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Energy policy multiculturalism – an intro for new practitioners

Updated: Feb 24, 2023

Key points:

  • Energy policy can be understood as consisting of eight relatively distinct but connected cultural domains: microeconomics, welfare policy, consumer insight, industry strategy, emergency management, community energy, real politics and technical regulation.

  • Each domain has its own ‘language’, as well as theoretical and methodological strengths and weaknesses that are relative to the problem to which they are applied. With greater insight into each, policy makers can develop the flexibility to apply a wider range of evidence and policy choices.

  • Understanding both the strengths and limitations of our own skills and experience can reduce friction as we collaborate to decarbonise our energy systems.

The energy policy challenge

Energy policy is like a never-ending and ever-changing sociotechnical puzzle – where new insights continuously dismantle the old, and where new voices enter at every corner to challenge both the rules and the objectives of the game.

In addition, the need to rapidly decarbonise our energy system is placing energy policy and system planning under immense pressure. Community expectations are higher, trust in policymakers is lower. Never has rapid cross-disciplinary collaboration been more complex or more important.

How do we get stakeholders pulling in the same direction? A big part of the answer is understanding the unique insight each stakeholder’s perspective offers and the strengths and weaknesses of different approaches, when applied in different contexts.

This blog explores some major domains in energy policy and offers a simplified framework that practitioners can use to navigate the stakeholder landscape and help identify the right theoretical frame for the task at hand.

Microeconomics and its discontents

The National Electricity Market (NEM) is being shaken not just physically, but also culturally. The ideological origins of the NEM lay in ‘economic rationalism; and its theoretical frame is microeconomics. As such, the market rules have been designed to advance the economic welfare of consumers, its chief totem is efficiency [1], and success is measured in terms of appropriate risk allocation (rather than outcomes).

Conceived in the national productivity agenda of the 80’s and 90’s, the NEM has been, in some ways, highly successful. Its energy-only-market, vertical disintegration, tariff reform agenda and open access regime have enabled transformational technological changes that have put Australia at the global leading edge in wind and solar integration and customer energy resource (CER) innovation. In 2013, on the release of a book celebrating 15 years of the NEM, then Executive Chairman of the AEMC, John Peirce said “The NEM has proved to be a sustainable reform – capable of being built upon and a fundamentally important input to the performance of the Australian economy.[2]

However today, economic rationalists increasingly find themselves on the political margins and the butt of community anger. Arguably, this is not because of any flaws in microeconomics itself, but because its practitioners (the authors included) have sometimes failed to recognise its limits and the need to connect with and accommodate other perspectives. Consider current debates over ‘community energy’ or ‘resource adequacy’. Approaching these problems requires engagement with a wide range of different interests and perspectives, and microeconomics does not always sit at the head of the policy table.

A multicultural approach

So, how can we navigate the diversity of perspectives and interests in energy policy? Do we resign ourselves to policy relativism?

A more constructive approach is to understand that every perspective has scope-limited validity, and the utility of each is relative to the problem to which they are applied. For example, you would not give your local community energy co-op the job of improving incentives for primary frequency control. Similarly, you would not give the job of building social licence in the energy transition, to an economist.

We think it is useful to define eight reasonably discrete, coexistent, cultural domains in energy policy:

  1. Microeconomics - How clever policy design can advance economic welfare by harnessing ‘the invisible hand’ of the market

  2. Welfare policy – how the interests of vulnerable groups in our community can be protected and advanced

  3. Consumer insights – how situations, values and biases shape consumer preferences and behaviours

  4. Industry strategy – how government can shape the long-term development of our society and its industries through regulation, subsidies or strategic investment

  5. Emergency management – how energy supply emergencies require clear accountabilities and process discipline

  6. Community energy – how the wants and values of communities are expressed and how new energy products and services can offer greater interpersonal connection and shared meaning

  7. Real politics – how seemingly unrelated principles can come into conflict and how competing interests are traded out

  8. Technical regulation - how formal standards, training, compliance checks and enforcement practices underpin the safety and security of power systems.

This concept of ‘policy multiculturalism’ draws on insights from Michael Grubb’s influential book Planetary Economics. [3] In it, Grubb puts forward three energy policy domains (that broadly correspond to 1, 3 and 4. In our list [4]). Grubb similarly argues that the three different domains of decision-making must be recognised as distinct but connected. Each has a different theoretical foundation, evidence-base, and implies different policy approaches. Each is required, and any, on its own will fail.

What do you think of this list? What have we missed?

Edit: This blog does not explore is the relationship between policy, and electrical and software engineering. These domains shadow and interact with virtually all policy reform discussions, and this is fertile ground for future analysis. Since originally posting this, Technical regulation has been added to the above list.

Table 1 (below) explores these domains in terms of their unique insights, common policy interventions and limitations. Readers are encouraged to form their own views on each, based on their own knowledge and experiences.

Translating multicultural insight into action

“We are the two extremes of our world, yet we are together – brothers. The Other and the Other – two mysteries to each other yet joined by respect. So, respect the mystery, sometimes let the mystery be, and maybe we will be brothers still in a thousand years.” [5]

The primary goal of this analysis is to promote openness to alternative perspectives. With openness, we hope readers will develop the flexibility to appreciate and try out the theoretical tools and evidence base of each, when and where that is the best tool for the job. There is no one approach to rule them all.

We also suspect that greater openness can contribute to more effective collaboration: if we each become more confident in understanding both the strengths and limitations of our own skills and experience, we can build a stronger division of labour that can speed up and build greater social licence for the policy reforms that will underpin our society's urgent decarbonisation challenge.

Table 1: Energy policy multiculturalism - a cross-cultural comparisons

© enX consulting (2022)

[1] Productive, allocative and dynamic efficiency [2] 15 Years of the National Electricity Market: the book | AEMC [3] Grubb, M. (2014) Planetary Economics: Energy, climate change and the three domains of sustainable development, Taylor & Francis [4] Building out Grubbs framework is not intended to challenge Grubb’s approach, but rather, make it more intuitive and actionable for time-short readers. [5] In the documentary, The Shock of The Other, David Maybury-Lewis paraphrases the chief of a Peruvian tribe who is contemplating the clash of modern and tribal worlds.

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