4.2. The energy system

What is energy system?

The energy system is a special kind of social system in that it is interconnected with all activities - without energy, nothing works. Every Finn uses a considerable amount of energy during the day: electricity for electrical appliances, heat for heating buildings and fuel for transport. On top of that, we consume a great deal of energy to produce the goods and services we use.

The energy system is a complex whole, with very different ownership, organisational arrangements, norms and practices involved in the acquisition, production, processing, storage, distribution, consumption and waste of energy, depending on the nature of the system. From a systemic perspective, not only the whole life cycle of the energy consumed should be taken into account, but also the social, political and economic context in which the whole energy supply chain is embedded.

Fundamentally, the energy system can be described in the same way as complex systems in general. It is a dynamic network of actors, i.e. individuals and organisations such as households, energy companies, administrations, financiers, etc. The actors interact with each other, which means that the system is constantly changing, at least slowly, in response to changes in population, lifestyles, technology, costs, etc. On the other hand, there are elements of the system that provide permanence, such as legislation, long-lived infrastructure and social practices, such as established ways of regulating the energy system. The energy system is not controlled or owned by any one person, but a myriad of interdependent decisions are made within the system, for example in households, local businesses and administrations, central government, industry associations, multinational companies and international cooperation organisations. The different parts of the system evolve together, but it is impossible to predict change accurately because of, for example, non-linear feedbacks. 

The ongoing transformation of the energy system towards renewable energies in many places is a good example of how new technologies are bringing new forms of consumer engagement (including self-production of energy through heat pumps and solar panels, for example), new business models and new forms of administrative regulation. A centralised system based on large-scale energy production plants is very different from a decentralised energy system based on small units. Moreover, all parts of the system are linked to energy policies that seek to guide choices, which in turn are influenced by the various public and private actors in the energy system, for example through their interest groups.  

Energy is more than economics and technology

Although the term ‘energy system’ is very commonly used in both public debate and energy research, energy issues are not often considered in a particularly systemic way. In the United States and Europe - including Finland - at least, energy tends to be perceived mainly as an economic and technical issue. The availability and competitive price of energy are usually seen as the primary objectives of energy policy. These were later joined by the need to reduce the environmental problems caused by energy production.

In Finland, as in Europe more generally, the mitigation of environmental problems became an energy policy objective in the early 1990s. The reason for this was the growing understanding of the threat of climate change and the associated major UN Conference on Environment and Development in Rio de Janeiro, where the international community made a start on cooperation between national leaders on climate change mitigation.

Although efforts to mitigate the worsening global warming that is an unintended consequence of the energy system have been underway for several decades now, the results have been modest on a global scale. The graph below shows that greenhouse gas emissions from the energy sector (electricity, heat and transport) account for the vast majority (around 75%) of global greenhouse gas emissions, and the trend is still upwards.

Figure. The graph shows greenhouse gas emissions by sector. Together, electricity and heat and transport account for about three quarters of greenhouse gas emissions. You can also select countries from the ‘add country’ option. Source: https://ourworldindata.org/emissions-by-sector

It is also possible to select individual countries from the graph. For example, in the case of Finland, it can be seen that emissions from electricity and heat production in particular are on a downward trend in Finland, which has come a long way down from the peak levels of the major emission years of the 2000s. It should be noted that the high national emissions in the early 2000s were not due to consumption in Finland, but to the fact that Finland compensated for the weak years of Norwegian hydropower production with fossil fuels. This introduces a further element of complexity to the energy system: energy systems are multinational. This means, for example, that how much it rains in Norway affects how much electricity costs in Finland.

Energy systems can get locked in place

The energy system is by no means an isolated sector of society, but evolves hand in hand with other subsystems and societal practices and norms over decades. Decisions taken decades ago still have an impact on the energy system, not least because the lifetime of energy installations can be decades - for example, the Imatra hydropower plant is already 100 years old (although the equipment has been replaced over time). 

Of course, natural conditions also have an impact on the kind of energy system that is possible in the first place. In Norway, for example, with its high altitude variations, hydropower can generate electricity in excess of the country's own needs. Affordable energy understandably increases energy use both in households and in industry, where affordable energy is a key competitive factor. Energy-intensive industries tend to concentrate where energy is cheap. The same is true for energy-intensive lifestyles. In particular, when markets are small (i.e. electricity transmission connections are limited) but the economies of scale make the large size of power plants economically viable, the large supply that is quickly created attracts increased energy use. Similarly, for example, improving the road network increases road traffic, which further increases the need to develop the road network. So, in this simplified positive feedback loop, the increase in supply from large infrastructure projects increases consumption and demand, which must be met by further increasing supply.

