World’s energy challenge presented in stark terms at IEA launch

“It has rarely been more critical in European history to have a sound energy policy as it is right at this moment”, according to Fatih Birol, the International Energy Agency ‘s chief economist.

He was speaking at the launch of the agency’s World Energy Outlook at the Crowne Plaza Hotel in London on Tuesday.

Fatih Birol
à‚  Birol, presiding over the event along with Maria van der Hoeven, Executive Director, delivered the statement in the context of increased competitiveness from the US shale gas revolution, the shift in international trade to the Asia-Pacific Basin and the pressure the bloc faces in reducing carbon emissions during a period of economic stagnation.

à‚  He warned that, “within the EU, utilities contending with low economic growth and the push for renewable energies were not making enough revenues to make new investments.”

The analysis indicates that a major increase in renewables will be driven mainly by China over the next 20 years, which will be higher than the EU and US put together.

Birol was pointed in reinforcing the message of the significant challenge Europe faces from the impact of the US shale gas revolution to their overall competitiveness, and the consequences of a new global economic geography.

“There is a major disparity between US and rest of world because of the shale gas revolution. In Japan, gas is hugely expensive and it is a serious issue for both the Japanese and the EU. The price differentials will remain big, even if they narrow a bit. There is a structural issue these countries must address in terms of their competitiveness.”

“There is a shift in international trade to the Asia Pacific basin. Regional price gaps and concerns over competitiveness are here to stay but there are ways to react with efficiency first in line,” he said before adding, “It is very urgent to find low carbon solutions despite difficult economic times.”

The IEA’s chief economist elaborated on how the bloc and Japan can meet the challenges ahead. In terms of competitiveness he advocated that there is scope in both to increase energy efficiency within the industrial sector, saying, “Europe can make use of that and reduce the cost of energy.”

“Secondly, and specific to gas; two thirds of existing gas contracts are expiring over the next 10 years, When these contracts were drawn up it was a sellers market, but it is now a buyers’ market so there is room to renegotiate and bring prices down.”

“Thirdly renewable energy subsidies are crucial in many cases but the design of subsidies packages should be so as not to put excessive burden on consumers and economy.”

His other possible solution related to shale gas, a contentious subject in the EU at present with varying attitudes in various member states, the UK in favour for example and the French having imposed a ban.

“Another issue for the EU is the possibility of significant shale gas resources. Work towards developing that in a sustainable way within strict environmental regulations, and we may see the EU have its own domestic production.”

The agency’s other findings, as related at the press conference, largely dealt with the increasing dominance of Asia in terms of international trade and influence on energy demand.

In terms of growth of demand, the proportion of it coming from the Organisation for Economic Co-operation and Development (OECD) countries à‚ will look ‘almost negligible’ in comparison to Asian dominance. Two thirds of energy demand this decade will come from China but even here there is a change, as India will become the engine of growth in energy demand after 2020.

The attendees also heard that 40 per cent of new power plants will be built in China and India over the next two decades while two thirds of coal plants in OECD countries will close within that time scale, presenting a challenge for investment.

Birol also pointed out that despite the perspective of an increased share of the power generation pie being assigned to renewables the reality was that, “the share of fossil fuels in the energy mix is 82 per cent, exactly the same. After 25 years of efforts it is still the same.”

This report shows that the world remains on course for dangerous levels of global warming, and that fossil fuel subsidies are rising instead of falling.

He said that the forecast was that the planet is in line for a 3.6 degree increase in temperature if it maintains its present rate of emissions, adding that this was ‘more than a case of you feeling the need to take your jacket off.’

“Our aim is to limit the increase in temperature to 2 degrees celsius. To keep it there, only a certain amount of fossil fuels can be burned. But the window of opportunity for that 2 degree target is closing. It is very important to act now.”

In closing Maria Van der Hoeven referred to a big reason why the coal sector and emissions levels remain so resilient, despite the efforts of policymakers and technological breakthroughs.

“Coal is the biggest elephant in the room. Because less people are talking about it doesn’t mean it’s not there. It’s there in a very important way and there to stay. What we can see is that many countries with rapidly growing power demands, low cost, standard coal fired plants can be built easily, locally, as you see in China.”

From the outset the summary of what is found within the report shows the persistent challenge the international community faces from a global energy perspective. Despite renewed focus on energy efficiency, CO2 emissions continue to rise. That’s despite fossil fuel subsidies rising to $544bn in 2012. Meanwhile 1.3 billion people worldwide continue to lack electricity.

All in all, Birol’s succinct stated objective of the report, as an aid ‘for policy makers to have an orientation in this fast paced energy world’ understates a stark presentation of the huge difficulties that remain in marrying environmental, energy security and economic considerations.

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You can access the details for the report here

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