A Multicriteria Assessment Approach to the Energy Trilemma.

• Author: Pliousis, Athanasios

1. INTRODUCTION

   After the decisions of the COP21 meeting in December 2015, global energy policies shifted their focus towards achieving real progress on securing and managing energy. The need became apparent to align the acquisition and security of energy and economic development with the need to achieve environmental sustainability goals. Nonetheless, to implement this alignment is a challenging task. When the externality is a global one, it also requires international cooperation. Therefore, it is imperative to develop tools that will allow progress in attaining achievements consonant with goals and targets set forth by several worldwide organizations to be monitored and assessed.

   Such an evaluation may provide useful results for policy making, enabling the examination of the status of each country and the internal and external challenges it faces in achieving energy and environmental sustainability and managing the acceptable trade-ofs to meet future goals. The transition from a fossil fuel powered economy to a cleaner and more environmentally friendly one involves the consideration of several technological and socio-economic issues. In order to attain the goal of a sustainable society-economy, public awareness needs to be raised about the benefits of an energy transition and the opposing trends that should be managed. Kuzemko et al. (2016) present an analysis of such views on the role of governance for sustainable energy system change (socio-technical transitions).

   At present, energy policies emphasize reducing the carbon footprint of energy. The roadmap to such an intermediate transition can be achieved in various alternative ways, such as extending the use of renewable sources, promoting practices that improve energy efficiency, controlling demand, and even, investing in less polluting fossil fuel technologies as well as some form of nuclear power. The adoption of such options and the effects that they have, depend on the microstructure of the economy, which differs from country to country. Bohringer and Bortolamedi (2015) highlight such differences, and identify the lack of a microeconomic foundation as a common problem in existing energy security indicators. The defficiencies become acute when these indicators are used as substitutes for economic cost-benefit analysis to provide guidance into energy security policies from a normative perspective. In addition, Ackerman and Munitz (2016) criticize existing climate economics models used in policy analysis such as DICE, PAGE, and FUND. For instance, they argue about the intensity, sensitivity and ambiguity of the net benefits of carbon fertilization proposed by the FUND model and its tendency to suggest that increased income per capita provides the ability to adapt to the marginal damages from C[O.sub.2] emissions. Pindyck (2013) also criticizes the development of integrated assessment models, on issues such as the choice of their functional form and the specification of their input parameters. In other works, Pindyck further argues that due to the long-term nature of policies related to environmental issues, the monetarization in present value-terms is very difficult (Pindyck, 2007; 2012). This is not only due to the deep uncertainties involved, but also due to the difficulty of specifying a proper social discount rate for societies whose members have differences in intertemporal preferences (Lawrance, 1991). Adopting a different economic perspective, Capros et al. (2016) examine the macroeconomic and sectoral effects of higher electricity and gas prices until 2050. They found that an increase in prices resulting from various scenarios (e.g., taxation, higher price markups, higher renewable production in the generation mix, etc.), has a negative impact on economic activity (as measured by gross domestic product-GDP) when compared to their baseline scenario of implementing all the European energy-related policies and achieving the 2020 objectives.

   In contrast to the above strand of the literature that has focused on normative models of energy policies, another strand has followed more descriptive approaches. Such approaches provide important insights into specific characteristics and complementary dimensions of energy policies (Bohringer and Bortolamedi, 2015; Sovacool, 2013). Our view is that normative models and descriptive approaches are complementary rather than competitive. This enables the assessment of what has been achieved and the current status of the countries based on observed data and the combination of multiple indicators into composite (synthetic) indices. Assessing and monitoring the strengths and weakness of countries is an important part for making informed policy decisions, together with the examination of what ought to be done as specified on the grounds of normative rules and assumptions. Grigoroudis et al. (2015) compare three descriptive assessment models as energy sustainability barometers (ESI, SAFE, and EAPI). (1) Their results show notable differences in the rankings of countries produced by the different models. The ESI model ranks more highly rich countries with stable political systems, while the EAPI promotes countries that use nuclear energy as a low carbon fuel source, and SAFE favors countries with greater hydropower production in their energy mix (Phillis and Andriantiatsaholiniaina, 2001).

   This study builds on the above context for characterizing the multidimensional nature of energy systems and policies, such as the energy trilemma framework of the World Energy Council, and introduces a methodology for aggregating disparate ordinal indicators in a panel of countries. Moreover, we introduce indicators related to the policy and regulatory framework, to research and development, as well as to innovation, as measures of key drivers for long-term improvements. The aggregation method introduced in this study is based on the observed choices of the countries across different dimensions of energy-related policies and to measured outcomes without the need to perform ambiguous data normalizations that distort the information embodied in the data. Furthermore, instead of using subjective weightings common to all countries, a data-driven process is employed, where the weights are derived from the data through an approach that is grounded on principles from the fields of production efficiency analysis. Thus, the proposed methodology combines normative and descriptive elements. On the one hand, the selection of the performance indicators and the specification of the evaluation model have normative grounds, whereas the derivation of the results (e.g., the weighting of the indicators) relies on the observed data of the counties. Finally, the approach introduced in this study allows both cross-sectional comparisons between countries and the comparison of the same country over time. To illustrate the applicability and the potentials of this analytical methodology, an empirical analysis is performed using up to date data for the OECD countries.

   The rest of the paper is organized as follows. Section 2 discusses the energy trilemma concept, its main dimensions and alternative views in the literature. Section 3 describes the components of the proposed framework and the methodological approach used to construct an aggregate composite performance index using country-level data. Section 4 applies the proposed approach to data for the OECD countries. Finally, section 5 concludes the paper and discusses some possible future research directions.

2. THE CONCEPT OF THE ENERGY TRILEMMA AND ALTERNATIVE VIEWS

   The energy trilemma concept focuses on the energy policy concerns of energy security, energy/environmental sustainability, and energy equity. These represent some of the possible tradeoffs, gains and losses in an economy.

   The trilemma concept is clearly multidimensional, with each individual dimension contemporaneously affecting all other dimensions. For example, certain changes that promote sustainability, such as improving energy intensity and efficiency, also promote security by reducing energy dependency. Similarly, the diversification of energy sources using renewable energy sources, which are under the direct sovereign control of a country, promotes energy security as well as sustainability. Thus, it is rather difficult to provide a strict definition for each dimension and examine it in isolation of others. For instance, Ang et al. (2015) reviewed 104 papers and identified 83 energy security definitions.

   Bearing in mind this difficulty, the following sections present the proposed measures in each dimension as well as some key findings from the relevant literature.

   2.1 Energy Security

   Although securing energy at an acceptable price and in an environmentally viable way is a key factor for sustainable development, the ability of individuals or larger groupings of people to aford the secured energy is not always achieved automatically or equally amongst the population.

   Thus, a significant part of the literature on the concept of energy security follows a higher level of abstraction that usually interweaves energy sustainability and equity.

   The Asian Pacific Energy Research Centre (APERC, 2007), for example, presented its 4 A's analysis of addressing energy security, considering resource availability, accessibility barriers (geopolitical, geographical and transportational, labor, technological etc.), environmental acceptability (implementation of technologies and investment in reducing C[O.sub.2] emissions), and investment cost affordability (to secure the necessary infrastructure to meet and manage future demand). Hughes (2009) used the concept of the 4 R's of energy security: (a) reviewing how energy is used, (b) reducing energy use through policies that aim to conserve energy where possible and promote energy efficiency, (c) replacing insecure sources with more secure ones, by diversifying either across sources in the energy mix...