IEAViews
| Biofuels |
| The recent shortage in grain stocks and surge in food prices have triggered questions about the sustainable production of biofuels. In reality, there are a number of important factors impacting food supplies and prices, including surging food demand, failed harvests and high energy prices. Biofuels do have an impact but the IEA considers it very important to differentiate between types. On one hand, most biofuels are attractive in that they may serve to replace imported oil and help diversify energy resources. However, some current (“first generation”) biofuels, such as ethanol from grains and biodiesel from oil seeds, may compete with food, fibre and feed production, although currently less than 2 percent of global agricultural cropland is used for biofuels production. (Source: Worldwatch Institute, “Biofuels for Transport: Global Potential and Implications for Agriculture”, report prepared for the German Federal Ministry of Food, Agriculture and Consumer Protection, 2007). Biofuels can be produced in a more sustainable way and, properly managed, they can offer valuable benefits to OECD and developing countries. The use of sustainable biofuels can increase energy security, foster economic development, especially in rural areas, and reduce greenhouse gas emissions. Ethanol from sugar cane produced in the tropical/sub-tropical regions such as Brazil, southern Africa and India, for example, has excellent characteristics in terms of economics, CO2 reductions and low land use requirements. “Second generation” biofuels from ligno-cellulosic feedstocks (straw, woody biomass residues, vegetative grasses) (see IEA Report “From 1st- to 2nd- Generation Biofuel Technologies at www.iea.org) hold considerable promise for eventually providing more sustainable types of biofuels. Although they remain relatively costly options to date, through on-going public and private research and deployment investments, much progress has been made in recent years. Several small and medium-scale conversion facilities to convert ligno-cellulosic biomass to either ethanol or to synthetic diesel are expected to come on line over the next 2-3 years in countries such as the United States, Canada and Germany. The IEA calls on governments to increase their support for 2nd generation biofuels RD&D at this critical juncture, to consider phasing out current incentive support schemes for biofuel technologies as they reach maturity, and to explore a rapid transition to policies that promote advanced biofuels. Biofuels are playing an increasingly important role in meeting growing transport fuel demand. They represented 49% of the growth in Non-OPEC oil supply in 2007 and this share is expected to rise to 55% in 2008. The IEA publication Energy Technology Perspectives 2008 shows that biofuels may have to play a significant role if the world is to make meaningful reductions in carbon dioxide emissions. In the report’s most ambitious scenario, advanced biofuels supply about 700 million tonnes of oil equivalent, representing 26% of total transport fuel demand, by 2050. |
| Carbon Capture and Storage |
| Carbon capture and storage (CCS) is one of the most promising technological solutions to curb greenhouse gas emissions, especially in light of the expected growth in fossil fuel use that IEA analysis predicts. Yet a major push is needed to develop and demonstrate the technology before it can deliver on its promise. To date, only four full-scale CCS projects are in operation around the world and none of them involve coal-fired power plants, which are expected to remain a major source of greenhouse gas emissions in the coming decades. Our analysis indicates that if CO2 emissions are to be halved and stabilised at the generally agreed upon goal of 450ppm by 2050, CCS in power generation and industry will need to account for one-fifth of the necessary emissions reduction by that time. To achieve this, the equivalent of several thousand CCS projects such as Sleipner in Norway would be required. To get started, we need at least 20 large-scale demonstration projects to be announced by 2010 – a proposal that the G8 leaders at their 2008 meeting in Hokkaido, Japan strongly endorsed. IEA calculations show that around USD 20 billion would be needed for these near-term demonstration projects, in addition to the plants’ base costs. Yet current spending and activity levels are nowhere near enough to achieve these deployment goals. Insufficient financing and a lack of regulatory support have created barriers to action and even led to some early projects being cancelled. Due to the extremely rapid ramping up that must occur for CCS if it is to deliver the necessary reductions after 2020, we believe that now is definitely the time for CCS. If we do not develop several large-scale integrated demonstration projects in the next decade, it will be impossible for the technology to make any meaningful contribution to CO2 reduction efforts by 2030. The cost of mitigating climate change will rise dramatically as we will need to turn to other technologies. The IEA is calling for more international commitment. Some countries are showing leadership; more is needed. |
| Consolidation of European Energy Industry |
| The IEA sees the merger and consolidation considerations across Europe in the context of the liberalisation of European energy markets. The IEA trusts that relevant regulatory and competition authorities will rule appropriately so that the level of competition in European energy markets does not deteriorate at a cost to European energy consumers. This consolidation underlines the importance of the continued development of an internal European energy market where competition can flourish with full transparency and where efficient trade across borders is ensured. Further progress toward a regulatory framework that enables effective competition is critical, as pointed out repeatedly by the European Commission. Political interference in a merger and consolidation process by overruling the regulatory procedure can pose a real threat to the development of competition. Such interventions based on national strategic considerations seem outdated and incompatible with the spirit of a transparent, efficient and functional internal market. Active government involvement and commitment is required to ensure that the liberalisation process leads to effective competition. Key features in all effective markets are the presence of independent regulators, the unbundling of natural monopoly network activities and price signals that reflect real costs and transparency in the market place. (For more information, see IEA publications Lessons from Liberalised Electricity Markets (2005) and Tackling Investment Challenges in Power Generation (2007). |
