The Party That Failed
An Insider Breaks With Beijing
International institutions are notoriously slow to adapt to change. Nowhere has this problem been more glaring than in the energy field. Since 2000, surging demand for energy in emerging economies and shifts in suppliers driven by a revolution in unconventional oil and gas extraction have transformed the global energy landscape. Yet the International Energy Agency (IEA), the most prominent energy-focused multilateral institution, has seemed stuck in the past, its membership restricted to states that belong to the Organization for Economic Cooperation and Development (OECD), a rich man’s club of advanced market democracies.
When the IEA was created in 1974, its members accounted for more than 61 percent of the world’s energy demand. Since then, oil consumption among the club’s founding members has flat-lined. From less than 40 percent in the 1970s, non-IEA states now consume more than half of the world’s energy—a surge in demand that has been led by China and India, whose consumption has increased more than tenfold and eightfold, respectively, since 1974. It should therefore be little wonder that, by the first decade of this century, many observers had begun to dismiss the IEA as a legacy institution that was losing its rationale as its members’ market share fell.
But in recent years, the IEA has begun to show signs of life. The agency has been quietly expanding its tent in ways that promise to bring economic, environmental, and even geopolitical benefits to OECD states and a number of emerging economies. The IEA’s pragmatic approach to integrating rising powers will help restore the agency’s centrality in the fragmented realm of global energy governance—and it holds lessons for the reform of other global institutions.
The IEA’s recent outreach efforts began in 2011, when its members agreed to establish bilateral work programs with Brazil, China, India, Indonesia, and South Africa—the OECD’s five “key partner” countries—as well as Mexico and Russia. Two years later, the IEA’s members and most of these countries hammered out a Joint Declaration on Association, turning their bilateral arrangements into a multilateral one. Then, in November 2015, the IEA signed its first association agreements with China, Indonesia, and Thailand. The agreements allow representatives from those countries to participate in a number of IEA meetings, and although they fall short of full membership, they empower the associated countries to secure the agency’s help in improving their energy security, strengthening their capacities to collect energy data and statistics, and accelerating their adoption of more efficient and environmentally friendly technologies. In part to demonstrate the IEA’s commitment to such outreach, in September 2015, the agency's new executive director, Fatih Birol, made his first official trips to China and India. (In March, Birol announced that the agency would open an IEA-China Energy Cooperation Center in Beijing.) In recent years, the IEA has also ramped up its collaboration with the Organization of Petroleum Exporting Countries under the auspices of the International Energy Forum—a reflection of the dwindling distinction between consumer and producer countries as commodity exporters begin to use more fuel at home and traditional consumers such as the United States become major exporters themselves.
As for how each partner country collaborates with the IEA, the formula varies. At the agency’s most recent biennial ministerial in 2015, nine nonmember countries—Brazil, Chile, China, India, Indonesia, Mexico, Morocco, South Africa, and Thailand—attended all of the meetings. Other nonmembers, from Argentina to Kazakhstan, have adopted a lower profile, participating in technical IEA programs that aim to improve their energy policies and ability to collect energy statistics. Experts and organizations from 20 IEA partner countries can also join the IEA’s burgeoning network of Energy Technology Initiatives, designed to share and implement breakthroughs in the energy sector, as well as its International Low-Carbon Technology Platform, its chief multilateral forum for best practices on clean energy technologies. Finally, the IEA’s 39 Technology Collaboration Programs facilitate partnerships between member states, 25 nonmember countries, IEA energy experts, and the private sector to support the development of new technologies. (Another 23 countries are under consideration for future participation in the program.)
These are admittedly incremental steps. As such, they have disappointed advocates of a truly global energy organization—a goal that international experts, national governments, and prominent international officials periodically espouse. But incrementalism is the only plausible option. To begin with, major institutional change at the global level typically depends on external shocks that generate enough political will to overcome inertia. The IEA itself was born in crisis, in response to the Arab oil embargo designed to punish the West for its support for Israel in the Yom Kippur War. There is no urgency today to create an entirely new organization.
The association agreements could help embed rising powers within the liberal order’s existing institutions.
What is more, the IEA’s incremental approach allows the agency to shape each of its partnerships as conditions require while leaving open the possibility of full IEA membership in the future. This gradualism makes sense: rising powers face a number of hurdles to full membership in the IEA, and the interests of emerging economies and OECD states overlap only imperfectly. The BRICS countries, for instance, have traditionally taken a statist approach to energy security, relying on state-owned or state-controlled energy companies. The IEA’s partnership model accommodates this reality and holds out the possibility of full membership if these governments commit to fully integrating their domestic energy sectors into the global market.
There are a number of legal barriers to growing the IEA’s tent. To join the agency, states must first enter the OECD, meaning that they must not only possess a market economy but also adhere to democratic principles—a major barrier to China’s membership, in particular. Aspiring members must also maintain emergency oil stockpiles equivalent to 90 days of net imports, put in place a contingency program of emergency oil restraint measures for times of crisis, and share precise domestic oil market data with the IEA. Most emerging economies do not meet those requirements.
In principle, the IEA could lower these barriers and permit non-OECD emerging powers to join the club—much as the OECD allowed Russia, a non-OECD state, to join the Nuclear Energy Agency, another specialized OECD body, in 2012. The fact that IEA members have not liberalized the membership requirements indicates, as the global governance scholar Thijs Van de Graaf has written, that “the real stumbling blocks… [are] political.”
