Despite being a major energy exporter, Australia has long overlooked the importance of energy diplomacy. With world energy markets now in a period of considerable transformation, Australia should seize the opportunity to take a leading role in shaping the future architecture of global energy governance.
Australia is considered an energy superpower, but Australian foreign policy has often overlooked energy diplomacy. Given the transformations taking place in global energy markets, the time is ripe to begin a policy discussion in Australia on energy diplomacy. Australian diplomatic efforts should broaden beyond a historical focus on promoting fossil fuels and securing export markets, to driving global energy governance reforms through the G20. This will not only help to ensure international energy architecture is capable of achieving governance objectives around energy security, energy access and climate change, but significantly, it will also help Australia to achieve broader foreign policy goals, such as ensuring emerging economies become responsible stakeholders within the international system.
What is energy diplomacy?
While the term energy diplomacy is widely used in many jurisdictions its meaning varies. Broadly, two conceptualisations can be identified.
First, the term energy diplomacy has historically been associated with geopolitics where energy security is viewed as a geopolitical problem. For large energy consumers, this is reflected in diplomatic efforts to secure energy supplies, such as China’s oil diplomacy in Africa. And for large energy producers, it is reflected in the use of diplomacy to improve access to global markets, such as Australia’s efforts to ensure access to markets for coal and natural gas. However, it is debatable how influential diplomatic efforts are at securing access to resources for supply, or at securing access to markets for export.
The second conceptualisation of energy diplomacy focuses on the global governance dimension of energy. According to this view, diplomatic efforts should seek to ensure the global energy system is capable of governing energy in a way that addresses key governance objectives around energy security, energy access and climate change.
Transformations in global energy markets
While both conceptualisations have merit and are by no means mutually exclusive, there is good reason to suspect the time has come for diplomatic efforts to invest more in improving global energy governance, than in solving historical geopolitical problems. This is because global energy markets are being transformed and the current international energy architecture is failing to keep up.
Two disruptive trends stand out. First, the sources of global energy production and consumption are being recast in ways that were unimaginable a decade ago. The United States has now overtaken Saudi Arabia and Russia to be the largest producer of oil and gas in the world and is on track to be a net exporter of oil as a result of the shale revolution. Meanwhile, China is now the largest energy consumer in the world and energy demand is ballooning in India and southeast Asia. As a result, international energy architecture needs to be recalibrated to reflect these changing patterns.
Second, climate change is forcing governments around the world to re-think energy production and consumption. As the source of more than two-thirds of global greenhouse gas emissions, transforming the energy sector will be crucial to efforts to address climate change. Yet more than 80 percent of the world’s primary energy supply continues to be met by fossil fuels, and this has hardly changed in 40 years. Accordingly, the boom in renewable energy around the world is likely to further disrupt the energy landscape.
The global energy system is failing to keep up with these transformations. Unlike other global policy areas, such as trade, health or finance, there is no single international organisation that governs energy. Instead, there is a jumble of overlapping non-hierarchical institutions, often with conflicting goals that are better suited to addressing the energy challenges of the last century, rather than the challenges of this one. The International Energy Agency (IEA) is the most conspicuous example. Established in 1974 to represent the world’s largest energy consumers, today many of the top consuming nations, including China, India and Brazil, are not formal members. Its treaty mandate also remains narrowly confined to oil supply disruptions rather than driving a clean energy transition.
What should Australian energy diplomacy focus on?
In order to keep up with these profound changes, Australian energy diplomacy will need to broaden beyond a historical focus on promoting fossil fuels and securing export markets, to driving efforts that improve global energy governance via the G20. The G20 is the body best placed to steer reform. G20 members together account for 80 percent of the world’s primary energy demand, including 95 percent of its coal demand and nearly 75 percent of its oil and gas demand, and 85 percent of global investment in renewables.
