Energy and emissions in a post-recession world

by |December 6, 2011

On November 29th Dr. Fatih Birol, Chief Economist of the International Energy Agency, gave a lecture at Columbia University’s School of International and Public Affairs (SIPA) as part of the school’s “Leaders in Global Energy” lecture series. Dr. Birol presented the highlights of the IEA’s recently released “World Energy Outlook 2011”, an annual analysis of global energy markets which provides robust projections of energy demand and supply, fossil fuel related CO2 emissions, and energy infrastructure under a wide variety of scenarios. Dr. Birol’s lecture focused mainly on the importance of drastically curbing CO2 emissions before it is too late, the projected changes in world energy demand, and the increasingly important role that emerging economies are playing (and will continue to play) in shaping the world’s energy landscape.

Closing doors

The time to take action to avoid an increase of 2 °C in global average temperature is running out. Due to the cumulative nature of GHG emissions it is critical to quickly curb these if the world is to maintain the overall concentration of CO2 in the atmosphere below 450 ppm by 2050. The picture that the IEA paints is not pretty, or encouraging. According to their analysis, four-fifths of the total energy-related CO2 emissions allowed by 2035 are already “locked-in” by the existing world energy infrastructure. That is, the current world energy infrastructure already accounts for 80% of the allowed emissions necessary to meet the 450 target, leaving only 20% of emissions for all new energy infrastructure. Furthermore, the IEA warns that if aggressive action is not taken soon, the door for the 450 ppm scenario will be virtually closed, as the existing energy-related infrastructure in 2017 will account for all the allowed CO2 emissions, leaving no space for any new infrastructure unless it 100% emissions free.

If that scenario upsets your stomach, wait until you hear the full story. The IEA projects that, if countries carry out and achieve a broad set of their most recent pledges and plans for tackling energy-related challenges and climate change (a rather optimistic situation referred to as the “New Policy Scenario”) average global temperatures will still rise more than 3.5 °C (6.3°F) above pre-industrial levels. And that’s the hopeful scenario. Alternatively, if the world proceeds on its current trajectory, with no policies beyond what is currently being implemented, (IEA calls this the “Current Policy Scenario”) we are headed towards an increase of 6 °C (10.8 °F) or more. The recent announcement that the world increased its overall emissions in 2010 by more than 5% reinforces the reality that we are headed full speed towards the proverbial brick wall. This stark contrast between where we’re headed and where we need to go highlights the failure of world governments at tackling the climate problem. The graph below (taken from the WEO 2011) shows the emissions resulting from the IEA’s different policy scenarios, and highlights the huge and growing gap between our current trajectory and where we need to be in order to hit the 450 target. A similar conclusion was reached by research done by the Columbia Climate Center in conjunction with Deutsche Bank, as well as many others.

IEA WEO 2011

World Energy Demand

Despite economic uncertainty in the short and medium term, the IEA projects that global primary energy demand will grow by 40% between 2009 and 2035. The voracious energy appetite of China, India, Brazil, and other emerging economies, largely drive this trend. It is expected that non-OECD countries will account for 90% of the population growth, 70% increase in economic output , and 90% of the energy demand growth over this period. China is established as the world’s largest energy consumer, and by 2035, it is expected to consume 70% more energy than the US.
Under the New Policy Scenario, demand for fossil fuels as a whole is expected to increase but the share of fossil fuels in primary energy consumption falls from 81% in 2010 to 75% in 2035. This downward trend reflects the fact that renewables are expected to contribute more than half of the new installed capacity through 2035:

IEA WEO 2011 Executive Summary - Key Graphs

Non hydro-renewables are expected to jump from 3% of the installed world capacity to ~ 15% by 2035. The expansion is lead by China and the EU, which together represent more than 50% of new non hydro-renewable installations. While news of the increasing role that renewables are playing, and will continue to play, in the new energy infrastructure is encouraging, the age of fossil fuels is far from over.

IEA WEO 2011 Executive Summary - Key Graphs

King Coal

Over the past decade, coal accounted for roughly half of the total increase in energy use. Given that coal is such a carbon intensive fuel, reducing its use is at the heart of any attempt at curbing CO2 emissions. Because of this, the IEA’s view on the future of coal is particularly important. Under the New Policies Scenario coal use rises over the next ten years and gradually level off, finishing about 25% above 2009 levels. In the Current Policy Scenario coal consumption increases 65% to 2035, surpassing oil as the largest fuel in the energy mix. It is well known that in order to fulfill the 450 target, coal must peak before 2020 and then radically decrease in the following years. The projections about coal consumption are plagued with uncertainty, as the ranges between the best-case scenario (450 scenario) and the worst-case scenario (Current Policy) are almost as large as world annual consumption.

An important shift that the IEA highlights is the emergence of China as a net coal importer. Given that China’s coal consumption accounts for half of the world production, China has the ability to change prices and set the tone of international coal markets. In its latest Five-Year Plan, China set out to reduce the carbon intensity of its economy by 17% and increase its energy efficiency. Because China is the largest emitter in the world, and is expected to increase its energy demand, whatever plans come out of Beijing is destined to mark the world’s energy and emissions future.

From Russia with Love

The WEO 2011 highlights Russia’s role as one of the most important energy players in the world. The size and diversity of Russian resources are staggering. In 2010, Russia was the largest producer of oil, the largest producer and exporter of natural gas, and the fourth largest energy consuming country in the world. Apart from their gargantuan fossil reserves, Russia is endowed with vast resources of uranium, metals and ores, as well as a major potential for hydropower and other renewables. Currently, 61% of Russia’s fossil fuel export revenues come from the EU, but the IEA forecasts that by 2035, China will account for almost 20% of Russia’s those revenues, with the EU’s share decreasing to 48%.

IEA WEO 2011 Executive Summary - Key Graphs

Russia suffers from tremendous energy inefficiency that costs millions of dollars to their economy. By increasing their efficiency to that of other OECD countries, Russia could see energy savings that amount to the total energy used in the UK in one year. As the oil and gas fields in Western Siberia start declining, Russia will be forced to increase efficiencies in order to stay competitive.

What is clear, as the IEA points out, is that Russia will play an increasingly central role in energy markets around the world. Because of this, energy policy decision made in the Kremlin will be critical for Russia’s economic development, and will be a major factor for the world’s environmental outlook.

The WEO should send an urgent message to governments around the world that strong, decisive policies that dramatically reduce the combustion of fossil fuels are necessary to mitigate the severity of climate change impacts.

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