Wanted: A Global Energy Revolution

By Fatih Birol

Humanity's future, to say nothing of its prosperity, will depend on how the world tackles two energy challenges: securing reliable supplies of affordable energy and switching to efficient low-carbon energy.

The Reference Scenario - in which no new policies are introduced - in the International Energy Agency's 2008 World Energy Outlook sees annual global primary energy demand growing 1.6% on average up to 2030, from 11,730 million tons of oil equivalent (Mtoe) to just over 17,010 Mtoe - an increase of 45% in just over 20 years.

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China and India account for just over half of this increase, with Middle East countries contributing a further 11% to demand. Countries that are not members of the Organisation for Economic Co-operation and Development (OECD) account for 87% of the increase, so their share of world primary energy demand will rise from 51% to 62%.

Most oil production increases are expected to come from just a few countries - mainly in the Middle East, but also Canada with its vast oil-sands reserves, the Caspian region and Brazil. Gas production in the Middle East will triple, and more than double in Africa, where there are large low-cost reserves.

The trend by which consuming countries grow steadily more reliant on energy from a small number of producing countries threatens to exacerbate energy-security worries. The supply stand-off between Russia and Ukraine made these worries crystal clear in Europe, where gas imports are set to rise to 86% of demand by 2030, from 57% in 2006.

Of course, increasing import dependence does not necessarily mean less energy security, any more than self-sufficiency guarantees uninterrupted supply. Yet greater short-term insecurity seems inevitable as geographic diversity of supply is reduced and reliance on vulnerable supply routes grows.

Longer-term energy-security risks are also set to grow. As a small group of countries increasingly accounts for the world's remaining oil reserves, their market dominance may threaten the pace of investment. The greater the demand for oil and gas from these regions, the more likely these regions are to seek higher prices, and to maintain them by deferring investment and limiting production.

Unfettered growth in energy demand will clearly have serious consequences for the climate as well. Under the Reference Scenario, which represents ‘business as usual', the International Energy Agency (IEA) points to continuing growth in carbon dioxide and other greenhouse-gas emissions; CO2 emissions are projected to rise 45% by 2030, with other greenhouse gases contributing to an eventual average temperature increase of up to 6°C.

Three-quarters of the extra CO2 will come from China, India and the Middle East, and as much as 97% from non-OECD countries as a whole - although non-OECD per capita emissions will still be far lower on average than in the OECD. Bucking the global trend, only the European Union and Japan will see lower emissions in 2030 than today.

The energy sector has a relatively slow rate of capital replacement because of the long lifetimes of much of its infrastructure. More efficient technologies normally take many years to spread through the energy sector. As a result, both the public and private sectors must accept the need for additional investments, as well as the potential costs of early capital retirement, in order to accelerate this process and deliver deep cuts in emissions.

Two IEA climate-policy scenarios show how we could stabilise the concentration of greenhouse gases at 550 or 450 parts per million of CO2 equivalent. The 550 scenario equates to an increase in global temperature of approximately 3°C, while the 450 scenario implies an increase of around 2°C.

In the 550 scenario, energy demand up to 2030 rises by about 32%, with the share of fossil fuels falling markedly, and average demand up 1.2% yearly, compared to 1.6% in the Reference Scenario. Energy-related CO2 emissions would peak in 2025 and decline slightly by 2030.

The 450 scenario presents an immense challenge. The 2030 emissions level for the entire world would be less than the emissions projected for non-OECD countries alone in the Reference Scenario. In other words, even if OECD countries reduce their emissions to zero, they alone could not put the world onto the 450-ppm trajectory. To do so would mean a technology shift that - in terms of scale and speed of deployment - is unprecedented.

The good news is that we already know many of the policies and technologies that can deliver substantial savings in energy consumption and CO2 emissions. But making and implementing the right decisions must begin now.

We're talking about significant changes in the pattern of investment across the supply and demand chains, as well as huge additional spending on new capital stock, especially in power plants and in more energy-efficient equipment and appliances. Although the sheer scale of the transformation means placing a substantial burden on both the public and private sectors, the current financial crisis should be used as an opportunity rather than a barrier for launching it.

Renewable energy will have a major role to play. Global renewables-based electricity generation (mainly hydro and wind, but also solar and biomass) is set to double between 2006 and 2030. In the EU, wind's share of total power generation is set to rise to 14% by 2030, from 2% today, and would account for well over half the total increase in EU power generation. In the 450 scenario, renewables comprise 30% of the EU power generation mix in 2030, up from 10% today.

Governments must galvanise this transformation. Clear price signals, including carbon pricing, are crucial, and many non-OECD countries, in addition to needing financial support to help reduce their greenhouse gas emissions, can benefit from the removal of fuel subsidies.

But clear price signals are not enough, as a low-carbon future requires major breakthroughs in technology development and deployment. Governments can create incentives to innovate, encourage research and break down international barriers. And much of the additional spending needs to be made by households, driven by a profound change in social attitudes to energy efficiency.

 

Fatih Birol is the chief economist of the International Energy Agency.

Copyright: Project Syndicate, 2009.

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