Institutional strategies in sustainability transitions: the case of the Dutch gas-energy sector

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INSTITUTIONAL STRATEGIES IN SUSTAINABILITY TRANSITIONS: THE CASE OF THE DUTCH GAS- ENERGY SECTOR

Institutional strategies in sustainability transitions:

the case of the Dutch gas-energy sector

Bachelor Thesis Political Science – International Relations

Bachelorproject Beheer Natuurlijke Hulpbronnen: Politieke risico’s en kansen in theorie en praktijk

Lotte Kortbeek

Supervisor: dr. R.J. Pistorius Second Reader: dr. M. Hanegraaff 21 June 2017

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Abstract

This research is aimed at the development of our understanding of the role of incumbents’ strategies in sustainability transitions. Much academic research on transitions is focussed on the niche level, which results in a bias toward innovation. This research focusses on the regime level, and stresses the influence of regime incumbents. Institutional theory on institutional work provides insights in how incumbents influence institutions, and theory on corporate political strategies shows how the information strategy is applied by firms and what the effects of information asymmetry are. These theories are tested by the means of three hypotheses, which are verified by empirical evidence from a case study on the Dutch gas sector. This study shows that the Dutch sustainability transition is influenced by the institutional work, and characteristics of the information strategy, of the NAM. Furthermore, the information asymmetry between the NAM and the MEA results in a power disbalance in favour of the NAM.

Lotte Kortbeek 10712852

lottekortbeek@hotmail.com

Number of words: 12.942

Cover photo: Gas production from Groningen field, from www.digitalehofstad.wordpress.com.

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List of figures

Figure 1: Structure of the Dutch gas market ...7 Figure 2: The final decision-making procedure on Dutch natural gas production ... ..20

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List of abbreviations

CPS Corporate Political Strategies EBN Dutch Energy Management ETS Emission Trading System GHG Greenhouse Gasses

MEA Ministry of Economic Affairs MLP Multi-Level Perspective NAM Dutch Petroleum Company NCG National Coordinator Groningen SSM State Supervision of Mines

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1. The need to transition

"I believe in clean air. Immaculate air... But I don't believe in climate change."

Donald Trump (Interview CNN, 2015)

Climate change is believed to be one of the biggest, long term threat humans have ever faced (Shove, 2009:1273). For the last thirty years, environmental and social scientists have been busy with at least a part of this agenda, producing a huge amount of data, theories and policy measures (IPCC, 1990; Shove, 2009). Regardless of this significant body of research, very few aspects of the climate change debate are uncontroversial, since scientists are dealing with huge amounts of uncertainty in both the physical effects and the effects of possible future policy (Shogren & Toman, 2000:8). According to Giddens (2008:6), the debate can be divided in roughly three groups: the climate change sceptics, who claim contemporary climate change to be a natural phenomenon or even non-existing (e.g. Donald Trump); other sceptics, who believe climate change is human induced, but claim that the effects and dangers are heavily exaggerated; and finally, the mainstream view, represented by the IPCC.

Climate change is a world-wide problem, which will affect the poorest countries the most, because the ability to adapt depends on a society’s wealth and the presence of various kinds of social infrastructure (Shogren & Toman, 2000:8). Because of its world-wide nature, solutions must be implemented through cooperation. One of the first milestones was the Kyoto Protocol, implemented in 1997, in which high-emission countries agreed to significantly lower their greenhouse gas (GHG) emissions (Shogren & Toman, 2000:10). The current climate policy agreement is that of Paris 2015, which contains far reaching measures for slowing down climate change. Despite great critique from all around the world, current US president Trump announced in June 2017 to pull the USA out of the agreement (New York Times, 2017). As mentioned before, developed countries will have to take the responsibility, because they resemble the largest share of emissions and possess the necessary means to transition. The state has a major responsibility in setting a framework for the policies suggested by such international agreements (Giddens, 2008:9), this is where the social relevance of this thesis originates from. By examining the interdependency between the Dutch government and gas sector on the background of the Dutch sustainability transition there might be a better understanding of where the pitfalls are, which could result in more efficient policy and thus a faster and smoother transition.

When comparing the different climate agreements, their focus on emission reduction becomes clear. These emissions are created by the use of fossil fuels for the production of energy, which is for the largest part consumed by transport and food production (IPCC, 2014). According to Smink (2015:11), climate agreements show that governments recognize the need to shift from fossil fuels to sustainable energy sources, and to stimulate investment in energy saving technologies. Transitions rely

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7 on policy support, which is why a focus on institutions is especially relevant (Meadowcroft, 2011:73). According to Scott (2014:56), institutions can be understood as the rules that both enable and constrain our behaviour and give structure and stability to our society. Scott also argues that the fossil fuel regime is highly institutionalized, which is why the energy transition is not only a technical one, but also relies on the need to transform these numerus institutions.

The Dutch economy is running on energy acquired by burning fossil fuels, which contributes to GHG emissions and thus climate change (Shogren & Toman, 2000:5). Our energy supply is both the cause and solution of the problem, but therefore an energy transition toward sustainable energy sources is needed (Loorbach & Kemp, 2001). The Netherlands contains the largest natural gas supply in Europe, which was discovered under Groningen in 1959. Within ten years, almost every Dutch household was connected to the gas grid and remains till this day. This domestic supply of gas has resulted in impressive gas-infrastructure, with a value up to 8 billion Euro, and influential institutions, which are the result of intensive public-private cooperation and partnerships (Algemene Rekenkamer, 2012; Www.overheid.nl, n.d.). Regarding this infrastructure, the Dutch government has formulated a policy called the ‘gas-roundabout’, in which they express the ambition to become Europe’s gas junction, where gas is transported to (for domestic use), stored, and exported to other countries (Algemene Rekenkamer, 2012:5). This should enforce the continued use of the Dutch gas infrastructure. When it comes to institutions, the Dutch gas-energy sector has close ties to the government in what is called the ‘gas-building’. The NAM (Dutch Oil Company), responsible for the exploitation of the Groningen field, is owned by Shell and ExxonMobil, two major global players. See figure 1 for an overview of the Dutch gas market. The arrows indicate which actors are involved in the orange coloured organizations (e.g. GasTerra is owned by MEA, EBN, Shell, and ExxonMobil).