Attempts have been made to explain the slowness of energy system change through "lock-in", feedbacks and path dependencies. For example, while cheap energy from mega-sized projects can open the path to economic development in the early stages of industrialisation, it can become a brake on innovation and structural change in the later stages. An extreme example of energy lock-in is the phenomenon known as resource lock-in, where one source of energy (usually oil) becomes so dominant in the economy that other industrial sectors are starved. Fluctuations in the world oil price cause deep crises in such economies.

One important factor in the lock-in is that in a centralised energy system based on large plants run by large companies, power is also concentrated. In an oligarchic system, companies have more market power - i.e. they are able to keep the price of their product higher than it would be under perfect competition - and they also have more political power. As the ‘Introduction to Planetary Well-being’ course pointed out, major transformations of energy systems tend to take a long time - longer than we have for the transition to a carbon-free system in the face of climate change. 

Change therefore requires energy policy measures, and the necessary changes do not naturally serve the interests of those actors with an established position in the dominant system. It is in their interest that the system does not change at all or that it changes gradually over a long period of time, for example, allowing companies to avoid stranded costs for plants that have some lifetime (possibly decades) left. Similarly, the development of the know-how and networks required for a new type of system - where new entrants are ahead of the game - will take time for the established players.

One often cited example of a centralised large-scale energy system is the French electricity system, where nuclear power accounts for about 70% of the total. Although the later transformation of the French energy system to nuclear has been described as a move towards carbon neutrality, the transformation that started in the 1970s was driven by energy security needs. Like many other countries, France was heavily dependent on oil when the oil crisis hit in 1973. 

The oil crisis boosted the development of nuclear power in France to such an extent that the French energy system became very monotonous. The investment in the electricity sector and the availability of cheap electricity led, for example, to the spread of electric heating for heating buildings, and district heating, among other things, remained underdeveloped in France. Today, France's objective of diversifying its energy mix and reducing the share of nuclear power to 50% is proving difficult, and the deadline for achieving this objective has been postponed.

Energy policy is both struggling and working together

While the fact that big (and small) companies can influence energy policy may have a nasty ring to many uninitiated ears, it is a normal part of policy making. Energy policy refers to all the preparation, decision-making, implementation and monitoring of objectives, goals and measures within the political system to guide the energy economy. In modern liberal societies, energy policy does not imply an arrangement in which policy formulation is the sole task of politicians and civil servants, and operators are the sole targets of measures, and in which there is something inherently shady about operators' attempts to influence (energy) policy. On the contrary. The possibility for established operators - like all others - to influence policy decisions that affect them is a fundamental feature of all democratic systems.

However, the way in which the interests of different actors are transmitted to the political system, the degree of influence they have and the transparency of that influence varies from one society to another. In some (so-called pluralist) political systems, such as the United States, all actors compete with each other to have their views incorporated into the policies enacted by the administration. In theory, at least, this means that they lobby politicians and officials on a level playing field in pursuit of their own interests. In practice, however, the lobbyists are not evenly matched, for example because of differences in resources.

In contrast, so-called corporatist systems, for example in the Nordic countries, are based more on cooperation. The best-known corporatist decision-making process is the so-called tripartite system, whereby the government, together with employers' and workers' confederations, agrees on matters of economic and employment policy in particular. In the corporatist system - for example, in energy policy in Finland and Germany - certain key organisations have an established special role in decision-making procedures; for example, in the legislative process, certain actors (such as the Confederation of Finnish Industries and the Finnish Forest Industries, see box below) are often members of working groups preparing key legislation. The advantage of corporatist systems is that the key actors are committed to the decisions taken and thus the decisions are implemented smoothly. However, there is a risk of a certain democratic deficit when, in a very well-established system, new ideas do not make it onto the political agenda or are stifled as the political process progresses, causing rigidity in energy policy.

The inner circle of energy policy

The hard core of the Finnish energy policy inner circle is quite small and has remained fairly similar since the 1980s. First of all, the important power holders are the governing parties and traditionally the two major parties in each government (two of the following: the Centre Party, the Social Democratic Party and the National Coalition Party) - although in recent years the two-party elite has been undermined by the True Finns. Of the ministries, the Ministry of Employment and the Economy as the ministry responsible for energy policy and the Ministry of Finance as the ministry responsible for the budget are clearly influential in their own right. The growing importance of the environment in energy policy is also reflected in the growing influence of the Ministry of the Environment, which is also responsible for international climate change negotiations and domestic construction.

The Confederation of Finnish Industries (EK) is a lobbyist for business and an important player in energy policy. But its members can have diverging interests, which was one of the main reasons for the Finnish Forest Industry Federation's withdrawal from the EK in 2016. So it now handles the lobbying of the forest industry sector itself. The forest industry has traditionally been an important concentration of power in Finland, which is also centrally linked to energy policy. Finnish Energy is the lobbying organisation for the energy industry and is very influential in energy policy.

