The Center on Regulation in Europe (CERRE) released a new report on Energy & Sustainability which evaluates current regulations on energy networks and how these regulations could be changed to better accommodate net-zero energy goals.

Excerpt from the Original Executive Summary :

The nature of regulation

The overall direction of travel towards a net zero energy system has been clarified, at a high level, and has significant amounts of legislation behind it across Europe. However, high levels of uncertainty remain in nearer term timings, the pathways that will end up being taken and the outturn difficulty of achieving a net zero energy system.

One way forward is for regulation to become more dynamic/responsive/adaptive in the face of the challenges of net zero. This seems likely to exacerbate the current regulatory trade-offs. These exist between the need to coordinate across stakeholders, motivate regulated companies to respond appropriately and the transactions costs of regulation. They also exist between the effectiveness of regulatory incentives, responsiveness to new information and coherence between regulatory decisions.

Dynamic regulation emphasizes that regulation is a repeated game where the regulator and the regulated companies face dynamic incentives to behave in certain ways which can be influenced by the nature and timing of regulation. Responsive regulation seeks to chart a middle way between completely fixed regulatory rules and laissez-faire regulation. Adaptive regulation emphasizes the need to build future learning into the regulatory process. All of these ‘dynamic’ approaches to regulation emphasize the need for regulatory learning, from the past, in the present and into the future.

Potential changes to regulation

We explore potential areas where regulation could be changed in order to better cope with the uncertainty around net zero energy policies. These include potential changes to the nature of planning, uncertainty mechanisms, regulatory incentives, financing arrangements, stakeholder engagement, innovation processes and industry governance. We do this by asking both regulators and regulated companies for their views.

Authors: Michael Pollitt, Andrei Covatariu, and Daniel Duma

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