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8 The Dutch gas-roundabout and gas-building are examples that show the far-reaching dependency on and integration of gas and the Dutch market. Furthermore, the Netherlands is behind on transition toward sustainable energy compared to other European Countries, e.g. third to last on the EU sustainability list (Trouw, 2016). The Dutch addiction to gas might be holding back the necessary sustainability transition.

Such transition is called a ‘socio-technical’ transition, because it involves alterations in the overall configuration of energy, which entail technology, policy, markets, consumer practises, infrastructure, cultural meaning and scientific knowledge (Elzen et al., 2004; Geels, 2004). These elements are reproduced, maintained and transformed by actors such as firms and industries, policy makers and politicians, consumers, civil society, engineers and researchers (Geels, 2011:24). Transitions can be explained by the multi-level perspective (MLP), because it conceptualizes the overall dynamic patterns, and combines insights from evolutionary economics, science and technology studies, and structuration theory and institutional theory (Geels, 2011).

According to MLP scholars, transitions are explained through interplay of developments on three different levels: niches, socio-technical regimes, and an exogenous socio-technical landscape (Geels, 2012:473). On this landscape level, there are three visible trends regarding the Dutch gas-energy sector (Honor, 2017). First, are the policy implications for the Dutch government that are the result of international climate agreements, which contribute to the shift toward sustainable energy resources and away from gas. Second, public opinion on gas has taken a dramatic turn after a much stronger than usual earth tremor caused by local gas production in Groningen in 2012. The public, NGOs and policy makers got concerned for the health and well-being of the inhabitants of the production area, and this has had a major effect on the volume of gas produced over the last years. These two trends result in the third, namely the divide that has occurred between the NAM and the MEA, who used to be a part of one knowledge system. These trends and MLP theory will be explained more in-depth in the theoretical framework.

1.1 Thesis objective & Outline

The aim of this research is to understand how incumbents, such as the NAM, influence sustainability transitions, or rather to show what types of strategies these firms use in order maintain regime stability. There is a substantial body of literature that contributes to our understanding of socio-technical transitions, which also provides insights in the role of incumbents within these transitions. The role of agency has been acknowledged as relevant within institutional theory, however, how agents behave and why they do so remains understudied (Markard & Truffer, 2008; Geels, 2011; Smith et al., 2005; Farla et al., 2012, Markard et al., 2012). According to Smink (2015), this is the result of one

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9 feature of the MLP, i.e. its focus on process rather than micro-level behaviour. She also argues that most studies so far have focussed on the niche-level, which results in a bias toward innovation. Without disregarding the importance of innovation, these niches are limited by regime stability, which could be the result of regime incumbent’s efforts to maintain existing institutions. As argued by Smink (2015:16), ‘we cannot fully understand transitions by accepting institutions as ‘given’, but we need to investigate how exactly incumbents contribute to the stability and change of those institutions’.

This thesis will zoom in on the regime level by testing three hypothesis by means of a case study on the Dutch gas-energy sector, thus contributing to micro-level insights in actor behaviour. First, the theoretical framework on the MLP, institutional theory, and information asymmetry will be explained, which will result in three hypotheses. Then the used methods and case study outline will be given, after which the hypotheses will be analysed in context of the case study. To finalize, the results will be discussed and a conclusion will be given.

The research question is:

What role do the institutional strategies of Dutch gas-energy incumbents have in the current transition towards sustainable energy production?

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2. The Importance of Agency and the Power of Information

In the following section, the theoretical framework of this thesis will be presented by first elaborating on the concept of the MLP as the overarching theory of this research. The concept will then be applied by analysing the current trends on the landscape level of the Dutch gas sector, and identifying the structure of the regime and niches. The relationship between incumbents and institutions relates to the structure-agency dilemma, which will then be debated. To examine how and why institutions and incumbents influence each other, the concepts of institutional logics and institutional work are introduced. Then, the concept of institutional work as described by Maguire and Hardy (2009) forms the base for hypothesis one. In order to form a broad theoretical framework on the behaviour of incumbents, the concept corporate political strategy is used from strategic management studies. The information strategy as described by Hillman and Hitt (1999) leads to the second and third hypothesis.

2.1 The Multi-Level Perspective

In the field of transitions studies, the MLP is the main framework used by scholars. Geels (2002), describes transitions as the result of interplay of dynamics on three analytical levels: landscape, socio-technical regime, and niche. The levels differ in the measure of structuration (Geels, 2011) or degree of institutionalization (Fuenfschilling & Truffer, 2014). Geels (2011) also argues that the stability of socio-technical regimes is determined by rules, which are synonymous with institutions.

The regime guides actors’ behaviour through a semi-coherent set of rules, such as regulations and cognitive routines and shared believes. It therefore forms the ‘deep structure’ that results in the stability of the socio-technical system (Geels, 2011). Furthermore, the rules related to the regime are highly institutionalized which further contributes to the regime’s stability. As a result of this stability, the regime knows path dependency, invulnerability to social resistance, and low dissent and controversy (Fuenfschilling & Truffer, 2014).

The regime is challenged by niches, which can be defined as alternative socio-technical configurations where novelty develops (Geels, 2002:1261). In contrast to the regime, these niches have a low degree of institutionalization. They need to be protected from regime pressures in order for them to mature and transform the regime, this is done in the form of subsidies or grants (Markard & Truffer, 2008; Fuenfschilling & Truffer, 2014).

The landscape is the overlapping external environment which shapes and supports both regime and niche dynamics (Smink, 2015:14). It is featured by factors that change slowly and without any direct influence from actors, e.g. societal values, demographical trends, and political ideologies (Markard & Truffer, 2008; Geels, 2011). The landscape provides a background of developments against

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11 which the niche-regime interface takes place, which is where systematic change occurs. Thus, the MLP conceptualizes transitions as ‘interaction processes between multiple socio-technical configurations with different levels of institutionalization and hence, stability’ (Smink, 2015:14).

