Governments must invest in low-carbon technologies, IEA warns

The world is locking itself into an unsustainable energy future, as it heads for an insecure, inefficient and high-carbon energy system, the International Energy Agency (IEA) has today warned. That’s unless there’s a bold change of policy direction.

“Delaying action is a false economy: for every US$1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional US$4.30 would need to be spent after 2020 to compensate for the increased emissions,” said IEA executive director Maria van der Hoeven and IEA chief economist Fatih Birol, speaking from London this morning.

The IEA was in London earlier today to launch its World Energy Outlook (WEO) 2011, which looks at how the energy system will evolve over the next 25 years.

Speaking this morning, van der Hoeven and Birol said there is still “time to act” but that the “window of opportunity is closing”.

The latest outlook looks at how the energy system will evolve in the next 25 years, taking into account the broad policy commitments that have already been announced by countries around the world to address climate change and growing energy insecurity.

The WEO focuses on critical energy areas such as:

• The climate change issue – with an assessment of what infrastructure “lock-in” means for manoeuvrability to meet the 2°C goal.
• The potential implications of a rapid slowdown in the use of nuclear power for the global energy landscape.
• The role of coal in an emissions-constrained world and the consequences on global energy markets of a possible delay in oil and gas sector investment in the Middle East and North Africa.
• The outlook also includes a review of energy in Russia, looking at the trends in domestic energy markets, supply prospects and its implications for global energy supply.

Stronger measures to drive investment in efficient and low-carbon technologies

Van der Hoeven said today that growth, prosperity and rising population will inevitably push up energy needs over the coming decades, but we “cannot continue to rely on insecure and environmentally unsustainable uses of energy”.

“Governments need to introduce stronger measures to drive investment in efficient and low-carbon technologies. The Fukushima nuclear accident, the turmoil in parts of the Middle East and North Africa and a sharp rebound in energy demand in 2010 which pushed CO2 emissions to a record high, highlight the urgency and the scale of the challenge,” said Van der Hoeven.

China will consume 70pc more energy than the US by 2035

The WEO‘s central New Policies Scenario predicts that primary energy demand will increase by one-third between 2010 and 2035, with 90pc of the growth in non-OECD economies.

The IEA says cumulative CO2 emissions over the next 25 years will amount to three-quarters of the total from the past 110 years. This will lead to a long-term average temperature rise of 3.5°C, said the IEA today.

China consolidates its position as the world’s largest energy consumer: it will consume nearly 70pc more energy than the US by 2035, even though, by then, per capita demand in China will still be less than half the level in the US, according to the latest outlook.

“China’s per-capita emissions match the OECD average in 2035. Were the new policies not implemented, we are on an even more dangerous track, to an increase of 6°C,” said the agency.

‘Lock-in’ of high-carbon infrastructure

“As each year passes without clear signals to drive investment in clean energy, the ‘lock-in’ of high-carbon infrastructure is making it harder and more expensive to meet our energy security and climate goals,” said Faith Birol, IEA chief economist.

WEO 450 Scenario – locked-in by existing capital stock

The WEO presents a 450 Scenario, which traces an energy path aligned with meeting the globally agreed goal of limiting the temperature rise to 2°C. Four-fifths of the total energy-related CO2 emissions permitted to 2035 in the 450 Scenario are already locked in by existing capital stock, said the IEA, including power stations, buildings and factories.

Without further action by 2017, the IEA said today that energy-related infrastructure then in place would generate all the CO2 emissions allowed in the 450 Scenario up to 2035.

Key aspects of the New Policies Scenario up to 2035

According to the IEA:

• The share of fossil fuels in global primary energy consumption will fall from around 81pc today to 75pc in 2035.
• Renewables will increase from 13pc of the mix today to 18pc in 2035.
• The growth in renewables will be underpinned by subsidies that rise from US$64bn in 2010 to $250bn in 2035, although fiscal austerity must be taken into account. In contrast subsidies for fossil fuels amounted to $409bn in 2010.

Oil
In terms of its oil predictions, the IEA said today that short-term pressures on oil markets will ease with the economic slowdown and the expected return of Libyan supply.

However, it pointed to how the average oil price will remain high, veering towards US$120/barrel (in year-2010 dollars) in 2035.
Reliance will grow on a small number of producers, said the IEA. It predicts that the increase in output from Middle East and North Africa (MENA) will be more than 90pc of the required growth in world oil output to 2035.

“If, between 2011 and 2015, investment in the MENA region runs one-third lower than the $100bn per year required, consumers could face a near-term rise in the oil price to $150/barrel,” added the IEA.

Transport sector
Oil demand will rise from 87m barrels per day in 2010 to 99m barrels per day in 2035, with all the net growth coming from the transport sector in emerging economies, said the agency.

The passenger vehicle fleet will double to almost 1.7bn in 2035. Alternative technologies, such as hybrid and electric vehicles that use oil more efficiently or not at all, continue to advance but they will take time to penetrate markets, said the IEA.

Rise of coal use – need for carbon capture and storage
The IEA is predicting that the use of coal, which met almost half of the increase in global energy demand over the last decade, will rise by 65pc by 2035.

It said prospects for coal are especially sensitive to energy policies, notably in China. China currently accounts for almost half of global demand. More efficient power plants and carbon capture and storage (CCS) technology could boost prospects for coal, but the latter still faces significant regulatory, policy and technical barriers that make its deployment uncertain, said the IEA.

Fukushima Daiichi and nuclear power
With the Fukushima Daiichi disaster in March having caused countries such as Germany and Switzerland to phase out their nuclear reactors, and instead look to renewables as part of the energy mix threat, has raised questions about the future role of nuclear power, the New Policies Scenario suggests, interestingly, that nuclear output will rise by more than 70pc by 2035, only slightly less than projected last year. It says this is because most countries with nuclear programmes have reaffirmed their commitment to them.

“But given the increased uncertainty, that could change. A special Low Nuclear Case examines what would happen if the anticipated contribution of nuclear to future energy supply were to be halved. While providing a boost to renewables, such a slowdown would increase import bills, heighten energy security concerns and make it harder and more expensive to combat climate change,” said the IEA.

A golden age of gas?
The IEA says the future for natural gas is more certain. It’s predicting that natural gas’ share in the energy mix will rise and gas use will almost catch up with coal consumption. A recent WEO Special Report examined whether the world is entering a ‘Golden Age of Gas’.

Russia is set to reap rewards from increased demand for gas, asserts the IEA. It says key challenges for Russia will be to finance a new generation of higher-cost oil and gas fields and to improve its energy efficiency.

And while it says Russia will remain an important supplier to its traditional markets in Europe, it says a shift in its fossil fuel exports towards China and the Asia-Pacific will gain traction.