Governance Lessons for a Just Energy Transition: New Energy Plugs into Old Problems

In a global economy moving away from carbon-intensive fossil fuels, renewable energy projects offer an increasingly affordable and clean alternative that marks an important advance in environmental sustainability. But from human rights and governance perspectives, the developers of wind, solar, hydroelectric and biomass projects face a number of significant challenges. As we reflected during recent discussions at the IFC Sustainability Exchange, it struck us that these projects could stand to benefit from some of the hard lessons learned in the extractives sector.

National strategy

When deciding to extract non-renewable resources, governments must weigh significant community impacts against the potential for transformative economic benefits (which can be difficult to fully realize). Many of the same strategic considerations apply to solar, wind, and hydropower projects. For example, conflicts have arisen over windfarms’ need to appropriate large tracts of land and large hydropower projects have long been contested due to community displacement and ecosystem destruction.

In order to help address these concerns, standards for free, prior and informed consent (FPIC) have become central to consultation approaches in oil, gas, and mining projects and in many large renewable energy projects. At a recent forum on human rights and renewables held by the Business and Human Rights Resource Center (BHRRC), experts from the Natural Resource Governance Institute collaborated with other experts to map out the risks common to both the extractives and renewables industries. Groups like BHRRC are focusing attention on how FPIC policies should be implemented in clean energy projects.

It has also become clear that extractives projects need to be buttressed by strong national governance frameworks, as recommended in the first two precepts of our Natural Resource Charter and related benchmarking framework questions on assessing extractives governance. International norms—like the Extractive Industries Transparency Initiative—aim to support these domestic measures. In the clean energy sector, the Electricity Governance Initiative of the World Resources Institute has developed a set of core principles for good governance (transparency, accountability, participation, capacity) and 10 key policy questions to ask about large-scale renewable energy policies. As countries approach low-carbon transitions, it will be worth exploring linkages between national strategy recommendations that are similar across the renewables and extractives sectors.

Tendering

According to the 2017 Renewables Global Status Report, tenders are the most rapidly growing mechanism for the deployment of large-scale renewable energy projects. The International Renewable Energy Association (IRENA) has issued guidance on best practices for renewable energy auctions in developing countries. But the renewables sector has largely focused on tendering transparency that ensures bidding companies have full information about the process. While this is also important in the extractive sector, corruption scandals have resulted in greater attention to transparency for the public about extractives tender processes, licenses and contracts to enable civil society and media scrutiny and to facilitate accountability. The generous tax benefits, technical complexity and potential for rent seeking in the renewables sector has already indicated the potential for corruption and resulted in scandals in countries ranging from South Africa to Italy. To help keep dirty business out of clean energy tenders, the renewables sector could benefit from the transparency norms, lessons on risk factors and guidance on screening for corruption risks that have developed around extractive sector licensing.

State-owned enterprises

A recent OECD paper notes that state-owned enterprises (SOEs) will continue to play central roles in both fossil fuel and renewable energy projects, and will be key drivers in the low-carbon energy transition. The paper highlights numerous governance challenges faced by SOEs involved in renewable energy, including complex (and sometimes conflicting) government mandates and performance objectives, preferential treatment risks that can negatively impact private investment and interrelated home-country and international activities. These have long been issues for SOEs involved in extractive industries, and many of the lessons learned on oversight and accountability, performance benchmarking, corruption mitigation and transparency may be highly relevant in the renewables sector.

Benefit sharing

Like extractive industries, renewables can create jobs, but require specific interventions around training and education in order to be inclusive. Although renewable energy projects may not result in revenue streams as large or direct as extractives projects do, it has become more common for such projects to include financial or in-kind payments to local communities (albeit with high variation in types of arrangements). As such, clean energy can learn lessons from emerging regulation and leading practice on local benefit sharing in the extractives sector. The decentralized nature of some renewables technologies has also resulted in unique community-led ownership and beneficiation models. Organizations like Yansa Group have emerged to support this movement of direct community participation with business, technical, financial and governance support; such innovations could hold lessons for the extractive sector.

The rise of affordable and renewable energy marks a new era, but brings with it some of society’s enduring problems. Fortunately, we’ve learned much about the nexus of poverty, corruption and inequality that is relevant to the exploitation of energy resources, including some of the governance remedies that can help avoid such pitfalls. Let’s hope the renewable energy industry is listening.

Erica Westenberg is the director of governance programs at the Natural Resource Governance Institute (NRGI). Katarina Kuai is a senior capacity development officer at NRGI.