2.2.1 Landscape Developments toward Sustainability

To understand the contemporary transition toward sustainable energy resources in the Netherlands, it is important to look at the trends and shifts on the landscape level. These developments are taking place beyond the direct influence of actors, and relate to shifts in political ideology and societal values. According to a report published by the Oxford Institute for Energy Studies (2017), two major shifts are happening in both the policy field and within society, which are explained in more detail below under the headings ‘Climate agreements’ an ‘anti-gas sentiment’. A third shift relates to shifts within the knowledge system shared by the NAM and the MEA, which will be explained under the heading ‘knowledge system’.

Climate agreements

The first trend relates to the policy field, where the Dutch government has to implement EU sustainability targets on the national level. Looking at the 2020 horizon there are three main targets, also known as the ’20-20-20 targets’. These include a 20 percent reduction in EU GHG emissions from 1990 levels, a 20 percent share of renewables in the EU’s final energy consumption and a 20 percent increase in the EU’s energy efficiency compared to a ‘business-as-usual’ scenario. For the Netherlands this means a 16 percent reduction of emissions outside the EU Emission Trading System (ETS), a target of 14 percent renewable energy and 1,5 percent annual energy savings (Honor, 2017). These targets have translated to various national policy measures, starting from the coalition between VVD and PvdA who agreed on the energy agreement called ‘building bridges’.

This agreement laid the focus on energy conservation, which was to be achieved by improving the sustainability of existing homes, bringing down the costs of offshore wind power and promoting the use of electric cars. Target wise, the agreement took over the 2020 goals mentioned before, and added the goal of a completely sustainable energy supply by 2050.

The ‘building bridges’ agreement formed the base of the 2013 Energy Accords, signed by the government and 47 other organizations. The plans included in the agreement reach till 2023 and are led by the Ministry Department of Economic Affairs (MEA). The targets are equal to the above -mentioned EU targets translated to the national level, in addition to the planned closure of the five least efficient coal power plants, three in 2016 and two others in 2017. The Energy Accords envisioned a complete elimination of natural gas from the space heating sector, but still foresaw a role for natural

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12 gas in other sectors, e.g. as a back-up for renewables or for some forms of transport due to the lack of sustainable alternatives.

In 2015, the National Climate Change Conference was held has preparation of the 2015 Paris meeting. The conference resulted in agreed cooperation between authorities, NGOs and energy players to reduce CO2_{emissions, install CO}2_{smart grids in municipalities and provinces, implement}

further measures to save energy, increase the use of renewables, and develop heat projects. In addition, the government envisioned the closure of additional coal plants and rising CO2_prices.

The current climate change policy is the 2016 Energy Agenda, which is the follow-up of the strategy envisioned in the 2013 Energy Accords. It provides a long-term plan for the period after 2023, with a focus on making energy and climate policy CO2_{-driven and pursuing the goal of being nearly}

emissions free by 2050. The main instruments of the agenda are energy savings, reduction of fossil fuel consumption, increased investment in sustainable energy resources, and the expansion of offshore wind-energy production. According to Honor (2017:22), it is remarkable that the Dutch government is not shutting down more coal plants, since this would help the country shift from coal to gas, which would impose a significant decrease in CO2_{emissions (natural gas being the ‘cleanest’ fossil fuel in}

terms of CO2_{emissions), while using domestic assets.}

Anti-gas sentiment

The answer to this might be found in the second development that is visible on the landscape level, which relates to society’s view on natural gas from the Groningen field. After an unusually severe earth tremor in the Groningen field production area in 2012, public view on gas as being a relatively safe, affordable and clean fuel took a major turn. Considerations of the health and safety of the Groningen people have drastically changed public opinion on gas from the Groningen field. Furthermore, the geopolitical tensions between the EU and Russia, which have increased since the beginning of the conflict between Ukraine and Russia, casts doubts on the reliability of the Russian natural gas exports to Europe (Holz & Richter, 2016). The earth tremors have had a major effect on domestic gas production in the Netherlands. The MEA is responsible for the annual volume of gas to be produced from the Groningen field, while also making sure this happens in a responsible manner (i.e. in accordance to the Mining Act).

Knowledge System

Here, a third shift is visible, which is not mentioned by Honor (2017), regarding the role of the MEA. The Dutch government benefits from the natural gas production in financial terms, and policy has always been the result of cooperation with the NAM and aimed at shared interests (i.e. making money). Now, the MEA is pushed away from the interests of the gas sector by national climate policies

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13 and public opinion, resulting in a major change in its role as policy maker. Historically, the NAM and the MEA were part of the same knowledge system (i.e. a body of shared ideas, observations and methods (Ryser, Gilio-Whitaker & Bruce, 2017)), due to the technical complexity inherent to gas production, on which the NAM possesses the necessary expertise, and the need for supporting policy implemented by the MEA. With the contemporary trends just mentioned, the MEA must develop policy which is in direct conflict with the interests of the NAM. Thus, the NAM will most likely try to maintain the Dutch gas-structure, and the rules and regulations as they were, which relates to the structure-agency debate and institutional theory on the behaviour of incumbents within transitions.

2.2 Structure-Agency Dilemma

This research lays the focus on incumbents’ behaviour towards their external environment, and how they are trying to influence the institutions in which they are embedded. This correlation between the incumbent (agent) and institutions (structure) and the question who influences who remains debated by scholars and is referred to as the ‘structure-agency dilemma’. The debate is explained below, then two theories on the influence of institutions and incumbents are introduced.

The debate on structure versus agency comes forth from conflicting assumptions on the relationship between actors and their environment (Seo & Creed, 2002). Early neo-institutional theorists, such as Meyer and Rowan (1977), DiMaggio and Powell (1983), and Meyer and Scott (1983), argue in favour of the power of institutions on agents’ behaviour, imposed through structure and constraints (Scott, 2014). In contrary, other scholars emphasise agency, as they believe actors ‘to have some effect on the social world’ (Scott, 2014:94). The concept of structuration is designed by Giddens (1984), with the aim to solve this dilemma. According to this framework, actors are embedded in social structures which influence them, but still have an amount of freedom which gives them the opportunity to go beyond the existing social structures and act differently (Smink, 2015:17). Social structures are both ‘the medium and the outcome of social action’ (Giddens, 1984:25). This opens up a window of theoretical opportunity, because if we can assume actors to enjoy a certain level of freedom, we can investigate how and why actors influence their environment. This interaction is studied under institutional theory with the concepts of institutional logics (Ch. 2.2.1) and institutional work (Ch. 2.2.2) , which are explained below.

