Markku Lehtonen and Florian Kern

Part I of Energy for the Future developed a critique of the way energy policymaking is conducted, drawing attention to issues such as problem framing, institutional inertia, civil legitimacy, technological 'lock-in' and over-reliance on competition as a mechanism to achieve energy policy goals. Part II focuses on ways to tackle the challenges so that societies become better able to transform energy supply and use, making development more sustainable. This chapter sets the scene for the more detailed recommendations that follow, identifying broad approaches, principles and processes appropriate to the new energy policy agenda. It argues in favour of a new overarching perspective on the relevant transitions, and draws out the implications for governments, expert advisors and other stakeholders.

Mainstream neoclassical economics has a tendency towards determinism whereby change is only envisaged within the prevailing socio-technical structure. It assumes the possibility of fixing a set of events x, using economic levers, in order to determine and thereby control a set of events y (Lawson, 1997, p. 277). A more realistic view is needed of what markets and economic instruments can achieve, and what should be their relation with other, non-market based mechanisms. Such pragmatism has, in general, always been a feature of day-to-day political decision making. Nevertheless to justify a policy change politicians and civil servants often feel compelled to identify 'market failures' for which it would correct, or alternatively to explain why the 'first-best' market-based solution is not appropriate in a given situation. In this way political decisions are presented as objectively necessary, given the 'needs' of the free market and the way its 'invisible hand' is understood to operate.

A more useful perspective, which would identify the possibilities and obstacles to more fundamental system transformations, is to focus on transitions in 'socio-technical regimes'. Analysis from this perspective can help to understand the dynamics, mechanisms and patterns through which transitions come about (Rip and Kemp, 1998; Geels et al., 2004; Geels, 2005), instead of seeing change as a function of supply and demand structures and individual responses to market incentives. The aim is to avoid simplistic recommendations that stem from analysis that assumes one universally applicable model of 'free' and 'perfect' markets.

In the framework proposed here, markets are understood as one institution among many others. Such institutions are embedded in a framework of co-evolving elements such as technology, the environment, organisations, knowledge and values, any of which can be more dominant at a certain point in time or in a given situation (Norgaard, 1994). Authors such as Geels and Smith (Geels, 2002a; Geels et al., 2004; Smith et al., 2005) analyse change in socio-technical systems from the perspective of 'multi-level transitions'. The 'landscape level' encompasses factors beyond the control of individual actors, such as demographic developments, culture or external events (e.g. oil shocks). 'Niches' are protected spaces where novel technologies, ideas or practices emerge, some of which can come to challenge the dominant regime. The 'socio-technical energy regime' consists of a set of technologies embedded in a social, political and institutional context, with its associated regime-specific set of rules, procedures, habits and practices (Anderson et al., 2005; Smith et al., 2005). Together these aligned elements of the regime provide services such as electricity or heat, but also have undesired consequences such as GHG emissions. Structural change occurs over extended periods of time through interactions between these landscape- and regime-specific levels and niches (Rotmans et al., 2001b; Geels et al., 2004).

Understanding energy systems as socio-technical regimes directs attention to the range of possibilities of fostering sustainable transitions in specific national contexts. For example, France and Denmark were both highly oil dependent and had centralised systems of electricity production in the early 1970s. The first oil price shock in 1973 forced them to reconsider their policies. To explain why the French adopted an approach strongly relying on nuclear power while Denmark embarked on a far more decentralised pathway and promotion of wind and CHP generation (e.g. van der Vleuten and Raven, 2006), one needs to look at their entire socio-technical systems, notably the political traditions in the two countries. The French approach was in the tradition of the 'grandeur de la France' advanced by a centralised, expert-led policy culture. In contrast the nuclear option was promoted for a while by the Danish government but ran into irresolvable problems because it was incompatible with the country's decentralised policy culture (Hadjilambrinos, 2000). Today, both countries are 'locked in' to very different energy paths, but with both nations faring better than the OECD average in terms of energy efficiency and CO2 emissions per capita.

