Developing Energy Strategies That Can Be Readily Deployed: A Socio-Political Merit Order

This blog post was prepared with contributions from Jan Cihlar

The challenge brought by the energy transition is every bit as political and emotional as it is techno-economic. Yet today almost all energy modelling is based on least-cost optimisation from integrated assessment models for global climate change analyses of national energy strategies. A new approach must be considered, one that takes societal and political preferences into greater consideration: a socio-political merit order.

Limits to Least-Cost Modelling

As consultant to the UK Department of Energy and Climate Change, David MacKay advised against supporting solar PV as it would just add costs to the system: “The only reason that solar got on the table was because of democracy. The MPs wanted to have a solar feed-in tariff.”

Decision-making processes go far beyond the techno-economic reality of the solutions. As Andris Piebalgs, former EU Commissioner for Energy stated: “Energy efficiency involves a lot of nitty-gritty, a lot of incentives, and a lot of regulations. And there’s no ribbon to cut. It’s very important to be able to cut a red ribbon.”

These are both examples of how policymakers deviate from what energy analysis considers the best solution. And they are not alone, public attitudes towards different energy technologies can vary significantly across regions or social segments.

Least-cost optimisation has its merits; our financial resources are limited, and it is valuable to know how certain objectives can be achieved at the lowest costs. But when a rapid transition to a low carbon energy system is necessary, there is a strong case for options and technologies that are well accepted in society by the public, and by companies and nongovernmental organisations.

Enter the Socio-Political Merit Order

Least-cost optimisation for energy strategies can be expanded as a set of new procedures that will allow for a socio-political merit order. Merit is about preferences: preferences of citizens and, none less important, of policymakers and corporate decision makers. The aspects of the merit order include:

• Financial costs and benefits
• Environmental impacts
• Employment and local economics
• Inertia
• Perceived risks and trust
• Cognitive biases
• Legislation and implementation hassle
• Last, but not least, the X-factor

Aspects Determining the Socio-Political Merit Order

(Source: Ecofys, a Guidehouse company)

What Is Already Known about the Socio-Political Merit Order?

The socio-political merit order is dynamic and will vary over time. Yet, there are ways to look inside of this evolving black box—typically with the help of surveys or dialogue processes, and potentially in the near future, by utilising large sets of unstructured internet data.

For instance, we already know that solar and wind energy are most often the winners in public surveys, while coal and nuclear generally are the losers. Less information is available on preferences amongst policymakers. The private sector presents yet another arena; there, decisions are not purely driven by cost-benefit analysis, but also by factors such as public acceptance, non-monetary implementation barriers, and regulatory risks.

Getting to More Robust Energy Visions and Scenarios

With more clarity about individual and societal inclinations, the question will be how to represent these in energy and climate modelling. Converting non-monetary barriers and drivers into cost categories might just miss the point, as it suggests that technology choices are an optimisation problem. More detailed knowledge of social preferences is required, and we need to better understand how the preferences interact with the merit order of actual private and public decision-making. Ecofys, a Guidehouse company, has already developed a decarbonisation scenario for the global energy system where the initial principles of the socio-political merit order are applied to achieve maximum feasibility. Such approaches can lead to the creation of strategies that have broader citizen support and that can be implemented more rapidly.