2.2.1 Institutional Logics

To understand how actors are influenced by institutions, the concept of institutional logics is developed. It is a relatively new concept, and the body of literature is growing within institutional theory. The concept is defined as ‘the socially constructed, historical patterns of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material

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14 subsistence, organize time and space, and provide meaning to their social reality’ (Thornton & Ocasio, 1999:804; Zilber, 2013). It includes both the underlying believe system and practises that determine an individual actor’s thinking and acting, and thus influences ‘how actors make sense of and act upon reality’ (Fuenfschilling & Truffer, 2014:774). Institutional orders of society, i.e. family, religion, state, market, profession, and corporation, form the focus of research on institutional logics (Thornton et al., 2012:105). Scholars have distinguished a set of ‘ideal type’ institutional logics for each of these orders, which, when combined, form ‘field-specific’ institutional logics. A sectors’ particular restraints, resources, and opportunities determine the characteristics of these field-specific institutional logics (Thornton et al., 2012). To conclude, the institutional logics approach offers insights in how and why actors behave the way they do. Furthermore, it will improve the understanding of why incumbents engage in certain behaviour during transition processes (Smink, 2015:19).

2.2.2 Institutional Work

This behaviour is studied within institutional theory under the concept of ‘institutional work’: ‘the purposive action of individuals and organizations aimed at creating, maintaining and disrupting institutions’ (Lawrence & Suddaby, 2006:2015). There is a growing recognition amongst scholars that while institutions are often presented as influencing actors’ behaviour, they themselves also depend on actors’ support for their continuity (Smink, 2015). Institutions are mere a construction of these actors, thus in order for them to survive they ‘require the active involvement of individuals and organizations in order to maintain them over time’ (Lawrence and Suddaby, 2006:217). The concept of institutional work lays the focus on actors’ abilities to go beyond existing institutions by highlighting ‘the awareness, skill and reflexivity of individual and collective actors’ (p.219). Asctivities assigned to this concept have a discursive character, since they involve ‘practices of speaking and writing’ (p.239). According to the definition of institutional work, actors can engage in activities aimed at creating, disrupting, or maintaining institutions. The former is called ‘institutional entrepreneurship’, which entails ‘activities of actors who have an interest in particular institutional arrangements and who leverage resources to create new institutions or to transform existing ones’ (Garud et al., 2007:957). Such activities are characterised by cooperation, political tactics, and framing (Pacheco et al., 2010). Actors may also engage in disruptive institutional work, but this concept hasn’t gained much recognition in the field of institutional theory. However, Lawrence and Suddaby (2006) distinguish three activities that are part of disruptive institutional work, namely disconnecting sanctions/rewards, disassociating moral foundations, and undermining assumptions and beliefs.

By scholars of the MLP studying regime dynamics, incumbents are described as being ‘field dominants’, which suggests that incumbents are expected to engage in maintenance work in order to protect the status quo (Levy & Scully, 2007; Smink, 2015). This type of work is characterised by the

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15 more or less conscious reproduction of ‘social mechanisms that ensure compliance’, and is often the result from change in the organization or its environment (Lawrence & Suddaby, 2006:230). When institutions that support an incumbent’s interests are threatened by initiatives for institutional change, the incumbent engages in the ‘conscious and strategic’ version of maintenance work: ‘defensive institutional work’ (Maguire & Hardy, 2009:169). This type of institutional work is characterised by ‘the authoring of texts that contest problematizations of practices by (a) countering assertions of negative impacts of practices; (b) countering categorizations of practices as unethical, undesirable, or inappropriate; and (c) countering calls for regulatory change’ (Maguire & Hardy, 2009:169). This concept of defensive institutional work as described by Maguire and Hardy (2009) will be verified in this thesis by means of the following hypothesis:

H1: Incumbents, when threatened by institutional change, engage in practices of defensive institutional work.

2.3 CPS Information Strategy

Institutional theory is not the only field of study within the social sciences that examines incumbent’s behaviour. Within strategic management, the concept of corporate political strategy (CPS), as described by Hillman and Hitt (1999:826), is used to study how and why businesses ‘use the power of government to advance private ends’. Because government decision makers have the power to influence the external environment of the firm, they may be viewed as a competitive tool to ensure the firms’ competitive advantage, or even survival. The interaction between policy makers and interest groups, citizens and firms resembles that of a market, where the former are suppliers of policy and the latter policy demanders (Hillman & Hitt, 1999). This concept of mutual interdependence is of critical importance (Benson, 1975; Salisbury, 1969). For policy makers, information and direct incentives are the two primary incentives to supply the policies demanded by citizens, interest groups and firms. There is a possible information asymmetry between policy suppliers and demanders, which makes ‘information required to form opinions or votes on particular policies a critical resource for policy decision makers’ (Hillman & Hitt, 1999:833). The idea of information being a powerful tool in the process of policy making translates to the CPS called the ‘information strategy’.

It is important to note the difference between ‘tactics’ and ‘strategies’, since they are used interchangeably by some scholars regardless of their different meanings. Strategies are usually more long-term and involve substantial resources and commitment, whereas tactics are short-term activities with far less recourses and commitment involved (Hillman & Hitt, 1999).

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16 Firms whose activities are considered environmentally sensitive are prone to the effects of environmental regulations, which are of strategic importance. This results in visible, proactive political actions undertaken by firms from environmentally sensitive industries, such as lobbying practises (Cho, Patten, & Roberts, 2006).

