Transformation versus the status quo: Energys split narrative
While fossil fuels continue to provide the majority of the world’s growing power demand, falling renewable power costs and new legislation indicate the energy system may be transforming. Panel speakers today at Chatham House’s conference, Delivering Concrete Action on Climate Change, discussed a “split narrative” in the development of the global energy market.
Status quo
Global energy demand is growing. The US Energy Information Administration predicts it will rise by 56 per cent by 2040 – mostly due to strong economic growth in developing countries. While renewable energy and nuclear power are the world’s fastest-growing energy sources, fossil fuels are set to supply nearly 80 per cent of world energy use up to 2040.
Natural gas is the fastest-growing fossil fuel, as “global supplies of tight gas, shale gas and coalbed methane increase”, says the EIA. The gas boom is due for the most part to the US’s fracking renaissance, which could see the country become a net exporter of oil and gas by the 2020s.
The US’s transformation is already sending ripples across the world. But it probably won’t mean other countries will follow suit, panelists said, due to factors like land laws, panelists said.
Coal use is being squeezed out in the US due to the country’s glut of cheap gas – and emissions are reducing accordingly. But this means US coal producers are looking for new markets, and their product is getting cheaper. One of the biggest markets for coal is Asia Pacific, where gas costs three times as much as coal. And three quarters of 1,200 new coal plants currently being planned are in China and India.
As one speaker pointed out, the developing world’s priority is still increasing energy access, not cutting carbon. But current trends toward growth in gas and expansion of coal will not bode well for attempts to avoid the worst effects of climate change. Lifting millions of people out of poverty will take a lot of energy.
Energy transformation
At the same time, growth of renewables around the world is undeniable. One panelist pointed out that there are now examples where the cost of some technologies has fallen so far that they are squeezing out traditional suppliers and changing countries’ patterns of use. In Germany, for example, the low cost of wind and solar power has made conventional power plants uneconomic to run without help from the state.
And while countries in the North have traditionally been the driving force behind renewables development, that may not stay the case for long. A speaker pointed to the growth of solar power in Saudi Arabia, where the government plans to generate one third of electricity requirements by 2032.
To play for
Investment patterns indicate so far that the fossil fuel status quo will continue to shape the world’s energy future. For example, a new report by the Climate Policy Initiative says global spending to combat climate change is falling further behind the level needed to avoid the most dangerous effects.
As Reuters points out, the International Energy Agency estimated last year that $5 trillion of investment in clean energy alone was needed by 2020 to keep a rise in global temperatures to within 2 degrees Celsius (3.6 Fahrenheit). Meanwhile, the OECD said this month that governments around the world spent $523 billion in 2011 on subsidising fossil fuels.
But important changes may be afoot. One participant in the discussion pointed out that the the European Investment Bank is already taking account of carbon emissions when making investment decisions, which “has ruled out coal for a number of years”. The bank also examines the risk associated with increased investment in fossil fuel plants given factors such as more intense extreme weather events and water shortages as the climate warms.
At the same time, countries are acting of their own accord to put the brakes on new coal power, according to another speaker. China and others have looked to scale back construction of new plants in areas where there is already a high concentration due to air quality concerns.
And China is also taking the lead in a new generation of regional cap and trade schemes – though there are doubts about how effective they may be. But the fact remains that the Chinese government plans to eventually take its scheme countrywide. Meanwhile, the World Bank is working with numerous other countries including South Africa, Morocco and Kenya, to create trading schemes or carbon prices.
Many developing countries are still prioritising access to energy over cutting climate emissions. But panelists suggested this need not necessarily prove a stumbling block in coming international negotiations: developing countries may offer renewable energy targets instead of emissions reduction goals.
The sucessful deployment of CCS on a large scale could make a wider range of options fit with emissions reductions. Any option could be commensurate with emissions reductions, as one speaker noted. The problem is, no government has to date offered the technology a subsidy that may allow it to achieve market penetration, as one panelist said- though measures included in the UK government’s energy market reform may go some way to encouraging the growth of the technology.
While the status quo looks strong at the moment, energy trends all over the world are moving faster than ever.