows, energy systems can become locked into a particular technological paradigm that can have potentially suboptimal unintended consequences (or become suboptimal over time).

Consequently, policymakers must have an understanding of this systemic or co-evolutionary aspect of energy systems and therefore be conscious not to inadvertently lock Australia’s electricity sector into another suboptimal system. This means maintaining system flexibility. As Australia’s energy system is currently in a state of change, this is an appropriate time, although long overdue, to keep this in mind as Australia transitions to a low-emissions, potentially zero-emissions future.

Oliver Summerfield
Oliver Summerfield recently completed a Bachelor of Liberal Arts & Science (Honours), majoring in Political Economy at the University of Sydney. He is interested in institutional economics, and the significance of energy systems transitions and environmental sustainability.

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