The information strategy is used to influence public policy by providing policy makers specific information about preferences for policy or policy positions and may involve providing information on the costs and benefits of different issue outcomes (Aplin & Hegarty, 1980:441). It involves practises as ‘lobbying, reporting research and survey results, commissioning research/ thinktank research projects, testifying as expert witnesses in hearings or before other government bodies, and supplying decision makers with position papers or technical reports’ (Hillman & Hitt, 1999:834). Hillman and Hitt’s (1999) assumptions on information strategy will be tested by means of the following two hypothesis:

H2: Firms active in environmentally sensitive industries are likely to adopt the information strategy.

H3: The information asymmetry between policy demanders and suppliers imposes a power disbalance.

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3. Methodology

This thesis is a qualitative research aimed at verifying the three hypotheses proposed in the theoretical framework (p.13&14). These propositions will be examined on empirical evidence obtained from a single case study on the Dutch natural gas sector.

A case study lends itself perfectly for analysing historical processes and relations amongst actors (Cassell & Symon, 2004). The aim of this case study is to analyse the context and processes that highlight the theoretical concepts being studied in order to verify the stated hypothesis. In contrary to a laboratory research, the phenomenon is being studied within its context, which is of interest because the aim of this research is to understand how behaviour influences this context. Furthermore, case study research is particularly useful for theory-building, since it requires the researcher to put together a theoretical framework which informs and makes sense of the data, and which can be systematically examined during the case study for plausibility (Cassell & Symon, 2004).

According to Willis (2014) the use of a single case study implies some limitations to the research, starting with the low generalizability of the results. It is important to note that a single case study is accompanied by structural problems regarding external validity, meaning that the results of this research are not to be projected on other cases. Furthermore, a single case study lacks systematic methodological procedures, giving authors a licence for ‘freeform’ research.

A case study is more a research strategy than a method, and must thus be executed in combination with a research method. The data of this research is collected through discourse analysis applied to primary sources on the decision-making process regarding the annual limit of gas production from the Groningen field that took place in the period 2015-2016. These sources include government documentation of communication between relevant actors involved, inside communication of the MEA, memorandums, letters to parliament, and any other document which mentioned one of the parties involved.

The first hypothesis relates to the concept of institutional work. As mentioned in the theoretical framework (p.12), the study of institutional work as a strong discursive character and is thus best studied through the examination of written texts or spoken words. The literature on institutional work also provided insight in what to look for in the texts, namely: problematizations of practices by (a) countering assertions of negative impacts of practices; (b) countering categorizations of practices as unethical, undesirable, or inappropriate; and (c) countering calls for regulatory change’ (Maguire & Hardy, 2009:169).

The second and third hypothesis result from the concept of information strategy (p.13), which also knows a strong discursive character. It involves practises as ‘lobbying, reporting research and survey results, commissioning research/ thinktank research projects, testifying as expert witnesses in

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18 hearings or before other government bodies, and supplying decision makers with position papers or technical reports’ (Hillman & Hitt, 1999:834).

These categories from institutional work and information theory are used to code the documents and to provide structure to the outline of the case study. This resulted in a database with an overview of all events (who did what and when) and arguments (who said what and when), and how they changed over time.

3.1 Case study selection

The case study chosen zooms in on the relation between the Dutch government, more specifically the MEA, and the NAM (Dutch Petroleum Company). The Dutch gas sector provides a unique case study, not only because of the unique size of the gas field within Europe, but also because of the unique structure of the Dutch gas sector, i.e. the far-reaching integration of industry and government in what is called the ‘gas-building’. Furthermore, various EU member states import significant amounts of Dutch gas, and for many years the Groningen field was seen as an ‘insurance’ for the dubious gas supply from Russia (Holz & Richter, 2016). Therefore, the case is not only unique, but also of importance for the gas industry of north-western Europe.

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4. The Decision-Making Process of the Dutch gas sector

In order to understand the detailed analysis (p.20) of the decision-making process regarding the new production plan of 2016, the general outline of the gas sector and its decision-making process will be provided. This way, it becomes clear who the most important actors are and what their responsibilities are in the process.

Holz and Richter (2016) and Honor (2017) give a detailed overview of the Dutch gas building, of which a summary will be provided here. First, an overview of the production side of the Dutch gas market is given. Then, a timeline of important events during the decision-making progress is given.

4.1 Outline of the Dutch gas sector

The Dutch gas production, distribution, and trade is organized through different firms within the gas-building. For this case study, only the production side is examined, because this is where the MEA has its legislative power, and thus the interaction between incumbent and institution takes place. Within this section there are three main players, namely the government, Shell, and ExxonMobil, of which the last two form the NAM.

The MEA is of highest importance, because it provides the license needed to extract raw materials or geothermal heat. Also, it plays an important role in securing the public (financial) interests through state participant EBN (Dutch Energy Management), through which the state receives a 40% share of revenues created by the various oil companies involved. Furthermore, the MEA has to approve production plans of operators, and has the right to reject or alter these plans. For this thesis, these plans, named ‘production plans’ (Winningsplannen), play a central role because the decision-making process regarding the latest production plan (that of 2015) is examined in the case study.

The NAM was founded by Shell and ExonnMobil in 1947 and after signing an agreement of cooperation with EBN the firm obtained an eternal license to operate the Groningen field. The production of the Groningen gas is managed through the Partnership Groningen (Maatschap Groningen), of which the NAM owns 60% and EBN the other 40% and the voting share is 50:50. The gas trade is the responsibility of GasTerra, which is owned by the state (10%), EBN (40%), Shell (25%), and ExonnMobil (25%). There are officially two separate assemblies responsible for trade and production, i.e. Assembly of the Delegated Commissioners and Management Assembly of the Partnership, but these are formed by the same people. This results in five people being responsible for the largest share of the Dutch gas market, who set out strategy for both production and trade.

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20 However, the final decision on the maximum annual production volume lays with the Minister of Economic Affairs, this process is depicted in figure 2. The production plan is send to the MEA by the NAM, after which the MEA is advised by the State Supervision of Mines (SSM), together with other advisory-organizations. The Minister can approve, decline, or alter the plan and has the authority to intervene in case of safety concerns. Furthermore, the production plan needs to be in accordance to the Mining Act, otherwise the Counsel of State can declare the plan to be unlawful in which case the NAM and the MEA have to come to a new agreement.

