Does the IEA Have the Energy to Compete in the Future?
The IEA must evolve in order to remain relevant in today's dynamic energy market.
The International Energy Agency (IEA) was established following the 1973 oil crisis to manage and respond to physical disruptions of oil. Its functions include making contingency plans for the steady supply of oil in times of disruption by requiring members to hold at least 90 days worth of oil in reserve, and acting as an authority on global energy policy by publishing its annual World Energy Outlook. While it has served this historical function well, the IEA currently faces stagnation due to its slow adoption of diversified energy sources and its outdated internal structure. Its original purpose - to guard against the threat of politically motivated oil embargoes - has disappeared. The IEA must evolve and update its mission to avoid becoming “outdated [and] irrelevant.”
We propose two strategies to reinvigorate the IEA. The first strategy is to enact a series of structural changes to more closely reflect current oil consumption patterns. These changes could include updates to the IEA voting system and the elimination of onerous barriers to membership. The combination of these reforms would allow major new oil consumers, like China and India, to more easily join the IEA. The second strategy is to work to engender institutional support within the IEA for diversifying global medium- and long-term energy options, including coal, natural gas, nuclear power, and renewable energy sources.
The implementation of the first strategy requires a large-scale overhaul of the IEA’s voting system. Currently, each member gets three votes, for a total of 81 general votes, plus additional weighted votes commensurate with each member’s 1973 oil consumption, which total 100. The United States gets nearly 25% of the votes, resulting in voting power unequal with its current percentage of global oil consumption. Members like South Korea are at a strong disadvantage. It consumed very little oil when the IEA was formed, but now stands as the tenth largest consumer on the planet. Simply updating the reference year will bring more equality to the organization and incentivize new membership.
For reasons of expediency, the IEA was founded within the framework of the Organization for Economic Cooperation and Development (OECD). However, this has become more burdensome than helpful, since nations cannot join the IEA without first joining the OECD. Emerging markets will likely see this membership requirement as an unnecessary hurdle preventing their accession to the IEA; indeed, China’s lack of transparency and economic shortcomings are viewed as a hindrance to potential OECD membership. Moving the IEA out of the OECD’s framework would eliminate an unhelpful barrier to entry, allowing the IEA to incorporate new members consistently with the needs of the present.
The combined effects of these measures serve one purpose: to allow the IEA to grow and evolve. It is undeniable that today’s major energy consumers differ from those of 40 years ago. Based on statistical data from British Petroleum, we calculated that the founding IEA members consumed 64% of the world’s oil; today it is 49%. The current roster is out of date and does not reflect the current global economic climate. Just including China and India, two of the fastest growing oil consumers, would bring the IEA’s world oil consumption level up to 63%. The IEA simply cannot claim to be the voice of global oil consumers while only representing less than half of all oil consumed. However, admitting China, India, and other nations would require the reallocation of IEA votes to reflect modern oil consumption and dropping the OECD membership prerequisite.
Instituting such change is not without challenges. Powerful nations will have strong incentive to maintain the IEA’s current structure. Since the voting scheme is a zero-sum game, any increase in the voting power of other nations requires a decrease for others — a prospect powerful nations are unlikely to welcome.
We have provided a blueprint for restoring the IEA’s credibility and legitimacy, but it falls on current members to act on it. By virtue of global status and IEA influence, the United States must take the lead on this and lobby other, more reluctant members. Indeed, it is in the IEA’s interest to implement such change. These measures would not only strengthen the institution’s credibility, but could also engender feelings of goodwill and a positive sentiment for global diplomacy. Letting other nations, like China, have greater influence could translate into friendlier diplomatic ties with America – useful when furthering the American diplomatic agenda. The United States has more to gain by being a smaller part of a strong and influential IEA than by dominating the current, weaker version.
Organizational reform is neither simple nor easy. Identifying and addressing an organization’s limitations in an ever-changing environment are key in taking the first steps toward progressive development. Though well accomplished in energy policy, the IEA’s structural limitations are now eroding its ability to successfully fulfill its mission. Refocusing its internal alignment now will allow the IEA to continue to impact energy policy in the future.
Photo courtesy of Dean Calma via Flickr.