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IEA economist: ‘We have to leave oil before it leaves us’

Published 07 November 2011
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The International Energy Agency (IEA)’s annual World Energy Outlook, due for publication on 9 November, will contain alarming research that the world is on track for a catastrophic rise in global temperatures unless fossil fuel subsidies are cut, energy efficiency is improved, and more countries introduce some form of carbon pricing.

Fatih Birol is the IEA’s chief economist, tasked with overseeing the World Energy Outlook reports, the Energy Business Council, and the organisation’s economic analyses of energy and climate change policy. He spoke to EurActiv’s environment correspondent, Arthur Neslen.

To read a shortened version of this interview, click here:

As Solarworld’s anti-dumping suit against China gathers pace, do you think China has been using unfair trade practices in its subsidising of solar panel production?

When we look at the entire renewable energy projects worldwide – wind, solar, mini-hydro – we see that China will be adding the largest capacity worldwide in the next 20 years. This will make China the champion of clean energy technologies and this has of course several implications. One is that if this happens as we estimate in the World Energy Outlook, it is good news for reducing carbon intensity, which is good news for China and for the rest of the world.

Secondly, since it will add a huge amount of capacity - due to learning by doing - it will bring the cost of manufacturing these technologies down, which is again good news for China and the rest of the world. One of the major challenges that the clean energy schemes face is the cost issue, and this will help. Third, and in line with your question, if China becomes the champion of clean energy technologies, then it will effect the other current champions in Europe, the US, Japan and elsewhere.

This means that this issue of a huge expansion of clean energy technologies will have an impact not just for energy, but for climate change and also trade policies. I hope that this trade policy issue is dealt with in a fair manner, with the agreement of all the parties, within the international rules and regulations and, most importantly, without hampering the growth potential of clean energy in any given country, and in the world. If energy and climate funds are used properly, they will definitely help to improve the chances of low-carbon technologies in every country.

Most priority projects announced in the EU’s recent energy infrastructure proposal dealt with oil and gas pipeline infrastructure. Do you think there was enough focus on renewables in it?

I think that the EU has significant renewables targets and I hope and expect that they will reach them. In our analysis, in order for the EU to reach its ambitious renewables and climate targets, seven out of 10 units of power plants in the EU in the next 25 years need to be [powered by] renewables, otherwise it will be impossible to reach those targets. And when I say renewables, they are led by wind, followed by biomass, solar and others.

Some people have proposed that Greece could pay off some of its debts to Germany and other countries with solar power. Do you think that’s a good idea?

I think there are many ideas in that direction and why shouldn’t we look at the different problems at different times? The energy issue is a bit different than the current debt crisis in Europe, but if such trade opportunities arise, why not?

You’ve said that the world needs to invest $19 trillion (€13.8 trillion) in oil and gas infrastructure over the next 25 years. What would the consequences of that be for the climate?

The consequences for the climate would be in line with our central scenario, which is that if countries do only what they said they would do after Copenhagen, that would bring us to a 3.5 degrees [global warming] trajectory which is unacceptable for us.

How would you assess the economic successes and failures of the EU’s emissions trading scheme?

The introduction of the ETS in many countries has been a key policy tool to go for a cleaner and more sustainable energy future. It is important for countries to keep options which have already been introduced, and for the ones which are still considering them to consider to do so. As with all new market structures and mechanisms it needs experience on one side and crystal-clear rules on the other. If we don’t have both of those, it can lead to partial challenges – and result in partial failures – and it has done so in the past. Sometimes we need to go beyond current forms, and that is the case with international carbon markets.

In our central scenario [in the World Energy Outlook], seven countries introduce some form of carbon pricing which brings us to a 3.5 degree [global warming] trajectory. But it we want to keep the temperature increase to 2 degrees, many more countries need to do so, to give the right signal. The most important condition is that there’s coordinated international action in place. But I insist that countries need to be very careful with design to learn from past experiences. Here, I should definitely note the recent moves in carbon pricing in Australia and the efforts in China, unlike some other OECD countries.

A lot of companies seem reluctant to invest in energy efficiency because of the short-term returns for investors, what can realistically be done about that?

The reason why we do not get as much as we want when we talk about OECD countries is that they are reluctant to invest because there are not clear price signals in place yet. When there’s uncertainty on both the regulatory and market sides, it increases their risk exposure. If the policies are well-designed, and they should be, these legitimate concerns can be well overcome and they can help to tap into that huge resource.

We estimate that if you want to go to a 2 degrees [global warming] trajectory, about half of the CO2 savings or reductions need to come from energy efficiency. But if you ask me one single policy item which could help us to get there, I would say the fossil fuel subsidies in major non-OECD countries. According to our analysis in the World Energy Outlook 2011, which we’ll publish on 9 November, today $409 billion [€298.1 billion] equivalent of fossil fuels subsidies are in place which encourage developing countries - where the bulk of the energy demand and CO2 emissions come from – [towards a] wasteful use of energy.

The phasing out of those subsidies would help not only to reduce the CO2 emissions but also to help the renewable energies get a bigger market share than they have now in the current market structures. Since fossil fuel prices are heavily subsidised, renewable energies have to compete with a low-price fossil fuel energy production, which is definitely unfair.

What would be the effect of cutting the EU’s emissions by 30% instead of 20% by 2020?

It would definitely be a major step for the EU and would help to decarbonise the European energy system and also give more incentive to the production of renewable energy and other low carbon technologies and give a boost to energy efficiency policies. This is of course good news for the EU. However, some European countries have different views. Some would like to see a 20% reduction and some a 30% reduction and the difference between those two emissions levels is equal to only two weeks of emissions from China. This means that even though it would be a big step for the EU, to make such a major policy effort, it would have only limited implications on global carbon emissions trends, in the absence of other players taking similar steps.  

In terms of the Durban conference that’s coming up, are you satisfied that the world’s governments are doing enough? What are the crucial issues that you think the world needs to address?

I think one of the key issues and analyses we will come up with on 9 November in the World Energy Outlook is the issue of locking in the energy infrastructure, because of delayed action. The results are surprising. They indicate that the door for a 2 degrees trajectory may be closing if we do not act urgently and boldly. Durban could be very important and in fact one of the last opportunities if we want to limit temperature increase to 2 degrees Celsius – if we’re serious about that. However, looking at the current international policy debate on climate change I would say that the wind is not blowing in the right direction.

You’ve said in the past that you believe that the world has already passed its ‘peak oil’ moment – the point at which the amount of oil already used outweighs the amount left in the ground. How far past that moment do you think we are, and what are the economic and environmental consequences?

We have said that we have seen the peak of commercial oil. There is still uncommercial oil and other forms coming and we will definitely need oil for our mobility systems for cars, trucks and jets and for our economic daily life to continue. However, one day we will run out of oil - not tomorrow or the day after but one day we will. Given its strategic importance for our societies, it is important to prepare our societies for that very day and try to find alternatives to oil especially in transportation systems. These could be electric cars, hybrid cars, natural gas, or biofuels-driven cars, or putting more emphasis on mass transportation. 

When we talk about CO2 emissions, people think directly about coal. But if you look at the numbers, the contribution of oil to global CO2 emissions is only a few percentage points lower than coal. Therefore it needs to be taken closely into consideration. We’re not running out of oil today or tomorrow but we need to prepare ourselves for the day that we do. We have to leave oil before it leaves us.