The SSM has the technical expertise needed to assess possible effects on the environment and subsidence, and functions as a watchdog on mining activities. The advice of this authority is leading to the MEA, so the advice of the SSM in 2013 to reduce the production from the Groningen field as fast as possible resulted in the decision of the MEA to significantly lower the gas production in the following years. A consequence of the MEA having the final word, is that whether to increase or decrease the production is a political decision, which are naturally subdue to public opinion. However, the MEA is advised by many different organizations on the production plans who possess expertise and are either independent or from organizations with differing interests. The one threat for independent political decision making is the fact that all these organizations depend on the NAM for technical information of the Groningen field. This issue will be further analysed in section 6 of this thesis.

4.2 Timeline

At the beginning of 2015, the Dutch Security Counsel published a report on the role of safety and damage in the decision-making process regarding the Dutch gas production over the period 1959- 2014, which concluded that the MEA and the NAM had no regard for these important issues. The Counsel proposed a set of measures which should ensure the implementation of safety and damage as guiding principles within the process. In a follow-up report published in 2017, the counsel concludes that a drastic re-design of the Dutch gas building is needed to ensure the necessary checks and balances.

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21 On the 18th_{of November 2015, the Counsel of State declares the production plan of 2015 to}

be in conflict with the Mining Act, and the plan is nullified. The counsel put a temporary provision in place regarding the production volume until a new production plan was created. This process was started by the sending of a ‘letter of expectations’ on 15th_{of February 2016 by the MEA to the NAM,}

in which the MEA sets out the leading framework for the production plan.

The NAM submits the new plan the 1st_{of April, after which the advisory committees have till}

the end of May to bring out their advice. On the 24th_{of June, the government has approved the draft}

on the decision, after which the local governments and stakeholders have the option to submit a comment on the plan. A memorandum with a reaction to these comments and the final production plan are submitted to the NAM on the 30th_{of September 2016. Individuals who have commented on}

the plan then have six weeks to appeal to the Counsel of State if they disapprove of the plan on a legal basis.

In the production plan of 2016, the advice of the SSM to keep to a stable production of 24 billion m3_{a year is adopted. Also, the SSM created a subsidiary measurement and control protocol}

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22

5. The Dynamics of the Dutch Gas Sector examined

In this section, the hypothesis will be examined by applying the theories from the theoretical framework to the case study. The framework provides us with insights from defensive institutional work (2.2) and information strategy (2.3), which resulted in three hypothesis based on assumptions from Maguire and Hardy (2009) and Hillman and Hitt (1999). The empirical material gathered from the case study on the Dutch gas sector will provide evidence supporting the hypothesis.

5.1 Introduction

The sustainability transition in the Netherlands is featured by a growing anti-gas sentiment among the public, due to the many earth tremors that disrupt the lives of people living in the Groningen field production area, and because of the dubious diplomatic relationship with Russia (Honor, 2017). The government is not only subjective to public opinion, but also has the responsibility to implement international climate agreements on the national level. These agreements are often binding and involve the gradual decline of fossil fuel use, which doesn’t favour the interests of the NAM. The government’s commitment to international agreements and public opinion has resulted in a decline in gas production from the Groningen field over the last few years, even though switching from coal fired power plants to gas plants would result in a significant CO2_{reduction (Honor, 2017). A third}

development in the gas field is imposed by the reports published by the Dutch security council, in which they argue for a drastic reorganization of the gas building, which should ensure taking power away from the NAM and the involvement of more government departments besides the MEA (OvV, 2017). These three developments can be seen as a threat to the NAM’s supportive environment, which makes it attractive for the firm to involve in defensive institutional work, or apply the information strategy from CPS.

5.2 H1: Defensive institutional work

H1: Incumbents, when threatened by institutional change, engage in practices of defensive institutional work.

The following section provides statements and examples from the case study that support the first hypothesis regarding defensive institutional work as mentioned by Maguire and Hardy (2009). It becomes clear that evidence of this theory can be found in the case study, however it remains difficult to verify whether this behaviour is intentional aimed at defending institutions, which is an important characteristic of defensive institutional work.

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Countering assertions of negative impacts of practices

The NAM is involved in practices that have a serious impact on the subsoil, and are characterised by a high level of technical complexity. Earth tremors have occurred in the region from the late 1980s, and evidence on the correlation between these tremors and the regional gas production is established in 1993 (BOA, 1993), but estimates on a severe earth tremor of 3 or higher on Richter’s scale is not to be expected according to this report. The 2012 earth tremor near Huizinge of 3.7 marked a turning point, and the SSM starts an investigation of which the results pointed towards high probability of severe earth tremors. After 2012, more research has been done which all come to the same conclusion: there is a direct correlation between gas production and earth tremors, earth tremors with high severity are a future possibility, and Groningen gas production comes with high uncertainties (e.g. KNMI, 1993; NAM, 2013; SSM, 2016). These reports contain assertions of negative impacts of the NAM’s practices, and the firm’s response to these allegations thus belong to defensive institutional work.

The NAM is not denying their involvement in the induced earth tremors, but they are trying to depict their practices as ‘safe’. An example of this can be found in an email of the NAM to the MEA, where communication on the possibility for increased production of the case of a cold winter is discussed. Increased production in the case of a cold winter would imply a fluctuation in production volume, which is one of the things that could lead to increased seismicity according to the SSM.

“It must be stated very clearly that increased production in the case of a cold winter is safe” (NAM, WOB 2:31).

As mentioned before, the gas production in Groningen is accompanied by high levels of uncertainty due to the uniqueness of the field, and the lack of knowledge due to the rather late start of thorough investigation (OvV, 2015). According to the reports of the safety counsel, the NAM has lacked clear communication on this matter to the local inhabitants, depicting the situation more favourable than it might be.

Also, the NAM has not provided reliable calculations on the individual -and group risks, meaning that the actual risk for inhabitants of the Groningen production field are is unknown. The NAM also hasn’t calculated the amount of relatively light damage that will occur, regardless of the fact that this type of damage can have severe impact on peoples’ homes, and lives.

