We Need an Eclectic Approach to the Energy Transition
Detail of an Eclectic house in Bucharest, Romania, a combination between Neoclassical architecture and Romanian Revival. Photo by Britchi Mirela - Own work, CC BY-SA 3.0 ro, https://commons.wikimedia.org/w/index.php?curid=35319880
Rather than worrying about bias and conspiracy, we should lock onto two key insights from IEA’s 2019 WEO. Existing and stated policy is insufficient to tackle climate change and provide affordable energy to growing economies. Instead, we need to experiment with new technologies and improve old ones, adapt business models and integrate energy systems to meet the energy transition challenge with an eclectic approach. Beneath the headlines of the EIB’s stopping funding of fossil fuel projects, there is an eclectic and mindful energy lending policy to catalyze the energy transition in Europe.
The world’s energy mix is changing quickly, but not quickly enough
This week there has been quite a lot of coverage of several significant events in the energy transition. In this blog I’d like to make a few points about the International Energy Association’s 2019 World Energy Outlook (WEO) which was published this week. The WEO has been the object of controversy in the past. I’ve seen all sorts of reactions from continued accusations of being cheerleaders for oil and gas through systematic under forecasters of solar growth, to “told you so” comments about why oil and gas are never going to be replaced.
The three scenarios from the 2019 World Energy Outlook.
A transformation in our approach is required
I prefer to try to take most organizations and people at face value and assume "good intent”. In the case of the International Energy Agency (IEA), I take their reports at face value and assume they are indeed trying to fulfill their purpose of illustrating to governments what their policies are going to cause happen. Hence, the two scenarios on the left and center of the picture above for current policy and new policy stated to be being considered or coming into effect, demonstrate that our current trajectory is insufficient to meet the dual challenge of reducing GHG emissions and providing affordable energy to growing economies. Rather than debating the intentions of the IEA in developing these scenarios to suggest that they are creating a self-fulfilling prophecy that enables further development of fossil fuels, I instead pay more attention to the profile of the right, the Sustainable Development scenario. The IEA offers this scenario as one that achieves the objective of keeping global temperature rise to less than 2°C and provides affordable energy for economic development. The disparity between the right hand profile with the two others illustrates the enormous transformation required to meet the challenge and the critical component of drastically reducing demand - doing more for less energy.
The plethora of actions needed to deliver a sustainable development of the world (Source: IEA, 2019 WEO)
IEA also has published a very interesting chart to supplement the Sustainable Development scenario and is illustrated above. Note the long list of action areas that can take a chunk out of CO2 emissions. A wide range of technologies, used in multiple sectors and in a variety of ways. The most important aspect for me of this transformation is labeled “Efficiency”. The model depicts declining emissions in a world that is growing. To do this, we must actually reverse the demand for energy by becoming ever more efficient in using energy. Technologies to aid efficiency have been around for a long time and new technologies are coming. Efficiency improvement, large and small, can be made in all the aspects of civilization for which we need energy - and that’s just about everything! This includes the basics of our food chain, our homes, methods of heating and cooling, and our transport to and from work. The products we buy to cloth ourselves, to communicate to enjoy can be manufactured more efficiently. Note that is consumer products take less energy to make, they are likely to be cheaper and thus more desirable. This is important for a healthy economy.
The continued growth of renewables in the energy mix is depicted in the Sustainable Development scenario, coupled with the decline in oil and particularly coal. Natural gas seems to hold flat. This seems to me a pragmatic forecast of what renewables can actually achieve as a lower intensity energy source replacing a higher one. Nevertheless, the role of fossil fuels in the scenario of declining emissions is only made possible through the “decarbonization of hydrocarbons”. Hence wedges of emissions reduction are assigned to fuel switch, including hydrogen and Carbon Capture Utilization and Storage (CCUS) in both power and industry sectors. Electric vehicles are noted, because even when the charging electricity is generated from coal, an EV is more efficient in converting that energy into miles than a gasoline equivalent vehicle. My interpretation of “resource efficiency” in the chart above is the need to use less energy, and emit less carbon in extracting the natural resources from the earth we need for this economy, including raw materials and fossil fuels.
The IEA have even stipulated an emissions reduction wedge to do with “behavior change”. As I outlined in “The Energy Transition is an Adaptive Challenge”, I believe that change in underlying attitudes and culture, which are the subjective underpinning of behaviors, need to profoundly change for most any of the parts of this scenario to unfold.
A new eclecticism
On the back of the publication of the 2019 WEO, IEA Executive Director Fatih Birol posted in LinkedIn this week calling for a “grand coalition to tackle climate change”. It seems to me that we do need that, but far more. International agreements on climate change have yet to make a tangible difference to emissions. Indeed some, like Gail Tverberg, argue that policy makers have actually had an effect opposite to the stated intent, and the only way to reduce emissions is to drive economies into recession and collapse. I prefer to retain hope that we collectively meet the challenge through sustainable economic development energized by a range of lower carbon and affordable fuels and catalyzed by policies to stimulate this growth and businesses delivering products that continue to make people’s live’s better. With respect to the energy transition, we need an eclectic approach that surely invents new technologies, designs, and business models, but takes and integrates aspects from our energy past to create a powerful design and plan to deliver the transition. Policy makers need to be thoughtful on the interaction of measures they make.
The main blocks of intent of the EIB’s Energy Lending Policy
The European Investment Bank (EIB) also make headlines this week, those headlines focused on the bank’s pledge to stop funding fossil fuel projects from 2020. These headlines certainly vibrated the two end members of the energy debate, in a similar way to the IEA’s report. However, beneath the headlines the EIB’s Energy Lending Policy has a lot of eclecticism to admire. Rather than stopping all funding of fossil fuel projects, the policy itself is much more nuanced, using the word “unabated” and still allowing power generation projects to have 250g/kWh emissions (changed from the previous standard of 500g/kWh). These measures acknowledge the role of natural gas as a key fuel in existing energy systems, and as transitional option to phase out dirtier coal generation, but is leaning to catalyze CCUS and reducing emissions from natural gas generation by mixing renewable gas and hydrogen. Other policy components also make a lot of sense to an ambitious yet pragmatic approach to the energy transition. For example, the EIB acknowledges that some European Union member states will need more assistance than others. A focus on infrastructure is very sensible; the doubts raised by many about the ability of the existing infrastructure such as electricity to support increased load need to be addressed. Last, but by no means least the focus on new technological advances to improve efficiency and reduce carbon is critical to getting more for less in a new energy economy.
This weeks headlines have been exciting and hotly debated, sometimes with scorn. I prefer to take a hopeful and pragmatic view. The IEA’s Sustainable Development Scenario shows us how an ambitious and eclectic range of actions can deliver a reversal in the world’s emissions trajectory and sustain economic growth. EIB’s new energy lending policy demonstrates how investing institutions can catalyze the transformation. We need more of this leadership from policy makers, investors, businesses and consumers around the world.