In the May issue of Wiley Journal Climate and Energy, Senior Managing Director Jeff D. Makholm and Senior Consultants Andrew Busey and Soren Christian discuss the institutional frameworks within which US regulators and utilities operate in the pursuit of net-zero action.
In recent years, 18 states and territories legislated decarbonization targets, including 11 with all net-zero targets by 2045 or 2050. Such initiatives can include intermediate targets, emissions accounting guidance, and claimed liability in the event the state misses its mandated targets. The initiatives do not include specifics on how to meet the targets nor do they deal with issues associated with the powers of state regulatory agencies taking action to achieve targets or plans to manage affordability along the way. The authors note the decarbonization targets between states differ substantially in how they can pursue climate and decarbonization policy, driven by different institutional histories and the political geography of energy development and regulation. To illustrate each, the authors focus on the UK, which has a legally binding target of net zero by 2050.
The authors explain that because of the public-led nature of the private energy sector in the UK, the government and regulator Ofgem have had far more power than their equivalents in the US (with the latter’s investor-led industry) to regulate the activities and finances of energy companies. In the electricity distribution sector, this framework gives Ofgem the latitude to make regulatory policies that reflect decarbonization pathways. The authors emphasize that British regulators and government bodies have far less restraint in influencing and regulating individual private companies, and they do so across a wider geographic footprint.
The authors note investor ownership was a singular choice for US regulation at the start of the 20th century. The authors argue the US institutional ecosystem is complex and deeply rooted, but it has great benefits for consumers as US retail energy prices (in both electricity and natural gas) have long been a fraction of those in the UK and other peer industrialized nations. This contrasts with the UK, where institutional ecosystems lie in a centrally and publicly developed energy system, which, while now largely privatized, acts more like a franchise system that could be reorganized or renationalized without the private property rights present in the US.
Makholm, Jeff D., Busey, Andrew and Christian, Soren (May, 2024). “Disparate Regulatory Pathways for Animating Net-Zero Legislation,” Climate and Energy, 40/10, ©2024 Wiley Periodicals, Inc., a Wiley Company.