These examples show that the NAM underestimates the impact of the effects of their practices. Although they’re not producing written texts that counter the critical reports, their behaviour does not reproduce the concerns mentioned, but rather counters it. Furthermore, regardless of these high uncertainties, and the advice of many advisory organizations, the NAM is always trying to increase production. One example of this is the production volume included in the

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24 2015 production plan. When the state counsel nullified the former production plan, they lowered the production to 27 billion m3_{, but the NAM steered towards 33 billion m}3_{in their new production plan,}

which is titled ‘maintaining current production level of 27 billion m3_{. What’s more, they saw the}

‘measurement and control protocol’ as a means to gradually increase the production, even though this protocol is meant as a safety instrument to monitor various high-risk factors. This shows the NAM’s disregard for the high risks that are the results of their practises.

Countering categorizations of practices as unethical, undesirable, or inappropriate

Any discussion on ethics is complicated, due to the high level of subjectivity inherent to the concept (Rashe, Morsing and Moon, 2017). However, when explaining it in terms of corporate social responsibility (CSR) it relates to the firm’s ‘active compliance with the spirit of the law, ethical standards and national or international norms’ (Rashe, Morsing and Moon, 2017:6).

The process in which citizens dealing with damage caused by induced earth tremors have to engage is complicated, slow, and frustrating (OvV, 2017). The NAM is required by law to compensate the damage created by earth tremors in a certain region, and since the onus (burden of proof) has been reversed the NAM has to proof damage is not the result of earth tremors. Regardless of these measures, home owners often have to go through long lawsuits while living in uncertainty and often feeling unsafe (Trouw, 2016). The NAM has been critiqued for the way they handle these lawsuits, but they contest these allegations by stating that:

“There is no discussion on whether the NAM compensates for the damage caused by earth tremors” (NAM, WOB 1:126).

The province Groningen is staying behind on economic growth, when compared to other parts of the Netherlands. The gas production provides jobs in the area, the NAM invests in job-creating -and education programs, and works together with local industries and suppliers. During the decision-making process the NAM wanted to conduct a cost-benefit analysis, in order to have the beneficial economic influence of their practices taken into consideration. After the MEA denied this request, two other parliament members submitted a motion to oblige the government to include the local benefits of the gas production into the final decision, which was the result of lobbying by Shell according to the Dutch NGO Milieudefensie (2016). According to a memorandum of the MEA (WOB 1:63a), the NAM is framing their practices in terms of what they call the ‘broader gas-story’, in which the firm includes the utility and necessity of the gas production, social benefits, and the sharing of burdens and benefits in the region. This can be seen a way to frame their practices as desirable in financial terms. It also

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25 provides a counterargument to the reports that only highlight the induced damage and associated costs.

Countering calls for regulatory change

In the beginning of 2015, just around the time the State Counsel nullified the production plan, the government was involved in the decision-making process regarding the inversed onus. According to a memorandum of the MEA (WOB 1:12), the NAM expressed their preferred constraints of the new law. The draft included inversed onus in case of damage on buildings and constructions caused by soil subsidence (which includes both subsidence and earth tremors), but the NAM preferred to only include damage to buildings in the case of earth tremors. Thus, the NAM tried to alter the proposed law through lobbying practises with the MEA, but did not succeed since their requests were denied.

Furthermore, simultaneously with the development just mentioned the decision-making process regarding a multiannual plan between multiple important stakeholders was taking place. This plan should include the interests of local governments, citizens, and other important stakeholders, together with those of the NAM. Communications between the former stakeholders and the NAM goes through the MEA, and is coordinated by the NCG (National Coordinator Groningen). The aim of the plan is to decentralize the decision-making process by including more local stakeholders. In a memorandum (WOB 1:12), the NCG expresses their concern on the commitment of the NAM to the multiannual plan, taking into regard the following statement of the MEA:

“The increasing unfavourable circumstances and boundaries in which the NAM has to operate has led to the NAM’s reserved attitude about support of the plan” (MEA, WOB 1:12).

In March 2017, the Security Council published their follow-up report on the implementation of their recommendations made in the 2015 report, in which they argue in favour of a re-design of the gas building. In a response to this report, the NAM mentions their willingness to step out of the procedure around damage claims and the fortification program, and their efforts to include other stakeholders through the multiannual plan (NAM, 2017). This is a clear example of how the NAM frames events to their benefit, since their retreat from the mentioned processes was forced by other parties, and they previously expressed strong doubts about supporting the multiannual plan. Furthermore, they don’t mention the need for a fundamental reorganization of the gas building at all.

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5.3 H2 & H3: Information strategy

H2: Firms active in environmentally sensitive industries are likely to adopt the information strategy. H3: The information asymmetry between policy demanders and suppliers imposes a power disbalance.

While the information strategy is not a part of institutional theory, it provides insight in how incumbents influence policy, and policy or law can be seen as hard institutions. Therefore, the concept is relevant to examine in the light of the research question and resulted in the two hypotheses on the theory of Hillman and Hitt (1999). The following paragraph sets out the features of information strategy that were found in the case study. Not all characteristics turned out to be relevant, therefore the theory is only partially verified through this case study. The last characteristic of information strategy mentioned is ‘Supplying decision makers with technical reports’, which also relates to hypothesis three on information asymmetry. This expectation is verified by the observed dynamics between the MEA and the NAM.

Lobbying

There are two clear examples of lobbying by the NAM during the decision-making process. Firstly, the incident mentioned before, where the NAM get denied by the MEA and finds two other members of parliament willing to submit the motion that leads to the inclusion of regional economic benefits in the final decision on the production plan. According to Milieudefensie (2016), this was a way for the NAM to bypass the MEA and put their practices in a better light.

The second example of lobbying is the leakage of a lobby-letter by the NAM to parliament in which they claim that an annual production volume of below 24 billion m3_{would jeopardize their ability}

to compensate the damage claims of citizens (WOB 1:127).