Australia is well-placed to take on a leadership role in the G20. As host of the G20 in 2014, Australia played a key role in putting the reform of the international energy architecture on the agenda. Without the United States or China leading on the issue, Australia could take on the role of an entrepreneurial middle power to broker compromise positions between the major powers.
Specifically, Australian energy diplomacy could focus on three areas that will improve global energy governance and are consistent with the 2014 G20 agreement. First, Australia should use the G20 to strengthen existing multilateral institutions. One of the key principles agreed by the G20 in 2014 was to ensure “international energy institutions [are] more representative and inclusive of emerging and developing economies”. To a large extent, this referred to reforming the IEA, which is considered by many nations to be out of date given it does not include some of the largest energy consumers among its members.
Second, Australia should also use the G20 to improve coordination between the various international energy organisations that often have conflicting goals in order to bring greater coherence to the international energy architecture. For example, of the many energy organisations that exist today, some focus on the production of fossil fuels, such as the Organization of the Petroleum Exporting Countries (OPEC), others on the consumption of fossil fuels, such as the IEA, others still on renewable energy such as the International Renewable Energy Agency. While attempts have been made to improve coordination between these organisations, much more needs to be done if the global energy system is going to achieve global governance objectives around energy security, energy access or climate change.
Third, Australian energy diplomacy should promote collaboration between G20 member states’ national energy policies. The G20 has already shown the potential for collaboration in other domains such as finance when following the global financial crisis in 2008 G20 leaders agreed to coordinate their fiscal and monetary policies. Similar steps could be taken in the domain of energy. In 2009, G20 leaders announced they would “rationalize and phase out over the medium-term inefficient fossil fuel subsidies.” Yet, despite their significant contribution to greenhouse gas emissions, G20 countries have failed to coordinate national efforts to phase out such subsidies. In 2014, the IEA estimated fossil fuel consumption subsidies totalled nearly $500 billion, while the IMF, which takes into account production subsidies, estimated they could total more than $5 trillion.
However, if Australian energy diplomacy is to effectively pursue a governance agenda, then it must demonstrate it is a constructive international partner in the domain of energy. Australia’s inability to develop and maintain a strategy to reduce greenhouse gas emissions is undermining its diplomatic standing.
How can Australian energy diplomacy support broader foreign policy objectives?
Broadening Australian energy diplomacy will enhance Australia’s capacity to achieve related foreign policy goals.
First, Australia has a long-standing objective to ensure the G20 remains an effective and legitimate forum. This is especially important as there is no guarantee Australia would have a seat at the table of an alternative G8-plus type forum if the G20 was disbanded. Hence, to the extent Australia can succeed in steering global energy governance reforms through the G20, it will help to bolster the legitimacy of the G20 and Australia’s membership of it.
Second, efforts to reform the IEA membership by bringing nations, such as China, India and Indonesia on board, will support Australia’s foreign policy goal of ensuring these nations become responsible stakeholders within the international system. As the 2017 Foreign Policy White Paper stated, “Australia encourages reform to international institutions to make them more effective and responsive, and to better reflect the economic weight of emerging economies.”
Finally, Australia has historically invested resources in attempting to restrict the growth of economic conflict between major powers, such as the United States and Japan, and more recently the United States and China, in order to maintain a peaceful multilateral international order in which it can prosper. To the extent that Australian energy diplomacy shifts away from a narrow self-interested focus on export promotion to improving global energy governance in ways that allow major powers to cooperate on critical issues, it is also likely to ease rivalries and reduce potential conflict.
Dr Christian Downie is an Australian Research Council DECRA fellow in the School of Regulation and Global Governance at The Australian National University. He was previously a vice chancellor’s postdoctoral fellow at the University of New South Wales. Christian has worked as a foreign policy advisor to the Australian Government’s Department of the Prime Minister and Cabinet and a climate policy advisor to the Department of Climate Change.
This is an extract of Downie’s article in Volume 73, Issue 2 of the Australian Journal of International Affairs titled “Australian Energy Diplomacy.” It is republished with permission.