| Energy Efficiency |
| Energy efficiency is one of the major tools for strengthening security of energy supply. But not only does it save energy, it reduces costs and lowers CO2 emissions. Existing efficiency technologies can sharply reduce energy consumption per unit of GDP, often at little or no cost. And results can be delivered soon. The IEA submitted 16 energy efficiency recommendations to the G8 Summits in St. Petersburg and Heiligendamm and presented another 9 to the July 2008 Hokkaido Summit in Japan. Altogether, the recommendations cover 25 fields of action across seven priority areas: buildings; appliances; lighting; transport; industry; power utilities and cross-sectoral activity. Aggressive implementation of this package can lead to huge and transformative changes to global energy and CO2 profiles. The IEA estimates that if implemented globally without delay, the proposed actions could reduce global CO2 emissions by 8.2 gigatonnes – or 20% - per year by 2030. This is equivalent to roughly double OECD Europe’s total 2005 CO2 emissions. For buildings, governments need to strengthen the energy efficiency requirements of building codes, promote the adoption of low-energy houses and improve the monitoring of energy efficiency performance in existing structures. Appliances and equipment represent one of the fastest growing energy loads in most countries. Governments need to set mandatory energy performance standards for household equipment and implement, where appropriate, energy labelling across the full range of mass-produced equipment. Also, saving energy by adopting efficient lighting technology is particularly cost-effective. The IEA recommends that governments phase out the most inefficient incandescent bulbs as soon as commercially and economically viable. About 60% of world oil is consumed in transport sector. To achieve significant savings in this sector, the IEA recommends the introduction of mandatory fuel efficiency standards for cars and small trucks and the adoption of international test procedures for measuring tyre-rolling resistance. |
| Energy Investment |
| In a report* to this year’s G8 Summit in Italy, the IEA warns of a slide in energy investment as a consequence of the economic downturn. Our calculations show that investment in oil and gas exploration in 2009 will be at least 21% lower compared to 2008 - a reduction of almost USD 100 billion -, posing risks to future energy security and the effort to combat climate change. For oil, investment cutbacks are expected to delay projects involving 4.2 mbd of production capacity by at least 18 months. Some 2 mbd of capacity over the next two years, valued at about USD 170 billion, have already been cancelled. If investments continue to fall and if the economy recovers strongly in the next few years amid rising oil consumption, the supply/demand-balance could tighten quickly within the next few years, leading to much higher oil prices. The power sector is expected to be particularly affected by the economic downturn. The IEA estimates that electricity demand will fall for the first time since 1945, while it continued on its upward trend even during the first and second oil shocks and US recession in the early 1980s! Our calculations show that global electricity consumption could drop by up to 3.5% this year compared to 2008. Russia will see a fall by almost 9 per cent, followed by the OECD (4.8%) and China (2.9%). Spending on renewable energy such as wind power is falling even more rapidly than oil and gas. The IEA expects the sector to plunge by 38% in 2009 due to the recession. Yet the sums set aside in government fiscal packages for cleaner energy sources can probably offset a small proportion of this decline. Our analysis suggests that, relative to their recent announcements, G20 governments should increase the level of new funds they commit to cleaner and more efficient energy use (including carbon capture and storage) by about four times to USD 400 billion to achieve the generally agreed upon goal of stabilising CO2 emissions in the atmosphere at around 450 ppm in the long term. * The Impact of the Financial and Economic Crisis on Energy Investment, IEA 2009. |
| EU Commission plans to split Europe's energy companies from transmission networks |
The IEA welcomes the EU plans to open gas and electricity markets to more competition. The proposals are designed to facilitate the functioning of the European gas market. The objective is to increase transparency in the European energy market, to separate the supply function and the transportation function. A monopoly of companies owning both the gas and the transportation system does not promote economic efficiency or serve consumer interests. The objective is to provide gas at a more economic price to the consumers so that they have the benefit of energy services at reasonable prices while taking into account both security and environmental concerns. A stronger distinction between the supply function and the transportation function will reduce pressure on prices through competition. |
| Gas in Europe |
| The severe gas disruption in January 2009, following a dispute between Russia and Ukraine, marked the worst gas crisis that Europe has experienced. It revealed once again the European dependence on Russian gas and highlighted the importance of diversified suppliers and supply routes. This is particularly valid as demand for gas in Europe has grown by more than 70 percent since 1990, especially in the power sector, while its own gas production is declining rapidly.