Commissioning research/ think-tank projects

The NAM conducts research on the developments in the Groningen production field, and organizes framing sessions on their reports with other research institutes, such as the SSM (WOB 1:4&14). Furthermore, the NAM, MEA, and SSM have regular meetings in which they discuss and adjust future strategy (e.g. WOB 1:23,33&58). In addition, the NAM responded quite firm to a letter by the MEA to parliament about the possible construction of a nitrogen installation, which would significantly reduce the need for Groningen gas, as they state:

“The possibility of such a large, fundamental change of strategy should first be discussed with all relevant actors, among which most certainly the NAM” (WOB 1:41).

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Supplying decision makers with technical reports

This last characteristic touches upon the critique of the Security Council regarding the need for fundamental reorganization of the gas building, by creating a better balance of power between the stakeholders and simultaneously making safety a fundamental starting point in decision making (OvV, 2017). Information is a critical resource for policy makers, because it provides them with technical insights needed to come to a weighted decision (Hillmann & Hitt, 1999:833). Currently, there is a disbalance of power between the NAM and the MEA, caused by information asymmetry. Due to the complex nature of the gas production, the MEA and the various advisory committees are dependent on the NAM for their technical information. It appears that the MEA has little control over what the NAM investigates and publishes (WOB 1:4,9&66; WOB 2:2,7&43). The MEA´s dependency on the NAM for information and the lack of checks and balances gives the NAM significant influence on the decisions made by policy makers.

“Research done by the NAM does not mention the effects of fluctuating production volumes on the seismicity” (MEA official, WOB 1:4).

“It turns out the new models and research the NAM is developing does not relate to the effects of equal annual and seasonal production, but rather on the improvement of old models to make a decline in seismicity visible” (MEA official, WOB 2:43).

This results in an incomplete production plan, political decisions based on poor proof of causality between various factors, and uncertainties about the profitability of the gas field (WOB 2:2,7&37).

“The NAM chose to maintain the current distribution of production over the field, without substantiating this decision” (SSM, WOB 2:2).

“In theory, the gas production from the Groningen field might not be profitable if the annual production volume drops below 18 billion m3_{” (MEA official, WOB 2:37).}

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6. Discussion & Conclusion

6.1 Discussion

This research is conducted on the base of a single case study, of which the possible limitations are discussed in the methodology (Ch.3). These limitations include lack of systematic methodological procedures and limited external validity. The former of these critiques is addressed by approaching the case study as a research strategy and combining it with the procedures of a discourse analysis. This way, the empirical evidence is gathered in a structured, substantiated manner. Furthermore, the boundaries of this research are clearly stated, by means of a limited timeframe and clear decision-making process, which significantly limits the author´s freedom. Thus the risk of this research being ´freeform´ is severely reduced.

However, the external validity of a single case study cannot be guaranteed, as is the case with this research. The factors, events, and actors are to a great extend specific for the discussed situation, as a consequence, results are not generalizable. They do however, provide detailed insights in the unique situation of the Dutch gas sector and Groningen field. Furthermore, this research can be used to determine the usefulness of the concepts of institutional work and CPS in describing incumbent behaviour. It also sheds light on this understudied, and possible crucial, element of sustainability transitions, which may help scholars and policy makers to develop measures aimed at speeding up the transition.

Further research is needed to test the theories on institutional work and CPS on a larger scale. By conducting multiple case studies, the results can be used for statistical testing, which would result in quantifiable statements and conclusions. The work of Maguire and Hardy (2009) and Hillman and Hitt (1999) provides the theoretical input for developing the needed hypothesis.

However, the subject of firms´ strategies remains difficult to study, because of limited access to relevant data due to the sensitivity of company data and government documents. This will remain a complicating factor for research within the fields of institutional theory and CPS.

6.2 Conclusions

Main findings

 (H1) The NAM engages in practices that can be seen as defensive institutional work. As a result, the institutions in which the firm is embedded are more likely to persist over time. This could have a significant impact on the speed in which the Dutch sustainability transition takes place.  (H2) The NAM´s activities show characteristics of the information strategy. The firm influences policy by lobbying, commissioning research/ think/tank projects, and supplying decision-makers with technical reports. The NAM is therefore influencing government policy.

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29  (H3) The MEA is dependent on the NAM for its knowledge on the complex technicalities. Due to the lack of checks and balances (e.g. control over what the NAM investigates through supervision and fines), this information asymmetry grants the NAM influence over the MEA.

The aim of this research is to investigate the role of incumbents´ institutional strategies in the Dutch transition toward sustainability. To do this, the theoretical framework includes multiple theories on the interaction between firms and policies/ policy makers. It starts with the concept of the multi-level perspective (Ch. 2.1), which sheds light on the contemporary landscape developments of the Dutch gas sector. Namely the ongoing international climate agreements, the increasingly negative view of the Dutch citizens on natural gas, and the growing divide within the original shared knowledge system of the NAM and the MEA. These developments result in a significant decline of gas production from the Groningen field over the past few years.

Then, the theoretical framework discusses the structure-agency dilemma (Ch. 2.2) by examining the different academic views on what has the most influence, actor or institutions. To explain how and why this interaction takes place, institutional logics and institutional work are introduced. Given the events from the case study (Ch. 4), the concept of defensive institutional work forms the base of the first hypothesis.

To finalize the theoretical framework, the concept of information strategy (Ch. 2.3) is introduced from strategic management. This theory explains a specific strategy firms can adopt on the base of information supply in order to influence policy, which results in the second hypothesis. The third hypothesis focusses on the role of information asymmetry in the power-balance between the NAM and the MEA.

As expected, the NAM engages in practises that can be seen as defensive institutional work or information strategy (H1 & H2). However, there are some factors of this research that counteract a possible verification of the hypotheses. First, both theories impose more or less intentional corporate behaviour aimed at influencing either institutions or policies, but this ´intent´ is difficult to extract from the gathered data. This might be due to the shielding attitude of the NAM toward their strategies and intentions, which is a common problem as mentioned before.

Furthermore, the gathered empirical evidence can in some cases be attributed to both defensive institutional work and information theory. This imposes the highly interpretive character of the data and theories. The difference between policy and institutions is one of definition, which results in a blurry line between the two theories.

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Institutional strategies in sustainability transitions: the case of the Dutch gas-energy sector