Three political misgivings stand out. First, the IEA’s members worry that enlarging the group to include giants such as China and India would dilute the club’s like-mindedness, potentially weakening its orientation toward market liberalization, for instance, or diminishing the relative priority it gives to investing in green technologies over expanding energy access through dirtier fuels. Second, individual members understand that enlargement would reduce their governments’ influence within the IEA by forcing a revision of the institution’s outdated weighted voting formula, which is still pegged to each member’s share of global oil consumption in 1973. Finally, they rightly fear that expanding the club would endanger the West’s dominance over the agency’s agenda and leadership positions.
But the issue is not simply Western obstructionism. Emerging powers are not exactly banging on the door to demand full membership; countries such as China, India, and South Africa have their own reasons for staying out. For starters, nonmembers enjoy the perks of free ridership. They can benefit from the IEA’s contributions to global energy security and stability without contributing to international energy stockpiles, for instance. They profit from the IEA’s technical expertise and analysis at little financial cost. They enjoy a great deal of flexibility to pick and choose the IEA activities they participate in. And they have other forums, such as the G-20, in which they can engage with the IEA’s major players on energy issues.
Of course, the benefits do not flow in just one direction. IEA members also gain from promoting energy security in nonmember countries, for example, by bolstering global energy reserves and increasing the world’s preparedness for supply disruptions. Likewise, the IEA’s ability to forecast global energy flows improves when it promotes better data collection in nonmember countries, and that should result in reduced volatility in oil prices.
For all these reasons, the IEA’s multi-tiered association structure probably offers the best way forward, for members and nonmembers alike. The most relevant question for the IEA is thus not how its formal membership should change but, rather, what the goals for its partnerships with nonmembers should be.
A NEW MODEL?
The IEA is small, with a staff of around 240 and an annual budget of around $30 million. It is therefore forced to choose among competing priorities, balancing the attention it gives to the energy market’s big players against its desire to engage a broader range of countries. It also needs to avoid mission creep, making sure, for instance, that its expanded attention to training and new technologies does not diminish its status as the world’s leading source of authoritative data and analysis on energy markets.
If the IEA can strike the right balance on these issues, its outreach to big emerging countries could have major benefits. On the economic front, by improving the accuracy and sharing of data on national energy production and consumption and by promoting the gradual creation of fuel stockpiles upon which countries can draw in the event of unexpected supply interruptions, the IEA’s closer association with rising powers should work to make the world less vulnerable to supply and price shocks. What is more, much as the IEA helped accelerate the liberalization of Mexico’s state-controlled energy sector, partnerships and association agreements will reinforce the reform and market orientation of associated countries. They will also expose nonmember countries to peer interactions—and peer pressure—to meet IEA standards on such issues as energy efficiency.
On the environmental front, the IEA’s outreach should reinforce its efforts to combat global warming and its role as a hub for clean energy technologies. In the run-up to the last year’s Paris climate talks, the IEA published a detailed assessment of the impact of the global energy sector on climate change. Among its major recommendations was that the IEA establish a process to track national reductions in greenhouse gas emissions in that sector. The IEA’s association agreements have a critical role to play in this respect. China and Indonesia, both of which have association agreements with the agency, are major greenhouse gas emitters, as are a number of other candidates for such partnerships, including Brazil, India, and South Africa. Playing to its analytical strengths, the IEA should provide technical assistance and training programs to help these countries measure their progress toward reaching their emissions reductions targets.
More generally, in recent years the IEA has strengthened its role as an information-sharing hub for clean energy technologies. In June, the Clean Energy Ministerial—the leading international forum dedicated to accelerating the global transition to clean energy—decided to base its secretariat at the IEA, reflecting the agency’s central role in global energy governance. In the future, the agency should support Mission Innovation, the pledge made by U.S. President Barack Obama and the leaders of 19 other countries in Paris to double funding for research and development on clean energy by 2020. One way the IEA could advance this objective would be to offer technical support to the critical bilateral initiatives the United States is already undertaking with China and India, whose demand for energy is surging.
The association agreements could even pay geopolitical dividends by helping embed rising powers within the liberal order’s existing institutions. That is especially important with respect to China, as the drama over the establishment of the Asia Infrastructure and Investment Bank demonstrated. Indeed, when Beijing assumed the chair of the G-20 in December 2015, senior U.S. officials expressed anxiety to one of us that it might exploit the opportunity to create an alternative Asia-centered, multilateral energy organization—perhaps even launching it at this September’s G-20 summit in Hangzhou. China’s association agreement makes this scenario less likely, and it will help acclimate Chinese officials to greater transparency and information-sharing in the energy sector. Although this is a more delicate prospect, closer ties could also provide the IEA with a platform to encourage China to embrace the agency’s best practices in Beijing’s Belt and Road energy investments.
Finally, the IEA’s outreach initiative could help to bring coherence to the current landscape of global energy governance, which includes a dizzying complex of energy organizations, forums, and partnerships that often overlap in their mandates and membership.
At first glance, the G-20 might seem better suited than the IEA for this role. After all, it is a leaders’ forum, and it includes the top ten consumers of both petroleum and electricity, as well as nine of the top ten consumers of natural gas and coal. Moreover, the G-20 has included global energy cooperation on its agenda since its 2013 summit.
The G-20’s leadership role in global energy should be welcomed. But that forum’s main value is to help provide strategic direction in occasional meetings. The IEA, on the other hand, is a standing entity that sets high standards, implements capacity-building programs, and serves as the world’s most authoritative source of data on global energy markets and flows. The IEA also has the advantage of being a technical agency that can help focus on pragmatic cooperation. It is far better suited than the G-20 is to work out the intricacies of the global energy agenda.
The IEA’s experiments with partnerships with nonmembers and its emphasis on flexibility are a valuable primer for international institutions seeking to remain relevant. The agency’s approach will help member states—including the United States—promote the rules and norms underpinning the organizations they established and bring rising powers into the fold.