When the normally conservative International Energy Agency agrees with both the middle of the road IPCC and more … progressive voices like mine, it should be time for the world to get very serious, very fast on the clean energy transition. But when the media blows the story, the public and policymakers may miss the key messages of the stunning new IEA report, “Energy Technology Perspectives, 2008” (executive summary here).
You may not have paid much attention to this new report once you saw the media’s favorite headline for it: “$45 trillion needed to combat warming.” That would be too bad, because the real news from the global energy agency is
- Failing to act very quickly to transform the planet’s energy system puts us on a path to catastrophic outcomes.
- The investment required is “an average of some 1.1 percent of global GDP each year from now until 2050. This expenditure reflects a re-direction of economic activity and employment, and not necessarily a reduction of GDP.” In fact, this investment partly pays for itself in reduced energy costs alone (not even counting the pollution reduction benefits)!
- The world is on the brink of a renewables (and efficiency) revolution. Click figure to enlarge:
I do feel vindicated that the IEA’s 450 ppm “solution” is quite similar to the one I proposed, though I do have some differences with them — they think hydrogen cars are part of the answer!
“Radical and urgent” change needed to avoid catastrophe
Probably the biggest difference between the IEA and the U.S. Energy Information Administration is that the EIA lives in a fantasy world where oil production can continue growing forever and greenhouse gas emissions are not something an energy agency needs to factor into planning. The IEA, however, lives in the real world, as its new report makes painfully clear:
Unsustainable pressure on natural resources and on the environment is inevitable if energy demand is not de-coupled from economic growth and fossil fuel demand reduced.
The situation is getting worse … Baseline scenario foreshadow a 70 percent increase in oil demand by 2050 and a 130 percent rise in CO2 emissions … a rise in CO2 emissions of such magnitude could raise global average temperatures by 6 degrees C (eventual stabilisation level), perhaps more. The consequences would be significant change in all aspects of life and irreversible change in the natural environment.
In short, business as usual energy policy leads to atmospheric CO2 concentrations of 1000 parts per million or more, and that is the end of life as we know it on this planet (see here).
The solution looks expensive but isn’t
Where the media really blew the story is the cost. Yes, $45 trillion sounds like an unimaginably large amount of money, but spread over more than four decades and compared to the world’s total wealth during that time, it is literally a drop in the bucket — 1.1 percent, or one part in 90 of the world’s total wealth. Indeed, the IEA notes that one reason the dollar value of the investment is so high is “in part due to the declining value of the dollar.” [Note to self: How diabolical of President Bush — by weakening our economy he has increased the total dollar cost of action on climate, thus encouraging inaction!]
And while the additional investments seem high, “they do not represent net costs.” They are not a pure negative hit to global GDP. That’s because “technology investments in energy efficiency” and many low-carbon power sources “reduce fuel requirements.” In all the scenarios the IEA considers …
… the estimated total undiscounted fuel cost savings for coal, oil and gas over the period to 2050 are greater than the additional investment required (valuing these fuels at Baseline prices). If we discount at 3 percent, fuel savings exceed additional investment needs in the ACT Map scenario [in which CO2 emissions in 2050 only return to 2005 levels].
Also, the IEA scenarios “show a more balanced outlook for oil markets.” Indeed in the BLUE Map scenario [hey, don’t blame me, I didn’t come up with these names], where CO2 emissions in 2050 go to half 2005 levels, we get “oil demand actually 27 percent less than today in 2050.“
So what exactly is the net GDP reduction of the BLUE Map (450 ppm) scenario? The IEA doesn’t say, but given how close their analysis matches the IPCC’s, it would seem quite reasonable to concluded it is of the same order of magnitude as the IPCC’s — 0.1 percent of GDP per year or less (see here).
And, again, that does not include the enormous value to the planet of avoiding catastrophic — 6 degrees C — warming, or the value of reducing urban air pollution, such as smog and particulates, or the value of starting to get us off our oil addiction before peak oil drives prices to economically ruinous levels.
The price is wrong
Finally, you may have read that the IEA’s price of CO2 needed to get a 50 percent cut in global emissions by 2050 is $200 a ton up to even a startling $500 a ton (see Pielke here or WSJ here). In fact, those are both the cost at the margin for the final few billion tons of CO2, and the $500 figure assumes “technology pessimism” (and, I’ll argue, has other flaws). The key point is that …
… the average cost of the technologies needed for BLUE Map is much lower than the marginal, in the range of USD 38 to USD 117 per tonne of CO2 saved.
That’s right, if the aggressive technology strategy turns out more successful than not, the average price of CO2 emissions reductions might be as low as $38/ton of CO2 in the 450 ppm case.
Although the IEA report is a very detailed analysis by some of the best energy experts and energy economists working on the issue — and although their analysis and conclusions are quite similar to mine — I don’t agree completely with their proposed solution and hence its likely cost, especially from a CO2/ton perspective.
What exactly is the IEA’s solution, and why is it a tad off? That will be the subject of Part II.
[Note to Marketwatch: You write, “A whopping $45 trillion investment would be required to reduce the world’s carbon dioxide emissions by 50 percent by the year 2030, the International Energy Agency said in a study released Friday.” That would be 2050, not 2030.]