Defining the Future: Time to Get Real
The global energy environment is increasing in complexity and uncertainty. We are in a much more challenging world than previously envisaged. The World Energy Council’s (WEC) analysis has exposed a number of myths that have influenced our understanding of the global energy landscape:
■ Myth 1: Global energy demand will flatten out. Reality: Energy demand will continue to increase and double by 2050.
■ Myth 2: Peak oil. Reality: There is no shortage in sight for fossil fuel resources.
■ Myth 3: Demand growth will be fully met by new clean energy sources. Reality: According to our scenarios, the contribution of fossil fuels to global energy demand is still growing in absolute terms.
■ Myth 4: We can reduce global greenhouse gas (GHG) emissions by 50% by 2050. Reality: Even in the best case we will see a near doubling of GHG emissions compared to 1990 levels.
■ Myth 5: Current business models and markets are delivering. Reality: Current designs are unable to cope with the increasing renewable shares, decentralized systems, or growing information architecture.
■ Myth 6: Current programs will deliver universal access to energy within the next 10 to 15 years. Reality: WEC’s analysis shows that on current paths, between 320 million and 530 million people will still be without electricity in 2050.
■ Myth 7: On a global scale capital is cheap and abundant. Reality: Capital is extremely sensitive to perceived political and regulatory risks. Moreover, due to the growing pressures on public finances in most countries, public funds will not be available to augment private energy financing.
Our studies reveal that current pathways fall short of delivering on the global aspirations of energy access, energy security, and environmental sustainability—the three pillars for balancing the “energy trilemma.”
Busting these myths helps set us on the right path toward agreeing on the actions for the future we need.
Defining the Future
Energy leaders in both the public and private sectors need to make inspired decisions. Action is needed now. Energy leaders agree on many of the actions necessary, but significantly, they are not aligned on the nature, value, and importance of political and institutional risks and their critical impact on investment. Here’s a brief look at the mismatch and how we can secure the future we need.
We are looking in the wrong place. The focus of current thinking about the energy system is biased and inadequate.The focus must shift from the supply mix to demand efficiency. We need more demand-side investments, innovation, incentives, and stronger technical standards to reduce energy intensity. Price controls, subsidies, trade barriers, and absolute targets for individual technologies distort the market and can have unintended consequences, so policymakers must only use them sparingly.
In order to attract the needed investment, national policy and regulatory frameworks have to be balanced. The “energy trilemma” provides a solid framework for every country to assess its own political risk and work towards balanced, predictable, and stable policy and institutional frameworks. There is little agreement between investors and governments on the nature, price, and value of risks. Without an understanding about risks, investment will not flow.
We need significant investments in research, development, and demonstration. We urgently need to realize the potential of breakthrough technologies such as electricity storage and carbon capture, use, and storage (CCUS). WEC analysis shows that the 450 parts per million CO2 goal cannot be achieved without CCUS. It is essential that there are clear and unambiguous policy and institutional frameworks to support investment in this technology.
The energy map is changing, and our institutions need to change to keep pace with developments. The center of gravity in energy has moved outside Organisation for Economic Co-operation and Development countries—and so have interactions between countries and regions. Existing multilateral and plurilateral energy institutions need to reflect these changes, be more inclusive and responsive, or risk becoming obsolete.
To ensure universal access to energy, we need to de-risk and support entrepreneurial approaches. The WEC recognizes the need for urgent additional action and supports the objectives of the UN Secretary General’s Sustainable Energy for All initiative. The WEC further supports the inclusion of universal energy access as a key and distinct element in the post-2015 Millennium Development Goals. However, we caution that without supporting mechanisms and suitable funding, this goal will be extremely difficult to achieve.
It’s no longer just about mitigation. Risks from the energy/water nexus, extreme weather events, or cyber attacks (to name but a few) expose our energy infrastructure to potential disasters. We need to urgently adapt, rethink, and redefine the resilience for energy infrastructure.
Action Is Needed Now
How we can tackle these issues to secure tomorrow’s energy today was on top of the discussion agenda in October at the World Energy Congress, the World Energy Council’s flagship triennial event. There, energy leaders—ministers, company chief executives, and key decision-makers—were in agreement that if we are to derive the full economic and social benefits from energy resources, we must take incisive and urgent action to modify our approach to energy solutions.
It’s time to get real in defining our future. ■
— Christoph Frei, secretary general, World Energy Council, www.worldenergy.org, @WECouncil