The Trilemma Trade Off

What’s the trilemma?

How hard can it be to make electricity cheap, clean and secure?  So difficult in fact that a new term had to be created to describe this global policy challenge.  The Energy Trilemma is a concept coined by the United Nations energy forum, the World Energy Council (WEC), to highlight the trade-offs necessary to achieve these seemingly incompatible policy objectives. The need for action has become widely accepted with the global threat of changing weather patterns, skyrocketing electricity bills, power cuts, and increased strain on ageing electricity infrastructure.

The WEC has also attempted to measure the energy trilemma by ranking countries based on their ability to provide robust energy and climate policies. The rankings illustrate that socially optimal outcomes can only be achieved through policies that provide the right stakeholder incentives.

The framework can be thought of as a map of conflicting stakeholder interests, demonstrating the complex utilitarian task of achieving the greatest good for the greatest number. This is the challenge policymakers face when designing structural and market mechanisms in the pursuit of a sustainable energy system. In many cases this has been a process of trial and error, with a particular emphasis on the latter.  The WEC’s own thinking on the trilemma has also evolved, from an initial focus on energy security, affordability and decarbonisation.  These terms were subsequently revised in 2016 to define the trilemma in terms of energy security, equity and environmental sustainability. The aim of this was to better encompass issues of energy accessibility, efficiency, facilitation of new market entrants, and to address certain policy failures such as poorly designed subsidies. The WEC trilemma, captured below, articulates five areas where policymakers must focus if they are to improve to their rankings.

Source: World Energy Council, 2016

Source: World Energy Council, 2016

What do the trilemma corners represent?

The trilemma dimensions are grouped to account for different aspects of the world’s current and future energy needs.

Energy Security

  • Management of supply and demand of energy
  • Ensuring reliable and stable energy supply

Energy Equity

  • Providing affordable energy to consumers
  • Creating access to energy for those without

Environmental Sustainability

  • Achieving energy efficiency programmes
  • Transitioning to significant % of low carbon energy supply

Balancing the trade off

The Energy Trilemma presents three interconnected goals that have proven exceedingly difficult to address individually. Recent history has shown that unilateral actions taken to address one dimension of the trilemma often results in undesirable reactions on the other dimensions.  Hence it is currently not practical to simultaneously install new low carbon generation, ensure affordable energy for consumers, and guarantee that there will be security of electricity supply accounting for future demand.

Scaling up appropriate low carbon technologies requires significant upfront costs; those costs must ultimately be borne by consumers or taxpayers. Governments are correctly concerned about keeping the lights on, as reliable energy is a direct determinate of human welfare. Historically, reliable, stable sources of electricity have been the higher carbon emitting fuel types. This means governments, economies and societies around the world are unable to appropriately balance the trilemma.

This trade off results in policies, projects and investments delivering on only one or two of the three dimensions. The combination of variables operable in each country has been determined by history, policy priorities and budget. For example, a citizen may only prioritise their bill and access (energy equity) while not caring about the source of that energy (environmental sustainability), whereas a policymaker may not prioritise energy equity but focus on ensuring businesses and homes across the country have a reliable power supply (energy security).

The Trilemma Index

The trilemma index scores countries based on the three dimensions of the trilemma. The table below shows the top and bottom countries ranked in terms of their level of ability to balance the trade-offs the trilemma presents. This framework has been used by some to guide the strategic objectives and feasibility of investments and projects.

Source: World Energy Council, 2016

Source: World Energy Council, 2016

With our current system, market design and technology, the trilemma trade off clearly highlights a need for continual review and adjustment. All three categories are vital to achieve societal welfare. The light at the end of the tunnel: the current system challenges present opportunities to establish new methods of tackling the trilemma. If policymakers are committed to currently incompatible objectives then institutional reform to enable innovation will be essential.