The Seven Principles of Energy Regulation

This guest blog post is contributed by Dr Saud Al-Farsi – Director of Legal Opinions and Senior Advisor at the Ministry of Justice and Legal Affairs.

The energy sector is one of the most critical industries in any country and is considered by many as the bloodline of new economies. This sector is not concerned only with the introduction of energy, but covers a variety of issues such as the exploration and extraction of fossil fuel, the transport, storage, and distribution of energy to both industrial and household consumers through pipelines or LNG ships, transport through transmission and distribution networks, and access by power generators and end-users. As the Sultanate of Oman, through the Ministry of Energy and Minerals and other stakeholders, plan for the energy transition and the future of the energy sector, it is important to reflect on what energy law means and the guiding principles that Oman should recognise when developing its energy policies and laws.

It is not easy to define what energy law exactly means, as it is a multi-dimensional set of rules and policies that govern the use and development of the sources of energy, their facilities, their pricing, and their wider impact on the society, the economy, and the environment. In regard to specific goals, one might argue that the goal of energy law is to improve the efficiency of the use of natural resources in the production of energy, govern project finance and other financing structures relating to the development of energy facilities, enhance the safety and reliability of the transportation and delivery of power to consumers, regulate the pricing of power services provided to the public, encourage or discourage the use of specific types of energy resources, and creation of international markets that improve the pricing and allocation of natural resources.

The scope of energy law in regard to industrial sectors is also extremely wide, and covers everything from natural gas, oil, and coal, to electricity, solar, hydropower, nuclear power, wind, and biofuels. It can also relate to power efficiency, preservation, demand response, and other measures that affect power consumption. All these different sectors can be interconnected and interdependent, and can also compete with each other in certain contexts. For example, natural gas is a natural fuel resource used to produce electricity and at the same time it competes directly with electricity as a source for commercial or home heating. Therefore, regulatory measures applied to one energy sector can often have consequences for another energy sector.

Attempting to regulate such a complex and multi-faceted sector is not an easy task for any government, and requires a logical framework that acknowledges the complexity of the issues at hand, the competing interests within the sector, and the larger implications of this sector on the economy, society, and the environment. As Oman moves forward in developing its regulatory framework in the area of energy, it is useful for us to reflect on the Seven Principles of Energy, which were developed by Heffron, McCauley and de Rubens in 2018 as guiding principles for understanding energy law:

Principle 1: Natural Resources Sovereignty

Stemming from UN General Assembly resolutions in 1962 and 1974, energy law should be based on the recognition that all states have an inalienable right to freely dispose of their natural wealth and resources in accordance with their national interests, and that no state should be subjected to economic, political, or any other type of coercion to prevent the free and full exercise of this inalienable right. This connection between energy and sovereignty is not only important for energy rich countries, but it also needs to be recognised as such as in energy importing and consuming states.

Principle 2: Access to Modern Energy Services

Access to energy needs to be recognised as a prerequisite for development, and energy should be regulated with the objective of ensuring access to modern energy services to meet the basic needs of society and stimulate social and economic development.

Principle 3: Energy Justice

Energy must be regulated in a way that achieves a fair global energy system in regard to both benefits and costs of energy services while contributing to a more representative decision-making process.

Principle 4: Prudent, Rational and Sustainable Use of Natural Resources

This principle stems from various UN instruments and should be understood to allow the ecosystem to adapt naturally to climate change, ensure the continuity of food production, and enable economic development in a sustainable manner.

Principle 5: Protection of the Environment, Human Health, and Combating Climate Change

The link between energy and the environment and their impact on human health and climate change cannot be understated, and energy regulations must recognise the close interconnection between environmental law and energy law when designing and developing energy law policies.

Principle 6: Energy Security and Reliability

Understandably, policy systems around the world now consider energy security as a core aspect. This is usually reflected in two ways: The importance of continuous availability of energy at a reasonable cost, and the continuity of demand for energy products within the country.

Principle 7: Resilience     

The final principle of energy regulation is resilience, which requires regulators to look at resilience of the energy sector to ensure availability of energy supply when faced with disasters through planning, infrastructure, response strategies, and integration between the public and private sector.

These seven principles should provide a starting point for any regulator in Oman when evaluating and developing any energy-related law or policy. Such principles, without a doubt, might compete against each other depending on the circumstances of the region, the economy, and Oman’s aspirations.