You probably won’t be surprised to hear that energy policy is way off course around the world. At the Paris climate conference, governments committed to reducing emissions to try to hold the rise in global temperatures to 1.5 degrees. Four years later, global emissions are increasing — and if nations’ energy policies are any guide, they will end up driving temperatures far above the Paris goal.
That’s hardly new. What’s important is who is saying it this week: the International Energy Agency, the Paris-based global data source and think tank established and funded by more than fifty governments, including Australia, as the world’s authoritative source of advice on energy policy.
The IEA’s annual flagship review, World Energy Outlook 2019, puts it bluntly. On current policies, the world is on track for a “relentless upward march in energy-related emissions, as well as growing strains on almost all aspects of energy security.” Even governments’ stated policies, including promised changes in future, would merely slow that growth a little, leaving the world far short of meeting its goals in 2040.
The agency’s executive director, Turkish energy economist Fatih Birol, was equally forthright:
The world urgently needs to put a laser-like focus on bringing down global emissions. This calls for a grand coalition encompassing governments, investors, companies and everyone else who is committed to tackling climate change… For this to happen, we need strong leadership from policymakers, as governments hold the clearest responsibility to act and have the greatest scope to shape the future.
Dr Birol and his team are no “raving inner-city lunatics,” as deputy PM Michael McCormack characterised climate change protesters. They are experienced public servants, experts in their field, who collect the data from all over the world, identify the trends, and model their consequences. And their conclusion is that we’re failing.
But they also have a very different viewpoint from pretty well anybody who writes about these issues in Australia. The IEA’s focus is on “all fuels and all technologies.” While it sees expanding renewable energy — and storage — as one of the two main drivers for reducing global energy emissions, it regards improved efficiency of energy use as having even more potential, and envisages significant roles for gas, nuclear power, and carbon capture and storage.
“What comes through with crystal clarity in this year’s World Energy Outlook is that there is no single or simple solution to transforming global energy systems,” Dr Birol warns. It is an issue where the green economists and IEA part ways sharply.
We’ll come back to that. Let’s first run through the key messages from the Outlook:
• On governments’ stated policies, energy use will continue rising by 1 per cent a year for the next two decades. Greenhouse gas emissions from energy use will also rise, although more slowly, peaking in 2045 at thirty-six billion tonnes a year, up from thirty-three billion now. And energy is the sector where it is cheapest and easiest to reduce emissions.
• Global emissions from energy use fell earlier in the decade, but rebounded in 2017 and 2018 as developing countries, starting from way behind, expanded faster than the developed countries reduced emissions. Most of this was in electricity generation, where most new power stations in developing countries burn fossil fuels.
• The two biggest influences on future emissions are developing Asia — where coal, gas and solar will battle for market dominance over the next twenty years — and Africa. In 2018 the entire continent of Africa had fewer solar panels than Australia now adds in a year. Excluding South Africa, the rest of sub-Saharan Africa had fewer cars than Australia, despite having twenty times more people.
• Currently the second-biggest source of growth in global emissions is the replacement of cars by SUVs. On average, the IEA says, SUVs need 25 per cent more fuel to drive a kilometre than a car does — and they are now taking over global markets. In Australia and the United States, 60 per cent of non-commercial vehicle sales are SUVs. Global emissions from SUVs now exceed Australia’s total emissions. We’ll come back to that too.
• The pace of gains in energy efficiency is slowing. The IEA estimates that global use of energy improved just 1.2 per cent in efficiency in 2018, way short of its target of annual 3 per cent improvements. SUVs are one example of forces pushing the other way. Only a third of energy emissions face any efficiency requirements, yet the potential gains from imposing them are enormous.
• The cheapest sources of new power vary widely from country to country. The IEA estimates that solar is now the cheapest option in India, and gas in the United States (thanks to the shale industry) and Europe, but that coal remains the cheapest energy source in China. By 2040, however, solar and wind will be the cheapest everywhere.
• The Outlook highlights the massive potential emission reductions from developing offshore wind resources, especially in Europe but also globally. Offshore wind can deliver energy at a load factor of 40 per cent, giving it the potential lead role in replacing fossil fuels as a source of 24/7 power.
The IEA emphasises that there is nothing inevitable about our trajectory. With different priorities it is feasible to meet, or at least come close to meeting, the Paris targets by 2040. But it will take that “laser-like focus” that Dr Birol urged, with governments taking the lead.
