World Energy Outlook 2011

Carnegie’s Energy and Climate Program hosted the U.S. launch of the World Energy Outlook 2011, the flagship annual report of the International Energy Agency (IEA). Maria van der Hoeven, IEA executive director, Fatih Birol, the IEA’s chief economist who oversees the World Energy Outlook, and Daniel Poneman, U.S. deputy secretary of energy, discussed the key findings of the report and its projections. Carnegie Endowment’s President Jessica Mathews opened the conversation, and Carnegie’s Adnan Vatansever moderated.

Troubling Trends and Increasing Costs of Inaction

The World Energy Outlook 2011 provides insight into global energy markets and trends for today and the next 24 years. The report lays out the urgent need to combat climate change and the dire consequences of its refusal, said Mathews. Economic concerns have diverted attention from energy policy and limited the means of intervention, added both van der Hoeven and Birol.

Birol highlighted several worrying trends from the report:

• To ensure a low carbon future, there is still time to act, but the window of opportunity is closing.
• CO2 emissions rebounded to a record high in 2010.
• Energy efficiency of the global economy worsened for the second straight year.
• Spending on oil imports is near record highs.

The Climate Challenge

The world has a narrow window of opportunity where it can act before it risks locking itself on an unsustainable energy path, warned van der Hoeven.

• The Climate Challenge: It is projected that by 2035, CO2 emissions will exceed three-quarters of the total since 1900, and China’s per-capita emissions will match the average per capita emissions of the Organisation for Economic Co-operation and Development (OECD) countries.
   
• Future Emissions: Emissions from existing infrastructure already amounts to 80 percent of “allowed” emissions, if the world is to keep global temperatures from rising beyond 2 degrees (Celsius) by 2050. Without further action, by 2017, existing power plants, factories, buildings, and other infrastructure will have used up all the permitted emissions, making further development impossible without drastically raising the temperature. It is critical that the global energy use become more efficient and less carbon-intensive, stressed van der Hoeven.

Global Energy Demand

• Emerging Economies: Global energy demand is projected to increase by one-third from 2010 to 2035, with China and India accounting for about half of the growth, said Birol. In comparison, OECD countries' contribution to energy demand growth is almost negligible. This means that decisions made in New Delhi and Beijing will have implications for the rest of the world, making it critical to engage with these countries, he added.
   
• Coal: Coal accounted for nearly half the increase in global energy use over the past decade, with most of the growth coming from the power sector in emerging economies, Birol said.
   
• Nuclear Energy: In the wake of the nuclear disaster at Japan’s nuclear power plants in Fukishima, the international community is having second thoughts on increasing reliance on nuclear energy. The gap from nuclear power will be filled by renewables, coal, and natural gas, which means that CO2 emissions will increase, said Birol.

The Oil Market

• Soaring Car Ownership: Car ownership is predicted to reach 1.7 billion in 2035, increasing global oil demand, with most of that growth occurring in non-OECD countries. This makes non-OECD policies key to managing global oil demand, Birol said, although he added that even with such growth, China’s car ownership rate will be less than half of the rate in the United States.
   
• U.S. Oil Imports Decline: More stringent vehicle fuel efficiency standards and expanding domestic production are predicted to cause U.S. oil imports to fall to about 6 million barrels per day in 2035, Birol said.
   
• Changing Oil Import Patterns and Oil Security: EU oil imports are expected overtake U.S. imports by 2015, Birol added, and China is on track to become the world’s largest oil importer around 2020. In the case of the United States, dependence on imported oil will decline, stated van der Hoeven.
   
• Investment in Middle East and North Africa: The countries of the Middle East and North Africa are set to supply the bulk of the growth in oil output through 2035, but increased output will require investment of over $100 billion per year, Birol said.

Natural Gas and Renewable Energy

• Natural Gas and Renewable Resources: Together, renewable energy resources and natural gas will be able to meet almost two-thirds of the growth in energy demand over the next 24 years. Substantial government policies and subsidies will be needed in order to stimulate renewable energy, said Birol. In advice to governments, Birol suggested accounting for the long-term, because renewables are very important areas both to combat climate change and ensure energy-security.
   
• Prospects for Natural Gas: Unconventional natural gas will supply 40 percent of the 1.7 trillion cubic meters increase in global supply, but it is essential to establish best practices to mitigate the environmental challenges posed by accessing natural gas, said Birol.
   
• Low-carbon Technologies: Renewable energy sources are often capital-intensive. It can take a 60 percent higher investment to reap a 30 percent increase in energy generation, but Birol added that renewable energy sources can bring environmental benefits and have minimal fuel costs.
   
• Raising Subsidies for Renewable Energy: Stronger measures are needed to drive more efficient energy use and investment, stressed van der Hoeven. Renewable subsidies totaled $66 billion in 2010, compared with $409 billion for fossil fuels. They need to grow to $250 billion in 2035 as increasing energy demand will require constant improvements in renewable energy, said Birol.

A Focus on Russia

• Russia’s Potential for Energy Savings: Russia needs to use less energy domestically, Birol said. Russia’s total energy savings potential is close to the primary energy used in a year by the UK. While new efficiency policies enacted by Moscow will show results, the savings potential remains large even in 2035.
   
• A Cornerstone of the Global Energy Economy: An increasing share of Russian exports will go east to Asia, providing Russia with diversity of markets and revenues, Birol added.