The IEA believes that critical improvements need to be made in developing cross-border interconnections and market functioning in order to enhance gas security and limit the severe economic and human impact of any such gas disruption. In addition the IEA suggests the following steps: In the short term, European countries need to improve their gas emergency preparedness, including fuel switching (especially useful in the power sector), interruptible contracts in large gas-using industries, and storage. In the medium term, greater interconnectedness of currently rather separate national markets must take place, along with the development of a more functional internal market, where gas can move according to demand and supply. This would be greatly facilitated by improved transparency in gas markets. In the longer term, greater emphasis must be placed on improving energy efficiency, both in the gas and electricity sectors. Europe must act quickly to diversify its power sector, and develop the technologies to allow more diverse and abundant energy sources, such as nuclear and coal (with Carbon Capture and Storage), to contribute to power generation. Furthermore, renewable energy sources can and must be part of this energy future, but their costs must come down and issues associated with intermittency addressed. Governments, companies and markets are now better prepared to face gas supply interruptions as a result of studying the impacts of the January 2009 events. In addition, the EU is providing substantial funding towards improving interconnection and reverse flow of pipelines, both of which will improve Europe's gas security in the medium term. |
| IPEEC |
| The International Energy Agency welcomes the official launch of the new International Partnership of Energy Efficiency Cooperation, IPEEC, and is delighted to welcoming its secretariat at the IEA headquarters in Paris. On 24 May 2009, on the margins of the G8 Energy Ministers meeting in Rome, eleven countries and the European Energy Commissioner signed the terms of reference to establish IPEEC. This new high-level forum will work globally to promote actions that bring high gains in energy efficiency. IEA Executive Director Nobuo Tanaka attended the signing ceremony and welcomed this important new international partnership. On 17 June 2009, the IEA Governing Board approved the hosting of the IPEEC secretariat at the IEA. The partnership will offer its members a flexible forum for high-level policy discussion, regular strategic cooperation and exchanges focused on promoting energy efficiency. Its purpose is to facilitate action which promises high energy efficiency gains and improvements, and in areas of interest to the participating countries where they see added value for themselves and choose to take action on a voluntary basis. In a statement issued at the G8 Energy Ministers Meeting, the IPEEC Partners called on all countries to join their Partnership. The origins of the IPEEC initiative date back to the Heiligendamm G8 Summit in June 2007. At that summit the G8 acknowledged an EU proposal for an international initiative on energy efficiency and agreed to explore – together with the International Energy Agency – the most effective means to promote energy efficiency internationally. A year later, at the 2008 G8 Energy Ministerial Meeting in Aomori, the G8 countries, China, India, South Korea and the European Union decided to establish IPEEC. Brazil and Mexico subsequently joined discussions on the Partnership’s terms of reference. At a preparatory meeting held at the IEA in Paris on 16 December 2008, the founding parties agreed on the broad outlines of the new partnership, including an invitation to the IEA to host the IPEEC Secretariat as an independent body housed within the IEA. |
| Speculation on "Gas OPEC" |
| There is a lot of speculation about possible creation of a gas monopoly among gas-rich nations. The IEA believes that a cartel is always bad news for consumers and consumer countries. But cartels are also counterproductive for producing countries. Pushing up prices by forming a cartel will encourage consumers to reduce demand or switch to other fuels. This is particularly true for gas which can be substituted with coal and nuclear. At the IEA, we believe that the market is simply more efficient. Cartels distort behavior and do not strengthen security of supply. |
