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Energy crossroad for Copenhagen climate summit negotiators

World leaders gathering in Copenhagen next month for the UN Climate summit face hard choices needed to combat climate change and enhance global energy security, the International Energy Agency (IEA) said today.

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The intergovernmental organization, which acts as energy policy advisor to 28 member countries in their effort to ensure reliable, affordable and clean energy for their citizens, released its World Energy Outlook 2009 (WEO-2009) in London today.

The report compares two scenarios: business as usual, which could result in a steep rise in global temperatures, and a “450 Scenario,” in which aggressive targets are set to limit the long-term concentration of greenhouse gases in the atmosphere to keep the global temperature rise relatively modest.

WEO-2009 provides both a caution and grounds for optimism,” said Nobuo Tanaka, executive director of IEA, in a statement released by IEA in London.

“Caution, because a continuation of current trends in energy use puts the world on track for a rise in temperature of up to 6°C and poses serious threats to global energy security.

“Optimism, because there are cost-effective solutions to avoid severe climate change while also enhancing energy security–and these are within reach as the new Outlook shows,” Tanaka said.

Although, as one of the consequences of the financial crisis, global energy use is set to fall this year, WEO-2009 projects that it will soon resume its upward trend if government policies don’t change.

Reference Scenario

In this “Reference Scenario,” in which the trajectory of global energy use remains unchanged, demand increases by 40 percent between now and 2030, reaching 16.8 billion tonnes of oil equivalent, IEA said.

Fossil fuels will continue to dominate the energy mix, accounting for more than three-quarters of incremental demand.

Non-OECD countries will account for over 90 percent of this increase, and China and India alone for over half.

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Non-OECD countries account for 93 percent of the increase in global demand for primary energy between 2007 and 2030, driven largely by China & India.

© OECD/IEA – 2009

In addition to increasing susceptibility to energy price spikes, the Reference Scenario projects a persistently high level of spending on oil and gas imports which would represent a substantial financial burden on import-dependent consumers.

China will overtake the U.S. around 2025 to become the world’s biggest spender on oil and gas imports.

The energy poverty challenge will remain unresolved with 1.3 billion people still without electricity in 2030 from 1.5 billion today; though universal access could be achieved with investment of only $35 billion per year in 2008-2030.

450 Scenario

WEO-2009 demonstrates that containing climate change is possible but will require a profound transformation of the energy sector,” according to IEA’s statement.

“A 450 Scenario sets out an aggressive timetable of actions needed to limit the long-term concentration of greenhouse gases in the atmosphere to 450 parts per million of carbon-dioxide equivalent and keep the global temperature rise to around 2°C above pre-industrial levels.”

To achieve this scenario, fossil-fuel demand would need to peak by 2020 and energy-related carbon dioxide emissions to fall to 26.4 gigatonnes in 2030 from 28.8 Gt in 2007.

“At the IEA Ministerial meeting, a large majority of ministers showed their intention to take the lead, organize themselves and commit to the challenge to reach the 450 Scenario–the energy path of Green Growth. Only by mitigation action in all sectors and regions can we turn the 450 Scenario into reality,” IEA’s Tanaka said.

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An additional $10.5 trillion of investment is needed in total in the 450 Scenario, with measures to boost energy efficiency accounting for most of the abatement through to 2030. 

© OECD/IEA – 2009

In this scenario, asccording to IEA, energy efficiency is the largest contributor, accounting for over half of total abatement by 2030.

Low-carbon energy technologies also play a crucial role: around 60 percent of global electricity production comes from renewables (37 percent), nuclear (18 percent) and plants fitted with carbon capture and storage (5 percent) in 2030.

Dramatic shift in car sales

Also in the 450 Scenario, a dramatic shift in car sales occurs, with hybrids, plug-in hybrids and electric vehicles representing almost 60 percent of sales in 2030, from around 1 percent today, IEA said.

“Compared to the Reference Scenario, cumulative incremental investment of $10.5 trillion is needed in the 450 Scenario in low-carbon energy technologies and energy efficiency by 2030,” IEA said.

But in addition to avoiding severe climate change, this cost would be largely offset by economic, health and energy-security benefits. Energy bills in transport, buildings and industry alone are reduced by $8.6 trillion globally over the period 2010-2030, according to IEA.

“The challenge for climate negotiators is to agree on instruments that will give the right incentives to ensure that the necessary investments are made and on mechanisms to finance those investments in non-OECD countries,” Tanaka said.

Oil prices threat to world economy

WEO-2009 also identifies higher oil prices, coupled with the downturn in oil sector investment, as a serious threat to the world economy, just as it is beginning to recover.

As a result of the financial crisis, investment in upstream oil and gas has already been cut by over $90 billion this year compared with 2008. While oil demand has dropped sharply, in the Reference Scenario it starts recovering in 2010, reaching 88 mb/d in 2015 and then 105 mb/d in 2030.

“Calling for increased investment in fossil-fuel supply is not inconsistent with the need to move to a low-carbon energy pathway,” Tanaka said. “Even in the 450 Scenario, OPEC production still increases substantially in the period to 2030, boosting those countries’ revenues in real terms to four times their level of the previous 23 years.”

Whatever climate policies are introduced, natural gas–a special focus in WEO-2009–is also set to continue to play a bridging role in meeting the world’s sustainable energy needs.

In the Reference Scenario, gas demand rises by 41 percent from 3.0 trillion cubic meters in 2007 to 4.3 tcm in 2030. Gas demand also continues to expand in the 450 Scenario but is 17 percent lower in 2030 than in the Reference Scenario thanks to more efficient use, lower electricity demand and increased switching to non-fossil energy sources, IEA said.

Shale gas

The recent rapid development of unconventional gas resources–notably shale gas–in North America has transformed the gas-market outlook, the report says. “Unconventional gas is unquestionably a game-changer in North America with potentially significant implications for the rest of the world,” Tanaka said.

The share of unconventional gas in total U.S. gas output jumped from 44 percent in 2005 to around 50 percent in 2008 and, in the Reference Scenario, is projected to rise to almost 60 percent in 2030.

WEO-2009 also provides a focus on Southeast Asia in recognition of its growing influence on energy markets. In the Reference Scenario, Southeast Asia’s energy demand expands by 76 percent in 2007-2030. “Coupled with strong growth in China and India, this robust demand in Southeast Asia is refocusing the global energy landscape increasingly towards Asia,” Tanaka said.