The differences between the US and European governments in their attitudes towards environmental (or energy) taxes and emissions trading provide further examples of the ways socio-political and cultural factors shape transitions. While the two instruments have, in principle, essentially the same effect, the US has traditionally preferred emissions trading, while European countries have opted for taxation. Cultural reasons are important here: taxes provoke strong opposition in the US, whereas they fit better with the European welfare state tradition. Emissions trading was for a long time regarded with suspicion in Europe, as a kind of 'licence to pollute'. A relatively long process of political and cultural adaptation has been needed in Europe for emissions trading to become acceptable. The introduction of the EU Emissions Trading Scheme (see Chapter 11) will have potentially profound impacts on the other elements of the socio-technical regime such as its culture, laws, regulations, the environment and technological choices. These changes will, in turn, pave the way for certain types of future policy choices, and proscribe others.

The state had a crucial role in both the French choice to invest in an ambitious nuclear programme and in the Danish policy emphasising renewables and decentralisation. In both countries the policies largely operated through market incentives that, however, were very different from each other, reflecting the different political and cultural conditions in the two countries. Similarly, the privatisation and liberalisation in the energy sector in Britain was achieved by a highly motivated government, driven by ideology and concerns for public finances. The nationally organised industry could conveniently be broken down and liberalised. These conditions were met neither in France (where the industry was highly centralised, but the government did not have the same ideological drive) nor in the US (where both political balance between state and federal authorities and the very weak interconnections between states' electricity systems would have made national policies of deregulation and liberalisation nearly impossible) (Chick, 2006, pp. 7-8). These examples demonstrate that both the state and the market are important: the key question is not which is or should be paramount, but rather the ways in which they configure one another in specific contexts.

While price can be a strong driver for action, it is not the only thing that guides our behaviour. The socio-technical transitions perspective accepts that human behaviour is guided by more than simply the desire to maximise individual utility, and recognises that the effectiveness of economic incentives depends on many non-market elements. For instance, when faced with important decisions such as buying a house or a car, people discuss the options with friends, listen to experts, and learn about new opportunities and constraints as they do so. 'Preferences' are not therefore preformed, but learnt through social interaction. Purchase decisions, particularly for conspicuous items such as vehicles, are shaped by social variables such as people's identities, social status or sense of duty towards society and nature (e.g. Hodgson, 1988; Shove, 2004).

In day-to-day behaviour and minor decisions people resort to routines, habits and norms regarding what is acceptable or 'normal' to do. We are often too 'lazy' or too 'busy' to even try to calculate the 'optimal' solution (Hodgson, 1988; Shove, 2004). This at least partly explains why relatively few people in the UK have changed their electricity supplier after privatisation, despite the potentially significant financial savings.

Neoclassical economics places great emphasis on individual agency, exercised in the form of consumer preferences and choices. What is available for us to 'prefer', however, is often in society's hands, and depends on the available technologies, legal and regulatory frameworks and infrastructures. If travelling by train costs more than flying or driving, takes more time, involves standing for hours, or if the option is simply not available at all, saying that people simply 'prefer' going by car or plane is hardly a helpful explanation. The prevailing institutions enable some choices and constrain others, and also affect our perceptions of what are the 'right' choices (Shove, 2004, p. 113). An important role for energy policy is to unlock institutional structures that currently make it difficult for individuals to make 'sustainable' energy choices.

The socio-technical transitions literature also questions the nature of the agency exercised by 'policy-makers'. A socio-technical regime evolves as a result of interactions between technologies, institutions, markets, behaviour, policies and culture, and therefore the energy future is clearly not in the hands of a single decision maker. Certain actors are more influential than others, but no one individual or organisation directs the evolution of the system. Rather the challenge is to steer socio-technical regimes into more sustainable configurations. Such transformations cannot be achieved through top-down approaches or by governing from the 'outside' (Smith and Stirling, 2007), but only through coordinated interactions between business, government, civil society and experts from various areas (Rotmans et al., 2001b; Quist and Vergragt, 2004, p. 433; Weber, 2005). Sustainability transitions require governments to engage with stakeholders in a learning process (an idea returned to in Section 7.2.3 below).

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