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Why a Fight About Energy in 2040 Matters Right Now: Liam Denning

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These translations are done via Google Translate
Apr 8, 2019, by Liam Denning

(Bloomberg Opinion)

When I use Google Maps, it gives me several options, but I usually take the one it highlights without thinking too much about it.

Do energy and climate road maps work the same way? Some 60-odd signatories representing a swath of investment funds, scientific institutions, and think tanks suggest they do, in a recent letter to Fatih Birol, executive director of the International Energy Agency. Their focus is the IEA’s annual “World Energy Outlook,” or WEO, a doorstop of a report with projections detailing how we will power society through decades to come. The letter praises the WEO as “a constant lighthouse,” informing and shaping decisions around the world. Then it suggests some changes.

The WEO is structured around three scenarios: “New Policies,” “Current Policies” and “Sustainable Development.” The first is the de-facto central case, the second is effectively a higher-emissions scenario and the third models a world limiting global warming to “well below” 2 degrees Celsius (3.8 Fahrenheit), in line with the objectives of the Paris Agreement struck in 2015.

Last October, the United Nations’ Intergovernmental Panel on Climate Change published a report warning even 2 degrees of warming above pre-industrial levels risked potentially catastrophic consequences. The IPCC’s analysis showed limiting warming to 1.5 degrees instead could, for example, mean the difference between survival and extinction for thousands of plant and animal species. The world has warmed by 1 degree already, and calls to take action against climate change have grown more urgent.

The letter is of a piece with this. The group urges the IEA to make the Sustainable Development scenario the central case, make it fully transparent and tighten it up. The current version implies a high probability of limiting the temperature increase to between 1.7 and 1.8 degrees by the end of the century, partly by assuming an increase in carbon capture by many orders of magnitude, particularly after 2040. The group wants an updated scenario to target 1.5 degrees and be more cautious in assuming carbon capture takes off. Meanwhile, it wants the IEA to stick the equivalent of a tobacco warning on the New Policies scenario, which implies warming of 2.7 to 3 degrees.

Arguing about tenths-of-a-degree outcomes in a theoretical 2040 may strike you as esoteric. But when the author is the IEA, that projection doesn’t merely hold up a hypothetical reality, it helps create reality. This isn’t to say the IEA should be blamed for how its scenarios get used (and abused). I’m pretty sure the president peddling nonsense about noise from wind turbines causing cancer owes very little to close reading of mathematical models.

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Yet the WEO’s detail and provenance mean it is widely used as a road map for our energy future. Moreover, it’s a map used by the people, companies and institutions planning and building the roads. If its scenarios point a certain way, then investments will be made accordingly in such things as power plants, pipelines and oil and gas fields, facts on the ground with multi-decade lifespans.

Meanwhile, the IEA’s own projections show just how big a difference tenths of a degree can make. In its 2016 edition of the WEO – published the year after the Paris Agreement was signed – it sketched out a 1.5-degree analysis to supplement what was then its lower-carbon scenario, “450”. While the numbers are slightly out of date, a quick look at the IEA’s projections for oil and gas demand in 2040 under the different scenarios provides a sense of just how big a difference targeting a few tenths of a degree less can make.

Whereas the Sustainable Development scenario projects global oil demand dropping to 63 million barrels a day in 2040 – more than a third below today’s level – the 1.5-degree scenario takes it below 40 million, a level last seen in 1968. Natural gas demand, meanwhile, flips from being roughly flat with today’s level under Sustainable Development’s assumptions to dropping by more than a third, back to where it was in 1999. In some ways, that gas figure is even more shocking, given the widely held view that it will come into its own and act symbiotically with renewable energy. The IEA even touted a “Golden Age of Gas” scenario in its 2011 outlook, and oil majors have invested billions in turning themselves into Big Gas.

Birol says “the biggest challenge I see today is the disconnect between what is happening in the energy market and the targets and trajectories set by governments and other groups.” He says the immediate challenge is to get from the 2.7-degrees future of the New Policies scenario to 1.7 degrees. There is something to be said for that, if only because it highlights just how far we are from getting onto even a still-risky pathway.

At the same time, it underlines the very urgency motivating that letter and its reasonable demands. The numbers show that incrementalism is a road to ruin and the transformation in energy supply and consumption required for a better road is staggering. Yet, even now, a giant bond sale by Saudi Arabian Oil Co. is reportedly generating overwhelming demand, including for paper maturing in 2049 that looks set to price well below 5 percent. Similarly, Birol points to the enormous investment made in young coal-fired power plants across Asia; money down on a future that looks very like our past, except with rising sea levels.

At the very least, it would make sense to re-brand New Policies with something emphasizing its embedded risks. At the same time, providing extensive and regular space for a 1.5-degree scenario – effectively an expanded version of the analysis published already in 2016 – would clarify what is truly required to mitigate the worst of those risks. Even better would be an open version of the IEA’s model, helping investors, policy groups and others run their own scenarios on the impact of such things as the cost of different energies; carbon pricing; the likely penetration of renewable and sequestration technologies; and, perhaps most difficult of all, feedback loops as climate change affects economic growth and other macro inputs.

The very appearance of this letter is a testament to growing unease about climate change, its impact on tomorrow’s society and both the role and fate of investments we collectively make now. Even before any changes that should be made to the IEA’s outlook, that point should not be lost on today’s energy’s incumbents.

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