Fatih Birol's sombre perspective on our energy future

'Depressing ... disappointing ... bad news'

The world's slow progress towards legislating for a sustainable energy future means we may have to live with the consequences of global warming as we lose the ability to get it under control. Such is the stark warning coming from the International Energy Agency's latest World Energy Outlook, published last Wednesday. Alex Forbes asked Fatih Birol, the IEA's Chief Economist, what can still be done to avert climate disaster. Birol's answers are sombre throughout.

Once again, with the 2011 World Energy Outlook, the IEA is presenting very serious messages to policy-makers, again with warnings that the door of opportunity is closing, that we face being locked into an insecure, inefficient, expensive and climate-threatening energy future. Are you not disappointed at how slow policy-makers have been to address energy challenges?

Fatih Birol, chief economist of the IEA (photo: Arabian Oil and Gas /GETTY)

To be honest with you, the challenge is so huge that my disappointment is not so strong. I can see the challenges that the policy-makers are facing. What does surprise me is the indifference and the short-termism of many policy-makers. Many governments over the last three years have focused mainly on the economic crisis.This has implications, such as less attention being given to the energy sector, and that policy-makers have fewer means of putting new policies in place to bring us to a better energy future.

After the failures of the climate talks in Copenhagen in 2009 and Cancun in 2010,we now have the Durban talks coming up. How optimistic are you that this time governments will go beyond fancy speaking and reach a meaningful binding agreement?

Our analysis shows that if we do not have a major new clean-energy investment wave starting in 2017 the door to 2°C will be closed – and forever. In order to see such a big investment wave, there is a need to have a legally binding international agreement beforehand. That means that either in Durban or the following meeting we will need to see an international legally binding agreement. Unfortunately, I do not have major hopes that such an agreement will be made because many major emitters do not put a high priority on climate change.

For example, today the US and China account for almost half of the global CO2 emissions. I am not very hopeful that these two countries will be willing to see abinding agreement that will put the world on a 2°Ctrajectory. If these two countries do not bind themselves to such an agreement, it will be difficult politically for other countries to bind themselves. And even if they did,that would not change major climate trends significantly.

There’s a big political issue here, isn’t there? Because on the one hand we have the developing nations saying to the West:“You’re the ones who put all the carbon in the atmosphere, why should we have to clean up the mess?” While, on the other hand, even if the West were to implement very stringent emissions reduction policies, the results would be swamped by growing emissions in the developing world. This seems intractable. How do we get beyond this impasse?

There is a big dilemma here. When we look at the cumulative emissions from the beginning of the industrial revolution, the US and Europe are responsible for the bulk of the emissions in the

We have to see more reflection of market changes in long-term contracts
atmosphere. If we look at the future, however, we see China very soon overtaking Europe and very close to the US, even from a cumulative emissions point of view. So the argument of historical responsibility will not hold any more, even from a developing countries’ perspective.India this year, according to our analysis, became the third-largest emitter after China and the US. So we are, more or less,in a blind alley. It is a depressing situation.

The IEA is often described as “the rich nations’ energy watchdog”. And it remains true that the two countries which you focused on so strongly in the various messages you presented today – China and India – are still not members. Shouldn’t the IEA be encompassing in its membership these very big countries?

This is a valid issue. We are well aware of it, not only from the emissions point of view but also the IEA’s main task of oil import security. From that point of view India and China will be more and more important than our own member countries. We are working with them very closely and we hope to see them working much more closely with us in the future. For example, last month at our ministerial meeting we were very happy to have both the Indian minister and the Chinese deputy minister joining our meetings – a good step in the right direction, I would say.

Earlier this year the IEA published a report with the title “Are we entering a golden age of gas?” Have your views on natural gas changed since June or is the message still as it was in that report?

Since June we have seen much more data in terms of consumption, investments and supply, and I can now say in answer to that question: yes , most probably we are entering a golden age of gas.

What kind of data do you mean?

Consumption data coming from China, new Chinese shale gas data, and the investments going on in Australia,the United States and Canada.

The gas industry has seen two important developments that work together: the unconventional gas boom in North America and the hopes that it will be replicated elsewhere, but also the rapid growth of the LNG industry, which allows globalisation of gas markets. How important a role do you see gas playing over the next 20-25 years in meeting global energy needs?

In any case, much more important than today. But how much more important will depend also on the

Either we say goodbye to the 2°C target and start to live with the realities. Or we have to push CCS so that it sees the light of day
gas producers. I see two major issues they have to bear in mind. One is that in unconventional gas production, both shale gas and coal-bed methane, there are significant challenges in terms of their local environmental problems.

We have analysed this and we have seen that we can solve these problems with existing technologies. If this is done it will increase the cost of production by 10-15% in some cases, but the investments will be still profitable. So the message is: if gas producers want to see a golden age of gas they have to apply golden rules to their extraction technologies.

Secondly, one of the major advantages of gas vis-a-vis oil, renewables, coal and the others, is price. In addition to what is happening in the US, it will be important that we see the reflection of thepriceofgas coming into long-term contracts.We have to see more reflection of market changes in long-term contracts.I believe indexation may still play a role, but pricing will be crucialif producers and exporters want to see much stronger penetration of gas in the future.

In previous years the IEA has put forward suggestions that there should be a big push to develop carbon capture and storage (CCS). At one time the IEA was suggesting that something like 100 plants would be needed by 2020. But today, as far as I know, there still isn’t a single power station in the world that employs CCS technology. Is it not perhaps the case that development of CCS is what I describe as a “green herring” – that it could absorb effort, resources and money that are best spent elsewhere?

When I compare where we are today with the hopes we had for CCS a few years ago, the news is disappointing. But, at the same time, there is a huge amount of coal-fired power generation capacity in the world now and a huge amount coming. There is no way we can have these coal-fired power plants and limit the temperature increase to 2°C in the absence of CCS.

Either we say goodbye to the 2°C target and start to live with the realities. Or we have to push CCS so that it sees the light of day. But, in the absence of a carbon price, it is difficult to see CCS growing significantly – which is bad news.


To read Alex's report on the World Energy Outlook, click here.

More interesting thoughts from Fatih Birol on the World Energy Outlook

Last Thursday, the day after the International Energy Agency lanuched its new World Energy Outlook (WEO) in London, the IEA's Chief Economist Fatih Birol and IEA Executive Director Maria van der Hoeven were in The Hague, The Netherlands, to present the WEO to a national Dutch audience. This was the first in a series of presentations they will hold in Capitals across the world. Birol made some interesting additional comments in The Hague.

We have more concerns than last year, he emphasized, referring of course to the climate issue. Many governments are considering cutting back on subsidies for renewables, he said, but, he added, if they do this, they should keep in mind that these young industries will be hit hard. In other words, without saying so explicitly, he made an implicit plea not to cut subsidies for renewable energy too much.

He also said that the decisions made in places like Beijing and Moscow will have as much impact on people in Europe as the decisions made in Europe itself. About the debate in Europe on whether to cut CO2-emissions by 20% or 30%, Birol said: the difference is equal to two weeks of CO2 emissions in China!

He noted that Australia will overtake Qatar in ten years as the largest LNG exporter in the world. Coal he called the forgotten fuel: he pointed out that the growth of coal was equivalent to the growth of all other forms of energy in the first decade of the 21st Century. And he noted that in Europe there is very little discussion about oil import dependency - whereas Europe will be much more dependent on imported oil than the US.