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IEA World Forecast: Stresses on Energy System Must Not Be Ignored

The world’s decision-makers must not let current events distract them from recognizing and addressing the longer-term signs of stress that are emerging in the global energy system, the International Energy Agency (IEA) warned today at the launch of its annual World Energy Outlook 2014 report in London.

The Disappearing Carbon Budget

Chief among these underlying issues, said IEA chief economist Fatih Birol, is the world’s disappearing carbon budget. The amount of carbon we can afford to emit in order to keep global temperatures from rising over the 2°C limit needed to prevent climate change is around 2300 gigatonnes (Gt). But without major policy changes, Birol warned, by 2040 we will have used up the entire amount, with the energy sector the main source of greenhouse gas emissions.

In 2013 global CO2 emissions increased by 2.6 percent, reaching a record high of 33 Gt, and Birol said today’s policies risk locking in the current level of carbon emissions for many years to come.  China is responsible for 60 percent of global emissions, which makes this week’s US-China climate agreement especially welcome as together the two countries are responsible for 45 percent of world emissions. However, while IEA executive director Maria van der Hoeven called the two countries’ deal “a huge opportunity to make a difference,” she added that, “as always, it’s not only about announcing a deal but seeing that it’s going to work — then we’ll wait and see how effective the deal will really be.”   And while Birol called next year’s global climate summit in Paris “our last chance” to avert climate change, van der Hoeven said many governments are giving “mixed signals” in the runup to the event.

According to Birol, global low-carbon investment totalled less than $0.5 trillion in 2013, and is set to double by 2020. But in order to prevent climate change, that investment would need to increase by a factor of four compared to today — and, he said, “We are far from that.” Energy efficiency measures, which have significantly reduced worldwide energy demand, constitute the one bright spot in the likely scenario.

Renewables “Will Go from Strength to Strength”

Renewables, van der Hoeven said, will “go from strength to strength” to account for nearly half of global capacity additions by 2040 and overtake coal as the world’s leading source of electricity. Wind power is set for the largest growth, followed by hydropower and solar photovoltaics (PV). But as wind and solar’s share of the world’s energy mix quadruples, their integration into existing energy systems will become more challenging from both technical and market perspectives.

Fossil fuel subsidies currently in place are also a huge problem for renewables development, Birol warned. Competing with artificially low prices for fossil fuels “means renewables don’t have any chance,” he said. “If a government puts subsidies on fossil fuels, this means ‘Please use energy as inefficiently as possible with your electricity or car — this is giving all the wrong messages. This is why one of our main suggestions for a healthy energy system is to phase out fossil fuel subsidies.” However, while he emphasized that growth in renewables is necessary in order to address climate change and energy security issues, a diverse energy mix is still needed and “we cannot have everything renewable.”

Supply Security

Security of supply is another crucial long-term issue that must be addressed, the report said. Focusing on oil, Birol warned that “a well-supplied oil market in the short term should not disguise the difficult road ahead”, especially given that the bulk of growth in global oil production is set to come from Middle Eastern countries in the coming years although the region’s current instability is a “major threat” to oil markets.

Under the IEA’s forecast, oil production from non-Middle East countries is set to slow by the 2020s, while global demand increases to 14 million barrels per day. In the 2020s the world will “badly need” production growth in the Middle East, Birol said — for example from Iraq, where there are “huge deposits, but to see production growth we’ll need to invest $15 million per year.” Given the lead times involved in oil production projects, the necessary investment must take place “today, if not yesterday”.  But the region’s current political instability has discouraged the world’s appetite for investment. Birol warned that “we may well see major problems in the 2020s if these investments are not made today,” especially in Asia which will import 90 percent of Middle Eastern oil in the coming decade.

Given this, energy security will be more important, and will jump to the head of policy concerns, in the coming years. And as more aging power plants are retired — around 40 percent of today’s 6000 GW of worldwide generation capacity is set to retire over the next 25 years — and are replaced with growing amounts of variable renewable generation, system stability will become a growing concern.

World Fuels Outlook: A Changing Energy Mix

According to the Outlook, liquefied natural gas (LNG) is set to become the world’s “first fuel,” replacing coal, in all regions except Europe, which is “good news” from an energy diversification perspective, Birol said. Meanwhile, the world’s demand for coal is set to plateau in the 2020s. China’s coal demand is already starting to slow, with an increase of 5 percent in 2013 compared to 10 percent in previous years. Future growth will come mainly from India, which will be the world’s second largest coal consumer in 2020 after China, overtaking the US. But, said Birol, while coal remains a cheap source of fuel and crucial for economic development in Asia, the future of the coal industry will hinge on its use — or not — of high-efficiency plants and carbon capture and storage (CCS) technologies.

Addressing public opinion will be crucial to the further development of nuclear power, which the IEA did not explicitly endorse although Birol said “many countries” consider it important for energy security, reliable baseload power generation and emissions reduction. However, there are “public concerns” around nuclear power which “need to be heard and addressed by governments”, while decommissioning the large number of plants set to retire will be “a challenge for all of us — worldwide, we do not have much experience [with decommissioning] and are not well-prepared to deal with the 200 reactors that will retire in the next 25 years in terms of policies and funds”. Birol also pointed to the permanent disposal of nuclear waste as an issue the world needs to solve, and soon.

Van der Hoeven perhaps best summed up the cautionary tone of the report, saying: “While some things may not seem urgent today, this doesn’t mean they can be put off until tomorrow. If governments implement the right policies, they can help to move the world in the right direction.” If not, Birol warned, the world we know may not last very long.  

Lead image: Renewables globe via Shutterstock