1. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Reconciling Energy Security and Climate Change Mitigation: The Investment Challenge Richard Bradley, PhD Head, Energy Efficiency and Environment Division International Energy Agency 3 July 2007 THESEUS Summer School 2007

2. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE What is Energy Security?

4. Assessment approach  Quantitative framework based on indicators  Climate change: CO 2 emissions  Energy security implications of resource concentration: develop new indicators ♦Consider price and physical availability risk separately Price: oil, coal and gas Physical availability: gas

5. Energy security indicators

6. 86% of world total 88% of world total

7. IPCC Stabilisation and equilibrium global mean temperatures Equilibrium temperatures reached after 2100 Uncertainty of climate sensitivity important Multigas and CO2 only studies combined

8. IPCC Long term mitigation (after 2030) [1] [1] The best estimate of climate sensitivity is 3ºC [WG 1 SPM]. [2][2] Note that global mean temperature at equilibrium is different from expected global mean temperature at the time of stabilization of GHG concentrations due to the inertia of the climate system. For the majority of scenarios assessed, stabilisation of GHG concentrations occurs between 2100 and 2150. [3][3] Ranges correspond to the 15 th to 85 th percentile of the post-TAR scenario distribution. CO 2 emissions are shown so multi-gas scenarios can be compared with CO 2 -only scenarios. Stab level (ppm CO2-eq) Global Mean temp. increase at equilibrium (ºC) Year global CO2 needs to peak Year global CO2 emissions back at 2000 level Reduction in 2050 global CO2 emissions compared to 2000 445 – 4902.0 – 2.42000 - 20152000- 2030-85 to -50 490 – 5352.4 – 2.82000 - 20202000- 2040-60 to -30 535 – 5902.8 – 3.22010 - 20302020- 2060-30 to +5 590 – 7103.2 – 4.02020 - 20602050- 2100+10 to +60 710 – 8554.0 – 4.92050 - 2080+25 to +85 855 – 11304.9 – 6.12060 - 2090+90 to +140 Mitigation efforts over the next two to three decades will have a large impact on opportunities to achieve lower stabilization levels

9. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Other Objectives 198019902000201020202030 Energy Security Economic Growth Bridging the Welfare Gap Environmental Protection

10. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Atmosphere 790 PgC

11. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Mitigation Policy & Technology Capital stock turnover—You don’t kill the “cash cow.” Thus, the margin for learning is the new capital stock market. Increasing marginal cost of rapid deployment. Capital Stock Turnover Rates Source: Adapted from PNL/U of Maryland Early market signals and technology R&D can work together to assist the market transition – Policies and R&D are inseparable!

12. Tackling Investment Challenges in Power Generation In IEA Countries INTERNATIONAL ENERGY AGENCY Power plants are ageing Age of existing plants, technological development, tighter environmental controls, and nuclear phase out policies drives the need for replacements

13. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE What Needs to Happen National policies to change the emission path in the short to medium term Development of new large technologies International institutional framework providing cost effective incentives for emissions reductions and technology deployment.

14. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Are Emissions On Track?

15. © OECD/IEA - 2006 Reference Scenario: World Primary Energy Demand Global demand grows by more than half over the next quarter of a century, with coal use rising most in absolute terms Oil Coal Gas Biomass Nuclear Other renewables 0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 1970198019902000201020202030 Mtoe

16. © OECD/IEA - 2006 Reference Scenario: Primary Energy Demand by Region World oil demand grows by just over half between 2004 and 2030, with 70% of the increase coming from developing countries Developing countries become the biggest energy consumers within a decade 0 2 000 4 000 6 000 8 000 10 000 198019902000201020202030 Mtoe OECDDeveloping countriesTransition economies

17. © OECD/IEA - 2006 Reference Scenario: World Primary Oil Supply OPEC takes the lion’s share of oil market growth as conventional non-OPEC production peaks, but non-conventional oil plays a growing role * Including NGLS 0 20 40 60 80 100 120 2000200520152030 mb/d 30% 35% 40% 45% 50% Middle East OPEC crude*Other OPEC crude* Non-OPEC crude*Non-conventional oil OPEC market share

18. © OECD/IEA - 2006 Oil 21% Electricity 56% Coal 3% Gas 19% Reference Scenario: Will the Investment Come? Just over half of all investment needs to 2030 are in developing countries, 18% in China alone Cumulative Investment in Energy-Supply Infrastructure, 2005-2030 = $20.2 trillion (in $2005) Power generation 54% 46% Other Refining 73% 18% 9% LNG chain Transmission and distribution 56% 37% 7% Mining Shipping & ports 11% 89% $4.3 trillion $11.3 trillion $3.9 trillion $0.6 trillion Biofuels 1% Exploration & development Transmission & distribution Exploration & development

19. Tackling Investment Challenges in Power Generation In IEA Countries INTERNATIONAL ENERGY AGENCY Investments mostly gas-fired but increased interest in coal

20. © OECD/IEA - 2006 Reference Scenario: Energy-Related CO 2 emissions by Region China overtakes the US as the world’s biggest emitter before 2010, though its per capita emissions reach just 60% of those of the OECD in 2030 0 3 6 9 12 15 19902000201020202030 Gigatonnes of CO 2 United States China Rest of non-OECD Rest of OECD

21. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Is Technology Development On Track?

22. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE

23. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Asian-Pacific Partnership on Clean Development and Climate Purpose: The partnership will collaborate to promote and create an enabling environment for the development, diffusion, deployment and transfer of existing and emerging cost-effective, cleaner technologies and practices, through concrete and substantial cooperation so as to achieve practical results. Task Forces:  Aluminium Aluminium  Buildings and Appliances Buildings and Appliances  Cement Cement  Cleaner Use of Fossil Energy Cleaner Use of Fossil Energy  Coal Mining Coal Mining  Power Generation and Transmission Power Generation and Transmission  Renewable Energy and Distributed Generation Renewable Energy and Distributed Generation  Steel Steel

24. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Is the Institutional Framework On Track?

25. Copyright IEA Global CO 2 emissions from energy are growing rapidly

26. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE What Can Be Done?

27. © OECD/IEA - 2006 Alternative Policy Scenario: Global Savings in Energy-Related CO 2 Emissions Improved end-use efficiency of electricity & fossil fuels accounts for two- thirds of avoided emissions in 2030 Alternative Policy Scenario Reference Scenario Increased nuclear (10%) Increased renewables (12%) Power sector efficiency & fuel (13%) Electricity end-use efficiency (29%) Fossil-fuel end-use efficiency (36%) 26 30 34 38 42 200420102015202020252030 Gt of CO 2

28. © OECD/IEA - 2006 Alternative Policy Scenario: Energy Investment Avoided supply-side investment more than outweighs the additional investment by consumers in more expensive end-use capital stock Change in Cumulative Energy-Related Investment vs. Reference Scenario, 2005-2030 -4 000 -3 000 -2 000 -1 000 0 1 000 2 000 3 000 Additional demand- side investment Avoided supply-side investment Net change in energy investment billion dollars (2005)

29. © OECD/IEA - 2006 Alternative Policy Scenario: Change in Energy-Related CO 2 Emissions, 2004-2030 OECD emissions also peak & then decline before 2030, falling below 2004 levels in Europe and Japan Emissions in 2030 are below current levels 0123456 Middle East Africa Latin America Rest of developing Asia India China Transition economies Rest of OECD Japan European Union United States Gt of CO 2 Alternative Policy ScenarioReference Scenario

30. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Impact of Concrete 2006 & 2007 IEA Recommendations on World Final Energy Consumption

32. Scenarios & Strategies to 2050 ENERGY TECHNOLOGY PERSPECTIVES 2 0 0 6 © OECD/IEA, 2006

33. Scenarios & Strategies to 2050 ENERGY TECHNOLOGY PERSPECTIVES 2 0 0 6 © OECD/IEA, 2006

34. IPCC Technology The range of stabilization levels can be achieved by –deployment of a portfolio of technologies that are currently available and –those that are expected to be commercialised in coming decades. This assumes that appropriate and effective incentives are in place for development, acquisition, deployment and diffusion of technologies and for addressing related barriers

37. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Recent Policy Developments

38. IPCC IPCC: What are the macro-economic costs in 2030? Trajectories towards stabilization levels (ppm CO 2 -eq) Median GDP reduction[1][1] (%) Range of GDP reduction [2][2] (%) Reduction of average annual GDP growth rates [3][3] (percentage points) 590-7100.2-0.6 – 1.2< 0.06 535-5900.60.2 – 2.5<0.1 445-535[4][4]Not available< 3< 0.12 [1][1] This is global GDP based market exchange rates. [2][2] The median and the 10 th and 90 th percentile range of the analyzed data are given. [3][3] The calculation of the reduction of the annual growth rate is based on the average reduction during the period till 2030 that would result in the indicated GDP decrease in 2030. [4][4] The number of studies that report GDP results is relatively small and they generally use low baselines. Costs are global average for least cost appoaches from top-down models Costs do not include co-benefits and avoided climate change damages

39. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE European Union Commission recently set a target of a 20% reduction by 2020. Set a long term goal of limiting the temperature change to 2 o C EU ETS directive now under review for post- 2012. ETS to be linked to Norway effective 1 January 2008 Energy Efficiency Action Plan  20% savings by 2020; 20% CO2 reduction; 20% renewables target; 10% biofuels  Broad range of policies addressing all major sectors

40. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE New White House Initiative To convene high-level meeting of 15 largest emitters to develop long term framework by 2008  The participants will develop parallel national commitments to promote key clean energy technologies.  The proposal seeks to bring together the world’s top greenhouse gas emitters and energy consumers.  In creating a new framework, the major emitters will work together to develop a long-term global goal to reduce greenhouse gasses.  Each country will work to achieve this emissions goal by establishing its own ambitious mid-term national targets and programs, based on national circumstances.  They will ensure advancement towards the global goal with a review process that assesses each country’s performances.

41. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE U.S. Legislative Activity

42. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Other Developments in the US The formal launch of the Western Regional Climate Action Initiative (WRCAI) - California, Oregon, Washington, Arizona and New Mexico The US CAP initiative Regional Greenhouse Gas Initiative (RGGI) among NE States

43. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Australia 10 December 2006, the Prime Minister announced the establishment of a joint government-business taskforce on emissions trading the Task Group has concluded:  Australia should not wait until a genuinely global agreement has been negotiated  Emissions trading scheme should form the principal mechanism to achieve emissions-reduction goals  A workable global emissions trading scheme is likely to evolve slowly through a patchwork of linked national and regional schemes.  Australia’s medium term emissions trajectory and its long- term aspirational goal must be set with great care while recognising the need for deeper emissions reductions over time.  a ‘safety valve’ emissions fee  mixture of free allocation and auctioning of single-year dated emissions permits

44. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Conclusions It is not yet possible to discern a human influence on emissions reductions.  Policy effort is insufficient Fossil fuels will dominate the energy supply for the foreseeable future Technology development is being focused, but may not be adequate. Investors need an international cost effective framework soon if energy security and climate change objectives are to be met.