With the right policies, the Outlook’s “sustainable development scenario” estimates that global emissions from energy use could be reduced by almost ten billion tonnes a year by 2030, and from 35.9 to 9.75 billion tonnes a year by 2050. But it estimates that only a third of this would come from increased use of renewable energy.
Rather, on the IEA’s modelling, the biggest potential gains (37 per cent) come from improving energy efficiency across the board: in vehicles, buildings, factories, mines and other workplaces, everywhere. A hefty carbon price — around US$100 per tonne in 2030 rising to US$140 by 2040 — would be needed to drive this. Finding energy efficiencies means you avoid paying the tax.
Wind and solar energy would become the two biggest sources of power for electricity generation by 2040, allowing electricity use to expand — among other things, to fuel the electric vehicles that are expected to make up 75 per cent of global car sales by 2050. But even by 2040, with that hefty carbon tax, the IEA modelling anticipates that wind and solar would fuel only 40 per cent of the world’s electricity use, up from 7 per cent now.
Hydro (18 per cent) and bioenergy (9 per cent) would give renewables a two-thirds share. Nuclear energy would provide 11 per cent (mostly in what are now developing countries), coal- and gas-fired plants with carbon capture and storage 5 per cent, with the other 17 per cent coming from coal and gas plants without carbon capture, almost all in developing countries.
That is the IEA modelling its assumptions of what is feasible, and seeing where that leads. Like many analysts, it underestimated the spectacular reduction in the costs of solar and wind energy in this decade; in assuming slower cost reductions ahead, it may be underestimating them again. This is particularly relevant to the marginal role it assigns to battery storage in its sustainable scenario.
But achieving gains in energy efficiency can also be politically difficult, as we saw in the May election, when the Coalition saw political advantage in campaigning against the widespread use of electric vehicles — and got away with it.
IEA modellers Laura Cozzi and Apostolos Petropoulos point out that “there are now 200 million SUVs in the world, up from about thirty-five million in 2010, accounting for about 60 per cent of the increase in the global car fleet since 2010.” That was driven by consumers, not governments. The IEA estimates that the world’s SUVs now emit roughly 700 million tonnes a year of CO2, more than Australia’s entire high-emissions economy. The savings from electric cars so far have been a fleabite by contrast.
It is safe to say that Australia will not be leading the way in applying a laser-like focus on bringing down emissions. Indeed, with the country’s annual emissions from energy use having risen by 34.6 million tonnes or 8.5 per cent in the five years since the Coalition axed the carbon tax, there is no evidence that the government seriously intends to reduce carbon emissions full stop.
This IEA report doesn’t focus on individual countries, and Australia appears in its 800 pages mainly as an exporter of coal and gas. Again, we appear to be out of sync with the goal of reducing carbon emissions. While even under existing policies the IEA modelling forecasts that global coal use will shrink by 168 million tonnes a year by 2040, with China closing more coalmines than it opens, Australia would increase its production by forty-two million tonnes (10 per cent) in that time, second only to India. It would become the main source of growth in coal exports in a world that is turning away from coal. The IEA notes in passing that that could be a risky business strategy.
The outlook for Australian gas is seriously worrying. In case you’ve yawned through this saga, the Rudd government in 2010 gave the three gas exporters permission to export (and hence, make contracts for) gas they did not have. It and they assumed the gas would come from new fracking operations. Instead, local opposition ended fracking virtually everywhere outside Queensland, and hey, the exporters had to buy the extra gas from the domestic market. That drove up gas prices, massively, and because of the swing role gas played in the national electricity market, electricity prices went up with them. It was one of the worst policy disasters Australia has seen.
But wait, forecasts the IEA, there’s more to come. Australia already exports 67 per cent of its gas production — compared with 1 per cent in North America and 17 per cent in the Middle East — and the IEA modelling suggests that on stated policies those exports will double in the next twenty years. It notes sagely, “Australia will face some near-term challenges to maintain service for both domestic consumption growth and natural gas exports.” You bet it will.
With the Victorian Labor government having banned any gas exploration onshore — despite the state’s manufacturing employment having slumped by 33,600 or 11 per cent since 2012 — and most other states effectively banning the kind of fracking that unleashed the shale gas revolution in the United States, the prospects for sensible energy policy here appear remote.
But it is nice to have the IEA outline its version of what a sensible policy would be like. It would have a serious carbon price, gas as the transition fuel to back up solar and wind, genuine energy efficiency standards across the economy — and a real commitment to making it all work. •