Since the 1990s, however, climate change has increasingly influenced the shaping and changing of Finnish energy policy. The consideration of climate change in Finnish energy policy can be said to have started with the ever-increasing regulation by the European Union. At the same time, the traditional model of Finnish energy policy-making has been shaken to some extent and efforts to shape a new energy system have increased. In Finland, EU regulation has also provided support for the promotion of new renewable energy sources, mainly wind power. The owners of Finnish wind power are not the largest traditional Finnish energy companies. However, recent research on the changing power structures in Finnish energy policy is not available.  So right now we do not know exactly to what extent the new currents shaping the energy system have actually changed Finnish energy policy and decision-making.

In addition to the national level, energy policy has always had an international, geopolitical dimension. Russia's attack on Ukraine, in particular, has made it clear that energy should not be treated as a purely technical and economic issue. We live in a global energy system where both the raw materials and the technology needed to exploit them throughout the supply chain are produced where it is cheapest. This does not mean, of course, that all energy is subject to free competition, but there is a long history of regulation and, for example, energy cartels in the global energy system. Of these, the OPEC oil cartel of the main oil exporting countries of the Middle East and Africa (and Venezuela) is the best known and historically the most influential. OPEC's use of oil as a geopolitical tool brought the entire global economy into crisis in the 1970s. 

External shocks change the energy system - or not

As explained in the ‘Introduction to Planetary Well-being’ course, humanity has used renewable energy sources for the vast majority of its existence: food as a source of energy for human and animal labour, and combustible biomass such as wood as a source of heat. It was only with the industrial revolution that fossil fuels were harnessed to drive humanity's economic and social development. These still account for around 80% of annual global energy consumption, despite the increase in both the relative share and the absolute amount of renewable energy.

However, the growth in renewable energy has been nowhere near sufficient to cover the growth in total energy consumption. This means that, in practice, although in the last decade (2010–2019) before the covid-19 pandemic, the share of renewable energy in total global energy consumption increased by a couple of percentage points and the annual increase in the amount of energy produced by renewables was in the order of 5%, this was only enough to cover about a quarter of the increase in total energy consumption (which was just under 15% in the period 2010–2019). In other words, fossil energy use, and with it greenhouse gas emissions, continued to grow strongly.

A sudden change in the energy system itself, or in other subsystems linked to the energy system, is often the driving force behind the transformation of the energy system. This was the case, for example, with the oil crises of the 1970s. The Fukushima nuclear power plant accident in Japan in 2011 was also a catalyst for energy transition in some countries, such as Germany. In others, such as the UK, the impact was limited. In complex systems, it is very difficult to predict what shocks an existing system will adapt to and what will change.

Globally, the covid-19 pandemic reduced the use of fossil fuels in 2020, while carbon dioxide emissions fell. This was of course driven by the covid-19 lockdown procedures, which reduced transport, goods production and services. However, it now appears that the reduction in fossil fuel use and greenhouse gas emissions will be short-lived and the world will continue on the same path as before the pandemic.

During the pandemic, there was much talk of the possibility of a "green transition", whereby the economic damage of a pandemic would be prevented primarily by measures that would also have a positive impact on ecological sustainability. For the most part, this did not happen. For example, only 6% of the USD 14 trillion or so of stimulus spending by the G20 - the 20 largest economies in the world - is on measures that have a greenhouse gas mitigating effect. Most of the stimulus measures have no impact on greenhouse gas emissions, and a further 3% of them increase emissions. For example, a significantly higher amount of covid-19 stimulus money is spent globally on supporting fossil fuels than on renewable energy.

Right now, as Russia's war of aggression in Ukraine drags on, the world energy system is in the grip of yet another huge potential transformative force. The geopolitical role of energy has come to the fore on a new scale, and with it, previously accepted norms are being discarded. As recently as 2014, after Russia's invasion of the Crimean peninsula, the West considered that stopping Russian fossil energy imports to Europe was not a realistic option, sharing the belief that the impact on the European economy would be too great. Prior to this, for example, international efforts had succeeded in limiting Iran's oil exports by pressuring Iran to agree to curb its nuclear programme, which the West feared would lead to Iran developing a nuclear weapon. In Finland, too, the story of the Russian energy partnership had not yet changed: six months after the attack, the involvement of Rosatom, a Russian company directly linked to the Russian regime, in the Finnish Fennovoima nuclear power plant was approved by Parliament as if there had been no geopolitical link.

Even if the fall of 2022 has not seen the complete abandonment of Russian fossil energy in Europe, abandonment has become a realistic - the 'right' - option. The same applies to Finland, where the story of the Russian energy partnership has changed completely in a very short time. At the same time, the Fennovoima nuclear power project has so far failed precisely on geopolitical grounds.

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Last modified: Tuesday, 16 May 2023, 6:44 PM